Real Estate Market
The exact same phenomenon one can experiment with a wide range of products , whether they are long-lived assets or valuables or simple tools in common use. The fundamental endowment effect remains the distorted perception of the good possessed to the point of fixing a value much higher than what the seller would be willing to shell out to buy it.
The effect of sunk costs
Human nature often leads to decisions to maintain a proper attitude on the basis of costs already incurred irrecoverable but regardless of the additional costs and benefits that may arise . And ' as if to insist in their choices , often without taking into account the changed context , is a way to give more value to the efforts and costs incurred . One of the classic examples is given by the obstinacy to repair an old car for which you have already spent a great deal in the past when you are perfectly able to buy a new one and enjoy the resulting benefits. In other words aversion to losses already incurred often leads us to insist on the same street in an attempt to make sense of the costs.
The examples of the two effects could continue with a wide range of educational situations , funny or clever , both in everyday life and in extraordinary events and for those who want to explore the theme the web offers several interesting opportunities . Returning to our little world of real estate , however, we are now able to offer some thoughts to be put in relation to the performance of transactions and prices , as we mentioned at the beginning.
The element that irrepressibly from the two effects is that sort of detachment syndrome with the real context : the subjects into both phenomena owners ( potential sellers) do not take into account the changed scenario conditions and in spite of the application of simple logic principles of cost / benefit ratio inexplicably ignore the signals from the market.
There seems to be a exaggerated interpretation ?
Did you happen to watch a scene in which the seller of a property used and dated in front of the newly-formed or upcoming availability of houses under construction equivalent or better in the immediate vicinity of its upward adjustments the sale price because " the new batch increases the value of the brick in the area " ? Logic would dictate that in the face of new competition hasten to offer competitive prices BEFORE that prospective buyers can get their hands on more modern buildings and instead often triggered the mechanism of the envelope and try in vain to sell at a price that never he never would consider as a buyer.
How do you tell ? There comes to mind the Expo ? Well ... who knows ... we'll see ...
Or another classic case is found in the major renovation where the owner has shouldered a heavy series of interventions , sometimes it took a few more unexpected , to renew and improve the house to the sound of money, time and effort. The conjunction of the costs of purchase, costs of restoration and modernization ( and maybe even some whimsical customization) often brings the total disbursement to hypothesize price offered for sale completely divorced from the potential of both the type of property is the micro- area . Also in this case the effect sunk costs acts in such a way as to prevent the seller to look just fine with the cold eyes of a buyer or also with the eyes of a competent professional evaluator .
The result? Years of waiting for the appearance of the legendary lovers who admirers , thanks to the strong myopia and a bulging wallet , become the prey of an irresistible rapture from compulsive buying
In fact the effects of endowment effects and sunk costs are filled squares in Italy and also the pages of comics and sale of real estate sites . Just scroll to the event listings to find systematically the same compelling reasons that should entice you to purchase at a higher price , such as the unique sea view ( in an area with almost 7500 kilometers of coastline ) or close to the center (with more than nine thousand common ) or brightness ( we were not even to the Arctic Circle ) or the clever use of space , etc. ...
All the reasons that inevitably reveal the effort to direct the gaze of the buyer to those features that actually lie mostly at the bottom of the meanderings of the mind of the seller who sees his house for sale silhouetted well as a suspension in a scene out of focus without competitors around . If they tried them seriously even if only for a moment to play the role of those looking to buy maybe would stop wearing seductive clothes Barker and would focus on the main factor in the collapse of the Italian real estate market : the enormous discrepancy between sales prices and real power (and will) purchase of ordinary people.
In a rapidly growing market expect a most auspicious occasion of sale is a slight risk that may merit a brief and patient waiting , but in periods of stagnation or worse than the current crisis as the prices do not adjust quickly and take advantage of the offers increasingly thinned is a luxury that you can afford less and less.
How often said my dear friend Housecrash "When waste from a seller to offer a price lower than is required at the time as if I had bought back the house at the price offered ."