A seller in Glendale called me last year. They had received an offer on their home: $507,000, with solid terms, a pre-approved buyer, and a 30-day close. It was a clean offer, well within the range their agent had suggested based on recent comparable sales.
Their response surprised me. "I feel like we're leaving money on the table," they said. "We bought this place for $465,000 five years ago. We put $30,000 into the kitchen and landscaping. I thought we'd get more."
They were not being unreasonable. They had invested in the home, emotionally and financially. The number in their head was not the market price. It was the sum of what they had put in, plus what they felt they deserved for their effort. And every day they waited, that number felt more and more like something they would be giving up, not something they would be receiving.
They turned down the offer. Three months later, after two price reductions and sixty additional days of carrying costs, they accepted $481,000.
Let's think through this.
What Loss Aversion Actually Does to a Real Estate Decision
Loss aversion is one of the most well-documented biases in behavioral economics. It describes something simple and powerful: people feel the pain of a loss roughly twice as intensely as they feel the pleasure of an equivalent gain. Losing $1,000 hurts about twice as much as gaining $1,000 feels good. This is not a personality trait. It is how the human brain is wired.
In real estate, loss aversion shows up in predictable patterns. A seller who mentally anchors to the peak price in their neighborhood experiences every offer below that number as a loss, even when the offer is fair and market-supported. A buyer who has identified the perfect home feels the prospect of losing it to another buyer so acutely that they overbid beyond what the home is worth, just to eliminate the risk of being outbid.
Here's what I'd be asking: in both cases, is the aversion to loss actually protecting you from harm, or is it steering you toward a worse outcome than the one you are trying to avoid?
The seller who turns down $507,000 is trying to avoid the loss of "what could have been." But the real loss is hidden: the carrying costs of holding the property, the missed opportunity to move on to their next chapter, the declining negotiating leverage as days on market increase. By fixating on the loss they imagine, they walked right into a bigger one they did not see coming.
The buyer who overbids by $20,000 to avoid losing a home is trying to avoid the emotional loss of disappointment. But the real loss is financial: they just paid more than the home was worth, and that gap may take years of appreciation to close.
The Two Sides of the Same Trap
Loss aversion operates differently depending on whether you are buying or selling. Recognizing which version you are dealing with is the first step to escaping it.
For sellers: the loss is imagined, but the cost is real. You feel like you are losing money on a sale that comes in below your peak expectation. But that expectation was never a guaranteed outcome. It was a hope. The market does not owe you a return on your kitchen renovation. It tells you what a buyer will pay today. Every week you wait for a number that is not coming, you are losing something real: time, money, and leverage. Let's separate emotion from fact for a moment. Pull the actual numbers. What are your monthly carrying costs? What is the price trend in your neighborhood over the last 90 days? How many other listings in your price range have reduced their price? The data will tell you whether the number you are holding out for is realistic or whether loss aversion is running the show.
For buyers: the fear of missing out is just loss aversion in disguise. You have found a home that checks most of your boxes. You can afford it. It fits your life. But the thought of losing it to someone else creates a sense of urgency that can override your better judgment. Suddenly, the inspection issues do not matter as much. The fact that you would be stretching your budget stops feeling like a concern. The question shifts from "is this a sound investment?" to "how do I make sure nobody else gets it?" That is loss aversion working on you. And it can cost you thousands.
How Loss Aversion Plays Out in the Phoenix Metro Market
Right now in the Phoenix metro area, we are in a market that creates perfect conditions for loss aversion to flourish. Inventory has increased across Peoria, Glendale, and North Phoenix. Sellers who entered the market with price expectations based on 2022 or 2023 highs are seeing their listings sit. Price reductions are becoming common in Scottsdale and central Phoenix. Buyers, meanwhile, have more options than they did a year ago, but many are still afraid that if they do not act fast, the best properties will slip away.
There are a few things I'd want you to consider if you find yourself in this environment. For sellers: are you pricing based on where the market is today, or where you wish it still was? Every day your listing sits without a price adjustment, you are not protecting your value -- you are watching it erode. For buyers: are you competing against other buyers, or against your own fear of missing the opportunity? A balanced market with more inventory means you actually have room to negotiate, ask for repairs, and take your time. But if loss aversion convinces you that every home is about to be snatched up, you will negotiate against yourself.
What's the Risk If We're Wrong?
This is the question I ask more than any other. And it cuts through loss aversion faster than almost anything I have found.
For a seller who is convinced their home is worth $550,000 when the market says $510,000: what is the risk if you are wrong? If you hold at $550,000 for another 60 days, you will pay two more months of mortgage, taxes, insurance, and utilities. You will watch the days on market tick past 90, which buyers notice. You may end up accepting less than the $510,000 you could have locked in today, because buyers will wonder what is wrong with a listing that has been sitting for three months. The risk of being wrong about your price is not just that you do not get the number you want. It is that you end up with less than the fair offer you turned down.
For a buyer who is worried about paying too much: what is the risk if you are wrong? If you buy a home at fair market value and the market dips 3 percent next year, you are temporarily underwater on paper. But you are still living in the home you chose, building equity with every payment, and benefiting from any appreciation that follows. Compare that to the risk of waiting: if prices rise another 5 percent while you wait for a dip that never comes, you have lost the chance to buy at today's price. The risk of overpaying by a small margin is often less damaging than the risk of not buying at all.
The better question is not "am I getting the very best possible price?" The better question is "does this decision move me forward, and have I done enough homework to feel confident in the path I am choosing?"
Three Strategies to Break the Loss Aversion Cycle
You cannot turn off loss aversion. It is not a switch. But you can build systems that prevent it from running your decisions.
Reframe the reference point. Loss aversion depends entirely on what you are comparing against. If your reference point is the highest price a neighbor got in 2023, then every offer below that feels like a loss. But if your reference point is the current market reality, a fair offer feels like exactly what it is: a valid transaction. Before you decide that an offer is too low or a price is too high, ask yourself what the actual market reference point should be, not the one your memory or ego has chosen.
Name the real loss you are trying to avoid. Write it down. If you are a seller hesitating on a fair offer, what specifically are you afraid of losing? The possibility that someone else might pay more? The feeling that you did not maximize the return on your investment? The pride of getting a specific number? Once you name it, you can evaluate it honestly. Is that loss worse than the guaranteed costs of waiting another month, two months, or three?
Run both scenarios to their conclusion. This is the most powerful tool I have found. Take the decision you are facing and map out both paths. Path A: you accept the offer, sell the home, and move on. What does that look like financially and personally? Path B: you decline the offer, wait, and see what happens. What is the best case, the worst case, and the most likely case for each path? Most people only map out the upside of waiting and the downside of acting. That is a distorted picture. Map both completely, and let the full picture inform your decision.
Let's Zoom Out for a Minute
Loss aversion is not a flaw. It is a survival mechanism. In evolutionary terms, missing a threat was much more dangerous than missing an opportunity. That instinct is still running in the background of every major decision you make, including real estate.
But here is the thing. Real estate is not a survival decision. It is a wealth-building, life-building decision. The instincts that kept our ancestors safe from predators are not well-calibrated for evaluating whether a $510,000 offer on a home in Peoria is fair. The same brain wiring that made you cautious about the rustle in the bushes will also make you overly cautious about accepting a reasonable offer, or overly aggressive about securing a property you fear losing.
Recognizing that your instincts are working against you is not a failure. It is the first step toward making a better decision. The best clients I have ever worked with are not the ones who never felt loss aversion. They are the ones who felt it, recognized it, and had the discipline to ask: is this feeling protecting me, or is it misleading me?
What Advocacy Looks Like Here
I have been the Designated Broker of My Home Group since 2020. Before that I was helping clients and training agents. In all those years, I have never seen someone lose money because they made a disciplined, well-researched decision at a fair market price. I have seen countless people lose money because they let the fear of a hypothetical loss stop them from taking a reasonable, well-supported step forward.
What's the risk if we are wrong? That question is not comfortable. But it is honest. And in my experience, honest questions lead to better outcomes than comforting ones.
If you are sitting on a real estate decision and you cannot tell whether your hesitation is wisdom or loss aversion, I would be glad to help you work through it. Sometimes the most valuable thing a second person can do is help you see the loss you are actually facing, not the one your brain has invented.
Respectfully,
Andrew Glenn
Designated Broker, My Home Group