The psychology of home ownership
About a month ago right after July 4th, I wrote a column supporting the valuable assets of owning your own home and the freedom it promotes. Being a homeowner is good for society, good for our self esteem and good for our tax bracket, but is the process of buying and selling good for our emotional well being?
Buying and selling the home we live in is one of the most emotional factors in our lives. You literally fall in love with your home and even though it represents a major financial investment most homeowners view their home as much more than that. So how do you control the emotional aspect of the buying and selling process so that you don't go completely off the psychology rails?
First of all if you're buying a home, falling in love with a property at first sight is the worst thing you can do; save the falling in love part till after you own the property. You need to understand there are no perfect properties, especially in the current environment we're in where there is a shortage of inventory. Starting the process with a firm wish list will only serve to raise your emotional level even higher when your exact desires can't be met. Focus in on the most important part of buying property, the location.
Families frequently move to provide a larger and more comfortable home for their families but sometimes that "forever home" comes with a price and that's frequently location. If the house you think is perfect is away from your friends, your children's friends and creates a longer commute to work, maybe it's not really the perfect house. Commuting to work is one of life's stress buttons that is really difficult to measure, but if your chosen location requires you to spend more time in your car than watching your son's soccer game it may be time to reconsider.
It's also easy for buyers who are infatuated with a home to overspend by putting more money down on a higher priced home in order to qualify for a mortgage, resulting in a shortage of cash. There are all kinds of expenses that are attached to buying a home from furniture to lawn mowers - it's important to calculate what these items will cost and set aside adequate cash.
Sellers, of course, are the exact opposite of buyers and have a whole different set of psychological challenges. The biggest mistake sellers make is their expectation of financial return.
Sellers naturally don't want to sell their property at a loss and usually want to see a profit. They will try to justify a higher price based on what they paid for the property or how many improvements they put into the property. Unfortunately, the current market value has nothing to do with any of that.
Sellers make the big mistake of being fixated on a number the home should sell for either because of what they think are comparable properties or just because that's what they want to realize from the sale. This is called "mental equity" and it represents the amount of money the seller wants to walk away with regardless of how relevant it is to the marketplace. This lack of flexibility on the seller's part will only delay finding a buyer, creating even more stress in an already stressful event.
American homeowners are some of the most optimistic people on the planet. In spite of the financial downturn and bursting of the real estate bubble, almost all homeowners feel confident that their homes will increase in value and are a good investment. It's been called the "money illusion" and it is a very powerful psychology which probably keeps the real estate market afloat. Whether you're a buyer or seller, I guarantee you the process will be one of the most emotional of your life; don't make it worse by being inflexible.