Moving house is stressful - and full of thinking traps...
It’s spring – a time when many people start thinking about moving house. And anyone who has ever bought or sold a home knows just what an emotional time it can be, with surveys placing it just below getting divorced on the stressful life events scale.
For a start, when it comes to negotiating the price, buyers and sellers often disagree about how much the house is actually worth.
For the seller, simply owning the house means they think it’s worth more than they would if buying the exact same house again, a phenomenon known as the endowment effect.
Hate to lose
Researchers have suggested that the seller experiences loss aversion – where we feel the pain of a loss more than an equivalent gain. We can justify “losing” something in our possession, if someone is willing to pay a premium for it.
Sellers who have spent all their free time painting walls and laying floors may be particularly unrealistic about the value of their homes. Dubbed the “Ikea effect”, it’s the tendency to be more enthusiastic about our own creations than others would be. Keen-DIYers build up “sweat equity” in their property and believe the price has risen accordingly with their efforts.
Buyers should also be wary of falling in love with a house that’s being sold by someone who bought at the top of the market. These vendors are more likely to hold out for a higher price than those who bought a comparable home when house prices were lower. No one wants to feel like they’ve made a bad investment, so those who bought high ask for more when they sell on. This psychological effect holds true even when the seller is mortgage-free and not requiring a high sale price for the deposit on their next home.
Of course, sellers may well find that person willing to pay top dollar for their property – but it can also mean their home languishes on the property market for months. One way they can try to secure a good price, though, is to use the concept of “anchoring”: people tend to rely heavily on an initial piece of information when making decisions. Listing the house for a high price would mean that when it comes to negotiations, buyers will have that figure in mind, and may potentially offer more than they would if it was listed for a lower figure.
And while you think about whether the grass on that new lawn really will be greener, find out which mortgage loan suits you best.
This article appeared originally in eZonomics. Read the original article here.