The Psychology Behind Why Underwater Investment Properties are Not Listed for Sale

Abstract

This study investigates the reasons why people do not list underwater real estate investment properties for sale. Conventional wisdom is that these investors simply cannot afford to sell (the affordability constraint). However, we demonstrate that economic reasons explain as little as 31.7% of the sample. Behavioral explanations make up the rest. Specifically, familiarity bias, false reference points, and to a lesser extent, status quo deviation aversion are the true drivers of the listing decision. Underlying respondent behavioral traits were not found to systematically explain who would be more likely to follow each behavioral reason not to list. The inability to create a definitive behavioral traits profile is consistent with past studies that were unable to significantly link demographic characteristics to behavior.

Keywords: behavioral real estate, familiarity bias, false reference point, status quo deviation aversion