In this episode, we tackle the art and science of recognising and removing emotions when purchasing a property. When we are not thinking objectively, we risk making poor impulsive decisions. In the property game, this can mean purchasing an under-performing asset, losing money, having to start all over again and regretting the home you have chosen for yourself.
So how do emotions impact our judgement and decision making?
This question has been explored in great depth in the last couple of decades, so much so that ‘Judgement and Decision Making’ has now been reduced to an acronym, JDM, in the world of social science.
Take a listen as David Johnston, Cate Bakos and Peter Koulizos take you through the property related causes of emotional decision making, how you can detach yourself to make objective decisions and the emotional biases that we all have.
EP # 35 – “Emotional decision making” – No.5 of the top 7 Critical Mistakes.
- The art and science of removing emotions when buying property
- Emotional decision making
- Why you need to plan for your future home when buying an investment property
- Why the family home is often the biggest piece of the investment puzzle (Ep.22)
- Making the first move – why the first property you buy is the most important of all
- Why short-term investing has long-term consequences
- The critical mistakes of property investment – starting without a plan
- House hunting is a compromise so target the most important factors
- Develop your Property Plan
- The top 5 mistakes property investors make
- Five mortgage strategies that can grow your wealth
- Why your approach and assessment of risk is paramount to property success! (Ep.10)
- Property Cycle Management – why now is always the best time to buy if it suits your personal economy and you have a long-term property plan (Ep. 12)
- Why your Mortgage Strategy is more important than your interest rate! (Ep. 9 )
- Choosing whether to hold or sell investment property
- Questions to ask when buying an investment property
- How to succeed with Property and Create your Ideal Lifestyle
- Mortgage Strategy 101 – YouTube video series.
- How do emotions impact our judgement and decision making? (‘JDM’) Emotions are constant, pervasive, predictable, sometimes harmful and sometimes beneficial drivers of decision making. Much of the research is focussed on how emotions can influence decision making and your gut, to the extent that it reflects your emotions, might be steering your wrong!
- Causes of emotional decision making:
- Fear – there can be many reasons why you become a deer in headlights and don’t purchase a property because of fear. You could lose money, buy a lemon, pay too much, miss out on an asset you were emotionally invested in, owe heaps of money. The list is endless.
- FOMO – similarly, a fear of missing out can cause you to make bad decisions by purchasing a property in haste. In a moving market, the fear is that if you don’t buy something now, the property will go up in value. This may cause you to settle on a 7 out of 10 instead of a 9. This can cause you to make critical mistake #6 – buying the wrong property or the wrong location.
- Holding out for the unicorn – are you searching for a property that doesn’t exist? You will not find a property that ticks every single box, just make sure you have your must haves and some nice to haves. The Property Professor’s tip – get the location right, that cannot be changed, but all other aspects can. Don’t like the kitchen? That is fixable.
- Confusion – climbing out of the advice labyrinth. There’s plenty of ways to make money out of property, when each professional all have their own secret sauce, you can be confused about what to do. This is the information age, so how do you distill the information you trust? If you keep wandering around and listening to different people, you will never purchase. Pick an expert that you trust and listen to them.
- Leave your ego at home when on the property hunt – your ego can make a mess of things, you may think you need a certain style of property in a certain suburb. You may be targeting something that doesn’t exist in your chosen suburb, or that you cannot afford unless you purchase something on the main road.
- You are sick and tired of pounding the pavement – pay someone to do it for you. The great thing is that professionals will be objective, rather than subjective, skilled and experienced. If you’re spending hundreds of thousands on a property, what’s the buyer’s agent fee in comparison to secure a winning property?
- Familiarity – you want to buy an investment down the road, you know the area, you can keep an eye on it. We’ve covered this before, this is not a good reason to invest.
- Time pressure – where you feel the stress of a ticking clock, make sure you have a plan B so you can avoid making a bad decision under the pump. If you are going through any of these events, this applies to you!
- Lease is expiring
- You’ve just sold your home
- You’re having a baby
- Kids are starting school
- Cultural biases – do your cultural biases cut you off from considering quality property opportunities? Examples include the number of the house or the house configuration. Some of these may in reality add or subtract to the real value of the property.
- Ubiquitous biases – each person has 180 biases, like the ‘sunk cost bias’ – you’ve spent x amount of time searching in this location, so you feel like you should buy there even though you’ve figured out that it’s not the right area for you. Be aware of the biases that affect you.
- You don’t like the agent = don’t let a bad agent get between you and a good house.
- Future use – where your ability to use the property in the future is creeping into the decision, this could be dangerous territory.
- Pleasing third parties – we all want to make our parents happy, but some decisions belong to you.
- How can you detach yourself to make better decisions?
- Planning and preparation, this one’s a no-brainer.
- Aligning your purchase with your goals.
- Thinking of the property as a product – if it’s an investment you’re looking for, you are running a business. If it’s a home, you need clear criteria, and cross check your must haves with what has recently sold as a feasibility analysis.
- Get a buyer’s agent.
Cate Bakos – The Property Buyer’s Golden nugget: when looking for the family home, it is an emotional process, so how do you stop emotions from getting in the way? Set yourself some clear criteria, you know what you want, where you want to be and cross check feasibility on a search engine by looking at sold properties. Don’t look at what’s for sale, underquoting can get you. Look at genre of dwelling in your price points, if our budget does not match what’s recently sold, then you know you need to adjust what you are looking for.
Peter Koulizos – The Property Professor’s Golden nugget: when you are looking to buy a property, particularly an investment property, your decisions need to be objective rather than subjective.