Emotions and Real Estate Decisions

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made an offer on the house who will water my flowersReal Estate Millionaire students, we’ll call them Sherry and Curtis, are making great progress with the course. When we had a coaching call with them, they were all fired up to turn their home into a rental property and buy a new place with a basement suite. The strategy (turning your home into a rental property when you move to a new place) can often be a very good one.

We were excited for them, but when we spoke to them, we were a little concerned that they were getting too emotional about things. Sherry was afraid of turning her home into a rental property. She had put a lot of time and effort into creating a beautiful and comfortable home over the years and was really worried it would deteriorate without her. Who will water the flowers she asked? Curtis was excited to get into the real estate investing game and couldn’t wait to move into a home with a yard.

They were planning to meet with a realtor the next day to get an idea of what their current home was worth, and then they were going to look at some listed properties in the potential new area on the weekend.

When we hung up the phone with them we sent a follow up email with some pieces of advice … the biggest point from Julie was:

Take a deep breath – I sense a lot of emotions (fear, excitement, nervousness) and that is NOT GOOD. Emotions are bad when it comes to investments. DO NOT LIST YOUR HOUSE IN A PANIC. DO NOT BUY A NEW HOUSE BECAUSE IT LOOKS GOOD. DO NOT DO ANYTHING THIS WEEKEND. Give yourselves time to think in a relaxed state. There is no urgency to your situation and that gives you power (and control). You always want to have power when it comes to real estate.”

That was Friday. Sunday morning we received an email saying “Don’t be mad, but we just put in an offer on a house“.

We are not about to get mad. We want our students to take action – and there is NOTHING WRONG WITH MAKING OFFERS. And, as long as you make them “subject to” an inspection or financing, it gives yourself a way to back out if your research turns up areas of concern. However, when you do make an offer, especially in this buyer’s market, make sure you keep control of the situation.

In our students case, we think they lost control for the following reasons:

  • They’d only looked at a handful of homes in this area (which is pretty light market research),
  • They were still very emotional about everything,
  • The realtor had only given them 4 business days to remove their subject to inspection clause,
  • Closing was only 30 days later (when they’d specficially stated they needed time to sort out whether they were in fact going to turn their home into a rental or sell it),
  • And, the realtor coached them to go in with a strong price to show they were serious. They only offered about 4% less than asking!

The good news was that the realtor had been unable to present the offer to the sellers, so there was still time to change the offer. We suggested that they contact their realtor and find out why, in a buyers market without competing bids on this property, she was pushing them to be so aggressive. And, we also suggested STRONGLY that they change their offer before it was presented so that they had a lot more time to conduct their due dilligence and ensure they were comfortable with their decisions (of buying, of renting or selling their place, etc.).

They ended up pulling their offer … and guess what … 3 weeks later the house is still on the market. If they want to, they can now go back in, more relaxed, offer a lower price, give themselves more time for the details, and get a much better deal. But that is because they’ve now had 3 weeks to slow down, take the emotion out, revisit their goals, and look at more properties. They still like this one … but they know that there are other potential deals out there now too.

The 3 Biggest Lessons to Learn from their experience are:

  1. SHOP AROUND! Be patient as you look for the deal that is right for you. When you find the perfect place – act quickly and decisively, but be sure it’s the right deal. This house may be a great deal but the only way they can know that with certainty is to look at a lot of other houses in that area. This means looking at 20 – 50+ online listings, viewing dozens of houses through open houses or appointments, and becoming an area expert.
  2. Always remember the motivations behind the people you’re working with. NOBODY will love your money as much as you do. Realtors get paid when the deal is done. That doesn’t make them bad people but it does mean that some realtors will push for terms and conditions that get the deal done … not necessarily that get YOU the absolute best deal for you. Great realtors know the market inside and out, understand deal making, and are able to work hard to find you the deals that meet your goals. Not every realtor is created equal. There’s nothing wrong with parting ways with your realtor if it’s not working out – just be honest and up front about it.
  3. You must take fear, excitement and any other emotion out of the equation. If you are emotional then you will not make good decisions. Things can go wrong, and little things probably will go wrong. That is just life …  if you’ve been following our renovation adventures on our blog, we’ve had plenty of little set backs. It’s cost us more money than we expected and added a week to the project but we never once thought “we never should have done this”. Think about what could wrong, and then think about what you would do if that actually happens. Write it down so that you can actually see your fears in front of you. Most of the time the fear is irrational, unlikely or manageable. (That said, next week we’ll share a response we had to a reader about the risks in real estate, and when to know when the risk is too great to proceed). If you are too excited, then just take a step back. Don’t do anything for 24 hours and then see how you feel.

We’re really proud of Sherry and Curtis – they are making fabulous progress towards their goals. And they are incredibly smart and hard working people. They are taking time to educate themselves and they are reaching out for help to avoid the pitfalls that often trap new investors. They will be successful in their real estate ventures and in their life.

We don’t think they were making a life destroying mistake with the deal they were creating, but we do believe that they weren’t getting the best deal they could– especially in the buyer’s market we’re in right now. We knew they were emotional about the whole thing, so we know they didn’t think it through. It can happen to ALL OF US (believe us, we know)!

Some Words of Wisdom:

  • Those who have never made a mistake are doomed to work for those who have.” – unknown
  • The reason you are in negotiations are to do better than your alternatives.” –Keith J. Cunningham
  • Aim for success, not perfection. Never give up your right to be wrong, because then you will lose the ability to learn new things and move forward with your life.” – Dr. David M. Burns
  • Have a bias toward action — let’s see something happen now. You can break that big plan into small steps and take the first step right away.” – Indira Gandhi

Posted on June 6th, 2009

Dave Peniuk