As a professional real estate agent, it seems that when I visit someone about their home, they always have the value of their home in mind. The value is invariably that of the market peak. So, for example, if at peak your home would have sold for $1 million, but values are 15% below peak, your home’s current value is probably $850,000. Letting go of that “lost” mental money in your home is painful. Of course, letting go of anything lost is difficult, whether the loss is perceived or real, but it seems to be even more traumatic when it comes to personal residence. I also find it interesting that homeowners always focus on “gain” but never want to see “loss”. Maybe it’s because I want to be optimistic, but I think it’s even more ingrained than that.
The reason I think homeowners always focus on the best case scenario has to do with the old adage: a man’s home is his castle. Homeowners love their home with all of its unique features and quirks. I like people’s children. Have you ever met an ugly baby; that is, from the parents’ perspective? Other people may not see the beauty of that baby, but the father sure does! That is what I have found with homeowners, after they have bought it, lived in it and made it their own, they love their home in a way that is no longer objective. But the market doesn’t look at buying a home the same way. The market sees a house as a commodity.
It is the value that makes a buyer pay for something, not what it costs the owner, not what the value “could have been” some day in the past or future. As in the stock market, if the owner of a share does not sell at that time, then the spread becomes an unrealized gain or loss, as the case may be. This unrealized gain or loss, the “mental money,” is what people need to set aside. When I look back at the peak of the market, I can show numerous situations where we had great contracts on properties that the seller wouldn’t take because they thought there was more money to be had, that they were leaving money on the table, that the market could be even better “someday”. That’s all “mental money.” The reality is that the true value of a home is what the buyer is willing to pay and the seller is willing to accept. The key to this, however, is that the seller must be willing to accept something realistic, not a value based on unrealized gains.
How do you know the value of your home in today’s market? How do you know if you are buying correctly for today’s market? The best guidance is obtained from a professional real estate agent who is actively involved in your market.