You've Got to Give Away What You Have Before You Can Get What You Want!
Unfortunately, these sellers often don't understand that the market won't value their existing property sharply differently than it does the home they are looking to purchase. To sell the property they own, it feels like it must be priced at a give away level and sadly that is often less than is owed for the home. Makes it kind of difficult to upgrade to the home they have their eye on when there is little equity in their present investment property or residence.
There are a couple of exceptions that can work however. Most vacation rental foreclosures are sold unfurnished and that is part of the reason they sell SO cheaply. Furnished vacation homes always do sell for more and that is one way that a seller can get a little more for their non-foreclosure property. Also, the smallest starter residential homes continue to sell better than the move-up home that those owners are considering so there may be an opportunity there.
This hits home with me personally as well. Our own Sevierville residence would have sold for nearly $500,000 at the market peak but would now probably appraise at only $400,000 if that. I can look longingly at the spectacular bargains on foreclosure homes that are being offered in my community but don't want to sell my house at current price levels. This in a nutshell is why our move-up market is so weak (other than at the starter home level).