Dan Ariely, a noted professor on Behavior Economics and author of one of my favorite business books Predictably Irrational, has a new post on why homeowners think their house is immune to price drops while they are comfortable with other homes near them dropping.
It is a great read as he is one the most amazing minds in behavior economics.
I think that part of the story has to do with the changes and tinkering we do to your homes coupled with our inability to understand that the changes we have made to fit our own individual taste might be ones that others don’t see or don’t value.
When someone moves to a new house they often make changes to their homes, breaking a wall, changing the tile, fixing a bathroom, adding a porch etc. As a consequence of this process the house is now tailored to its particular owner with its unique individual taste. Now their house is great for that person.
When a home owner compares their own house (who has been tailored to their own taste) to a house that was sold for a low amount down the street they can easily reason why the price of that other house (the one not tailored to their own taste) was so low. After all that other house was just not as nice, not as great, not as suited to their taste. There was something in that other house that was just not right, and this must be the reason it did not sell well. Right?
Read the whole post at Predictably / Irrational
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I think it is a coping mechanism as well. Sellers know there house is not worth what they think. They always start out, "Well in 2006 it was worth xxx".
We have to educate them that price is based on comparable sales.