3 ms·

From my personal datapoint, I agree with that question. There are 2-3 abandoned moderate sized retail buildings in a suburb I pass on my way into work that hav

From my personal datapoint, I agree with that question. There are 2-3 abandoned moderate sized retail buildings in a suburb I pass on my way into work that have sat vacant for the better part of a decade with a big "for sale" sign out front. On the odd times I look up the listing price, they want high hundred thousands to low million. Keep in mind this is for buildings and land that have not been maintained for years now. Without a massive surge in pricing, they are already vacant maintained spaces that will capture most interest before that vacant tear-down gets bought.

eldavido 8y ago
I think this is a general phenomenon in finance/valuation and I'm sure someone has studied it. Even when the value of something has fallen (as measured by market comparables, ability to generate incomes like rent, etc) people become anchored to a valuation and think they'll get the price they want if they just hold out a little longer. There's something psychologically difficult about accepting that you aren't going to get the price you want for something; it requires an act of "letting go" that can be hard. You see this all over the subprime crisis, banks had tons of toxic debt but didn't want to "book" their losses by selling at whatever the fair-market price was that day. I'm reminded of that old saying from finance, "The market can stay irrational longer than you can stay solvent."
- nradov 8y ago
  Large commercial landlords are usually fairly rational. They aren't as likely to fall victim to the sunk cost fallacy as individual homeowners are. More likely they're highly leveraged and gambling that prices will rise enough in a few years to deliver a huge return.
  - eldavido 8y ago
    This phenomenon is a close cousin of the sunk-cost fallacy but it's not quite the same thing. I'm talking about rationally assessing that the value of an asset has fallen, vs. sunk cost's "we've come this far..." - even if you're rational, it can be hard to sell and psychologically tolerate taking such a huge loss.

eldavido 8y ago

I think this is a general phenomenon in finance/valuation and I'm sure someone has studied it. Even when the value of something has fallen (as measured by market comparables, ability to generate incomes like rent, etc) people become anchored to a valuation and think they'll get the price they want if they just hold out a little longer. There's something psychologically difficult about accepting that you aren't going to get the price you want for something; it requires an act of "letting go" that can be hard. You see this all over the subprime crisis, banks had tons of toxic debt but didn't want to "book" their losses by selling at whatever the fair-market price was that day. I'm reminded of that old saying from finance, "The market can stay irrational longer than you can stay solvent."

nradov 8y ago
Large commercial landlords are usually fairly rational. They aren't as likely to fall victim to the sunk cost fallacy as individual homeowners are. More likely they're highly leveraged and gambling that prices will rise enough in a few years to deliver a huge return.
- eldavido 8y ago
  This phenomenon is a close cousin of the sunk-cost fallacy but it's not quite the same thing. I'm talking about rationally assessing that the value of an asset has fallen, vs. sunk cost's "we've come this far..." - even if you're rational, it can be hard to sell and psychologically tolerate taking such a huge loss.