Six Psychological Traps to Avoid When Looking for a Home
Buying a home has always been a stressful experience. For most people, this requires a lot of money , and this is where you are going to live, the most significant space in your life. Finding a home that meets all your financial, physical and emotional needs can be a daunting task. And it’s a task that many people fail at: 82% of home buyers feel remorse .
Finding a home should be relatively simple: you want X number of bedrooms, X amount of square footage in this particular area, at this particular price, with this short list of features and amenities. But we often allow our emotions to confuse us, usually without even realizing it. Considering how much of your money and time goes into buying a home, you owe it to yourself to be aware of these six psychological traps that could lead you to the wrong home.
Endowment effect
It’s natural—and often helpful—to imagine your future life in the home, imagine your family around the dinner table, or the perfect place for a treasured piece of furniture. But all these fantasies can lead to a phenomenon called the endowment effect, where you place more value on what you own. When you imagine your future in a home, you are in a sense imagining that you already have it, and suddenly it becomes much more valuable and important to you. This can lead to irrational decisions, such as overpricing your home.
To guard against this, try to maintain a dispassionate imagination – dimensions, use of space, the right number of rooms, lamps and outlets. Avoid emotionally charged images, such as prom photos at the bottom of the stairs or serving a holiday dinner to a crowd of friends and family.
Price anchors
The anchoring effect causes us to place too much weight on the first piece of data we need, creating a bias that affects all subsequent decisions. When it comes to a home, the first piece of information you usually get is the list price, and real estate agents and home sellers always adjust the list price to suit their needs. They may set the price low to provoke a bidding war, or raise it to show that the home is special in some way. In any case, they are trying to fix this price in your head in order to somehow manipulate you.
To fight back, learn the basics and determine your own fair price for the property (your real estate agent can help you with this). Once you have an objective opinion of what the home is actually worth on the market, you can continue to use the list price as a starting point for negotiations rather than an anchor.
Herd behavior
Bidding wars work because of herd behavior: once we see other people doing something, it suddenly seems like a much more legitimate option. Contagion theory describes how overwhelming opinions can “infect” people, which can come into play when people bid far above the listing price of a property and you suddenly feel like the house is worth more than you thought.
Another herd behavior that can push you to overpay for real estate is the principle of scarcity—the belief that a limited supply makes something more valuable. This may explain how a home that you thought was a little overpriced yesterday may suddenly seem more valuable once you realize that the inventory of comparable homes isn’t as strong as you thought—but the underlying characteristics of the home or the market haven’t changed.
The principle of scarcity can also be clearly used against you if someone is selling a house. Listings that highlight a home’s unique features (perhaps it’s the only one on the block with a basement or has an outdoor space that no other home in the area can boast) can make the home more valuable, even if those features weren’t on your list of must-haves.
Paralysis of choice
Also called “analysis paralysis,” this psychological phenomenon occurs when you are overwhelmed with choices, decisions , or “what-if” scenarios. We tend to assume that having more options is always better, but having to constantly analyze a property’s features or choose between several very similar and comparable properties can leave you frozen and unable to make a decision. This could result in losing the home that is perfect for you and your family, not to mention much higher stress levels.
The fight against choice paralysis during the house hunt is to slow down and switch off. If you see a dozen potential homes every day, you’ll be left with a long list of homes that might be a good fit. Instead, take each potential home one at a time and focus on that one. Create a plan based on the facts—what you can afford, what you need to have in your home—and carefully consider each property against that plan before moving forward.
The Sunk Cost Fallacy
The sunk cost fallacy is a psychological trick that you can actually play on yourself. It comes down to the feeling that if you’ve invested time and energy into something, leaving will make the whole experience a huge waste of time. It pushes you to try to save that time. When you’re looking for a home, it means buying a home in part because you’ve spent a lot of time on it.
Combating the sunk cost misconception when searching for a home can be challenging. The key is to take the stress out of the core work of finding a home and negotiating the sale. The highest value is finding the right home, not paying yourself for the time spent searching for it.
FOMO
Fear of missing out can make people worry that prices or interest rates will rise and they will be priced out of the market; that a particular house will be seized by someone else if he does not dare to jump; or that the time needed to move toward homeownership is running out. Once you convince yourself that you’re about to miss your only chance to find the right home, you become vulnerable to poor decisions.
The only way to protect yourself from FOMO is to remove some of the fear. Consulting a trusted real estate professional and doing a little market research can put your mind at ease about home prices, and getting pre-approved by a lender can give you confidence in your purchasing power and ability to make an offer when the perfect home comes along. Most importantly, press pause and ask yourself if you would buy this house at this price if all the perceived pressure was removed.