When I first started this blog I wrote a blog entry about "home ego-nomics". I thought I had coined the phrase "egonomics". I was wrong. Somebody beat me to the keyboard. The URBAN DICTIONARY has several definitions for "egonomics" including two I like:
(1) "1. the logic used to justify ones actions for personal gain 2. the art of being self-centered 3. the actions and attitudes one takes to appear better than others, that to the outside observer, shows he/she is a real jerk."
(2) "The study of the (often inverse) relationship between the size of a persons ego and their true worth to society."I would define home egonomics as the rationale a potential home seller employs to value his real property inversely to its worth as seen by a rational buyer.
An article in The Washington Post in 2006 discussed the role of emotions in buying and selling real estate. People think they make calculated decisions when buying or selling a house, but research shows that emotions play as big a role as intellect. Research economists formerly believed that people made important economic decisions like robots by applying simple logic. But research over the past 20 years has shown otherwise.
The article went on to discuss the role of “loss aversion” -– the concept that people deny reality as it applies to something they greatly value when it declines in value, such as stock. They tend to hope that if they wait long enough that the value will return and that the loss they would incur will in fact never happen.
Several months ago I had a discussion with a listing agent in my office about her listing. The agent said of her seller "He does not want to lose any money." Well, tough toenails. Nobody wants to lose money. Sometimes people lose money in real estate. If that same seller had a margin call on his account at Merrill Lynch do you think the Merrill account executive (they have such cute titles) would care--for a minute? Hardly. If the seller wouldn't authorize the trade to cover the margin call, the firm would do it for him. No intellectual or emotional discussion would alter the business decision that the time to sell is when a loss is imminent. Yet that same "seller" would argue with his Realtor over pricing and marketing of his very special piece of real estate.
Most sellers want to avoid selling at a loss even though it might (probably or certainly) reduce a greater loss in the future. Sellers like this dig their heels in and refuse to accept the fact that their real estate investment is not worth as much to the rest of the world as it is to them. I have two recent deals I that worked on that demonstrate this.
One potential seller has a very nice property in a planned community in Key West listed for sale at an asking price that is about $300,000 higher than the most recent sale in the same community. The seller believes his property is superior to the other units that sold because of its additional lot size, landscaping, and interior decorating treatments. My buyer is a sophisticated purchaser who knows the price of sold units on a per square foot basis. (We looked at them when they were for sale.) All of the units were built at the same time by the same developer. This seller's unit is slightly larger and has additional outdoor living area (primarily garden space) than the recent sold units. I personally think the seller's interiors are dated and amateurish (sponged walls!). I think the seller and his agent are both nuts if they think a piece of dirt is worth a $300,000 premium to any buyer. Nobody has made an offer on this seller's property even though it has been listed for sale for nearly a year.
I told the listing agent that I have a cash buyer for the property. I said I think the property is over-priced. I said it would be helpful to the seller to have the property appraised by an independent appraiser to help the seller understand the property's real present value as opposed to the perceived value etched in the seller's mind. I said the little plot of land is not worth the amount the seller thinks. I said a non cash buyer would need to get a mortgage to buy this property and that a new lender will not lend more money than the property is worth. The agent was not "buying" my suggestion. The agent asked me "What will your buyer pay for the property?" I gave an approximate price. The agent said "Seller would never sell for that!" I countered that the price I gave was probably what the property would appraise at and that the seller needs to hear from a disinterested third party as to value the extra plot of ground. I know that Realtors prepare CMA's all the time to help their principals understand the value of their real estate. In these problematic times, I think a disinterested third party appraisal is a superior tool for a listing agent to use in setting the asking price, marketing the property by referencing the appraised value, and in negotiating a successful contract. I think both a buyer and seller would benefit from such an appraisal.
Another owner has a very lovely home in a good location that has been on the market on and off for several years. Several different agents have listed this property over the years. The seller recently reduced the asking price by over $200,000. In about a week's time after the price reduction, I produced a buyer that made an offer just below the reduced asking price. The seller balked. He then refused to sell. A week later he raised the asking price by more than $100,000. I think the original price reduction achieved exactly the result the seller wanted-he got an offer on his property. The property, as nice as it was, was over-priced. It did not sell in the go-go years. It surely would not sell in the no-no years without a price adjustment. The price on the property went up and the buyer went away.
The Washington Post article referenced above included this passage:
“These studies have illuminated a few key concepts: Many people will pass up sure profits for illusory ones. Some will turn down profits if they believe someone else is unfairly profiting more. Some will even refuse to sell if they believe they may come to regret it, because fear of future regret can be as powerful a motivator as money in the pocket today....People will cling to prices they recall from a brighter day, even when market conditions have changed; they will walk away from a sale if they feel the buyer is getting too good a deal at their expense; and they are terrified that [if they sell now] the market will rebound and they will feel like fools.”The article posited that most people make rational dollars and cents decisions when buying routine items such as milk and eggs, but let their emotions get involved in potentially life-changing decisions such as buying or selling a home. And "sellers" that establish asking prices and market strategies that inversely value their real property to its worth as seen by a rational buyer probably will not sell after all. Ain't that the truth!
I am a buyer's agent. If you are look to purchase a place in Key West, please consider working with me, Gary Thomas, 305-766-2642. I am a full time Realtor at Preferred Properties Coastal Realty, Inc. in Key West. Not all seller are home egomaniacs. Just some. Let me help you find your place in Paradise.