Real estate buyers: protect us from ourselves
Mood of the Market
By Tara-Nicholle Nelson, Monday, April 25, 2011.
Over the last seven weeks we’ve taken a tour through the psyche of real estate consumers — a group that includes each of us, really, who pays for a place to live.
We have explored how the various investor desires, motivations and values illuminated in Meir Statman’s new business classic-to-be, "What Investors Really Want: Discover What Drives Investor Behavior and Make Smarter Financial Decisions," play out in our real-life real estate decisions.
We’ve seen that just as stock market investors want to win and not lose, want status, and exercise the highly fallible — though sometimes useful — form of psychological bookkeeping known as mental accounting, so do buyers, sellers, homeowners and sometimes even renters.
For the most part, we’ve explored the substance of what we want, rather than the process of how we want it. But there are real desires we, the human race, have when it comes to the "how" around our financial decisions, real estate and otherwise; Statman calls some of them out when he declares that investors really "want education, advice and protection."
Statman compiles meaty evidentiary proof of this declaration from facts like:
- the massive investor interest in culling investment information from the Internet;
- the fact that financial literacy is a prerequisite for achieving the prosperity most of us crave;
- the cyclical ebb and flow of cravings for the government’s protection of us — largely from ourselves — via regulation of how deeply we can leverage our own interests and how much advantage can be taken by financial predators; and
- the vast desire investors have for financial advice, including the paid advice of professional advisers, but especially the free sort they trade with each other on personal finance blogs and Internet forums.
The world of real estate has not only gone through these same trends, but I submit that the pudding in which lives the proof that consumers want information and education, advice and protection is thicker when it comes to real estate than in virtually any other sector.
To wit: the evolution of real estate on the Web. Once upon a time, homebuyers had to consult an agent, who had to consult a paper book that was delivered only to agents, just to find out which homes were for sale, their prices and other details.
In response to an ever-escalating consumer clamor for this information, multiple sites now make every detail about a home — from whether or not it’s for sale; to its price; to its number of bedrooms, bathrooms and square feet; to when it was last sold and for how much; to what it’s supposedly worth — available to anyone, anytime, anywhere, all in a couple of clicks.
Anyone can see a ground-level street view of the vast majority of homes in America, what people think of the neighborhood, even whether a home’s owners are behind on their mortgage or have received a foreclosure notice: click, click, click.
Wanna see pics of Nicolas Cage’s house? Click here. Heard a "Real Housewife" was in foreclosure and just need to know? Click. Their gilt Rococoed, leopard-printed, McMansioned domestic world is your virtual, visual oyster (for better or for worse).
And virtually all the same sites that have made this information available in response to popular demand also feed consumer cravings for education and advice.
Most offer basic briefings on various real estate issues; virtually all of them offer education/advice hybrids by offering connections to real estate brokers and agents and discussion communities in which anyone can ask a question and get a first, second and 44th opinion from local agents not-so-covertly vying for (a) the asker’s business, and/or (b) the opportunity to exhibit local knowledge and professional expertise — not just to the asker, but to prospective clients searching for them or the subject matter on the Web in perpetuity.
(And, lest I forget, those who ask their urgent real estate questions on these communities will frequently get an answer or so from another consumer — usually a cranky, anonymous one whose advice generally runs along one of three veins: (a) agents and mortgage brokers suck, (b) homeownership sucks, and/or (c) the government sucks. Not so nuanced, and not so helpful, but a clear case in point that some consumers not only want advice — they also want to give it.)
Even offline, it’s not at all bizarre for today’s home sellers to interview three or four prospective listing agents to gather advice and opinions, and every buyer’s broker has heard a client recount the real estate advice they have been given by their hairdresser, veterinarian, barista or ob-gyn.
Education, information, advice — consumer cravings for these are clear — but protection is a little more complicated. In "What Investors Really Want," Statman writes: "Our desire for paternalistic protection from ourselves and others increases when we experience the sad consequences of our own behavior or the behavior of others."
It is on this topic that Statman makes one of only a handful of "What Investors Really Want" references to real estate, making the hindsight observation that regulation limiting homeowners’ ability to leverage their own homes might have made sense, given the woeful consequences of overleveraging (i.e., the foreclosure crisis which is currently at four years and running).
Translation: We don’t want the government to limit our ability to mortgage our homes when values are skyrocketing, because we want to be able to max out the house we can buy for the money.
But when those adjustable-rate mortgages (ARMs) start adjusting, our maxed-out neighbors start walking away and the resulting foreclosures cause property values to plummet, while our craving for government protection from predatory lenders, liar’s loans and confusing boilerplate loan docs takes a steep uptick.
Do real estate consumers crave information, education and advice just as much — maybe even more — than traded-asset investors? Absolutely. And just like stock investors, housing consumers also want government protection from lenders, mortgage brokers, agents and themselves, after their own decisions have spanked them with the consequences of a largely unregulated mortgage market. What remains to be seen is how long the desire for protection will last.
I suspect it will last as long as home values are low and rates of foreclosure and negative equity are high. But I hope that the lessons from this national tragedy — massive losses in wealth, jobs and families’ homes and health — including the need for more intense mortgage market regulation, do not disappear when property values start to make a comeback.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
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Copyright 2011 Tara-Nicholle Nelson
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