3 More Resolutions…

It’s the 10th day of a new year and maybe you’ve made some resolutions. They might even involve housing. As part of your housing resolutions I suggest the following:

1. No one can predict the future. Look back on expert stock market predictions for 2016 and you will see they failed in their predictions (see bottom).

When an agent suggests you buy a house “because you can’t lose on it” know that such predictions are nonsense.

2. You should be in a constant state of defense about the real estate information being fed to you to mislead you.

3. Pretending to know things is different than knowing things. Ask the question. Question the answer.

As the New Year breaks, we are working with clients under 30 purchasing their first home, clients over 65 researching whether to sell their existing home and buy another and clients relocating to Milwaukee. Our client price parameters range from $150,000 to $650,000.

Questions should be the order of the day. Sometimes clients know the questions to ask but often they do not. We ask the questions they fail to ask as a means to inform.

The goal is to obtain answers to make an informed choice, a wise approach whether buying a home, renting, buying a car or any matter that involves the expense of money or time – valuable commodities.

Home selling is similar to selling cars. Each is system set up to sell you a product based on emotion and to use your emotion to the benefit of the system.

We work only for buyers and part of our work is to try to remove emotion from the decisionmaking process – certainly to remove it as a selling tool. That’s been our resolution since starting Homebuyer Associates, Wisconsin’s oldest most successful (quietly) Exclusive Buyer Agent firm.

Daniel Kahneman, winner of the Nobel Prize for his work in the field of behavioral economics and decision-making, speaks to this in his book Thinking Fast and Slow.

Mr. Kahneman writes of an investment professional (IP) who had just invested in the stock of Ford Motor Company. “Boy do they know how to make a car!” The IP went on to make it clear that he trusted his gut feeling and was satisfied with himself and decision.

Mr. Kahneman found it remarkable that the IP had not considered the one question that an economist would call relevant: Was the Ford stock overpriced? The mistake made was that the IP listened to his intuition – he liked Ford cars, he liked the company and he wanted to own stock. From what is understood about stock picking it is reasonable to believe the IP did not know what he was doing.

Now substitute the word “home” for “car.” Many people like housing, like the home they are looking at and want to own a home. Like stock picking, it is reasonable to believe homebuyers do not know what they are doing when they buy a home – absent questions and answers about value.

They buy a home for $5,000 less than asking but never ask, what is the home worth?

From behavioral economic studies the judgments outlined (car and home) are examples of “liking” something and decision-making based on rule-of-thumb logic, a heuristic decision – a process which can cost you money.

What’s missing are deliberation and reasoning which is a product of questioning value and one’s own biases. It is a role we try to fill on behalf of our clients and it is vital to a successful home purchase.

Discard the biases you may have formed watching real estate porn T.V. and conversations with friends who have purchased a home…once. Contact us with your questions. You may be surprised by the answers.

Yes, our approach is different and has been for 31 years. We are not going to sell you emotionally nor without obtaining answers to questions. We do this quietly. We do this differently. We do this well.

(As to Stock predictions for 2016:  The S&P Stock Index increased 9.5%.  If you invested in Forbes list it was about 7%; Kiplingers 3.5% and Money Magazine 5.3%.  N.Y. Times January 4, 2017.)

Thanks for reading,
Michael D. Holloway