05 Feb BIAS AND CHOICE FORMATION
Is there a precursor towards a home buying decision? How can you use it to your advantage?
Prior to homebuyers contacting a real estate agent, they already have in mind a set of attributes that represent the criteria of a property they’re looking for. This property may not be perfect but it represents a prospective homebuyers’ idea of a home. While that is set, homebuyers know that they might not have exhausted all of their options so they look for more. But why?
One of the early proponents of the Choice Theories, Psychiatrist William Glasser, proposed that all choices are made to satisfy five basic needs: survival, love and belonging, power, freedom, and fun. Until these needs are satisfied, an individual will not make a choice leading to a decision. What, then, influences choice formation and eventual decision?
The answer lies in what all individuals have: bias. Bias doesn’t necessarily denote a negative idea. In fact, it is recognised as an unconscious process that influences the way we arrive at conclusions and formulate our choices. Any one of these types of biases – discussed in the context of the homebuyer – may influence choice and the final decision:
Homebuyers tend to use the first information they receive as their basis for further evaluation. These times, it’s easy to retrieve comparable information online. So in their quest to find that ideal home, home buyers scour through the Internet until they find that property that meets all of their criteria. But they don’t stop there.
The first property a home buyer perceives as a representation of his or her ideal home becomes the main point of comparison, thus the ‘anchor.’ But the homebuyer also knows that there are other options from there – options that can bring them more benefits in terms of costs, features, or anything that makes the purchase favourable. So the home buyer continues to search until he builds a list of options. These options or property choices then is what initiates a contact and starts the home shopping spree.
Case in point: if a prospective home buyer inspects a 5-bedroom property worth $1,300,000, he’ll keep that in mind as a ground for comparison when he inspects another 5-bedroom property that sells for $1,250,000. While the latter is a better deal, there are other deciding factors at stake before the buyer makes a decision. For now, it’s safe to assume that the buyer will choose to buy the second property since his anchor requirements are more expensive.
Framing effect bias
This type of bias has more to do with the real estate agent than the home buyer. Framing effect is influenced by the way options are presented to the home buyer. So for two competing real estate agents offering two different properties but with the same price and features, the key towards getting a buy-in lies not only on the manner at which they present each property but also their sales capability. The challenge then lies on two things: presale preparation and for-sale presentation.
- Pre-sale preparation: Real estate agents and vendors must always consider what their target market wants to see. In view of framing, what one home buyer perceives to be beautiful may not appear in the same way to another home buyer. And since the aim of selling a property is to get it sold, it pays to consider leveraging property presentation with target market choices. This is where a professional property makeover specialist or a homestager comes in as their body of work aims to bring out the best features of a property without overdoing it.
- For-sale presentation: This now integrates a real estate agent’s selling technique. With the groundwork already laid out for him, all he needs to do is to present the property by considering the buyer’s perspective. This stage is entirely up to the real estate agent but we’ve heard success stories involving ingenious skills of selling a property.
Commonly referred to as the ‘bandwagon effect,’ this type of bias involves a homebuyer behaving in the same way as the members of his group. For example, if a homebuyer considers himself to fall within the mid-income earners group, he is likely to consider buying a home in the same manner as his group. So if a mid-income group tend to gravitate towards homes that have three-bedrooms and with a value range of $900,000 – $1,000,000, the home buyer’s tendency is to look for properties with both criteria.
The underlying principle for ingroup bias is conformity and belongingness. Prior to the purchase, the homebuyer, more or less, has developed a sense of identification with a specific group, may that be religion, industry, sports, etc. The behavior of his group needs not be experienced first-hand. The Internet offers a lot of materials, tools, and gateways for an individual to discover his or her affiliation. What he learns will ultimately influence the way he’ll formulate his choices.
It is important to note that these biases already exist among us. Because they occur subconsciously, they appear to be a part of the normal buy-and-sell process. They are indeed normal, but only those who attempt to understand what goes on within a buyer’s mind will be able to use it to their advantage.