I am fascinated with the topic of investor emotion, and the effect it has on lowering investment returns.
Applied to housing, I have come across the following comments. Homeowners are different than other types of investors. They would rather take their homes off the market, than accept an offer yielding a price lower than what their neighbor got last month.
This reluctance to sell explains why sales decrease prior to price declines. It takes months of slowing sales before prices are pressured to reduce. This is because the homeowner has a target price: an amount they need, or think they should get.
Emotion plays into it. A realtor can show a seller his home’s value, based on several comps. My friend did this last week with her sellers. She prepared an Excel spreadsheet, with indoor and outdoor pictures, list and sales prices of comps. She showed her sellers that the other houses also have granite counters, nice landscaping, pool, new roof/windows, remodeled bathrooms. Yet, the other houses are priced lower than the subject site. Yes, the sellers nod, but their house is unique because of x,y,z. No, my friend tells them, those houses have that too. Well, the sellers say, it makes sense what you say, but we’re keeping our price where it is. Someone will appreciate our house like we do, and offer the price we want. When this house came on the market, they were priced as the others, now they are higher than the current listings.
I feel like a scientist watching a social experiment. I know the outcome, so I am watching with fascination. Why don’t the sellers see what I see? Why can’t the realtor convince them?
Beware of letting emotion guide your investment decisions. Treat selling your house as you would the sale of any other asset. Take the emotion out!
I mostly appraise commercial properties, not residential properties. The two types of owners are indeed very different in their outlook and their level of sophistication. That only makes sense if you think about it. A home does fill certain functional needs (shelter), but then again so does a rental apartment; so that’s not it.
The difference is that a “home” also fills certain emotional needs, too. You know the bombastic Mercedes commercials where the current tagline is “around here, you have to LOVE what you drive”? What they’re really saying is “around here you ARE what you drive”. The same is also true when it comes to homes. There are a lot of people who define themselves by what their occupation is, what kind of car they drive, and what kind of home/where they live; and not necessarily in that order. I don’t mean that as some sort of criticism because emotional needs are a part of life too. I’m just sticking it out there as an explanation why residential real estate is not generally considered to be just another asset.
Telling someone their home isn’t worth as much as they think is exactly like telling them that THEY aren’t worth what they think. They aren’t as smart as they think they are and they don’t have as much social standing as they thought they had.
People often take that kind of information very poorly. I have often seen that wounded expression on their face, as if I’d punched them in the stomach.
In my opinion the ride down is going to be as traumatic emotionally as well as financially for those people who are forced to actually take the trip.
That makes sense. There’s a house on Country Creek Drive in Poway, that is being auctioned on the Courthouse steps next week. The sellers just couldn’t bear to lower the price to a good selling point. It’s been on the market for many months. (For some reason, it’s not showing up on ZipRealty, so I can’t give more info on DOM, # of reductions.)
In their emotionally twisted souls, foreclosure was better than “giving it away”, aka selling at market price. What fools we people can be…
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