Last week Zillow released the results of a survey they did on home selling which revealed that selling a home was the most stressful event that people deal with in their lives except for a relationship breakup. It beat out planning a wedding, getting fired, or becoming a parent. In fact, according to the survey 36% of home sellers cry at some point during the process, with 20% of those people crying 5 times or more. Even though we’re accustomed to seeing home sellers stressed out I never really imagined that a significant percentage of them were actually crying.
The press release was just a bit self serving in that it went on and on about all the reasons for stress – uncertainty over sales price or timing of sale, worrying that a deal might fall through, getting the home ready for sale, and trying to buy another home at the same time – and then ended with two paragraphs about Zillow’s Offers program. The program is presented as a solution to all those problems because Zillow will just swoop in and write you a check instead of you having to go through all the pain and anguish of selling. And of course all they want to do is make a fair profit – altruism at its finest.
Nevertheless, I’m sure the survey results are just as valid as if Zillow didn’t have skin in the game. I think a lot of home sellers’ reactions can be best understood in the context of the findings of research in behavioral economics. On numerous occasions I’ve written about how the endowment effect causes home sellers to place an irrationally high value on their homes – a significantly higher value than they would place on the same home if they were buying it instead of selling it.
Researchers were actually able to quantify this effect by testing two random groups of human guinea pigs. One group was given coffee mugs (an arbitrarily trivial item) and asked to sell them and the other group didn’t have any but was asked to buy them. The group that was given the mugs valued them at more than twice what they were valued by the people trying to buy them – i.e. owning something automatically makes it worth more to you. (I wonder if this helps keep marriages together?)
So if it works for coffee mugs it must also work for homes. We really do see this all the time when we talk to people about selling their home. Apparently home sellers all live in Lake Wobegon bec ause every one of their homes is above average. And we see it in the asymmetry with which people select realtors. They are much more deliberate in selecting someone to help them sell their home than to help them buy a home. They desperately want to believe that the right realtor is going to squeeze every last penny out of the sale and realtors prey on this belief to extract high commissions from them.
So it’s no wonder that home sellers are stressed to the point of tears. Not only do they need to get top dollar for their “coffee mug”, which happens to be a good chunk of their total net worth, but the buyers that are running around don’t think it’s worth as much as the sellers do. It’s a perfect storm.
The great thing about the Internet is that you can always find evidence somewhere to support whatever you say. A couple of paragraphs up I made a passing 1/2 joke about the endowment effect keeping marriages together. Sure enough some psychology professor at the University of Denver agrees with this idea: Well Endowed: The Endowment Effect
Gary Lucido is the President of Lucid Realty, the Chicago area’s full service real estate brokerage that offers home buyer rebates and discount commissions. If you want to keep up to date on the Chicago real estate market or get an insider’s view of the seamy underbelly of the real estate industry you can Subscribe to Getting Real by Email using the form below. Please be sure to verify your email address when you receive the verification notice.