Loss Aversion Strikes the Real Estate Market, and Hard

Many home owners interested in selling a house, condo, or apartment in these tough economic times often wonder if they’d be better off waiting a few months, or maybe a few years, to attempt to sell their property. The economy—they reason—will likely improve over time. And they imagine that they might be able to recoup more of their losses, or recover more of their initial investment, if they wait for the economy to pick back up a bit again.

But research suggests that these home owners would often be better off selling their homes as soon as possible. After all, it makes no rational sense to hold on to a piece of property that is draining you of a significant amount of time and money, and may actually continue to depreciate in value.

Research further suggest that most home owners hold onto bad investments far longer than they ought to, and this holding instinct can be chalked up to something known as “loss aversion.” Loss aversion is, according to researchers, entirely natural, but entirely unhelpful.

To make matters worse, behavioral scientists have also realized that people tend to place more value on items they own than is entirely appropriate, simply because they own them. That is, home owners often imagine the property they own to be worth more than they would be willing to pay for it if they did not already own it.

This bizarre logic plagues home owners of all income brackets and all intelligence levels. It’s unavoidable. But, it’s also entirely ignorable.

So, the next time you consider hanging onto a piece of property you’re currently losing money on, remember that, odds are, you’d be better off selling that property as soon as you could. You don’t want to become a victim of loss aversion, and you don’t want to hold on to that bad investment.

For more information about this topic, or for more Chicago based real estate news, check out the CondoDomain blog today!

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