An Introduction to the Psychology of Real Estate
Have you ever wondered why people do certain things not only in the life but with Real Estate as well? The Psychology of Real Estate will hopefully shed some light on the reasons buyers and sellers act the way they do. It’s not enough to understand Real Estate to be successful Wholesaling Houses. Once you understand the motivations for the actions you will be successful.
Buyer Psychology of Real Estate
If you have been in the business for any amount of time you already know that investors can be a little neurotic to be polite. They have the money a wholesalers needs to close the deal and unfortunately they know it. Many times investors try to get the price as low as low as possible.
Raise Your Hand if You’ve Ever Had to wait an Investor out on Price.
He who speaks first loses!
It’s not the investor’s fault. It’s in their nature. My father used to say if you need someone with low self-esteem go find someone in Real Estate. I have no idea why but investors like to have their egos stroked on a daily basis. It makes no sense but it’s their nature. Maybe it’s the low self-esteem. Who knows.
Either way, you need to talk less with investors and listen to what they are saying to you. They will tell you indirectly whether they will buy the house and/or what their offer may be. You don’t have to speak first in any deal if you know how to play the game. Let the investor pick the house apart and tell you all of the renovation it needs. They are going to do it anyway so just listen so they can hear themselves speak. You are selling by not talking until they ask you a question. When they ask a question take it as your opportunity to answer it along with over-coming the objections they just told you.
I am going to take a different approach to buyer objections because I believe my way is a better way. We all have ways of negotiating. When you negotiate with an investor you are doing many similar things that the seller is going to do to you. Take the opportunity with the seller to practice. Yes, I said practice while you’re trying to close a deal. It only becomes game time when the ink is dry on the contract. That’s when you have to perform.
Your buyer is going to have the same or many of the objections you had with the seller prior to putting the property under contract. Instead of focusing on how low you can get the house for I suggest focusing on the process of the negotiation. That might not make a lot of sense to some but you eventually overcame the seller objections to purchase the house for a price you could accept. A buyer is no different from you. It’s simply a different stage of the deal and a different hat you wear now.
Take the lessons you learned from the objections with the seller and apply them to the buyer. They will have the same objections as you. You found a way to accept them. The buyer is going to be no different. If you present the same case as your seller to your buyer you will likely overcome their objections as well. Remember to stroke their ego while you are telling them they have little man syndrome in a polite way without them realizing it.
We can have fun and so should you negotiating your deals.
Seller Psychology of Real Estate
A seller will have an emotional attachment to a property. They may not admit it but they do. Whether a homeowner or investor no one ever sells a house because they want to but rather because they have to sell. A homeowner will have memories that give the attachment and an investor will have an attachment because of the money involved.
When you deal with a seller it’s important to listen to them without having a response ready before they finish. You will not benefit yourself by talking more than the seller. I know most people will tell you that to control the sale you have to control the conversation. In most cases this is true. When you are dealing with the emotion of Real Estate you need to let the seller talk to unwind the emotion. The more you let them unwind the more you will understand about their motivations for selling the house. As they talk they will begin to tell you about the things that are wrong with the house. If you let the seller process the moment they will devalue the house for you so you can get it for a lower price.
If you were in the same position as a seller and needed to sell fairly quick would you want someone who didn’t listen and knew everything or someone that took the time to understand your situation and appear to genuinely want to help? That’s why you treat them this way. They will appreciate your patience and understanding which in turn typically correlates into a lower sales price.
Art of Negotiating
I imagine most think they have to be more intelligent or appear to be when dealing with buyers and sellers. When I sold cars we were always taught the customers that came in and thought they knew everything to be quiet and let them control the deal. This may seem odd but it works more often than it fails. You aren’t going to tell that person anything they don’t already know even though you are telling them a lot they don’t know. Just let them think that.
The ability to adapt and think on your feet is important in any negotiation. Since you are dealing with thousands of dollars in Real Estate you need to learn this trait fast. You shouldn’t expect to be able to negotiate the same way on every deal. Each buyer and seller are different. It’s your job to meet those needs and overcome their objections. The only way to close a deal is to overcome objections. You may have to only overcome one objection or it may take you weeks to get the signature on the contract. That’s the control part of the negotiation. You have been in control the entire time even though you let the seller or buyer do most of the talking.
The buyer has money you need to buy the house. You have the house they want so it works both ways. No investor buys a house because they need to but rather because they want to buy it. It’s similar to notches on a guy’s belt. Every house is a new notch for the little man syndrome. Feed the ego.
The seller has the house you need to sell to your investor and you have a solution to their problem. It may not be exactly what they want or hoped for but it is a solution. That’s the control part of the seller negotiation. If you seem desperate with a seller or buyer you lose every time. It’s important to have the patience with the seller and not rush the deal. If you rush the deal because you have pressure from a buyer to hurry up and close you should wait next time to get it under contract and control before you let a buyer know about your deal. Never rush either side of the deal.
If Wholesaling Real Estate was easy then everyone would do it right. The fact is that Real Estate in general isn’t easy. There are always a lot of moving parts and it is very difficult to satisfy all parties involved in the transaction. That should be your goal though. A good experience will lead to sellers referring people they know to you. A buyer won’t tell anyone because they think you belong to them but you will be able to keep going back to the well and sell them more houses.
I had a coach when I was growing up that always said, “Play Fast, Think Slow.” It never really made sense to me when I was playing but as I got older I understood. If you can’t see the end result before you do something it’s likely a mistake. You think about what you are doing then execute it. That’s playing fast and thinking slow.
I may stress the point too much but you should never rush a deal in Real Estate. If it’s a deal meant for you it will be there when you get there. An obvious point for that statement is how many deals do you chase that aren’t deals? You waste time trying to close a deal that will give you a small payday but by the time you close it you have made minimum wage or less with the time and effort spent on the deal.
You have to know the area and have an idea of comps in the area when you are negotiating with a buyer or seller. If you can’t explain and give a good presentation for your offer to the seller or make a buyer pay your asking price you likely rushed the deal and made a mistake.
By being patient with buyers and sellers you allow yourself to process the information you receive from both of them. You also avoid making promises you can’t keep such as, I’ll close you in 7 days. You don’t have money or title. How exactly are you going to do that? You just set yourself up for failure. Avoid promises at all cost so you can maintain credibility.
At the end of the day all you have in Real Estate is your reputation. Understanding the psychology of Real Estate will help you keep a good reputation because you are solving problems not creating them for the buyer or seller. Wholesalers create a lot of problems for themselves by rushing to the dollar only to never get it because they didn’t take the time to understand Real Estate or the motivations of buyers and sellers. Set yourself apart from the rest and learn Real Estate and the psychology of Real Estate.