10 Jun Emotions and property investment – do they mix? – Veronica Morgan
Veronica Morgan from Lifestyle’s Location, Location, Location Australia speaks to us about emotions, property investing, and how some people say they probably don’t go together.
Kevin: My next guest on the show is Veronica Morgan. Veronica, of course, worked with Bryce Holdaway. You’ll still see them both, in fact, on Location, Location, Location, a great show featuring buyer’s agents helping people find properties in different parts of Australia. Veronica joins me.
Good day, Veronica. Long time no speak, but lovely to talk to you again.
Veronica: Nice to be back. Hello.
Kevin: Veronica has her own buyer’s agency based in Sydney called Good Deeds Buyer’s Agency, and I want to talk to you in this conversation – if I may – about emotions, property investing, and how some people say they probably don’t go together. Do you agree with that?
Kevin: Okay, a one-word answer. Is it something we should avoid, though, getting too emotional about a property if it’s going to be an investment?
Veronica: Look, I think that emotion plays a part, and I think the problem with people and how they address emotion in property investment is that we’re all taught or were told you have to buy with the numbers, buy with your head, don’t buy with your heart.
But the problem is who and what drives up prices in property? It’s not the head buyer; it’s the heart buyer. So, if you’re not buying a property with the idea in mind that this is a property that people are going to live in – and I’m talking residential here, of course – then if you’re forgetting or trying to forget the emotional part of that, then you are forgetting and omitting to consider a massive part of what drives capital growth.
Kevin: Okay. I’ll play devil’s advocate for a moment, if I may. The emotional part of this, though – if you’re not careful – can drive you to buy at any cost.
Kevin: And that is where the real danger lies, isn’t it?
Veronica: Yes, absolutely. And so what I’m coming at there is if you don’t acknowledge that there are emotions at play… And also even investors – even the coldest, hardest investors – sometimes their emotions cause them not to buy a property that they should buy, or they refuse to pay $10,000 extra when, really, that would be a good investment.
So, emotions go both ways. It’s still emotion even if you’re being hard and calculating. So, by acknowledging how emotions come into play – whether it be yourself or whether it be in future buyers or other buyers – then you’re aware that they do play a part, and then you can be more conscious of whether they are impacting you in a negative way or not.
Kevin: How do you work out if you’re becoming too emotional about a property? And if so, how do you avoid it?
Veronica: This is a really good question. Just last week, we launched a new podcast called The Elephant in the Room, and it is all about this. In the first episode, we actually interviewed a behavioral scientist who went along to his first-ever auction in Melbourne and observed all these subconscious biases that are being appealed to by not just the auctioneer but the whole auction process.
What is really interesting… And I’d encourage the listeners to go and check out the first episode of the podcast, because we outline a lot of the biases that are being appealed to. This is behavioral science. And so by acknowledging and recognizing how you can be impacted, that’s the first step. Awareness is the first step in being able to do something about it. And I’ll give you one example.
If you go to an auction, for instance, the auctioneer will often use a technique called anchoring, and that’s where they’ll enter into their preamble, for instance, or throughout the auction process, they’ll put in a number that is meant to draw your expectations up to it.
So, it might be that the agent, for argument’s sake, is quoted $500,000 for a property, and the auctioneer might be saying “Look, properties around this area are going for $600,000.” So, he or she is actually using an anchor to get buyers thinking a certain level.
Now, this isn’t conscious. The reactions that we have to these sort of anchors are not conscious; they’re actually deeply in our subconscious, but they can often encourage us to actually go over what we initially thought we would at an auction.
If you ever go and ask people and talk to people, many people… Because I ask people after auctions, “Did you bid higher than you thought you would?” And quite often, they’ll say yes. It’s that sort of thing. They’re open to the power of suggestion.
And by being aware of that and being aware that that can happen very easily, you can counteract that by actually making a very conscious decision to do your research before you go to auction, be very clear on the value of that property and very clear on your walk-away price, and have the discipline to remind yourself throughout the auction of that.
Kevin: Is there an opportunity at any time to use emotions to your advantage?
Veronica: Yes. I think if you are aware that other people are emotional, in an auction for instance, you can actually scare people off as well. So, yes, absolutely.
Kevin: And that is with the king bid? Is that what you’re talking about?
Veronica: Yes. There are a number of different ways that you can use it. That’s one. Another way, because of social proof – that’s another one of these biases, for instance – people look to other people for reassurance.
If you’re at an auction, the whole process of an auction is very much along those lines of social proof. So, you look to other people. “Well, they’re bidding, so therefore it’s a good idea to buy this property.”
Whereas in the current market, if things slow down, you might go to an auction and nobody else is bidding. And the lack of social proof is what other people are looking at, and they’re taking a negative cue from that.
But if you know it’s actually a good property and you’ve done your research and you know what it’s worth, you can still act reticent – because you don’t want to encourage anybody else – but you can be aware that others are being affected and impacted by that lack of social proof, and you can make a clearer decision yourself.
Kevin: Yes, because that social proof is alive and well in things like open houses. When you go to an open house and you can see a queue of people going in, you know straightaway that this is a popular property, and it reinforces your decision to buy it.
Veronica: Exactly, yes. And you start that mental game in your own head of going up in price.
Kevin: Yes, justifying why you may have to pay a higher price?
Kevin: It’s amazing how at the end of an auction if someone has paid a premium price for a property, how quickly they can justify that to themselves. I’ve seen it happen, and it constantly amazes me.
Veronica: There is actually a word for that – probably bias or auspices bias or something like that.
And it is about that thing. It’s such a big decision that you will then look for positive reinforcement because the concept of admitting that you made a bad decision is just too painful to bear, so I’m going to do everything I can to find reasons to reinforce why I made a good choice, why I acted well.
Kevin: Yes. language is a funny thing, and I have seen on many occasions where someone sold a property, they may have wanted, say, $700,000 for it and they might have gotten $650,000. To their mind, they’ve actually lost $50,000, but in the conversation with the neighbors, they’ll say “Oh, yes, we got our price.” They won’t talk about the price, but once again, that’s a case of justifying it, really.
Veronica: Yes. We don’t want to look stupid, do we?
Kevin: No. Language is a funny thing, how we justify these things. I also recall if I were having a conversation with a seller, as an example, and we were talking about figures, like a price range, if I said “$600,000 to $700,000,” I’d guarantee you they’d anchor themselves to the $700,000.
Veronica: Absolutely. In fact, this anchoring goes way back. It goes back to that appraisal process as well. There have been studies done with real estate agents where they’ve blind tested. Some have gone in with no idea of what the vendor’s expectations are and others have gone in with the understanding of what the vendor expected, and it absolutely impacts the appraisal the agent will give to those vendors as well.
And, of course, that then starts that whole snowballing of the entire campaign. It goes back to the impact or drawing up of people’s expectations or drawing down of them.
Kevin: Yes, it’s one of the reasons why in their training, agents are trained to try and get a price by saying “Can you give me an idea of the price range you’d be looking at?” before they go to do the appraisal.
Kevin: Fascinating. It’s a great subject.
My guest has been Veronica Morgan. Veronica is a buyer’s agent out of Sydney from Good Deeds Buyer’s Agents. You may have seen her on Location, Location, Location with Bryce Holdaway.
Always great talking to you, Veronica. We’ll get you back on the show more often, because I love talking to you. You just make a lot of sense.
Veronica: Thanks, Kevin.