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Pride Will Prevent Housing Price Drops

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That’s right, homeowner pride will prevent the dropping of housing prices in all except the most sizzling of real estate markets (when those California prices drop, not even pride will stop that). That and “under the table” type deals, like assistance with closing costs and freebies thrown in with the house, that are hidden by the ultimately reported sale price of a home.

Let’s say I’m Joe Homeowner and I’ve listed my gorgeous house at the healthy price of $500,000. Jimmy Homeowner, my neighbor, just sold his house for $490,000 a month ago (I know because I looked it up in the newspaper and because he told me) to this nice family of four from Pittsburgh, PA. My house is so much nicer so I listed it at $500,000 but so far I’ve only had two parties show a little bit of interest. The first party offered full price with $25,000 in closing cost assistance and the second was offering $480,000, which one do I take?

The little red devil on my shoulder says I can’t possibly sell my home for less than what Jimmy was paid for his whereas the white angel on the other shoulder says that I should take the $480k offer because overall it’s a higher price. For the cost of $5,000 I can save face by having my home listed as being sold for $500,000 compared to $480,000… what do I do? $5,000 is a mere 1%! If half of the home sales took option 1 (full price, closing cost help) then you wouldn’t see much of a decline in home prices because the actual cost (which is declining) is hidden, that’s what I mean by “under the table” type deals.

Home sale listings don’t say $500,000 minus the MSRP of that 62″ Samsung DLP television in the basement. 🙂

What do you think? Does this theory have any merit?

{ 11 comments, please add your thoughts now! }

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11 Responses to “Pride Will Prevent Housing Price Drops”

  1. Good point, I wish there were more stats besides just sale price readily available.

  2. Brian says:

    All makes sense to me. My father had great pride in the look of his house, inside and outside. His efforts were rewarded big time when he sold his house. He was very proud that he generated a huge profit. Why wouldn’t you want to protect the most personal valuable possession and asset that you own? You bet you would.

  3. prlinkbiz says:

    Pride might keep you from making money too. Who cares what your neighbor sold for? If you need to sell, you can make some money, and move on with you life, why would you care?
    I only look for motivated sellers. I also base my pricing on square footage- thats the real story and where the money is. I know average price per square foot in the areas I look for houses in. I can see in two seconds if something is well priced, over priced or under market. Then I look at comps, and then I look at the house.

  4. FMF says:

    You’re off your rocker! (But I’m used to that). 😉

    To add realism to your situation, assume you’ve waited for 16 months at $500,000 to sell your home. Think you’d be a bit more willing to accept $480k, $470k, or even lower regardless what your neighbor sold his place for? I think so.

    This is what I think will happen. Pride will keep prices up for awhile, but when homes stop selling at those prices, the prices will start to fall.

  5. King Asa says:

    Doesn’t make sense to me. Are you telling my you would give up the extra $5,000 just so you could “save face”. Who cares what your home officially sold for?

    I do understand the theory that current listing prices may be overinflated because the extra perks thrown in with the house aren’t subtracted from the end selling price…
    but if the selling are throwing in perks that make the overall price more expensive than what they could sell for without the perks, then that is just stupid. Why do that… just so you can tell your friends your house sold for $500K instead of $480K, seems like a poor decision to me.

  6. jim says:

    I wouldn’t but then again why do people buy all sorts of things entirely on credit just to keep up with their neighbors?

  7. I don’t think many people will care what the neighbors think. They won’t be your neighbors anymore once you sell.

  8. CK says:

    I concur with Hawkmoon. No offense but only an idiot is going to leave the 5K on the table. Sure lots and lots of people are making these sorts of deals, but not to save face.

  9. Khyron says:

    Let the alligator keep chewing your leg off. I’ll buy when you offer to pay me to take it off your hands. Or it gets foreclosed on, whichever comes first. (Maybe, if the bank isn’t acting stupid. Because if you won’t negotiate, the homebuilders will.)

  10. Kevin says:

    Sorry, I’m not buying the theory. If someone is selling a home, usually it’s because they plan on moving or need the money. Either way, they aren’t going to wait forever. If after a period of time they get no takers, they’ll start to sweeten the deal with incentives or cut the price. Especially if they’ve owned longer than 2 years, since they’ll still make a heft profit anyway.

    I would think the only people who wouldn’t sell are people who aren’t really serious about selling, or who bought in too high and cannot flip their home without losing money.

  11. Matt says:

    The theory might work in a market where buyers are still plentiful. But if the bubble truly collapses, that’s not going to be the market you’re in. What’s more likely is that you take the best offer you can find as soon as you can find it.

    People selling houses are almost always either speculators (who are about to take a bath) or owner-occupants who find themselves needing to move. The latter group often have comparatively little notice, and if they can’t find a buyer before they have to leave town, they’re stuck making a mortgage payment on a house that’s sitting vacant, while also paying rent on whatever place they moved into while waiting for their equity to liquefy…assuming the bubble didn’t make all their equity disappear when it burst. There are very, very, VERY few people so wealthy that paying rent and mortgage (or two mortgages) at the same time on non-income-generating property isn’t going to be a powerful motivator to sell at any halfway reasonable price that’s offered.

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