Home buyers and sellers often seek advice from others. Even when they’re working with a professional who provides expert guidance. You might think it’s good to get validation from others on your real estate decisions. However, a Vancouver consumer study suggests that following friendly advice may be a bad idea (Friends give bad advice; The Sun, 4/14/2011, p29).
Research of consumer psychology and behavior have time and again found that consumers want to be correct in their choices. They want to feel good about their decisions. They want to believe that their purchases are the best, and the professionals they choose are tops in their field. Consumers are known to behave irrationally to prevent the cognitive dissonance that occurs when they are confronted with conflicting thoughts about their choices. And that means they often make poor decisions.
Mintel’s American Lifestyles 2015 report indicated that 69% of those surveyed sought out product and service reviews before purchasing. While 57% of those surveyed sought out recommendations from social media. Given the finding, it is suggested that there may be emphasis for communal thinking over “individual preference.” However, about 38% of those surveyed considered independent review websites as “trustworthy;” while 34% found them useful. But, 31% found social media contacts trustworthy; while 25% found them useful (Seven in 10 Americans seek out opinions before making purchases; mintel.com; 6/3/2015).
Seeking out friendly advice is part of herding behavior, which has been found to be a part of our everyday decision making process. A groundbreaking study of home owners’ decisions to walk away from their mortgages (strategic default) during the great recession revealed how people seek and give advice (Luchtenberg & Seiler (2013). The effect of exogenous information signal strength on herding. Review of Behavioral Finance, 5(2),153-174). The study concluded that people tend to seek advice when they feel that their choice is not in agreement with others. While advice was readily given by those who felt their choices were believed to be the consensus.
Buying and selling a home may not always feel as if it is a rational process. And you may think it logical to seek friendly advice. However, indiscriminately following advice may not be the best practice because all real estate transactions are different. Each transaction presents a different set of variables such as personalities, market conditions, contract terms, etc.
Given the research, more often than not, you are doomed to follow the advice of a friend or family member – even when confronted with the evidence that the advice is ill advised. You can infer from the Vancouver study mentioned earlier that friends and family feel “pressured” to give you advice on your real estate transaction because they want to be helpful. Furthermore, herding research suggests that you probably give emphasis to advice from friends and family because following their advice will likely make you feel you are “doing the right thing,” as well as increase your acceptance by them.
Regardless of your rationale, your real estate decisions are most likely based in psycho-emotional needs and/or fears (such as status, acceptance, and avoidance of failure). Breaking away from the herd is difficult. Improve your decisions and make your transaction successful by pursuing balanced information and becoming aware of your motivations.
Copyright © Dan Krell
Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.