Head Vs Heart: The Psychology Of Buying Real Estate
Left brain v right brain. Emotions and Logic. What does that have to do with real estate?
Typically we think of our brains in hemispheres - while the neuroscience is a very rapidly evolving discipline and has mixed opinions, the typically held belief is that the left half of our brain covers:
- linear thinking
Whilst the right side handles:
Buying a house is a unique challenge. It requires massive emotional investment (I hope this works) visualisation (I can see my self owning this in the future) and intuition (my gut says this is ok) AND logic (It makes sense to buy rather than rent) mathematics (I can afford the payments) etc. Buying a house is an event that creates significant thoughts AND emotions. In fact, it’s an incredibly unusual purchase for most people. In most cases, it is the biggest financial decision you have ever made, and one you will only make 2 or 3 times in a lifetime.
That means it pushes all our buttons. People tend to act strangely around a property transaction.
We would like to think we are logical when buying a property. The truth is people often aren’t.
Let’s explore that some more.
Emotions can change our decisions on a micro and macro level. In many ways, the market is just as much a reflection of how we collectively “feel” about property as it is a rational assessment of its intrinsic value. When buying a family home to live in, it is normal to expect that our emotions will run riot if left unchecked. When investing we would like to think we are more rational, but from my observations, there are still plenty of people who invest on a feeling and regret it later.
It may surprise you to know that I still get emotional about property. As a Buyers Agent I have inspected thousands of homes and researched 100’s of thousands. I still feel good about certain properties. I tend to get most excited about the numbers more than the decor these days but I still swoon for a beach classic, and rolling green views always make me stop and take a breath. The important thing is to know that photos can and do mislead; an agent’s attitude can influence for or against; and even simple things like the colour of the paint, the overgrown garden or the tenants hoarded items can make you feel drawn towards or repelled by a property. There are times when I will inspect or take a second look just because I have a hunch I am wrong about a first impression. I believe we should always be checking our lenses.
How do we keep a cool head? How to we avoid self-sabotage?
First, know you are not alone. We are an emotional species and many others have experienced what you are going through.
What are some of the key emotions you might feel? (Knowing them in advance is great because it means you can mentally prepare).
Fear of Missing Out. Typically true for all first-time buyers and anyone watching a growing market. I remember watching the 1996-2003 boom go right on past me as a young adult and thinking my chance to enter the local market was gone for good. It is a powerful feeling. The only solution is to knuckle down, save that first deposit and be ready when you can. Luckily Australia is a big nation with loads of wonderful, pleasant, safe living options and many choose to move to a slightly more affordable location if required. So if you are struck with a severe case of FOMO based on being out-priced in your suburb, just start hunting a little further afield, there are probably greener pastures out there if you know where to look.
The sheer magnitude of the purchase plus the hundreds of data inputs you should consider when making decisions creates the most common “deer in the headlights” frozen response that says “this is all too hard - so I will just do nothing”. Give yourself permission to feel the overwhelm. It’s normal. Then move on by getting a couple of good tools, checklists or to-do lists so you know what to work on.
If you find a place you really like, it will push the dopamine receptors in your brain (and probably release some adrenalin too). There is nothing wrong with this. Enjoy the journey! The trick is to stay methodical. Use checklists and “what next” to-do lists to make sure you don’t let the feelings sidetrack you from doing proper research and due diligence. Excitement is fine, rushing things isn’t. This is a great moment to ask your team (your solicitor, broker, buyers agent, etc) questions like “have I missed anything?”
This week I heard of someone (obviously NOT a client) who visited a property, signed an Unconditional contract and paid 10% within 24 hrs, then had a massive dose of regret and tried to withdraw. They are liable to lose their deposit if they don’t complete the purchase. Scary stuff.
Fear of Over Paying. A highly valid worry at all times, the concern that one does not pay too much for an asset. Especially given the reality that buyers are up against professional sales agents who receive regular training in how to extract more money for their clients, the seller. This one is fixable with proper market research, access to the right tools and being willing to put in the work to know all the recent sales in an area. If you are ignorant of real values, then you should be afraid at this point. This morning we helped a client secure a property for $60k below the bottom of the asking price range, $60k below the previous owner’s purchase price and only slightly higher than recent inferior sale in the street. He isn’t experiencing FOOP because he has the data and knows the comparable sales.
If you have been looking for a while and keep missing out, you might be throwing your hands in the air. We can’t blame you. We have had clients engage our service after 2 or more years (yes - YEARS) of fruitless property searching. It is possible to exhaust yourself through constant property research, relentlessly inspecting properties every weekend and never pulling the trigger. This can even be linked to the next one…
This is more common than you might think. People spend months, even years reading every newspaper article (which are typically biased) checking every statistic (without knowing which ones are relevant) and talking to everyone they know about all things property. The secret is this: Action trumps Talk every time. Being in the market is the only way to profit from the market. Remind yourself that all properties have pro and con lists. All of them. There is no such thing as a perfect property - only a property well suited to your goals.
If you get hit by the above demons you will likely reach a state where you just want to avoid property decisions altogether. If you set a goal last year to buy property and this year you find that you don’t even want to talk about it - you are here.
Fear of Better Options. The fear that once you buy, you will miss a much better property in the same suburb in the next few months. This one is really just a mindset. If you do the work, you choose well, you know your values and don’t overpay then you really should not waste time worrying about properties you can’t purchase. You should take the time to be grateful for the purchase just made. If needed, give a room a coat of paint or plant some flowers to develop your connection to the new abode. If it still bothers you, ban yourself from looking at the real estate websites for a few months altogether.
After the dust settles, some people feel a tinge of regret no matter how good a deal was struck. If so, go back through your notes, your research, your entire process. Remind yourself that you left no stone unturned. You knew your values. You did thorough due diligence to make sure you weren’t buying a lemon. You made the best decision you could with what you knew. If you found errors, learn for next time, better yet, consider engaging a professional to help cover every base on the next purchase.
Once you have been through say 5 or more property transactions you start to get a sense of confidence that wasn’t there before. You know what happens next and you are less afraid that the sky will fall in on you. Property is starting to become fun.
This one is our favourite. Once you have some wins we find that repeat property investors get the “bug” for buying property and we see them coming back again every year for more. Yep, it is addictive this property thing.
It’s a big decision, a big purchase and warrants all the thinking AND feeling you can give it to ensure success. Go with it. I love turning deals over and around, upside down and sideways to see what I am missing. What benefits and problems a house might be hiding.
Do use every inch of a due diligence period to decide whether you have grounds to withdraw or not. However, don’t get hung up on perfection.
Do the research work to stack the odds in your favour, make sure the data backs up your intuition and then bite the bullet and be decisive.
Always remember help is available if you want peace of mind, you just need to build a great team, then ask.
And don't forget to celebrate the wins, especially the scary ones!