The Psychology behind Buying and Selling a House

Buying a house for most people is the biggest investment they will even make, so it’s not surprising that our emotions get involved along with our money. But how strongly do those emotions affect our decision making during this process?

A home is a refuge from the world, a place to raise a family and, for some people, an investment they hope will bring them a good chunk of money down the road. We fall in love with houses in a way that we never fall in love with a portfolio of stocks and bonds.

All too often, though, we don’t realize that how we feel about homes blinds us when it comes time to buy or sell. We let our emotions blind us to cold facts about the market or the realities of ownership. Or we prioritize one set of emotional needs over others that are just are strong but may not be evident at first. And ignoring them can lead us to make bad financial decisions that can affect us for decades to come.

Here’s a closer look at some psychological missteps that buyers and sellers often make as they wade into the housing market.

Ignoring the big picture

Home buyers are always on the lookout for features—like a longer driveway or bigger backyard—that will make them happier with their home. But people don’t realize that those changes may not make them happier with their life as a whole.

“When people move to a better housing, they think they will be a lot happier overall,” says Shige Oishi, a co-author of a 2010 study on the subject in Social Indicators Research. “When they actually move, however, their overall happiness does not often change because there are many trade-offs in moving.”

One of the biggest trade-offs is commuting. Many move to live in a bigger house, but that bigger house is often farther away from work—so that means more commuting, which tends to add stress and detract from overall happiness. A 2008 study in the Scandinavian Journal of Economics shows that people who had longer commutes reported “lower subjective well-being” than those with shorter commutes. “If you’re moving to a place far away from your friends, but it has nicer stuff, it’s not a great deal for your happiness,” says Elizabeth Dunn, a psychology professor at the University of British Columbia.

Overlooking big expenses

People who are buying homes tend to compartmentalize their expenses and not add up the total cost of everything needed to fix up and furnish the house, says Alex Tabarrok, a professor of economics at George Mason University. That can lead them to make poor choices about how much to pay for a home. For instance, they may overspend on a down payment for the house itself and leave themselves without enough money to buy the sort of decorations or furniture that they want. “When you’re getting a house, think about furnishing it at the same time,” says Mr. Tabarrok.

Weighing buying vs. renting

The biggest budgeting concern is, of course, whether you should buy a house at all. Research shows there are psychological benefits to taking the plunge—but also to opting out.

Buying a house can give people a psychological boost by making them feel like they’ve “arrived” and are part of the American ideal. Homeowners also may feel as though they have more control over their lives since they’re not dependent on the whims of a fickle landlord.

Research, for instance, has shown that home ownership can cause undue stress. The amount of work necessary to maintain a home—such as decorating, or mowing the lawn every weekend—may be too much for some people. Others may be overwhelmed by the financial aspect of ownership, such as being tied to a big monthly mortgage, or keeping up with repairs and other unforeseen costs.

Have you seen clients get overly emotional during the buying and selling process? We’d love to hear from you!

Read the full article here.

  • Umberto

    Very interesting stuf. I am enjoying your website so far.

  • Tay Tay O

    Important stuff for any Real Estate agent to know. WORD from Devonte at Keller Williams Los Angeles 😀