Property investors are only human

posted in: Marketing Tips | 0

Interesting new research about the emotional drivers behind property purchases cements the undeniable reality that investors are just like everyone else – sometimes susceptible to thoughts that go against their better judgment.

“I reckon another $10,000 will get this bad boy across the line,” the agent smiled, smoothing down his slick suit and nudging his Montblanc pen closer towards me. “Just write the new offer amount there and initial it and I reckon it’ll be yours by the end of the night.”

I was sitting in the apartment in question – an oversized, unrenovated gem in an art deco masterpiece that’s fairly iconic in Brisbane. It had so much potential. I could just picture all the things I’d do with a major renovation.

Mostly, I could see myself living there and telling people I lived there. I simply had to have it.

And that’s how I found myself in a silly position where I should have known better – desperate, determined and willing to pay just about anything for this property. To cut a long story short, the deal fell through. Despite offering more and more on four occasions, the stubborn sellers still felt they should get more despite a very flat market.

Even though I didn’t get it, I learnt a very valuable lesson on reflection. It’s one many of us discover, it seems.

Research commissioned by the Commonwealth Bank probed the psychology of buying a property and found the majority of people, whether they be homebuyer or investor, are prone to being driven by emotion on occasion.

Psychologist Dr Tim Sharp analysed the habits and attitudes of more than 1,000 buyers and found things as subtle and subjective as ‘the vibe’ of a house can force a decision to buy. Others are inspired to put pen to contract paper according to how they think the property reflects their personality.

Interestingly, most probably don’t realise they’re doing it. Three quarters of respondents reckoned they made property purchase decisions based on rational factors, yet 59 per cent also admitted they were influenced by “the feel of the property” or an “instant attraction” to it.

Sharp says it’s easy to sympathise when you consider the process involved with buying a property investment or a home. It’s trawling thousands of advertisements online, it’s researching individual suburbs or properties, then going to dozens of open for inspections and, in a hot market, making offers, being gazumped or shot down and missing out.

At the very least, it’s several weeks of painful and exhausting work that sometimes comes to no avail. More commonly, it’s many months of your life devoted to finding a property. No wonder our clear thought processes can become a little cloudy.

So it’s not overly surprising this research also identified how little we like auctions. In fact, it found 56 per cent of homebuyers and investors would much prefer to buy via private treaty, which they consider to be less stressful. First homebuyers are more likely than the average to make an offer direct to a private seller and avoid the auction process all together.

“Most buyers (55 per cent) who choose to negotiate directly with a seller do so because they believe they can get a better deal,” the research report says. And another half of respondents believe they’re less likely to make an emotional decision at an auction.

“When we start to look for a property, we have a very clear objective,” Sharp explains.

“For example, it’s needing to get a bigger house to make room for a new member of the family. But as we go through the different stages of looking for the perfect property, we start to become emotionally connected to different drivers, such as imaging how great it would be to entertain friends and family in this room or how much the kids would love the garden.

“All of this starts to influence the types of properties we become attached to and removes us further from our original objective and, more importantly, in some cases our budget.”

Even the best laid plans can go off course when there’s pressure, stress and emotion involved, so it’s important to constantly reassess your original goals, how they fit in with your strategy and, if need be, take a breather.

Keeping cool is absolutely worth it in the long run. That apartment I came very close to buying, driven purely by emotion, went to market again recently and sold for a smidge less than my final offer to the seller way back when, and it looked exactly the same as it did six years ago.

Shannon Molloy is the deputy editor of Australian Property Investor magazine, www.apimagazine.com.au