On the Psychology of Sellers
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…
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]
by the way, apartments in Paris are relatively cheap by NYC standards… do your research!
Here’s my irrational story. I have a building and the developers sold the 4 bunk crap-o units to insiders. They were the worst units. All the other units were great and really well priced. The great units were priced the same as the crap units.
Guess what units all the buyers REALLY wanted? You got it! Those crap units. Seriously they went through the building and would always determine that THE BEST units were the ones under contract and they would be all a little heartbroken-ish about it. Like there is this magical word you can write next to a listing (“contractâ€) that effectively transforms the physical space from dark and awkward to unique and intimate.
Somebody else having something irrationally makes it more beautiful.. like your best friends girlfriend syndrome or something.
Huh?
How come when housing prices are falling in other parts of the country, “The rest of the country has nothing to do with Brooklyn” but when you want to say that NYC prices are cheap relative to Tokyo, London, etc., all of a sudden the comparison becomes apt? Hmmmmm?
New York Magazine’s recent article on who is buying new condos in Manhattan stated a certain amount of those buyers keeping that market healthy are people coming from those other International cities who see NYC as a relative bargain. Europe is learning more and more about Brooklyn, as news of Brooklyn real estate booms get headlines. So it will be interesting to see what happens. They’re certainly heading over the bridge to check Brooklyn out. We’ve had 4 European couples come see our Brooklyn condo that’s on the market.
Hang it up, Mateo. You’re beating a dead horse. If sellers have to/need to sell, they will lower their prices, eventually. If not, they will take the property off the market when buyers low-ball their offers. If buyers need to buy right away they will raise their offer or adjust their expectations.
I’m not sure what’s being argued here other than the fact that the Brooklyn market remains strong, for reasons unknown. Sure the psychology of buyers and sellers is important but this is nothing new. Rationality is often a missing component of a free market.
The article seemed short-sighted in my opinion. If you want to question the psychology of buyers and sellers why stop at real estate. Why not take a broader scope and examine the rampant consumerism within our society. These type of behaviors will not change until the leaders and experts become advocates of consumers spending wisely, and saving their money. We know that will never happen because the economy relies on people spending and spending and spending.
And as one poster suggested, prices here are a bargain in comparison to other cities like ‘London, Paris or Tokyo’. So even if American buyers hold back the reins and become wiser shoppers, there’s no telling whether their international counterparts will do the same.
“Not lowering prices in NYC is smart because the economy is booming. Sellers don’t lower prices because they feel that prices will eventually go higher. That’s not irrational; that’s smart.”
Firs
t, to deny that there could be a correction in the real estate market in a booming economy is just illogical – it’s clearly happening right now (although “booming economy” is a rather bullish statement on your part – we’re stagnant at best, and it’s looking more like it’s going to remain that way everyday, if not get worse – after all, what is it that we have for an economy? Real estate? Consumer spending?).
Sellers are not being smart. They are being illogical. If you need to sell now, you price your home for conditions NOW – not what they could be in 1, 2 or 10 years, and certainly not what you want them to be.
And by the way, Wall St. and real estate are not always connected – after all, the stock market tanked in 2000 just as the real estate market took off.
Mateo
I read the section that Brownstoner highlighted and my comments stand.
I have studied behavioral issues as they relate to finance for over 15 years. The major analysis is always why do people act irrationally. ie. why do people sell great stocks when they have a little profit in it and why do people hold on to terrible stocks when they have a loss in it.
The article attempts to investigate why sellers are slow to lower prices. The very question assumes that not lowering prices is irrational and not in the best interest of sellers.
I challenge that assertion. Not lowering prices in NYC is smart because the economy is booming. Sellers don’t lower prices because they feel that prices will eventually go higher. That’s not irrational; that’s smart.
The fact that L.A. is different than Brooklyn is also relevant because Brownstoner is not about L.A.; it’s about Brooklyn and NY. Perhaps sellers in L.A. have to deal with an economic downturn, but sellers in NYC sure don’t.
Torch,
Talk about simplistic. History is full of wealthy people who bought stocks. That does not mean that buying Enron stock in November 2001 was wise or was the purchase of Amazon stock in November 2000. The question is not whether acquiring assets is good: the question is whether it is good to acquire an overvalued one.
I bet you 20-to-1 that you didn’t read the article in its entirety and 3-to-1 that you didn’t even read the full except that Brownstoner pulled out. Because it has nothing to do with the LA vs. Brooklyn market.