Spotting bias in your property search can lead you to unexpected and enhanced outcomes.
I’ve benefited from some wonderful development programs over my career.
One of the most useful has got to be recognising and understanding bias.
We’re going to get into some heavy concepts here but I’ll lace it with some real-world examples to make it digestible.
So what’s bias? Bias causes us to feel or show inclination for or against someone or something.
The concept is very well understood in science but not so much in the everyday.
In his Masterclass on cognitive bias, Astrophysicist NEIL DEGRASSE TYSON says:
“Biases make it difficult for people to exchange accurate information or derive truths. A cognitive bias distorts our critical thinking, leading to possibly perpetuating misconceptions or misinformation that can be damaging to others.
Biases lead us to avoid information that may be unwelcome or uncomfortable, rather than investigating the information that could lead us to a more accurate outcome. Biases can also cause us to see patterns or connections between ideas that aren’t necessarily there.”
For property hunters, unchecked bias can wreak havoc on their search and outcomes.
Here’s examples where bias shows up in the 12 most common types of cognitive bias.
1. Confirmation bias.
This involves seeking out information that supports something you already believe i.e. you’re looking for confirmation.
Belief: I can buy this type of house (period-style, on large block), in this suburb with this (insert unrealistic number) budget.
Information selected that supports this belief: a few isolated sales that went within your budget (ignoring the many sales that soared well beyond it)
Like an ostrich with its head in the sand, you hold on to the hope that the dream property will fall in your lap and you’ll pay under market value for it.
2. Dunning-Kruger Effect
You believe something to be simple based on a limited understanding of it.
A perfect example of this is when buyers don’t get a building inspection done. They figure they’d see any significant defects with their naked eyes without knowing to look for the small signs that hide much larger structural issues.
Same applies with getting a legal review of the contract of sale. Is that rear laneway’s off-street parking on title or does that new deck have a building permit? Without a legal review you might find out after it's too late.
3. In-group bias
This is when people are more likely to support or believe someone within their own social group than an outsider.
Well-meaning family and friends can positively or negatively influence the way you evaluate a property when they weigh in with their opinions and advice and this can lead you to pursue or overlook the wrong properties.
4. Self-serving bias.
This is the assumption that good things happen to us when we’ve done all the right things, but bad things happen to us because of circumstances outside our control.
A good example is when buyers haven’t gotten their loan pre-approval organised and miss out on a property because their offer was conditional on finance. If they don't recognise this was the reason and resolve their finance they will fall victim to the same scenario next time around.
5. Availability bias.
Using information we can quickly recall even if this information is incomplete or limited.
Keeping with the lending example, I hear buyers say “but the bank told us X last time we applied”. Well, last time you applied your situation may have been different in a small but maybe not insignificant way. The bank’s lending criteria and credit risk policy might have changed in between time. Plus you’ve left out the possibility of considering other lenders out there who may view your situation differently.
6. Fundamental attribution error
(ouch! a very tech-y term, sorry!) This bias refers to the tendency to attribute someone’s particular behaviours to existing, unfounded stereotypes while attributing our own similar behaviour to external factors.
For instance, attributing the reason an agent hasn’t returned your calls to being because they are lazy or don’t care about buyers (an unfounded stereotype) when they are really just busy or understaffed that day and are planning to get back to you at their first opportunity. This might result in a buyer not being cordial (or even rude) when dealing with an agent which will never go down well.
7. Hindsight bias.
This is also known as the knew-it-all-along effect and happens when people perceive events to be more predictable after they happen. They overestimate their ability to predict an outcome beforehand, even though the information they had at the time would not have led them to the correct outcome.
This happens when buyers assume a property will sell for way beyond its quoted range (because they predicted it before for another property) so don't even even look at it or make enquiries with the agent.
8. Anchoring bias.
This bias pertains to relying too heavily on the first piece of information received and base all subsequent judgments or opinions on this fact.
A good example of this bias is when buyers take the quoted price range for a property and rely on that alone to determine whether they pursue a property or not.
9 & 10. Optimism and pessimism bias.
This relates to how we as humans are more likely to expect a positive outcome if we are in a good mood and, conversely, expect a negative outcome if we are in a bad mood.
Buyers are often searching online and inspecting properties in their private time, outside work hours. They can be tired or have had a bad day and this can cloud their judgement of a property.
11. The halo effect.
This bias refers to the tendency to allow our impression of a person or business in one domain influence our overall impression of them.
Giving your property management business over to the same real estate agency who sold the property purely because of your positive experience with the selling agent without considering alternative providers.
12. Status quo bias.
This is our very human preference to keep things in their current state and thereby interpreting any change or difference as negative or a loss.
Buyers can equate any differences between their current or dream home as a loss when comparing other homes. For example, not considering a double-story home that otherwise meets all their criteria because they've never lived in one.
Being aware of your biases means you can recognise them and take steps to challenge them, unlocking better options and alternatives.
Bias is the reason we built a proprietary algorithm to score properties based on objective criteria.
In taking our clients' detailed brief we ask for their buying criteria in the most objective terms possible.
Clients then receive shortlisted properties that meet the pre-defined criteria.
This helps ensure each property is assessed on its merits before bias can get its foot in the door.
We can geek out together about how we manage bias for our clients anytime you like - book a free chat with us via this link