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Real estate agents like to say that house hunters make offers based not on price, but emotions. Recently, Duke University published scientific research that supports the reality of such a phenomenon.
Whether you’re buying or selling a home, even a rudimentary understanding of how the brain synthesizes emotions can help you develop (and stick to) a logic-based valuation of the property in question.
Related: What’s My House Worth?
Let’s say that after 25 happy years, you’re putting the family home on the market. When you look at the place from the curb, you see holiday memories and the hard-won result of your maintenance and remodeling efforts.
Indeed, fond associations may lead you to view the property in more favorable economic terms than it warrants. But you can’t put a price on memories. For a fair assessment of the home’s market value, seek out a third-party appraisal.
Remember also that emotions figure largely in the real estate negotiation process, no matter which side of the table you are sitting on. And in the heat of the transaction, small incentives can deliver outsize impact.
If you are selling, hold back on a small concession, such as a $500 allowance for new carpeting. Once you are close to reaching an agreement, toss that incentive into the mix, as it might help your buyer feel more comfortable accepting the terms.
Conversely, if you are negotiating to buy, carefully monitor your own emotional response to the tactic described above. Don’t let your emotions attach an outsize value to the incentive. Ask yourself whether it’s truly enough to make you agree to the sale price.
Duke researchers found that for human beings, emotions inevitably factor into valuations. The best you can do is to be aware of your own tendency toward irrationality, working around it by focusing on facts.