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June 06, 2009

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Wow . . . must have been a slow news day.

Too harsh FMF. Not all personal finance pieces contain practical information. It reminds me of this financial website I read all the time that often posts things like "How to become Wealthy" and, while hoping to get a practical tip I hadn't heard before, ends up telling me to just spend less than I earn. I guess I could say, duh!, why don't I just spend nothing. But, instead, I take it for the lesson it is, realize we often need to be reminded that personal finance, though hard, is simple, their are no hidden shortcuts.

I've seen so many stories of people in trouble because they've bought a home and "can't sell" their second for a year. Taking someone's advice, they then lower the price an amount (usually less than their carrying cost on the old home has been) and it sells right away, after a whole year of taking care of two homes, missing bills, not sleeping at night, destroying their credit. I'm certain they knew lowering the price would speed up the sell beforehand, they just need the hammer over the head (especially to get over the mental hump of taking a loss or the real hump of selling for less than the mortgage) that the main key is the price, not what color the walls are painted, what realtor you use, or curb appeal.

I've got another secret:

Be desperate to sell. My husband and I are buying a home from a recently married man. He's selling his home, the new wife is selling hers, and they are already under contract for their new home.

With three mortgages looming, he was looking for anyone to buy. We got it for a lot less than asking price and it hadn't been on the market even a month.

I agree that the idea of pricing your home to sell is not exactly news flash stuff. However, you do get the sense sometimes that this never occurs to people trying to sell a home. People will complain and complain for months before becoming willing to lower the price. Some will never do it.

I think it tells us something interesting about how humans process information. We do so gradually, not all at once. If your home is worth x on Day One and on Day Two it is worth only 1/2 x, it will take at least six months for you to "believe" that. It doesn't matter how much evidence there is for the reality. It will take time for most humans to process the change.

It works this way with stocks too. A lot of people think the price crash is over. I do not. I think we may go up from here. But I think we are still in the process of letting in the acceptance of mistakes we made in earlier days. It may take five years for us to let all that information in. This explains why secular bear markets last so long. It would be nice to get the pain over with quickly. But we don't process new information that way. We take it in gradually and stretch out the pain.

Rob

I disagree with you 100% - For many people SADLY this is NEW and USEFUL information. Of course not for those of us that read your site!!!

Some people are deluded into thinking that they can sell their home for what they bought it for, or more. They need a little "wake up call" that if they really want to sell, they need to drop the price.

We are probably facing a relocation in the near future. If we sold today, we know that we will take a hit of about $150K. At the same time, we would expect to buy at a reduced price in another market for a similar home. We have already been looking at the other market and it is flooded with homes.

The point of this article is psychology. If potential buyers think the seller won't consider taking a loss then a choosy buyer may stall. If the perception is that the seller will consider taking a loss, then the buyer would feel unreasonable to negotiate them down more- at least this is one potential take on this case.

Mike

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