{"id":93,"date":"2008-08-29T11:29:00","date_gmt":"2008-08-29T11:29:00","guid":{"rendered":"http:\/\/dankrell.com\/blog\/?p=93"},"modified":"2019-08-05T06:41:14","modified_gmt":"2019-08-05T10:41:14","slug":"why-do-people-act-irrationally-when-buying-and-selling-real-estate","status":"publish","type":"post","link":"https:\/\/dankrell.com\/blog\/2008\/08\/29\/why-do-people-act-irrationally-when-buying-and-selling-real-estate\/","title":{"rendered":"Irrational home sellers and buyers"},"content":{"rendered":"\n
\"Irrational
Irrational Home Sellers and Buyers (infographic from keepingcurrentmatters.com)<\/figcaption><\/figure><\/div>\n\n\n\n

Have you wondered why so many people rushed to purchase homes in the recent historic seller\u2019s market? Why have home buyers been scarce, even in a buyer\u2019s market? The man with the answers is Ori Brafman. Ori Brafman has an extensive background that includes organizational speaker and consultant, professor, and writer. His new book, co-written with psychologist Dr. Rom Brafman (his brother), is called Sway: The Irresistible Pull of Irrational Behavior (Doubleday, June 2008). The book is a culmination of research that explains what compels us to act irrationally. And may explain irrational home sellers and buyers.<\/p>\n\n\n\n

In a recent personal correspondence about irrational behavior in real estate, Ori offers these concepts to explain such seemingly overt irrational behaviors: loss aversion, \u201cgetting stuck in the past,\u201d and value attribution.<\/p>\n\n\n\n

Loss aversion, a concept described in Prospect Theory, describes why people focus on limiting their losses as opposed to seeking gains. Ori explains that loss aversion explains why home sellers have a hard time selling for less than their original purchase price, even when it means they could potentially lose more by waiting for the downward market to end. He explains that it is not only psychologically painful, but a shot to our ego.  This may explain irrational home sellers who wait for an unrealistic sale price<\/a>.<\/p>\n\n\n\n

This would explain why many irrational home sellers have had a difficult time adjusting list prices in the downward market. Even when a home seller will not realize a loss, they perceive a loss based on home values from a year ago. Based on this perceived loss, home sellers will list their homes for sale at higher than market prices. This fact was validated in a research study conducted David Genesove and Christopher Mayer entitled \u201cLoss Aversion And Seller Behavior: Evidence From The Housing Market\u201d (published in The Quarterly Journal of Economics, 11\/2001). This research used data from the Boston real estate market in the 1990\u2019s and serendipitously found that home sellers are unwilling to list and sell for a loss.<\/p>\n\n\n\n

Irrational home sellers and buyers can \u201cget stuck in the past,\u201d looking to buy or sell a home for a price they missed some time ago. Rather than pricing their home at a realistic price, many home sellers look to sell for a price they would have sold for a year or two ago. Additionally, this could explain why some home buyers constantly offer low ball prices for homes that have obvious higher values.<\/p>\n\n\n\n

Value attribution plays a large role in how home buyers view homes they may purchase. Ori explains that a home buyer might place less value on a home that is priced less than other neighborhood homes, \u201ceven when the home meets all of their criteria.\u201d When a home is priced \u201crationally,\u201d a home buyer might wonder, \u201cWhat\u2019s wrong with this house?\u201d Home buyers will go through the home and arbitrarily decide which features devalue the home.<\/p>\n\n\n\n

Together, these concepts might explain why home buyers have been scarce in this buyer\u2019s market. Many home buyers have placed less value in owning a home in a declining market, worrying about further market declines. Additionally, home buyers irrationally worry about unrealized losses, even when buying a home may be the rational thing to do.<\/p>\n\n\n\n

By Dan Krell
\u00a9 2008<\/p>\n\n\n\n

Original is published at https:\/\/dankrell.com\/blog\/2008\/08\/29\/why-do-people-act-irrationally-when-buying-and-selling-real-estate\/
This article is not intended to provide nor should it be relied upon for legal and financial advice. Copyright \u00a9 2008 Dan Krell. <\/p>\n","protected":false},"excerpt":{"rendered":"

Have you wondered why so many people rushed to purchase homes in the recent historic seller\u2019s market? Why have home buyers been scarce, even in a buyer\u2019s market? The man with the answers is Ori Brafman. Ori Brafman has an extensive background that includes organizational speaker and consultant, professor, and writer. His new book, co-written … <\/p>\n

Continue reading “Irrational home sellers and buyers”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[160,161,158,162,159],"tags":[516,636,511,633,1160,1161,878,635],"class_list":["post-93","post","type-post","status-publish","format-standard","hentry","category-home-buyer-behavior","category-home-seller-behavior","category-loss-aversion","category-swaythe-irresistible-pull-of-irrational-behavior","category-value-attribution","tag-buying-a-home","tag-cognitive-dissonance","tag-home-buying-process","tag-home-selling","tag-irrational-home-buyers","tag-irrational-home-sellers","tag-loss-aversion","tag-swaythe-irresistible-pull-of-irrational-behavi"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p1VZLf-1v","jetpack-related-posts":[],"jetpack_sharing_enabled":true,"jetpack_likes_enabled":true,"_links":{"self":[{"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/posts\/93","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/comments?post=93"}],"version-history":[{"count":8,"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/posts\/93\/revisions"}],"predecessor-version":[{"id":5450,"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/posts\/93\/revisions\/5450"}],"wp:attachment":[{"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/media?parent=93"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/categories?post=93"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dankrell.com\/blog\/wp-json\/wp\/v2\/tags?post=93"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}