Jun 7, 2021
Emotions are playing a big role in today’s marketplace, often leading buyers to offer significantly more than asking price because of the intrinsic value they place on a home. And while emotional value has always been a factor in real estate, the current imbalance of supply and demand has really brought this to the forefront, and emotionally driven bids are increasing fair market value more than ever before.
Today Matt and Garrett talk about the current trend of buyers making enormous offers based in fear or panic over losing a property, and how this is establishing a new market value for both buyers and sellers. Like luxury cars, people are willing to spend more on homes that fill an emotional need for them, and it’s important to understand how this is currently affecting the market so that you can explain it to your clients and help guide them through the process with a level head. In order to win the game, you need to understand the playing field. Right now, the game is trickier than ever, but today’s episode looks at how to help your clients win, even as the rules change in unpredictable ways - and give you yet one more way to demonstrate your massive value as an agent in the process.
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Episode Highlights:
- Fair Market Value versus Emotional Value of a home
- Emotion is always involved when purchasing primary real estate, and intrinsic value is always placed on a property
- This plays a role in how much people will offer on a property, often much higher than asking price because they are emotionally buying the home
- When people bid significantly over fair market value because they are emotionally driven based on fear and panic over losing a property, this can then set a new market value precedent, which is cause for concern
- You could argue that this emotionally driven offer now becomes fair market value because both buyer and seller agreed that is was a fair price, having full knowledge of the asset
- Matt’s comparison to real estate market to how stock markets and currencies trade
- People assume fair market value can only go up and the baseline will stay there, but it can go the other way, too (e.g., 2008 crash)
- Emotions and intrinsic value are always at play - we’re just seeing it more now because of the imbalance of supply and demand
- Garrett’s example of cars as an emotional value purchase - some are utilitarian, some are specialty, luxury vehicles that people are willing to pay more for in order to fill an emotional need
- Emotional value also informs the asking price sellers are looking for - shooting for the moon to see if they get it
- This will start a trend in the marketplace as more people will list their home to see if they get a similarly high price
- “Make Me Move” prices could lead to a trend of greater inventory
- Emotional value is the precursor to establishing fair market value
- Revisiting Step 10 of Buyer Process, and talking to your clients about the role emotions are currently playing in the market
- You have to know what game you’re playing to be successful at it
- Successful agents right now understand the game and are able to explain it well to their clients
- Understanding the market is part of your value as a realtor
- Your value is understanding the playing field, understanding the process, and being able to understand and guide your client without getting swept away by emotions
- Example of helping guide people to win games in Vegas
- Someone who helps you actually win games has much more value than someone who just shows you around and doesn’t know how to play
- Fascinating to watch how emotions are affecting the marketplace right now, and it will continue to change
- Our job is to keep our emotions level and be a good step down transformer for buyers and sellers
Quotes:
“Emotion is always involved when purchasing primary real estate.”
“They're not looking at what type of windows does this house have? Or have they been updated or things like that? They're literally coming from this crazy emotional place. Which is like making them, as you just said, put a $900,000 over list price offer in. And people go, That's insane. They're overpaying for the house. No, they're emotionally buying a house.”
“The challenge is - what you come to as a potential fair market value conclusion, a lot of times is not what actually the property trades at. And then you wonder, Well, is that emotional value now establishing a new level of fair market value? Because fair market value is what a willing and able buyer and seller agree on if they have full knowledge of the asset.”
“That's the crazy thing. They were willing to not lose the properties. But now it's a mark that everybody goes, Oh my gosh, it just sold for that, that must be new market value, based off of some crazy person that was in full fear and panic mode - [they’ve] just set a new market value price. This is causing me some concern.”
“The thing that I think people get lost on with fair market value, Garrett, is we for some reason, assume that fair market value is established so that it stays that way going forward, that's the new baseline. But fair market value can go the other way, too.”
“We had the conversation about emotions and intrinsic value. And that was well before this marketplace, obviously. And it's always at play. Here, we're just seeing it now more than ever, because of the imbalance of supply and demand.”
“We could see people starting to put the Make Me Move prices out there. But if they don't get them, they just take the home off the market and continue on with their lives and their house.”
“Maybe that's where emotional value and fair market value tie in. It's like the emotional value is the precursor to establishing fair market value.”
“The agents that I'm finding out there that are being very, very, very successful with working with their buyers right now, truly understand the game. And they're able to explain the game to their clients, so that the clients can go in and be successful.”
“So many realtors right now are going, Oh, in this market, what's our real value? It’s right here, understanding this stuff - having these conversations and being able to be a guide. It's not just...because you can read comps. There's plenty of smart clients out there, too, that can read comps. That's not your value. Your value is understanding the playing field, understanding the process, understanding your client.”
“When they get into the emotional state, they need somebody who is not emotional. And if you keep...your emotions in check, because you're not buying the property, you become an amazing asset to them, because then it can save them from maybe a bad decision or help them make a decision to do something that is a little uncomfortable, but they know it's the right thing to do.”
“The value of a real estate agent right now, I think is actually higher than it's ever been. Because the game is so tricky.”
“If you can't help people, and you don't know the tricks, and you haven't evaluated what's going on, you can't explain the game, you have no value… You're just walking around showing me games at the casino.”
“It's our job to keep our emotions at a certain level and be a step down transformer for our clients. And now more than ever, boy, do buyers and sellers need a good step down transformer.”
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