Home Prices – Value Gap

Sometime back I wrote about why homeowners list their prices at higher prices than the comparable sales prices in their localized market.  I theorized it is due to endowment effect and ignoring opportunity costs. It appears now the list prices are starting to reflect the market rather than what the homeowners value. Here is a report on MarketPlace:

Chris Mayer tracks real estate at Columbia’s business school. He says reality is finally sinking in for home sellers.

CHRIS MAYER: There’s an initial loss and people are looking at this and saying, but God, I paid $400,000 for the house. I’m just not going to sell it at $300,000. And over time, people realize that $400,000 isn’t coming back and they adjust their expectations.

According to the report. quarter of all homes that are for sale have dropped in prices at least once.   Behavioral economists say, homeowners are going to feel pain every time  they drop prices that is comparable in magnitude to the pain felt with the first price drop.

What does it mean for those who have their house on the market? Emotionally,  it is better for them to calculate more accurately the required price drop and do it once rather than do it in steps.

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