Image by thinkpanama via FlickrFrom The Toronto Star, Wednesday, April 3, 2011
"At this point, Ryerson University professor Murtaza Haider, who is also the director of the Institute of Housing and Mobility, recommends writing down a reserve price you’ve decided you are comfortable with on a piece of paper.
“Then, under no circumstances, are you to go a dime over,” he says. “Put it in a safe place.” And in that very last half hour of bargaining, when many start to feel panicky and will bid that extra $20,000, take it out and look at it. If you lose the home, another will come along, he says.
“People get caught up in the moment,” Haider says. “You have to realize there are millions of housing units in Toronto. There are tons of houses to look at.”
But what exactly causes rational people to make such poor financial choices when it comes to real estate?
For Haider, it’s partly human nature and partly cultural.
The process of making an offer can resemble an auction. The excitement and competiveness of a sale can foster overbidding. Small, incremental increases also seem less significant. What’s $5,000 more when you’re talking $400,000 — it’s an easily mentality to slip into.
There’s also peer pressure, he says. People tend to look at what their friends and family have as a benchmark of status.
“And then there are cultural aspects too,” he adds. “We’re not a bargaining society. If you were buying a pair of shoes in Mumbai you would spend half an hour negotiating. The only time we negotiate is buying a house and we do a poor job of it. Our lack of experience comes in and that shows.”
Haider estimates North Americans are paying anywhere between 2 per cent to 5 per cent more for property because of weak bargaining skills. Sometimes, it can come down to embarrassment. A buyer doesn’t want to look cheap in front of their agent, said Haider."
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