Daniel Gilbert, Harvard psychology professor, internationally famous happiness expert and the guy in those Prudential Financial commercials, thinks real estate transactions are “almost all psychology”.
“The actual mechanics of a real estate sale or purchase are pretty cut-and-dried”, he claims in a recent issue of REALTOR Magazine.
Dr. Gilbert is both dead wrong–any real estate attorney would laugh at the idea that real estate transactions are straightforward–and partly right, and any academic who’s even partly right about real estate deserves an award, or in Dr. Gilbert’s case, yet another award.
“Under the best of circumstances,” he says, “people are not very rational decision makers”. Here Dr. Gilbert reveals the secret handshake of those who study consumer behavior: the consumer as unguided missile, excepting, of course, the consumer-who’s-also-a-student-of-consumer-behavior rational enough to know that everyone else’s decision-making is irrational.
“Now,” he continues, “put them in circumstances where they are making a purchase that is many times larger than every other kind of purchase they have ever made or will make again, and you have a recipe for people being extraordinarily irrational”.
True, buyers and sellers can bring emotion to the real estate transaction, and sometimes a great deal of emotion. And, true, emotion can cloud judgment. But emotion is necessary to buying a home. In our data-driven society, emotion gets a bad rap, but if you ain’t feelin’ it, you ain’t gettin’ in contract.
I’m not saying that real estate consumers don’t need hand holding–although the more they need, the less likely they are to succeed. The will and staying-power to prevail has to come from within. The agent can’t supply it, although he or she can guide and affirm it.
But where real estate consumers do need frequent interventions is in the mechanics of the transaction, the very aspect that Dr. Gilbert discounts. It’s not just that a transaction is complicated, even in the best of circumstances. It’s that a real estate transaction is incredibly nuanced, far more nuanced than any other transaction consumers will ever encounter. In real estate there are often many decision paths, some leading straight off a cliff but tempting, especially to the uninitiated unaware of their consequences, others valid but offering varying trade-offs of risk and reward.
No, real estate consumers aren’t stupid, although I often find that belief implied in the statements of academic economists. Think your clients are idiots, and you won’t last long in this business. But consumer protections and the public’s desire for simplification and convenience have removed most of the decision paths and rough edges from our transactional existence, dumbing it down. That’s not necessarily a bad thing, but it does leave us unprepared for any transaction that involves more than whipping out a credit card.
Real estate transactions aren’t “almost all psychology”, but psychology is a component. Emotion isn’t the enemy, but agents can and must channel it in productive directions. And academics who offer insights to an industry can often benefit from that industry’s insights.
copyright © John Fyten 2017