MONEY OBEDIENCE

How to Trick Yourself Big Time with Home Appraisal

A few days ago we published a guest post at http://www.fivecentnickel.com entitled Our House is Worth a Ton of Money – No, Really, It Is! There we discuss how the mere fact that we own something especially our house makes us think that it is worth a lot more than the market is willing to pay for it. Since I wrote the post I was well aware of this trick our head plays with us. So, what do I do? I try to trick my brains in turn. Really, I honestly thought I could do that.

When my wife and I guessed what the house was worth we picked a number before we got the estimate back from the appraiser. (We entered into a gentlemen’s bet even though a woman was involved in the bet.) She picked over, of course, because the number we set was pretty low. I picked under since I have been very concerned about the state of the housing market. Besides, I am keenly aware of how much my wife and I like living in our house. We think it is truly wonderful, but the fact of the matter is that we bought the house very cheap in a rising market a little over six years ago. There had been two signed contracts before we got to bid on the house. Both transactions had fallen through and we had to buy the house “as is”. Compared to the first signed contract from a year earlier, we bought the house for a 16% discount – all this in a rising market. Not bad, right?

Now my thinking is that this very same thing could happen again. We sign a contract, a home inspector checks the house, and the next thing you know is that the contract falls through. It happened before, it could easily happen again. This is why I am so cautious when I value our house. Alas, I conveniently “forget” that we bought the house with an appropriate discount. Our cost basis already reflects a discount. There should not really be another discount on the house just because I own it and because my perception of its value is tainted.

Needless to say, my wife won the bet hands down. We were, no I was, way too low on our over/under number. I was pleasantly surprised, but my wife thinks that the appraiser underestimated the value. He forgot to account for one bathroom and a few other major things. In any case, we won’t really find out the true value of the house until we actually sell the house, but that is beside the point. The fact of the matter is that my knowledge of mental traps has led me to fall into another trap altogether. I tried to neutralize the known trap to become objective and failed miserably.

What is the moral of this story? – We have to accept the fact that we can’t be objective. Humans are not made that way. Rational thoughts and decisions don’t always have to win out. And even if we try very hard to be rational and objective, we may still not reach our goal. That’s just the way it…What do you think?

Bookmark It

Posted in Debt Management