It isn’t so easy when it’s on the other foot, eh?
OK, OK, I’m probably going to have to explain that.
What I’m referring to is that I now understand first-hand the endowment effect that often plagues sellers (or those selling and buying). It is a psychological phenomenon whereby one values what one owns more than it is objectively worth (i.e., to others) on the free market.
This emotional bias is often at the root of why sellers list their properties at prices higher than what the market (i.e., sellers) deem them to be worth (and despite all advice and 3rd party data provided by their Real Estate Salesperson(s)). This can become an especially sticky and even irrational situation when you try to grapple with the addition of emotional investments and subsequent sunk cost fallacy associated with conscientious ownership. It’s the component of acting like a Social Worker that Real Estate Salespeople often have to take on when coaching sellers to come to terms with parting with their property, often at a price less than they would have considered reasonable.
So how does this refer to you, again?
I merely think to mention this because I’ve had a lot go on in the past few months. Keen observers will have noticed my absence on the socials or with new blog content. Quite aside from the fact that I’ve been busy opening up my own new brokerage with my business partner, obtaining my Broker’s license at warp speed or buying a new commercial property out of which we will operate our Real Estate Brokerage (… because we’re allergic to paying rent; again, putting our money where our mouths are), I’ve decided to sell one of my investment properties. And that’s definitely not something I thought I’d do. But then again, I can do hard things.
This wasn’t easy because, like every other seller on the planet, I wanted more for my property. Moreover, I was acutely aware of how much more I could have sold the same place for at the peak of the market not so long ago. This is why I can empathize with sellers today; loss aversion, the sunk cost fallacy and the endowment effect are all very real biases that you really don’t face until you have to tackle them head-on. Not to mention the vomit-inducing calculus of capital gains tax exposure stemming from the divestment of an income property… what a punch to the gut. It isn’t easy getting ahead in this country.
- Discuss matters with your accountant; run through all the scenarios.
- Keep your financial spreadsheets up-to-date… play with real numbers, not half-a-dozen make-believe ‘what if’ scenarios. I’m guilty of this.
- Focus! Know what you’re trying to accomplish and avoid multiple priorities; if you’ve got more than three, you’ve got none. Why are you doing this? What’s essential? Do whatever you’ve got to do to get that done… to the exclusion of all other considerations.
- Remember that you’re buying-and-selling in the same market; if you feel like you’re selling at a loss, remind yourself that you’ll be buying at a discount also. Gotta take the rough with the smooth.
- If you bought before 2019, you’re likely still up far more even after accounting for the recent price corrections. Stop being greedy. Don’t complain. Move forward.
Now that I’ve gone through the experience of selling (both as an individual and also as an investor), I can empathize with clients on that level – and that makes me more attuned to the emotional nuances of clients’ entire emotional experience of the process. It makes me more human and therefore an even better Real Estate Broker.
I get it. I understand now that selling isn’t easy. But you don’t have to do it alone and I’m here to help.