Who's right, buyers or sellers?

Washington Post, Saturday October 11, 2008
Where Fantasy Meets Reality, by Ylan Q. Mui

Richard’s Ramblings Note:
I’ll be paraphrasing this story, I recommend that you read it if the premise reflects your emotions on buying or selling. Any comment by me will be in italics.

“Maybe we can even get used to letting go of our castles and just living in a home, according to Harvard University psychologist Daniel Gilbert.

“People [buyers] have a preconceived notion that it’s [buying a house] like walking into a store and you’re going to see something and pick it out…” which isn’t realistic, according to Ruth Peters, a psychologist. “Sometimes, buyers can become so intent on getting a deal that they lose sight of the true goal: finding a home,” says Rom Brafman, a behavioral economist.

He said that, “Instead, house hunting is more like gambling. They begin to dismiss important questions such as how much house they can afford and whether the investment makes sense. Rather, they wonder: How do I know this is really the bottom?” “Buyers feel entitled to a deal and fret about finding the bottom of the curve” according to Mui. And Brafman says… “Buyers should take a long-tem view and not think of the housing market as a casino.”

According to the author, “The process [buying/selling a house] has become so emotional on both sides, that psychologists rank it on par with divorce and even death.” I don’t know that I agree with that from the buyer’s perspective, but it may be more true for some sellers.

For sellers, Mui says, “the first and often largest stumbling block is the price at which they list the house. Many recall what their homes could have sold for just three years ago. She says that sellers are becoming depressed as their homes sit on the market.”

“Sellers who insist on higher [list] prices for their homes generally take a month to shed the rose-colored glasses,” say Kathryn Higgins, a New York real estate agent with a master’s in psychology. They start wondering why more people haven’t stopped by their open houses and why the home is still sitting on the market….They tend to live in the past, not in the moment.” she says.

Our research at McEnearney Associates, Inc. shows that there is a definite relationship of days on the market (DOM) and eventual sales price. As of our most recent statistics show that (Sept. Stat pack) houses priced realistically near the most probable sales price receive 98% of list price in the first three weeks. Houses that are overpriced and sit on the market for more than 90 days sale at 11% less than the list price.

So what are buyers and sellers to do?

According to this article, buyers should use caution in not being too demanding because sellers aren’t just going to give the house away. Sellers should negotiate legitimate offers and understand that according to Gilbert, “…that we often believe the consequences will be worse than they are. We underestimate our ability to adapt.”

What are your experiences and thoughts?