If there’s one thing I’ve learned about property investors, it’s this: they’re all different.
While it might seem they have the same goals, each property investor has a unique style and their own way of achieving their property goals.
As a buyer’s agent, it’s your role to dig deep, understand your clients and base your advice on the knowledge you gain from listening, and your own extensive experience.
However – and there’s a big BUT here – to give financial advice, you must be suitably qualified or you might be vulnerable to being sued.
Your role is to find suitable properties, make recommendations based on your extensive expertise, do your in-depth due diligence, and help your property investor client to achieve their property goals through astute property purchases.
The psychology of property investors
Many factors affect how a client approaches property investing. We’re going to delve into just a few.
Depending on your client, your client might be risk-averse or risk-ready. Risk-averse clients are more likely to want to purchase a property locally that they can see, touch, walk by. In this case, you can lead clients to understand that if they have more than one property, they should spread their risk by diversifying the type of property (house, apartment, commercial), the location (inner city, outer suburbs, regional, interstate) and renter status (rented or vacant possession).
Risk-ready (high-risk) clients, on the other hand, might be more likely to purchase a property with vacant possession, especially in the case of commercial property, where an untenanted property usually comes at a significant discount and can be upgraded to achieve a higher rent. However, remember: you need to outline these risks clearly to your client or you run the risk of being sued
Love of property
Property investors probably hogged the LEGO as kids and love the tangible nature of property and architecture. These investors understand that with the right advice, they can build long-term wealth.
We see many biases in the way property investors reach decisions. Here are just some:
Confirmation or anchoring bias
To make sense of our lives, we unconsciously find patterns. The problem is that sometimes those patterns aren’t useful or real. A confirmation bias is when a property investor makes a decision based on past events. As we’ve seen over the past two years, areas of growth and yield have changed. In this instance, past events cannot be used to predict future gains.
Loss aversion is the response when a property owner has invested time, capital and emotions into an under-performing property. Although it isn’t helping them achieve their property goals, they’re reluctant to sell.
The other side of the coin is where a property is performing strongly, is in a high-performance and high-demand area and prices go up rapidly. In some cases, owners will cash in, not realising they’ve lost a blue-chip property.
Incentive bias can be more insidious as incentives are designed to instil confidence. A typical example would be buying property ‘off the plan’ (OTP). Developers usually offer discounts to early investors, and the State Government offers concessions on off-the-plan builds. However, buying off the plan just for the concessions isn’t necessarily a wise investment move. In fact, buying OTP is the riskiest way to buy, as you are purchasing a ‘concept’ and hoping the end product will match your understanding of it. As buyers’ agents, our role is to do the in-depth due diligence on an off-the-plan investment, the client’s strategy, and compare alternatives to make sure the incentives are worth the risk.
‘Groupthink’ came to the fore in the 1960s when the US and Russia had a nuclear stand-off over Cuba. The term describes more particularly the need for harmony in a group and how that can lead to poor decisions. These days, and in property, we’re more likely to talk about FOMO, the fear of missing out. In short, it’s a kind of collective hysteria where the more buyers there seem to be in a booming market, the more hesitant buyers jump on the bandwagon without much thought.
Learn more about buyer psychology with Property Mavens
In this article, I touched on some of the more obvious mindsets of property investors. Join us at Property Mavens where we often go deeper into the psychology of our buyers so we can understand them better and protect their interests ( while protecting ourselves as advisers in the process).