Herndon appraised the house, also in Valrico, Fla., at $430,000. The seller put it on the market in April at $500,000, and cut the asking price to $469,500 in July. The home is still on the market, and the seller declined to be interviewed.

The market would bottom out sooner if sellers weren't so stubborn and didn't keep prices artificially high, Arielly said.

Homeowners can't stand taking a loss on their properties, yet keeping their home on the market at an inflated price could wind up costing them more. Homeowners need to look at the larger financial picture, Ariely said, and determine how much there is to gain or lose by keeping a home on the sales block longer.

Real estate agents press this point on their clients, saying no one wants to buy the most expensive house on the block. After the first reduction in listing price, a psychological barrier, subsequent cuts come easier, most agents say.

"Like any type of loss, there's a grieving process," Batchelor said. "First, they're in denial, then angry, then depressed and hopeless. But then they eventually move on if they want to sell it."