Making the best home buying decision

Updated: 7 days ago

Jeff Hulett is the Executive Vice President of the Definitive Companies, a decision sciences firm. Jeff's background includes data science and decision science. Jeff's experience includes leadership roles at consulting firms, including KPMG and IBM. Jeff also held leadership roles at financial services organizations such as Wells Fargo and Citibank. Jeff is a board member and rotating chair at James Madison University.

 

1. Introduction


Buying a home is a big deal. A home is a significant investment, plus, we must predict our home life needs well into the future. We do not always know how long we will stay. Do we need good schools, access to age-appropriate medical services, or access to outdoor activities? In the last couple of decades, housing costs have grown quickly, often outpacing salary growth. Should we buy a house in a good rental market? Should we consider a duplex, living in half the home and renting the other half? These are just a few considerations. There are many others and will often depend on your location, income generation ability, family needs, and other cultural preferences.


We wish to be confident in our decision. Confidence occurs based on the belief we made a good home buying decision. The majority of home buying is done by couples. By a “couple,” we mean a married couple, unmarried co-habitants, an individual with the help from a parent or friend, and the like. So, confidence is not only individual, but it requires collective confidence. All homebuyers should share in the belief confidence that they made the best homebuying decision. Most U.S. homebuyers engage buyer real estate agents to help facilitate the confidence-building process and outcome.


All is not well in the homebuying confidence-building process. Approximately 3 out of 4 couples indicate they argue about key home buying “what is important to us” criteria. Arguing suggests there is a lack of confidence in the home buying process. Generally, the home buying decision is characterized by a complex, emotion-generating process. Arguing likely suggests confusion about either the definition of the key criteria or the weight of that criteria.


Helping to sort out the “What is important to us” criteria is where a homebuyer’s agents should shine. A good homebuyer’s agent intuitively knows how to:

  1. Educate each homebuyer about the key homebuying criteria and their definitions,

  2. Facilitate a process to weight those criteria for each homebuyer, then, importantly,

  3. Facilitate the home buying team to combine their criteria as a single approach to deciding on which houses are best for them to pursue.

As the earlier graphic suggests, home buyer agents have an opportunity to further help their clients “cross the chasm” to fewer homebuyer arguments and a high home buying confidence experience.


This article examines the home buying decision process. We apply a decision science and behavioral science lens. We will break down the decision into its core parts, then provide suggestions and tools for making the best homebuying decision.

This article is presented in the following sections:

  1. Introduction

  2. The Challenge

  3. Decision Process Character: Is the decision complex or complicated?

  4. Making The Best Decision: Homebuyer Criteria and Alternatives

  5. Conclusion

There are two major components to any decision process – the criteria and the alternatives. It is important for these components to be completed in order. Also, there are 2 major decision characteristics - the complicated and the complex. These two decision characteristics describe decision information gathering when making the home buying decision. The following is a high-level homebuying decision framework. We will explore this framework as we step through the article.


Homebuying Decision Process: The view from Decision Science

In the main, this article is focused upon the decision components-related process, particularly the foundational criteria building step or “What is important to me (and US) when buying a home.” We will also describe the often-misunderstood Decision Process Character at the core of evaluating information for completing the Decision Components. Before jumping into the process, we will first describe a few key challenges….


2. The Challenge


This article is grounded in a few key challenges that are particularly relevant in our current data-saturated, high-paced world.


Too much data: Over the last decade or so, there has been an explosion in real-estate data availability. In fact, most people find the volume of data overwhelming. There is a highly relevant observation by Samuel Coleridge, who wrote The Rime of the Ancient Mariner - "Water, water, every where, nor any drop to drink." Today's corollary is:

“Data, data, everywhere, whilst little wisdom to benefit.”

Data sources like Redfin and Zillow can be helpful. However, without a game plan to appropriately access and utilize the data, homebuyers can quickly become overwhelmed and discouraged. Often, too much data will confuse and lead to lower confidence. Active data curation is the hallmark of a confidence-building homebuying experience. Later, we present solutions that enable data curation.


Legal requirements: The law may seem limiting to buyer’s agents, given their mission to help their homebuyer clients. Most states have laws discouraging “steering.” Steering may occur if a buyer’s agent inappropriately influences a homebuyer’s decision criteria. For example, consider neighborhood selection. Steering sometimes has racial discrimination overtones. A buyer’s agent would not want to presume homebuyers will care about the racial make-up of the neighborhood they select. Dan Patrell is a real estate veteran and is with the Maryland REALTORS®, a state realtor industry organization. Mr. Patrell said:

“Potential steering is a critical consideration for buyer’s agents. Realtors are required to learn about and comply with steering-related laws and regulations.”

To avoid steering concerns, buyer’s agents are discouraged from assistance that may potentially be considered steering. The challenge is, it is difficult to walk the not always clear steering line. Later, we present decision process solutions that enable appropriate criteria assistance and as appropriately used, will eliminate steering concerns.


Consistency and efficiency: Not all buyer’s agents are the same. The real estate industry has relatively high agent turnover. When the economic times are good, many new agents are attracted to the real estate business. When the economy turns down, many agents will drop out of the business. Also, an individual realtor’s life stage matters. The real estate industry attracts some part-time agents that may enter or exit based on their life situation, like family priorities. Tom Cavanaugh is the co-founder and Director of Growth for Fulcrum Properties Group, a Mid-Atlantic U.S.-based real estate company. Mr. Cavanaugh said:

“We spend significant time and resources training our buyer’s agents. Not all agents are the same. A team of consistently well-trained agents is the goal. We appreciate the best-trained agents drive the most volume and create the most customer delight. A win-win!”

To create consistency and efficiency in the dynamic realtor world, it is necessary to provide technology solutions that:

a) Enable efficiency,

b) Is intuitive to use, and

c) Deliver clients' criteria and decision-making confidence.


3. Decision Process Character: Is the decision complex or complicated?


We now turn to the homebuyer decision process. We present this decision process in a context consistent with deep decision science and behavioral science research and practice. In the case of home buying, the quick answer to the “Is the decision complex or complicated?” question is “YES!” The homebuying decision is BOTH complex and complicated. Generally, the difference between a complicated and complex decision has to do with the information available and the difficulty of the homebuyer to process that information to make a homebuying decision.

Complicated decisions are addressable with data and algorithms. The data and algorithms may help us confidently achieve the best homebuying alternative. The typical challenge with complicated problems is the volume of criteria and evidence needing evaluation. You will likely have many “filters” you wish to consider when buying a home, like the number of bedrooms, or a particular school district. While complicated by the volume of considerations, it is addressable with good organization and access to filtering data, like from real estate data aggregators such as Zillow or Redfin.


Complex decisions are different. These are often decisions with some uncertainty and a lack of data. These problems require our best judgment. Your judgments include beliefs, emotions, and attitudes. For example:

  • A neighborhood may have a good “feel” when you drive through it. You may get comfort from a neighborhood that feels like yours from growing up.

  • You may not know how long work-from-home is going to last. The importance of distance from the office is the best guess. Requirements for presence in the office will almost certainly evolve.

Building decision confidence is critical to a successful outcome. High confidence is your feel-good emotion signaling a good decision. To gain this critical confidence, one should have a process that handles both complex and complicated decisions. Then, the process should help you define and weigh the criteria and then apply both objective-based information and your judgment to potential alternatives.


It is important to recognize that because homebuying includes complexity - each home buyer has a unique perspective. That means, there is not some “AI” that can make a home buying decision for you. Certainly, the decision will be helped by applying available data and algorithms. Best decision practices suggest homebuyers should develop their unique decision perspective by integrating available data and algorithms, plus, add homebuyer judgment to manage uncertainties and appropriately apply beliefs, emotions, and attitudes.


In the remainder of this article, we provide approaches and solutions to help homebuyers create and implement their own unique decision model, apply their unique model to available home buying alternatives, then confidently make the best homebuying decision. The realtor may certainly be an important facilitator of this confidence-building process.


4. Making The Best Decision: Homebuyer Criteria and Alternatives


Homebuyers’ criteria“What is important to me or us?”: The best decision process is to start by identifying and weighing criteria.


Decision Science teaches us criteria development is a significant decision risk point. Often, the criteria development and weighing process may get overlooked or only marginally considered in a trial-and-error process. Many have the desire to go directly to evaluating home alternatives with only a vague idea of their criteria.


The good news is - there is nothing wrong with “going shopping” to get homebuying research ideas. It is important to recognize that the trial-and-error shopping process is only done in the context of informing your criteria. The criteria-informed homebuying alternative evaluation and selection process should only occur after the criteria have been identified and weighed. An effective criteria evaluation process has the following characteristics:

  • Criteria are well defined

  • Each criterion is independently evaluated and weighed

  • Evidence to evaluate criteria may be judgmentally or objectively based. When possible, high-quality objective evidence is preferred.

  • Combining criteria evaluation of multiple decision participants is necessary. Utilize differences as discussion points. Differences may be resolved with additional evidence or “agree to disagree” by splitting the difference.

Behavioral Science teaches us that people have naturally occurring biases. These biases often result from belief inertia associated with fear, overconfidence, or expertise devaluing.[i] A disciplined criteria evaluation process will greatly reduce the potentially misleading or confidence-reducing bias effects. This does not mean we need to quantify all our criteria evidence. Often our judgment is needed because 1) evidence is uncertain (because it occurs in the unknown future) or 2) evidence is unavailable (because it is found in a difficult to interpret emotion). A disciplined criteria evaluation process will significantly reduce bias and optimize judgment.


Building confidence-enabled criteria for homebuyers is challenging to accomplish without the help of a well-trained realtor. The realtor helps create home buying confidence by applying decision science-enabled tools and expertise to help their clients. The challenge with biases is that most people do not recognize their own biases. This is especially challenging for buyer's agents when it comes to advising their clients. Good decision tools will help their clients realize the best decision by minimizing bias.


At the bottom of the article is a suggested smartphone app for making the home buying decision. It comes preloaded with common criteria. It is easily customizable to add or subtract criteria most important to the individual homebuyer. It provides a decision science-backed criteria weighing process. The results maybe combined with multiple members of the home buying team to create an accurate aggregated criteria perspective. The app is integrated with major real estate data providers like Redfin or Zillow. The results are able to be shared with the buyer’s agent.


The Homebuyers’ alternatives: Now that the criteria have been clearly defined, weighed, and combined across all homebuying team members, the home alternative selection process becomes straightforward. Since the homebuyer clients have clearly defined their criteria, the buyer’s agent is able to provide homebuying alternative suggestions. Both the homebuyers and the buyer’s agent are guided by a clearly defined, ordered, and weighted list of “What is important to us.” Also, as much as the homebuyers tried to accurately assess the criteria, it is possible their perceptions may change with experience. The good news is that our process allows for rapid updating. Also, most people will buy multiple houses throughout their lives. When it comes time to buy a future home, their customized criteria model will be available as a starting point for all future real estate transactions. The buyer’s agent can securely archive their homebuying decision model and make it available when needed in the future.

Our economy tends to swing between buyer’s markets (significant inventory with pricing power skewing to the buyer) and seller’s markets. (limited inventory with pricing power skewing to the seller) Each market has unique challenges for the buyers. In a seller’s market, being clear about criteria is critical. In this environment, speed to decision is paramount to achieving the homebuyer’s goals. In a fast moving seller’s market, the home buying decision is more likely to be either, 1) pursue this available alternative or 2) stay in our current housing situation like renting.


Now that the criteria have been clearly defined - using real estate data aggregators such as Zillow, Redfin, or other Multiple Listing Service-related sources, the homebuyers can simply identify alternatives to walk through. The homebuyer’s agent will become even more effective in driving:

  1. Homebuyer confidence and

  2. The speed to achieve the best real estate decision!


5. Conclusion


The home buying process is both complex and complicated. An explosion of real estate data availability has provided more information directly into the hands of the buyer. Paradoxically, if not managed properly, more information may cause homebuyers to reduce decision confidence. With the assistance of buyer’s agents, the technology now exists to help homebuyers evaluate their criteria before evaluating alternatives. The article demonstrates that order of operations matters…. Having the homebuyers come together on their criteria first is critical to the best home buying decision outcome.


Homebuyer’s Choice by Definitive Choice® - Definitive Choice is a smartphone app. It provides a straightforward user experience and is backed by time-tested decision science algorithms. It uses a proprietary "Decision 6(tm)" approach that organizes the criteria (what is important to you?) and alternatives (what are the choices?) in a series of bite-size ranking decisions. Since it is on your smartphone, you can use it while you are doing the research. It is like having a decision expert in your pocket. The results dashboard provides a rank-ordered list of "best choices," tailored to your preferences. It is easy for homebuying participants to share and compare their criteria.


Also, Homebuyer’s Choice by Definitive Choice comes pre-loaded with homebuying templates. You will want to customize your own criteria, but the preloaded templates provide a nice starting point. This app will help the homebuyers increase confidence, improve interactions with the buyer’s agent, and help you negotiate for the best home.


Below is the high-level process flow showing the interactions between the buyer's agents and the home buyers.


For more information, please contact Definitive Business Solutions, Inc.:

  • Jeff Hulett, Executive Vice President | jhulett@definitiveinc.com

  • Greg Potteiger, Chief Technology Officer | gpotteiger@definitiveinc.com


Notes

[i] Hulett, Changing Our Minds, The Curiosity Vine, 2021 – See section 1a, “Our Approach & Belief Inertia.”

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