The LA Times had an interesting article last week about the psychology of selling your home. Assume, the article says, that you bought your house for $250,000 ten years ago. You put it on the market now at $600,000; after a few weeks with no bites, you lower the asking price to $575,000, and then $550,000. Then an offer comes in at $520,000 and you pull the house off the market. Rational? Perhaps not. Common? For sure. The explanation, according to the article, comes down to “anchors”. If the seller’s anchor is the $600,000 asking price, he’s going to be disappointed and dissatisfied with $520,000. If his anchor is $250,000, he should be very pleased. The same psychology explains why people are more likely to sell winner stocks than losers when they need to raise cash, despite the fact that there’s often a good reason the losers are down. This way of thinking surely goes a long way to explaining why real estate markets take a long time to correct. In addition to buyers not wanting to catch a falling knife, sellers have a hard time coming to terms with the fact that their house is worth less than it was on paper a few months earlier.
The Pain of Selling Your House [LA Times]