Emotion versus Logic in Real Estate

Buying or selling residential real estate is likely to be one of the most emotionally charged transactions you will do in your life. Buying or selling in an emotional state can sometimes lead to poor decisions. Whether it’s the buyer that overpays or the seller who declined the best offer, we are all susceptible to making regretful decisions when transacting the family home.

Prior to entering the real estate market, understand the difference between emotion and logic in the decision making process. We all like to reach pragmatic and logical conclusions. This is less likely if our emotions swamp our logic.

A lot of people suffer buyer’s remorse and/or seller’s remorse after transacting. Buyer’s remorse is where buyer feels they bought the wrong home or overpaid in an emotional state. Once the emotion of the purchase has worn off, they logically begin questioning the merits of the purchase. Some people carry buyer’s remorse for years after their purchase. They seriously regret the emotional decision they made, questioning it for years afterwards.

Seller’s remorse is where the seller feels as though they undersold or should not have sold. They may have made a decision in haste that they now regret. Many a vendor suffers seller’s remorse after the auction if they succumb to the tactics and pressure employed by the agent.

A reluctant vendor who is selling the family home of 40 years needs to accept that a buyer won’t compensate them for happy memories. The buyer is purchasing tangible goods, bricks and mortar if you like. Sure, the buyer may be in a competitive bidding scenario against other buyers that pushes the price up, but this is simply the market at work. Rarely will a buyer pay more because the owner has emotionally overpriced.

Interestingly, many sellers subconsciously overprice as a means of scaring buyers off, thereby diminishing the chances of a sale. If the buyer pays the excessive price, the seller wins. If they don’t, the seller does not have to sell. This is very common in circumstances where one partner wishes to stay in the home whilst the other has a strong desire to move.

Many people look back at themselves after they have bought or sold and laugh at their irrationality. It’s only through the clear lenses of logic that they can see how emotion fogged their thinking. The seller realises that the agent was right when they told them the offer was a good one and they should take it. The buyer looks back and understands their low ball ‘take it or leave it’ offer was factoring in all sorts of Armageddon scenarios.

In the emotional haze that descends over us once we begin a real estate transaction though, this clarity is absent.

Particularly so if you are unaware of emotion overriding logic in your thinking. Our purchasing decisions are influenced by two psychological factors – emotion v logic.

Emotion and logic manifests themselves in many different ways. From an emotional perspective, you may find yourself overcome with fear, excitement, worry or jubilation when deciding to act or not act in a transaction.

From a logical perspective, you may find yourself buried in statistics and reading the internet late at night as you research the subject, hoping to find the logic to justify the emotion of the transaction. Real estate investors will often read dozens of reports and statistics hoping to stumble on the signal that screams ‘buy’ or ‘don’t buy’.

Regardless of how aware you are of the emotion v logic element at play, we all tend to buy emotionally and justify logically. The problem there is you can find yourself looking for logic that does not fit with the emotional decision that has been made. Real estate agents are acutely aware of the influence emotion and logic exerts on buyers and sellers.

The presentation of a home is often designed to ensure an emotional reaction in the buyer that causes them to say ‘we love it, we have to have it.’ The agent then attempts to logically confirm the desirability of the home by claiming there has been ‘a lot of interest in this particular home’.

The seller who wants above market price is assured by the agent that their thinking is understandable and plausible. Just ‘sign here and I will look after things’ says the confident agent at the height of the positive emotion that has been generated. The agent spends the next 5 weeks of the campaign producing reports and offers that bring the owner’s price expectations down from a state of emotional exuberance to market based logic.

The key to rising above the transaction and seeing yourself in it is to ensure that you don’t delude yourself that you are making a logical decision when you are overridden with emotional and vice versa.