Real Estate Decisions: Use Your Head or Your Heart?

Last week I had a difficult decision to make.  My emotional side had to duke it out with my logical reasoning. I work through head versus heart wars with clients all the time, so this week was an opportunity to observe the decision making process and find ways to optimize difficult choices.

Residential real estate is a fertile ground for difficult decisions that employ both the logical and emotional.  So how do we make the best choices when buying a home and who to trust, the head or the heart?  The answer is that you’ll have to bring the two to a compromise for the optimal decision.

A purely logical decision

Three years ago I had a house on the market in Newton priced around $780,000.  A family came to see this house three times, and obviously loved it.  When they were ready to make an offer, the conversation was something like this. “We’ve done the analysis of all the sales in the past six months in the radius of .33 miles.  Using a formula taking into account square footage, age of house, etc etc…the house is worth $632,392.  Our offer is for $632,500.”

A purely analytical offer misses the variables that are not easily measured, or altogether intangible.  This family would have enjoyed this house, it was perfect for them in many ways, and they missed it.  The house was sold for $750,000 to another family.

A purely emotional decision

In the height of our condo market, around 2006, I worked with a buyer for only a couple of weeks before she was ready to make an offer on a very pretty one-bedroom in Brookline.  “I love it, I love it, I love it.”  When buyers don’t take longer to choose a home my reaction is usually, “Are you sure, are you sure, are you SURE?”

My buyer did not want to negotiate; she put in a generous offer, higher than what I had suggested.  All my explaining and advising was ignored, and my job was to represent her wishes.  Everything went pretty well up until the appraisal.  The bank’s appraisal was lower than the price my buyer was willing to pay.  This means the bank is not willing to finance the purchase at this price – a big problem.

Did I mention this is the height of the condo market?  I wasn’t new to the business but it was the first time I heard of a bank appraisal resulting in a lower price, (a commonplace these days).  She was overpaying even in a hot market.

Finding the balance

I believe we naturally find a balance and use both our rational and emotional sides.  A good real estate agent ensures this, and will hopefully balance your dominant decision making side.  The pros, the cons, the what-if’s, and the numbers.  It is a peace process between our heads and hearts because a home is all encompassing.

A house is both a financial investment and a home.  You must enjoy the house, find it comfortable, and be happy to enter it after your day at work.  But you can’t ignore that it will likely be your largest financial outlay ever.

 

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