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Owners still in denial that their home is worth less

The housing market may have bust, but many homeowners are still living in a bubble.

Despite dismal housing headlines and reports showing falling prices nationwide, owners in some once-hot areas still believe their home is gaining value or at least holding its own. And by hanging onto too-high expectations, sellers are unwittingly keeping the market from finding a bottom.

Real estate professionals across the country are reporting difficulty convincing sellers the true market value of their homes.

"It's like pulling teeth in this market," said Twyla Rist of Reece & Nichols Realtors in Kansas City, Mo., where prices are off 7 to 15 percent. "Even with everything being said, you still have people that think 'My house is better than everybody else's.' "

A recent Coldwell Banker report showed that more than three-quarters of its real estate agents surveyed said most sellers have unrealistic initial listing prices for their homes.

And an unscientific study released recently by real estate Web site found that half of homeowners polled think their home's price has increased or stayed the same in the past year. In fact, the median sales price of an existing home dropped 9 percent to $191,600 in September from a year ago, according to the National Association of Realtors.

It took John Cicero and his wife an appraisal, some convincing by their real estate agent and some hard-to-swallow facts to get them to lower the $525,000 listing price on their five-bedroom home in Valrico. They closed recently for about $380,000.

"We didn't really understand the severity of the market," Cicero said. "We lost close to $100,000 in equity, so we were walking away from real money."

They built the stucco home four years ago for $380,000 and poured more than $80,000 into it. "You think you have this wonderful home and people will want to buy it," he said, "but you're wrong."

The attachment to a house only intensifies the more a homeowner personalizes it, creating an extension of themselves.

"The moment we invest in something, we fall in love with it," said Dan Ariely, a behavioral economics professor at Duke University's Fuqua School of Business and author of Predictably Irrational. That puts real estate agents in a precarious position of pricing a house to sell, but not insulting the home-owner by recommending a lower asking price. To a homeowner, Ariely said, a low, but realistic, listing price is "like someone calling your kids ugly."

Refusing to believe the numbers

Joni Herndon, an appraiser in Tampa, says real estate agents are calling her in to help homeowners grasp the reality of their home's value. One Valrico homeowner Herndon did an appraisal for refused to lower her listing price for the third time, insisting that such features like a raised roof and more space between two windows in an upstairs bonus room set her house apart from others just like it.

Appraised price: $430,000

Original listed price in April: $500,000

Reduced listing price in July: $469,500

How it stands now: The home is still on the market; the seller declined to be interviewed.

Owners still in denial that their home is worth less 12/14/08 [Last modified: Sunday, December 14, 2008 3:30am]
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