Buying a property is one of the biggest decisions of your lifetime.
There’s a multitude of crucial considerations to navigate, including determining the purpose of the purchase, as well as location and property type. This doesn’t even touch on organising finance, speaking to solicitors, and other due diligence required prior to purchasing a property.
But what about the psychological perspective? It’s often overlooked, but it’s a critical aspect to consider when you’re on the hunt for a property.
Over the years, we’ve found two main mental barriers that trip-up property buyers, and can lead to poor purchasing outcomes.
Both were coined by venture capitalist, Patrick McGinnis in a paper he wrote at Harvard Business School:
- FOMO – the fear of missing out
- FOBO – the fear of better options
The FOMO phenomenon is probably more well known when it comes to purchasing property. This is particularly the case in a fast rising market, with strong competition.
Prospective buyers might miss out on opportunities, get beaten at auctions, or be unable to buy during a private sale.They may end up feeling as if they’ll never be able to buy a property. This is where FOMO tends to kick in, leading to a feeling of desperation and irrational decisions that can lead to major purchasing mistakes.
Overcoming FOMO pitfalls
Failing to carry out due diligence: This can be extremely risky. Skipping necessary financial steps or ignoring advice from banks or brokers might lead to a failed purchase and loss of deposit, delaying your buying process.
Overlooking contract reviews can cause you to miss critical clauses, making it crucial to have a conveyancer or solicitor examine the contract. Additionally, a building inspection is vital to identify potential issues that could influence your purchase decision, the price, or your overall willingness to buy the property.
Selecting the wrong property: It’s imperative you assess the property based on your requirements, so it meets the key elements you’re looking for. This includes size, living spaces, condition, number of bedrooms and bathrooms, land area, and car parking. Consider surrounding development, streetscapes, and access to services like public transport and school zones.
Paying too much for a property: Another crucial error. Without proper research and understanding of comparable sales and market trends, you might overpay.
This includes not understanding the buying process, such as the rules of a boardroom auction versus a highest and best offer situation.
Failure to prepare: To avoid FOMO mistakes, preparation is key. Know your service providers and do your homework on comparable sales. Create a list of property requirements, categorised into non-negotiables, preferable elements, and nice-to-haves.
Understand the rules of engagement for each property negotiation, as every agent handles the process differently.
On the other side of the spectrum, FOBO can lead to buyers overlooking good opportunities in hopes of something better.
In a rising market, this can mean properties move out of your budget range quickly, leaving you with more limited options.
FOBO might also stem from failing to realise that the perfect property might be unattainable within your budget.
Overcoming FOBO pitfalls
Don’t chase perfection: You need to accept that nothing will be 10/10. Once you understand and accept this, you can move forward, recognising that compromises are necessary.
Similar to dealing with FOMO, creating a list for property selection can help.
If a property meets almost all of your non-negotiable requirements, includes some preferred elements, and even some ‘nice-to-haves,’ it’s a strong option. Avoiding rigid criteria helps prevent mistakes from FOBO.
Don’t confuse the purpose of your purchase: Reflect on why you’re buying the property. Is it purely an investment? Then perhaps personal preferences should be secondary. If it’s your first home or an upgrade, understand that it’s part of a progression. However, if it’s your forever home, then trying to get as many elements right as possible is reasonable.
The same applies if it’s a downsizing move. You may not move again, so getting most elements right is crucial.
Be Realistic with your goals: You can’t always buy your dream home, and that’s not necessarily negative. Most people have to compromise at some point. So, even with your list, be prepared to forego some aspects, but aim to tick as many boxes as possible.
Take home message
Remember, whether it’s FOMO or FOBO, the key is not to let mis-guided fear dictate your property decisions.
With thoughtful preparation and a clear understanding of your objectives, you can make confident and rewarding property choices that deliver long term wealth into the future.