Friday’s post has generated a bit of buzz regarding seller’s expectations in softer real estate markets. Coincidentally, Austan Goolsbee wrote A Reality Check for Home Sellers for The New York Times this weekend. So why do seller’s often choose to ignore basic market indicators when selling property in a softening market? It’s a puzzle even for economists.
Classical economics can’t explain this behavior. That’s because people who refuse to sell their houses for less than they paid for them are violating a cardinal rule of the market: stuff is worth what it’s worth. It doesn’t matter what you paid for it. But when Professor Mayer and his co-author, David Genesove, a professor of economics at the Hebrew University in Jerusalem, studied the Boston condominium market in the 1990s — scene of one of the biggest real estate busts in recent American memory — the actual patterns of human behavior did not seem to follow the standard rules at all.
From 1989 to 1992, prices in Boston fell sharply, with condominium prices dropping as much as 40 percent. For a great many of those who bought condominiums during that period, selling could be done only at a significant loss. And, basically, many people refused to sell.
Certainly my anecdote from Friday was not meant to instill panic, nor do I believe that this is the intent of the New York Times piece. Having said that, it’s abundantly clear that those who want to sell in a soft or stagnant real estate market can’t ignore what’s going on around them. So for the seller that I wrote about on Friday who thinks he will sell for 20% more than the other 8 overpriced apartments in his building, pay attention to this:
What is to be done? Well, if you are holding out for an above-market price to recoup your losses, perhaps you would do well to hear the advice that Professor Mayer gives his own family members.
“If you want to sell your house then you list it at the market price and you sell it,” he said. “If you don’t really want to sell then don’t put it on the market. But don’t say you want to sell and then set the price so high that you spend the year cleaning up every morning, having people walk through your living room and look in your medicine cabinets and reject you. That’s just painful — and expensive.”
His research offers a simple lesson for everyone out there waiting for a high price to push them back into the black: Get real.
It’s quite simple. Pay attention to what is actually selling and going to contract and take note of the prices of property that remain on the market. If you don’t like what you see, evaluate whether or not you really want or need to sell.