Many home sellers are losing money … precisely because they’re determined not to lose money. So why won’t your home sell?

One reason homes are languishing on the market is because owners are suffering from “sunk cost fallacy” observes Ohio State University economist John Kagel.

A condition recognized not by physicians, but rather by behavioral finance experts, this fallacy describes the reluctance people have to selling for less than they’ve paid or put into a home, even when hanging on, waiting for the right price, will ultimately prove costly.

It can be hard to shake this faulty logic, even when homeowners’ income has dropped precipitously or they’re living off a limited amount of money, like a severance package, says financial planner William Suplee of Structured Asset Management, in Paoli, Pa.

Here are three questions to determine whether you could benefit by losing money on a home sale:

1. Will you slash your housing costs with a move?

Owners under financial pressure who could find relief on their monthly cash flow by moving to a lower-cost home that they either buy or rent are the ones grappling with the sunk cost fallacy.

Suplee tries to help owners get clear view of their best option by preparing spreadsheets that lay out the costs of different living arrangements.

Don’t forget all the ancillary expenses, like commuting costs, that go along with a particular housing choice, adds Lexington, Ky., financial planner D. Scott Neal.

Laying out the annual costs of staying in a home that cost his client $800,000 several years ago was the only way to convince her that she would soon deplete her savings if she stayed put, says Rapid City, S.D., financial planner Rick Kahler.

Even though she’d probably sell for about $300,000 less than she paid, the monthly outlay was unsustainable, Kahler says. The pain of loss is softened, somewhat, he adds, because she can buy a home that is also valued less than it was several years ago. And, the recently passed tax credit of up to $6,500 for repeat buyers under certain income levels also applies to many in this position.

2. Do you know what’s a realistic price?

Recognizing that conditions dictate selling at a loss doesn’t mean that you’re ready to accept any offer, however.

Indeed, experts stress that the only way to proceed confidently with selling at a loss is to thoroughly research the housing market in your area.

Ask your agent to provide lots of recent prices on sales of comparable homes. In some states, agents can also provide very recent sales data by getting the prices of homes under contract, says John Huggins, president of Coldwell Banker Legacy Real Estate Group, in Bowling Green, Ky. Home sellers can also ask to tour other properties for sales to get an idea of how their home compares with other properties being offered at various price levels, he says.

Homeowners who owe more in mortgage than they can likely net in a sale have to investigate whether they’ll have to add in their own cash to pay off the loan, or whether the mortgage lender will agree to accept a lower amount. In cases where owners have to pay out of pocket to sell, that outlay could alter the advantage of moving, says Neal.

3. If you hold out, could you avoid a loss?

Going against the natural inclination to avoid loss means that you’ve analyzed the cost of holding the property and are reasonably confident prices won’t spring back up.

The National Association of Realtors forecasts home prices nationwide will end 2010 up just under 4 percent from the end of this year.

Moody’s Economy.com predicts prices will stabilize in mid-2010, but there will be no appreciation. Economy.com’s housing economist Celia Chen expects some middle and higher-end housing at risk for further decline next year, and thinks that some homeowners will not see prices return to what they paid for at least several years.

Real estate trends are local, adds Huggins. He advises looking at prices for similar homes in your area and gauging demand against inventories.

When he prepares spreadsheets for homeowners to examine the costs of holding versus moving, Suplee asks: “What rate of appreciation does the house need for a holding strategy to make sense?” Then, he asks for an honest determination of how plausible it would be to see that appreciation.

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