Earlier this year I blogged about the disconnect between some homeowners’ perceptions of the value of their homes and the actual value.  I wrote about a Zillow.com study which revealed that in the Western U.S. 36% of homeowners thought the value of their homes had increased; 30% thought the value hadn’t changed; and only 34% knew the value of their homes had declined. In reality, home values declined for 67% of homeowners.

You’d think — after all the bad news that headlines in the newspapers every single day — that homeowners might be a little more realistic today about the value of their homes.  But not so, according to a new article from the Associated Press, “Homeowners cling to false optimism about own home.”

According to the article, Zillow.com spokesperson Amy Bohutinsky said, “We expected people to get a little more in touch with reality especially over the summer, because you couldn’t turn on the TV or read the newspapers without seeing that home prices are falling.  It was very surprising to see this kind of disconnect.”

According to Dan Ariely, a behavioral Economics professor at Duke University’s Fuqua School of Business, homeowners often see their homes as extensions of themselves.  Because many people feel that they’re “special” they think their homes are “special” too — and, by extension, worth more than the neighbor’s.

Even when homeowners aren’t emotionally attached to their homes — people who bought the home as an investment property, for example — financial attachments can still make lower values hard to accept — especially when lower values mean that the homeowner will take a big financial loss when selling.

Sometimes the disconnect arises when a homeowner has put in a lot of extras to the home — or done expensive remodeling.  I’ve blogged before about remodeling and cautioned that you shouldn’t expect to get $1 higher sales price for every $1 you spent on the remodel.  In some cases, you’ll recoup $0.80 on the dollar — sometimes, much less.  Especially in a slower real estate market — in a slowing economy — prospective buyers might not value $2900 in designer fans as much as you do, when $1000 in fans would have cooled the house just as well.

Of course, your perception of the value of your home only really matters if you’re looking to sell.  Then, you really need to be realistic about what homes like yours in your neighborhood are selling for.  An experienced real estate agent will give you a comprehensive explanation of why you should list your home at a certain price.  As I’ve said before, pricing your home too high at first, even if you reduce the price later, can be a big mistake.

What do you think?  Do you have a realistic or unrealistic value of your home?  How do you feel about how the market in your area has changed over the past few years?  Click on the “Comments” link and join the discussion!