You know the saying…Can’t live with ‘em, can’t live without them.

…when the masses believe something is a good idea, it takes a sturdy soul to resist the trends. We just saw this in the recent housing boom. Buyers are more closely associated with this group behavior and sellers are happy to oblige. The flock or herd mentality reigns.

The same is true in the opposite scenario. Buyers have been quick to react to weaker market conditions, but as evidenced by their pile-on behavior a few years ago, then tend to overreact and expect a large discount on their purchase. Sellers are the “other” half of the buyer-seller equation and they are creating havoc by their unwillingness to realign with current market conditions.

My old rule of thumb: sellers take about 3 quarters to readjust to weaker market conditions. Thats been thrown out the window since its been 5 quarters since the end of the housing boom (mid-2005) and seller resolve remains relatively strong.

This has been one of the reasons that certain vulnerable real estate markets haven’t seen a significant price correction. Although buyers don’t have a sense of urgency, sellers are in denial about weaker market conditions. The result? Sales activity drops sharply until someone or both budge for their position. Brokers are frustrated because they have limited flexibility with today’s sellers [Realty Times]. They gear up for the sale with advertising, open houses and other marketing strategies but if a seller isn’t ready to enter the market realistically with the right price, the effort is largely a waste of time and money.

Why is the seller so firm in their resolve to remain firm on price?

  • Sellers are used to being in charge – The economy is slowly weakening as evidenced by the erosion of GDP but its still relatively solid. Sellers have enjoyed a dominating postion for much of the past nine years, not quite as long as the Republicans have controlled Congress (sorry, but election day is still ringing in my head). Perhaps thats the reason for the seller’s delay in adjusting to the market (not the shift in power to Democrats). They are simply used to the way things have been.

  • Its about ego, not greed (buyers don’t understand this) – Ego is a big part of setting real estate prices for listings, not greed [WaPo]. Generally speaking, according to the evolving body of neuroeconomic research, people logically make rather simple dollars-and-cents analyses when they buy small items, but become more emotional around large decisions, particularly those that affect their futures.

  • Sellers don’t underestimate the power of “denial” – The word “denial” must have been created for them, psychiatrist Peterson said. As applied to real estate, denial is a condition in which sellers cannot bear to part with their homes for less than what they believe they’re worth.

The solution? Brokers need to continue to educate the sellers on the accurate value of their property and simply don’t take the listing if its not priced within the realm of reasonableness. The other solution is simply to wait for sellers to adjust. But be patient, it may take a while.

Update: Here is an additional link on the seller disconnect with the housing market: In Face of Housing Slowdown, Homeowners Remain Optimistic [REJ]