The 5 mental obstacles that can make you lose the opportunity to sell your house

The behavior of real estate market can be explained very well using supply and demand. However, the individual behavior of real estate actors is deeply influenced by cognitive biases product of mental shortcuts that help simplify reality, but sometimes distort decision making.

A cognitive bias is a systematic pattern in our way of thinking.a product of the mechanisms with which the brain processes complex information. These shortcuts allow us to interpret the world quickly, but they also lead us to make mistakes. Personal experiences, culture, what we learned as children, our ties and the beliefs accumulated over time shape these biases, some of which manifest themselves with particular clarity in the dynamics of the real estate market.

Let’s look at some of the biases that are most frequently observed in the decision-making that moves the real estate market.

Loss aversion describes the human tendency to feel the pain of a loss more intensely than the satisfaction of obtaining an equivalent gain. Studies by psychologists Daniel Kahneman and Amos Tversky show that A loss hurts about twice as much as a gain of the same magnitude gratifies.. This tendency that we manifest in contexts of uncertainty is what leads us to focus more on what we can lose and not so much on the opportunities we can take advantage of.

In the real estate market, This bias explains why many owners prefer not to sell rather than accept a price perceived as low.even when the market has changed and with the money from the sale they can obtain, for example, a better performance in other alternatives. The fear of “losing out” against a past benchmark often leads to long delays, releases that do not match actual demand, and, paradoxically, higher costs over time.

Anchoring bias is one of the most frequent in the real estate market. It consists of giving excessive weight to the first available information when estimating a valuewhen negotiating, or for example, the price at which the property was initially acquired. What usually happens is that this “anchor” functions as the reference with which we measure losses or gains.

The original purchase price, a historical value of the neighborhood or even a suggested price without technical support, usually becomes emotional anchors. Although the market context has changed, that initial number conditions the perception of value and makes necessary adjustments difficult to complete a transaction without incorporating the current market situation into the analysis. It is very common for owners to cling to average values ​​per square meter based on reports from real estate portals. that are usually published regularly, numbers that arise from publication values ​​and that do not take into consideration closing prices or specific characteristics of their properties.

“I’m not going to give it away“is perhaps the phrase most repeated by owners when valuing their property for sale, where giving away means selling below the price at which it was acquired without perhaps thinking about the current profit from the sale. It is important to clarify that selling cheap would be selling below the market price; however, for the owner of the property in this case selling cheap is selling below your reference price.

The rental market is no stranger to this behavior. At the time of renting a property, the owner can anchor himself to a value that the market does not validaterejecting a good candidate who makes a logical, non-aggressive counteroffer. This behavior usually generates a vacancy that not only involves paying the maintenance costs while it remains empty (expenses, ABL and services per month) but also adds the opportunity cost of those months of vacancy in which it could have been rented at the counteroffer price. A calculation that is advisable to make before making a hasty decision.

The endowment or possession effect describes the tendency to assign greater value to a good simply by virtue of possessing it. In the real estate sector, the emotional attachment, the personal history associated with the home and the effort invested in its maintenance usually lead to an overvaluation with respect to its true market price.

The property becomes part of the owner’s identity, making it difficult to view it as a tradable asset. This gap between subjective value and market price is one of the main causes of frustration when selling.

It’s good distinguish between value and price to better understand the concept. The price is the number at which supply and demand meet and allows a sale to be closed with its respective closing price. Value, on the other hand, is a number that is assigned based on the perception of value that each person considers. for whatever reason. Closing a sale at the market price can be perceived as a great loss for those who assign a value higher than the closing value.

It is common to hear “my property is unique” and that is why it is not comparable with others on the market, when objectively there are similar alternatives available, especially in oversupplied markets. This perception reduces the willingness to accept the price that the market effectively validates. In any case, it is worth clarifying that If the seller does not have a better alternative for the money from the sale, it is quite logical that he would prefer not to part with the property..

He sunk cost is an economic concept that consists of an action or cost already incurred that cannot be recoveredregardless of future decisions that are made. As It is irreversible, should not influence in future decisions.

This behavior is very common in those cases where the seller has invested money in improvements or recycling their property and the market does not validate the asking price that includes that cost.

The sunk cost fallacy appears when A decision continues to be upheld only because a lot has already been invested in it. Instead of evaluating a sale for its future convenience, the owner places greater emphasis on what he has already invested: parts, expenses and time.

In real estate terms, this translates into phrases like “I can’t lower the price after everything I invested“. However, Those costs are already irrecoverable. and should not influence the current decision. Persisting in a counterproductive strategy usually worsens the loss instead of avoiding it, losing time and money in the process.

This trend can be observed in some businesses that rent premises on the street and make large capital investments at the beginning to start the business. In cases where billing is not enough to sustain costs, many continue to operate despite accumulating losses over time, focusing exclusively on the capital already invested.

He real estate market is moved by economic variables that are simple to evaluate and others not so much. It is crossed by human decisions, where Emotions play a fundamental role and they are part of that economic equation. Understanding these mechanisms not only allows us to explain why many operations are not completed, but also to provide advice that accompanies and improves the quality of the client’s decisions.