The Art of Decision Making: Real Estate Transactions
Updated: Mar 6
Adapted from “How to make a difficult decision” by Joseph Bikart published on Psyche.
The decision whether to buy a piece of real estate is usually a difficult one. The stakes of such a decision are magnified in a hot market as you are paying more for the parcel of land. Questions such as “should I wait to buy until the market cools down?” or “should I up my bid?” can create critical dilemmas which often need to be made with a ticking clock.
So, how can we make these tough decisions? This article applies tools from Joseph Bikart’s book, The Art of Decision Making, to help you make decisions in the context of real estate transactions.
For sophisticated real estate investors, these decisions are usually not complex. But for the inexperienced buyer or seller, they can be overwhelming and cause decision-making inertia. Almost every real estate agent can tell the story of a client shopping around for a house for months or a year and not deciding to buy any property. When we make a decision, we effectively remove ourselves from other opportunities or possibilities.
This can create a fear of missing out and lead to procrastination, which in itself is a decision. The psychologist Thomas Gilovich found in his research that not making a decision, or “error of omission”, results in people experiencing more regret in the long term than regret caused by mistakes made by the making of a decision, or “errors of commission”.
Bikart proposes the following tools or tips on how to make difficult decisions:
1. Identify parts of yourself that want different things
Think about the competing needs and desires inside you. One helpful exercise is to imagine these different parts of yourself sitting around a table trying to identify a common aspiration amongst them.
2. Create distance from the decision
Consider all options objectively. For a moment, let go of your preferred option and imagine you are advising a friend, or even reflecting on the same decision on your deathbed many years later.
3. Think outside the box
Are there other options than those currently presented to you? Imagination is powerful. Use blue-sky thinking and a childlike mindset by looking at the dilemma without preconceived notions of the expected outcome. The question often is open-ended.
4. List out your objectives
What are my goals in selling or buying property? How are they achieved by each decision? We are all familiar with pros and cons lists. They can be quite illuminating as to which decision offers the most value or makes the most sense. It may also help to rank, and put a weight on, each goal. Not every objective is as important as the next one. For example, location can be more important than the state of the property, such as proximity to a good school or to work, or vice versa depending on your particular situation.
5. Listen to your emotions
The above listing and weighting exercise is not entirely objective. The way we rate our objectives is often based on how we feel about them or our “gut feeling”. When deciding on important issues, it is necessary to also listen to your inner voice. Sometimes, we just know what is right for us even if we cannot fully articulate it in the moment.
6. Use micro-decisions to overcome inertia
If the decision to move from renting to owing a home, for example, seems intimidating, break down this major decision into a series of smaller decisions. You can start by deciding how much are you able to invest, which bank to use for financing, which real estate agent to use, or on which location to focus. These micro-decisions will get you closer to making the big decision.
How to make difficult decisions under pressure
When we are under pressure or stress, our judgment becomes cloudy. In highly stressful situations, we can experience tunnel vision and ignore important information. We also do not have the luxury to weigh all our options or imagine other scenarios.
When time is not on your side, such as during a bidding war for a desirable property, ask yourself the following questions to help you decide:
- Why am I taking this decision?
- What will happen if I do?
- Is the benefit of taking this decision proportional to the risk?
- Is the decision in line with my personal judgment and experience?
Difficult decisions often show that we are walking on new territory and stretching ourselves further. These decisions can be a call to level up, grow, and to learn more about who we are. When we make a difficult decision, we will either get rewarded or learn how to choose better next time. Either way, moving forward will ultimately be more fulfilling than staying in the same place.
Once you have made the important decision of buying real estate, leave the due diligence and the closing process to Arra Law Firm.
When you need a real estate lawyer, get in touch with our team.