It’s a fact of life : Homes come with far more emotional weight than any other investment we make.
Here’s a closer look at some psychological missteps that buyers and sellers often make as they wade into the housing market :
Ignoring the big picture
Homebuyers are always on the lookout for features – like a longer driveway or bigger backyard – that will make them happier with their home. But people don’t realize that those changes may not make them happier with their life as a whole. When people move to a better housing, they think that they will be a lot happier overall. When they actually move, their overall happiness does not often change because there are many trade-offs in moving. One of the biggest trade-offs is commuting. Many move to live in a bigger house, but that bigger house is often farther away from work – so that means more commuting, which tends to add stress and detract from overall happiness. It’s so easy to get caught up in comparing the physical features of the places you’re looking at, but you should really stop to consider how the places you’re considering will shape your social relationships.
Overlooking big expenses
People who are buying homes tend to compartmentalize their expenses and not add up the total cost of everything needed to fix up and furnish the house. That can lead them to make poor choices about how much to pay for a home. For instance, they may overspend on a down payment for the house itself and leave themselves without enough money to buy the sort of decorations or furniture that they want. When you’re getting a house, think about furnishing it at the same time.
Weighing buying vs. renting
The biggest budgeting concern is whether you should buy a house at all. Research shows there are psychological benefits to taking the plunge – but also to opting out. Buying a house can give people a psychological boost by making them feel like they’ve “arrived” and are a part of the American ideal. Homeowners may also feel as though they have more control over their lives since they’re not dependent on the whims of a fickle landlord. But while those factors may lead people into buying a house, there are other negative elements that homeowners don’t discover until after they’ve taken the plunge. Research has shown that homeownership can cause undue stress. The amount of work necessary to maintain a home – such as decorating, or mowing the lawn every weekend – may be too much for some people. Others may be overwhelmed by the financial aspect of ownership, such as being tied to a big monthly mortgage, or keeping up with repairs and other unforeseen costs.
Expecting a big return
When it comes to selling a home, most people aren’t in for a huge payday. Yet many are overly optimistic in their home price expectations. According to a recent survey, homebuyers have extremely high long-term expectations. That can lead people to buy homes that aren’t a good fit in terms of location or social scene just because they seem like good investments. Or they may stake their plans – such as retirement – on a certain return and find themselves scrambling when they come up short. On a larger scale, this over-optimism can lead to speculative booms that warp the market. While it isn’t clear why homeowners are usually so cheerful about the future, the researchers postulate it may result from the money illusion – a failure to take inflation into account.
Not wanting to come up short
People have many reasons for selling their homes, and for setting the prices they do. But research has found that the most powerful emotional drive at work in a sale is loss aversion – not wanting to sell a home for less than you paid for it. Researchers found that homeowners tend to latch on to the price they paid for their home with the hope that they can get more when they put it on the market. But that isn’t the best idea, especially if your house has depreciated in value. It’s a fallacy to assume that you’ll be able to recoup losses you’ve already incurred. The current market price has nothing to do with how much a person actually paid for it. There is a nuisance here, though. People who stubbornly stick to an asking price above market value risk selling their house at all. But sometimes they are rewarded.
