Overvalued – Undervalued and the matter of Emotions

I don’t usually put much stock in the pundits’ pronouncements and predictions about local housing values and market conditions,  but we humans seem pretty comfortable with little formulas and algorithms that make decisions for us.

CNN Money’s article on America’s most overvalued and undervalued cities addresses  a number of housing markets, mostly from the perspective of investors, with information from Local Market Monitor, a  firm that provides investors with analysis on local conditions.

For the purpose of valuation, an equilibrium price is determined, based on economic and population growth, construction costs, vacancies, household income and interest rates. That data is crunched with an “X Factor” (based on 20 years of  market data). That’s a value company founder Ingo Winzer comes up with based on 20 years of market data.

While Local Market Monitor may be able to give a well-reasoned, economically based buy-sell order to investors, buyers and sellers in the residential real estate arena act quite differently, because of an added critical variable in the equation – EMOTION.

Emotion can manifest itself in many ways during the home selling process:  an agent can review a pile of comparable sales, market trends, and absorption analysis, with a seller,  only to get the response, “my house is worth more than that.  I don’t care what your facts and figures say.”

The same goes for pre-listing  staging and home preparation advice.  Agents have paid good money to have professionals stage a house, only to have the homeowner put everything back like it was as soon as the stager left.

Good agents know how to walk the tight rope of client emotions, and temper those feelings with facts and professionalism. The real estate professional who doesn’t understand that home buyer’s buy primarily on emotional response, probably won’t  last long.  You can present the features and amenities of a property, but in the end, it is the sizzle, not the steak, that closes the sale.