Entries Tagged 'The Psychology of Real Estate' ↓

The other day I came upon an article titled “Confessions Of An Anonymous Victoria’s Secret Photoshopper”. Everybody knows that most fashion advertisements are photoshopped, but I like to be reminded every now and again that photos of the world’s sexiest women are usually fake.

The article is a real guilty pleasure if you have some time to read it click here, but these are the Coles Notes:

1. Retouching existed long before Photoshop: If a model is wearing a colour that doesn’t look good on a computer screen, a retoucher will flat out change the colour for the ad.
2. Body-fixing starts on set: Hair extensions are a staple at any photo shoot and a swimsuit model wears push up bra underneath the swimsuit, the push-up bra is later photoshopped out of the image.
3. No one’s body part looks like that: The model knows her skin will be photoshopped to look hairless, flawless and perfectly tanned anyway, so she may as well not bother shaving.
4. In the end, it’s just about selling: If consumers didn’t buy into the “sexy-fake” imagery, there wouldn’t be a need for Photoshop.

It’s a sad reality, but we as consumers are emotional, irrational and impressionable.

We see this kind of editing everywhere, in every industry. Whether it’s a lipstick, a car or a sports drink, every product is made to look more beautiful or desirable in one way or another.

Well, we’re seeing this in the real estate industry too. 

I can’t count the amount of times I’ve had a client lured in by beautiful MLS photos, which were captured using a special filter and good lighting. 

…By the newly renovated flooring, which is actually a sloppy quick fix for cosmetic purposes.

…By the designer furniture, that is in no way practical for actual living.

Sellers have to think about what image will create the strongest emotional response from a Buyer.

Psychologist Ernest Dichter who studied consumer behavior in the 1930s can help explain what motivates a Buyer. “Dichter understood that every product has an image, even a “soul”, and is bought not merely for the purpose it serves but for the values it seems to embody. Our possessions are extensions of our own personalities, which serve as a “kind of mirror which reflects our own image”. Dichter’s message to advertisers was: figure out the personality of a product, and you will understand how to market it.”[1]

If a Seller is effective in home staging and photography, the presentation of his home will create an image for the Buyer of the kind of life they will live if they buy the home. Thoughtful marketing of the kitchen, with high end Wolf appliances, fresh cut flowers and the right placement of hard cover cookbooks, can make a Buyer think she will become the next Julia Childs. Her guests will think of her as a sophisticated chef and posh hostess.

If the bathroom is staged to look like a spa, the Buyer might think she will never be stressed out again. She will forever be calm, and zen because any time she is faced with a problem all she has to do is pour herself a bubble bath and the problem will go away.

I fall for this over and over. Every time I buy an Adidas by Stella McCartney tennis dress, I do it because of how darn good Caroline Wozniacki looks in this dress. Heck, I might even hit a ball as well as she does! Of course, it’s never the case after I bring the dress home. I’m still lumpy and I still can’t serve a tennis ball properly. I know deep down that I may as well save the money I spend on the brand name and go for the generic no name athletic apparel, but I am an impressionable human being and I just can’t help it, I still think I will become Caroline if I wear the same dress.

“You would be amazed to find how often we mislead ourselves, regardless of how smart we think we are, when we attempt to explain why we are behaving the way we do,” Dichter observed in 1960, in his book “The Strategy of Desire”. He held that marketplace decisions are driven by emotions and subconscious whims and fears, and often have little to do with the product itself. Trained as a psychoanalyst, Dichter saw human motivation as an “iceberg”, with two-thirds hidden from view, even to the decision-maker. “What people actually spend their money on in most instances are psychological differences, illusory brand images,” he explained.[2]

This happens all the time for Home Buyers. They are willing to shell out thousands of extra dollars because of the perception that a home which shows beautifully is worth more. Once the staging is gone and the home is vacant, it feels bare and underwhelming and they can’t help but feel disappointed.

We can blame the marketing, but what lessons can we learn from this? 

As a Seller, you want to take every measure you can to appeal to a Buyer’s subconscious desires as Dichter proposes and give your home a desirable personality.

As a Buyer, you want to look beyond the bells and whistles of the home. Strip off the personality, examine the home closely and envision it without the furniture and décor. Don’t be so quick to dismiss a home that doesn’t show well either. The interior can always be improved, what can’t be changed is the physical location and layout of the home.

As a final analogy, when a model wears make-up at a photo shoot, the make-up hides her flaws and consumers don’t ever really know what she truly looks like. It’s the same for Home Buyers, in a Seller’s market they spend only minutes reviewing a property before they need to make a decision about it. Buyers aren’t always qualified to judge a house beyond all the make-up and glamour. It’s always valuable to bring in a Home Inspector to uncover the make-up and help the Buyer see the property for what it truly is. 

Donald Duck heard a rumour about buried gold. He grabbed his pickaxe in pursuit of finding the gold, which had always been a lifelong dream of his. He didn’t ask for help because he thought he could do it alone. He went out without any direction, and he dug for days.

On the first day, he got dirty. 

On the second day, he got tired.

On the third day, he got injured.

On the fourth day, he got depressed.

He had put in many hours, and he had given it every ounce of effort but on the fifth day, he lost hope, gave up his pursuit and went home.

Mickey Mouse heard about Donald’s quest. He also believed there was buried gold, but Mickey knew that this wasn’t going to be an easy endeavor. He knew he was going to need help and he wasn’t afraid to ask for it.

Mickey recruited a team of seven dwarfs. The dwarfs were highly skilled as they were precious mineral miners. They went back to the very spot Donald had left a day ago. They had specialized equipment and surveyed the land. They took measurements, land samples and made calculations. They determined that it wasn’t a rumour, there was gold, only it was three feet deeper. Had Donald continued for a fifth day, he would have struck the gold himself and his dream would have come true.

This is a common theme in real estate, especially for House Buyers in the Toronto market.

Patience, persistence and positive thinking are components in achieving the dream of owning real estate in Toronto. Quitting is just a decision away and it’s easy to lose hope after three times you’ve found the home of your dreams, three times you’ve been involved in a bidding war and three times you’ve been outbid. This is where persistence becomes the key to whether you achieve your goal or whether you give up on your goal. You never know when you will strike gold, wherever you are, it may only be three feet away. 

Frustration is a result of unmet expectations. Donald expected to find the gold on his own, and when the pursuit took longer than he expected, when he encountered obstacles he didn’t see coming, he began to feel the stress and giving up felt easier than continuing on. He made the decision to quit. Donald was focusing on how long it was taking him to reach his goal, and he was thinking of his hardships.

The lesson is that focusing on how long it takes to achieve a goal is not as important as how persistent you are. If Donald were more persistent, patient and positive, he would have seen a different outcome. The focus would have gone from defeat to success. His troubles wouldn’t have seemed as bad if he had gold to show for it. Once you have achieved a goal, it’s almost irrelevant how long it took, or how difficult the process was.

Mickey on the other hand knew the value of a good team. He had realistic expectations because he received advice from qualified professionals. In real estate, if you’re a Buyer, it’s the equivalent of hiring a trustworthy Realtor, Mortgage Broker, Home Inspector and Lawyer who will take the time to educate you on the process before you even start. This way, you will be prepared for what’s to come and you aware of the obstacles. You may expect the process to take a long time, and even take several tries at an offer.

For example, a Buyer who is prepared will know when a house is underpriced and set up for multiple offers and they will have assessed the neighbouring comparable properties which recently sold for a better sense of the home’s true value. A Buyer who is prepared will know that, to get a competitive advantage, he will need to do his due diligence: home inspection, mortgage approval or lawyer review before the offer date. That Buyer will rely on his team for their expertise and it will help him achieve his goal. A Buyer who is unprepared will take shots in the dark until one day he gives up.

Like Mickey, if you know a goal is worth pursuing and it is what you truly want then the formula for success is preparation, patience, persistence and positive thinking.

THE PRECEDING COMMENTARY IS THE OPINION OF HANNA MACDONALD AND DOES NOT REPRESENT THE INTERESTS OR OPINIONS OF RIGHT AT HOME REALTY INC., BROKERAGE OR THE TORONTO REAL ESTATE BOARD. THEREFORE, RIGHT AT HOME REALTY AND THE TORONTO REAL ESTATE BOARD WILL NOT BE HELD RESPONSIBLE AND/OR LIABLE FOR ANY OF THE OPINIONS HEREIN.

THE AUTHOR IS NOT LICENSED TO PRACTICE PSYCHOLOGY. THE RESEARCH FINDINGS REFERENCED IN THE COMMENTARY ARE USED TO MERELY UNDERSCORE THE AUTHOR’S OPINION AND OBSERVATIONS.

Fred Flintstone and his family lived at 301 Cobblestone Lane, Bedrock in a 2 bed, 1 bath bungalow with an attached garage and a wood-burning fireplace. The home was a cozy place for two, but when Wilma was pregnant with Pebbles, Fred decided to put the house up for sale and look for something a little bigger.

He listed his home for 100 clams. A number he thought was fair and reasonable based on past comparable sales.

Meanwhile, his best friend Barney Rubble and wife Betty were thinking about buying a new home. The market in Bedrock was slow, and as a result, there have not been that many sales in the year. When Betty saw the For Sale sign, she demanded Barney make an offer.

That night Betty and Barney argued over how many clams they should offer the Flintstones for their bungalow. Betty, who has a reputation for overspending, was insisting they pay the full asking price for fear of losing out on the home. Barney felt the opposite. He was frugal, and he just wanted to get a good deal.

The next morning, Barney made Fred an offer of 50 clams.

Fred Flintstone is generally quick to lose his temper, even over the most trivial matters, but this matter was far from trivial. Barney’s offer was not well received. Fred Flintstone was insulted, and that night the entire town of Bedrock could hear Fred’s outburst.

Barney returned home to Betty and told her that Fred had lost his temper again. Betty begged him to go back with a higher offer.

Half an hour later, Barney goes over to see Fred again with a much higher offer than before, hoping Fred will negotiate with him.  This time Fred refuses to speak with him and won’t even look at the offer. He is so angered by Barney and decides that under no circumstance will he sell this house to Barney, whether or not he is the sole and only Buyer.

In an emotionally charged decision, Fred takes the house off the market and decides to build an addition for the new baby addition instead. 

What lesson can we take from this fictional story set in the Stone Age? 

The situation is similar and the reverse to an economics experiment called “the Ultimatum Game”.

In the Ultimatum Game, a Proposer decides how to split a sum of money with a Responder. Let’s say the Proposer is given $100 and can choose to split the money with the Responder in any percentage the proposer would like. However, if the Responder rejects the proposal, both players get nothing.

Psychologists can gather insight into the human psyche from the outcome of this game.

What they found is that Proposers found success when they offered between 40%-50% to the Responder. When Proposers offered less, the Responders generally rejected the offers and both players ended up with nothing. 

Why would a person reject 30% and leave with nothing, when it’s economically irrational? Isn’t something is better than nothing? 

Informed, knowledgeable Responders may react to small ultimatum offers by perceiving them as unfair, feeling anger, and acting spitefully. They prefer to have nothing and punish the Proposer’s greed. Perhaps the line of thought is that they would only lose 30%, whereas their opponent will lose 70%.

Many psychological complexities can be drawn from the Ultimatum Game, especially if it’s a one-shot deal. The Proposer will have to work out the minimum offer that’s likely to be accepted. Most Proposers will act fairly, or appear to act fairly, as it’s a highly rational custom in a society where people have to work together.

In Fred Flintstone’s case, he is the Responder while Barney Rubble is the Proposer. He and Barney were the only two players, and it was somewhat of a one-shot deal. Barney offered Fred a sum that was far too low and unfair. Rather than take some time to cool down, Fred was quick to act and decided to punish Barney and took his house off the market. Neither Fred nor Barney ended up with anything and the deal was unsuccessful.

Does this happen in real estate in real life? Generally, Sellers don’t react well to low-ball offers if they perceive the amount to be unfair. Buyers are allowed to make as many offers to a Seller as they like, but once they’ve established a poor relationship, negotiating becomes more difficult.

The short lesson today is for Buyers. If you find a house you love, don’t risk spoiling the relationship between you and the Seller with a low-ball offer. You will have greater success if you offer a fair amount.

THE PRECEDING COMMENTARY IS THE OPINION OF HANNA MACDONALD AND DOES NOT REPRESENT THE INTERESTS OR OPINIONS OF RIGHT AT HOME REALTY INC., BROKERAGE OR THE TORONTO REAL ESTATE BOARD. THEREFORE, RIGHT AT HOME REALTY AND THE TORONTO REAL ESTATE BOARD WILL NOT BE HELD RESPONSIBLE AND/OR LIABLE FOR ANY OF THE OPINIONS HEREIN.

THE AUTHOR IS NOT LICENSED TO PRACTICE PSYCHOLOGY. THE RESEARCH FINDINGS REFERENCED IN THE COMMENTARY ARE USED TO MERELY UNDERSCORE THE AUTHOR’S OPINION AND OBSERVATIONS.