Idaho Homeowners-I Feel Your Pain.

In visiting with potential home sellers it is always a challenge to have them recognize the realistic market value of their homes. With the recent massive declines we have seen in the value of Idaho homes, that job has become even more difficult. It is painful for many homeowners to come to the realization that their home is not worth what it once was, and not just finiacially painful but psychologically as well.

It is always interesting to me how the same person can not accept the value of the home they are selling but are quick to undervalue what they would like to buy.  I suppose it is in our natures to feel losses more severely than gains.

Results that support my feelings are found in a study that was done by economists David Genesove and Christopher Mayer as reported in SmartMoney.com.

"When a market goes south, as the housing market did recently, standard economics tell us that sellers should recalibrate their expectations and behavior, knowing they must sell for less.

Of course, this isn't how our brains work. Instead, we're susceptible to loss aversion, the mental quirk by which we feel losses much more sharply than we feel gains. Instead of setting the price of our property by what the market will bear, we set it by what we paid and what we think we "have to" get.

People who bought at or near the peak of the Boston condo boom listed their properties for around 35% more than others. Consequently, those overpriced properties sat on the market; fewer than 30% sold after 180 days. Another wrinkle: Owners who lived in the units showed about twice as much loss aversion as people who had bought them as investment properties. A home, it seems, makes us more irrational than a house.

It doesn't take a boom or bust to trigger this phenomenon: A more recent study says that homeowners consistently overestimate the value of their homes by 5% to 10%. The only cure for this seems to be buying a home during a slump; these buyers may underestimate their home's value.

Buyers getting in now, then, may be at a cognitive advantage for years to come. Boom buyers, meanwhile, must come to terms not only with economic losses but also psychological losses and regret."

Coming to terms with losses is not easy, but only after we do can we move on. So let's move on!