Home Is Where the Heart Is

(But Understand Your Brain When Buying)

Buying a home is an investment—in every sense of the word—but it comes with much more emotional weight than your typical stake in stocks and bonds.

A home holds cherished memories—first steps, shared holidays, dinner parties—so striking a balance between these emotional factors and the financial realities of owning a home is a critical part of the equation. Whether it’s focusing on a great kitchen over a long commute or sacrificing budget for size, the trade-offs add up.

As you explore your options, understanding the behavioral tendencies that influence a big decision like homeownership may guide you to a smarter purchase—ensuring that this investment is not only one you’ll cherish, but also benefit from for years to come.

“If you walk onto a property and it’s a fantastic place to buy today, it will also be a fantastic place tomorrow."

—Michael J. Seiler, professor of real estate and finance, William & Mary

The House Hunter’s Comparison Dilemma

When you start the house hunt, it’s pretty rare to sign at the first place you see. Prospective home buyers look at an average of 10 houses over 10 weeks before they make a purchase, comparing everything from yard size to hardwood floors to the number of bathrooms.

But once you put in an offer on a home and it’s accepted, your experience is no longer one of comparison—it’s a singular experience.

The difference between the research phase and the owning experience is important to understand. Our brains evaluate the same object differently depending on whether we’re comparing it to other options (called “joint evaluation”) or considering it on its own (called “separate evaluation”). Certain details that might not stand during the house hunt become salient once you’re living in the house—like the type of marble on the countertops.

“The purchase phase is a joint evaluation phase—‘Which house is better than others?’—whereas once you start living in one house, it’s a separate evaluation phase,” Shige Oishi, a professor of psychology at the University of Virginia who studies residential mobility, says. Once you live somewhere, he explains, it doesn’t matter whether it’s “better,” it just matters whether you like it or not.

During the house hunt, think through how your preference for a certain property is influenced by joint evaluation: Do you actually want to pay more for calacatta marble, or does it just seem valuable to you compared to the other houses? The answer may change your perspective. Or, at the very least, instill confidence in your choice.

Tanner Callais

Homeowner, Austin, TX

"My wife and I were living in a duplex in Austin for seven years. We loved the location, but the place was built in the 1980s and hadn't been updated since. We always knew we wanted to buy eventually, and then my wife and I were expecting our first kid, so it was the right time.

We finally got our place after five other offers at or above list price were declined. I think the only thing we sacrificed was our perception of what a house in our price range looked like. We came from smaller towns in Texas where homes are dirt cheap. A home like ours would cost about half as much in other parts of Texas as it does in Austin."

The Value of Daily Comforts

A study on distinction bias found that when making decisions in joint evaluation, people are likely to overestimate the impact of quantitative factors, such income and home size. This can result in mispredictions or mischoices as quantitative factors actually have less of an impact on happiness than qualitative ones.

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Different decision-making modes also influence the kinds of details you notice in a house: Oishi says people tend to pay attention to easily comparable dimensions—like square footage or number of rooms—during a house hunt, rather than everyday qualitative comforts.

This can be misleading because, for most people, the aspects that impress us on house-hunting television shows matter less when we’re actually living somewhere. Instead, things like an easy commute or good neighbors become the defining factors of our overall well-being.

In fact, a 2008 study in the Scandinavian Journal of Economics found that “people with long journeys to and from work are systematically worse off and report significantly lower subjective well-being.” 

So, if you can afford a place closer to work, cutting down the commute could maximize your happiness more than that extra bedroom.

Don’t Confuse Emotion for Investment

Once you find a home that fits your needs (or most of them), be sure to review the numbers. Michael J. Seiler, a professor of real estate and finance at William & Mary, stresses the importance of considering a property as both a consumer good and an investment.

When you buy real estate for consumption, there’s an undeniable emotional factor. You might imagine your kids walking in the yard, or creating holiday memories in the living room.

A study found that people overestimate the value of their homes by about 8%.

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“There’s nothing wrong with bias for consumption, just like there’s nothing wrong with buying food to eat, or buying clothes to wear,” Seiler says. “But there’s no investment in those consumer decisions.”

A property, on the other hand, is a large financial undertaking. The problem is when people convince themselves that because they’re in love with a property as a consumer good, then it must be valuable as an investment, too. This tendency is related to the endowment effect, in which ownership of something increases the value of the object in the owner’s eyes—if you don’t yet own the house, but feel like it’s meant for you, this effect could cloud your judgment.

“If you walk onto a property and it’s a fantastic place to buy today, it will also be a fantastic place tomorrow,” Seiler says. “Maybe you saw it in the evening when the sun was setting, and it was a cool 78 degrees out while the kids were playing and the flowers were in bloom. Come back at night. Come back when it rains. The most common mistake you see when people are making this decision is probably falling in love at first sight.”

Don’t forget: Love can be blind. As long as you don’t forgo the financial reality, your investment will be well worth it.

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