Home sellers may be at risk of earning less on the sale as the real estate market transitions to a buyer’s market — and they are at risk of losing something else, too: happiness.
Daniel Gilbert, a Harvard University psychology professor and author of “Stumbling on Happiness,” said it’s common for sellers to feel a loss when they are parting with something, and that loss can be more substantial to a person’s happiness than the happiness that a buyer gains through a purchase.
“Sellers overvalue things relative to buyers. Sellers tend to think of transactions as losses,” he said.
That simple psychology could explain, in part, why real estate agents in formerly hot markets have found that sellers continue to price their homes too high while the market has slowed.
Real estate data companies have reported that sale prices have continued to hike up in some markets even as sales have plunged 20 percent or more, year over year.
Gilbert, speaking during the Real Estate Connect San Francisco conference Thursday, said, “Losses hurt more than gains feel good. This (real estate) transaction looks fundamentally different depending on what side you’re on.”
Someone who lost $10 would lose more happiness than someone who won $10 would gain, he said.
Real estate professionals, as participants in a real estate transaction, could play a role in helping buyers and sellers to find their happy place — a middle ground in an often-stressful process.
“I would try to make buyers and sellers preview what they would think about this commodity before the transaction,” Gilbert said.
Gilbert said a seller might have a hard time parting with an old car, for example, that the seller feels personally attached to — especially if the selling price seems to low to the seller.
But if the seller put himself/herself in the position of paying the same price to buy that item back, it may help the seller to rationalize the price and part with that item.
Gilbert applied the psychology of happiness to commission income in the real estate business. Real estate professionals, as sellers of their own services, likely tend to value these services higher than someone who is paying them for their services, he said.
Applying science to happiness, studies have shown that it’s very difficult for people to accurately remember their level of happiness in the past or predict their happiness in the future.
What people can definitely tell you is how happy they are at the present time, he said.
And money typically can’t buy you happiness, Gilbert said, unless it’s a matter of moving from abject poverty to a more comfortable living.
While housing statistics have shown that home sizes have been growing across the country — even as family sizes have not — Gilbert said bigger houses do not necessarily equate to more happiness.
In fact, he said, people tend to adjust quite easily to whatever square footage they have.
Commuting a large distance from a big house would probably be a bigger strain on happiness than commuting a short distance from a smaller house, he said. This is because the square footage of a house is a constant, while commutes can be unpredictable.
Democracy and religion can help to boost happiness, though with religion this may have more to do with a sense of belonging to a community, he said.
“Churches do what stamp collections do for people — they bring people together.”
This may have something to do with human beings’ previous experience in living in small groups of people who they know well.
Now in this era of instant communications and media, “We live in a consumer society that is constantly conspiring against us,” he said, and exposing us to lavish lifestyles and ideals that may not be realistic — and may not bring us happiness.
Friendships still hold more weight than money when it comes to happiness, he said. “It’s better to be sick and have friends than to be well and be lonely.”