Buying or selling a home isn’t just about numbers—it’s about psychology. Drawing from The Psychology of Money by Morgan Housel, this video explores five key psychological biases that shape real estate decisions, from fear-driven bidding wars to the illusion of perfect timing. Understanding these insights can help you make smarter, more confident decisions when buying or selling a home.
Eric Andersen, B.A., M.Div.
Owner/Designated Managing Broker, Andersen Realty Group
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Transcript:
Buying or selling a home is one of the biggest financial decisions most people will ever make, yet the process is rarely governed by pure logic. There’s no doubt a rational component—we run the numbers, analyze the comps, and weigh the pros and cons. But real estate decisions are deeply emotional, and it would be a mistake to overlook the important role that emotions, biases, and deeply ingrained tendencies play in how we buy and sell homes.
I’m Eric with Andersen Realty Group, and I recently finished Morgan Housel’s excellent book, “The Psychology of Money.” It’s not a book about real estate per se. It’s a book about how we think about money, how we think wrongly about money, and the decisions we make on the basis of those thoughts. And it’s there, at the decision-making stage, where we can benefit from his insights and apply them to buying and selling homes. By understanding the psychological biases and emotional triggers that influence homebuying and selling decisions, we can make smarter, more confident choices that align with long-term financial and personal well-being. In this video, we will consider five key lessons from The Psychology of Money and applies them to real estate decisions, helping buyers and sellers recognize common biases and make more informed choices.
Fear of Missing Out
One of the biggest lessons in Housel’s book is that people don’t necessarily make financial decisions based on spreadsheets and formulas. They make them based on what feels right in the moment. And in real estate, that moment is often shaped by fear of missing out.
During a competitive market, buyers see homes selling in the blink of an eye. I’ve personally had buyers contact me about seeing a new listing, only for it to have gone under contract before we can even get our tour confirmed. Bidding wars break out, buyers stretch their budgets, waive contingencies, and convince themselves that *this* is their one shot at homeownership. Logic sometimes takes a back seat. The fear isn’t just about missing out on a house—it’s about missing out on belonging. The idea of watching others succeed while you sit on the sidelines is painful, and so buyers are tempted to act impulsively.
But as Housel points out, doing well with money has little to do with how smart you are and a lot to do with how you behave. The most successful buyers resist the emotional tug of urgency. They understand that a house is not just an investment but a long-term commitment, and they avoid stretching their finances in ways that will cause stress down the road. Missing out on a great home is painful, but as they say, there are other fish in the sea. It may not feel that way in a competitive market, but I assure you, the ocean is big, and another home will come along, at least as good, and maybe even better.
Rich vs. Wealthy
Housel also makes an important distinction between being rich and being wealthy. Being rich means having high income or valuable assets. Being wealthy means having control over your time and financial freedom. But may sellers focus on the wrong one. They want the highest price possible—understandably. But many sabotage their own goals by clinging to an asking price that’s delusional. They anchor their home’s value to an absurd Zestimate or even a crazy appraisal. Appraisals are not Gospel truth. They’re an opinion based on selected data at a specific point in time. Any honest appraiser will tell you they are inherently subjective, and home values can change on a dime. Plus, not all appraisers are equally skilled at their job. Unless the appraiser is offering to pay you the amount on their report, don’t take that number as a guarantee. To Housel’s point, what sellers should consider is the big picture: net wealth and freedom, not holding out for an unrealistic sale price. This can leave a home sitting on the market, result in price reductions, and ultimately lead to a lower sale price than if they’d priced it appropriately from the outset. The wealthiest sellers—those who maximize their opportunities—understand that the greatest asset we have is time. It’s the one thing we can’t make more of, and the clock can quickly go from asset to adversary when you’re selling a home and market time starts creeping up. Waiting too long for a fantasy price often costs sellers the very freedom they’re seeking.
The Illusion of Certainty
People love certainty, but Housel reminds us that the world is driven by surprises. Financial markets, economies, and real estate cycles don’t move in straight lines. Yet, buyers and sellers often act as if they do. Buyers hesitate, waiting for the perfect moment to buy—expecting prices to crash or mortgage rates to return to historic lows. Sellers cling to a belief that the market must improve if they just wait a little longer. Both mindsets assume a level of predictability that doesn’t exist. Smart real estate decisions aren’t based on timing but on long-term trends. The best time to buy or sell isn’t dictated by short-term fluctuations. It’s based on your personal financial readiness and long-term goals. As Housel puts it, “You have to take the world as it is, rather than as you wish it would be.”
The Power of Adaptability
Another major theme in “The Psychology of Money” is that long-term success doesn’t come from predicting the future. It comes from being flexible. The people who thrive financially are the ones who adjust their plans with changing circumstances. For buyers, this means being flexible with expectations. Maybe the dream home with that perfect kitchen isn’t available in your budget, but an overlooked home in a great neighborhood could be a better long-term option. For sellers, it means responding to market feedback rather than stubbornly waiting for conditions to change. Real estate isn’t about perfection. It’s about making the best decision given your goals and the circumstances. That goal is to make a solid decision that will hold up over time. The more adaptable you are, the more successful you’ll be.
More Than Four Walls
Finally, Housel points out that money decisions are rarely just about money. They’re about feelings. People don’t save and invest just to maximize returns. They do it because they want security, freedom, and happiness. The same is true in real estate. Buyers often focus on resale value, debating whether the open floor plan or finished basement will yield the best return on investment. But at the end of the day, a home is more than an investment. It’s where you live. The best financial decisions are ones that align with your emotional well-being. Sellers experience this too. A home isn’t just four walls and a roof. It’s filled with memories. Selling it represents the end of one chapter and the beginning of another. That’s why sellers sometimes reject strong offers or get offended during negotiations. Understanding that these emotions are natural, but not necessarily helpful, can lead to more rational, successful decisions.
The Psychology of a Smart Move
I have to say, I thoroughly enjoyed “The Psychology of Money.” It’s short, engaging, and is filled with all sorts of practical wisdom, including lessons that apply to every homebuyer and seller. The goal isn’t to win every bidding war or predict where interest rates will go. The best decisions are made by those who understand the psychology of buying and selling homes, by those who recognize when emotion is driving their decisions, who stay flexible in changing conditions, and who prioritize long-term well-being over short-term wins. I can’t tell you when the market will change, but I can promise you that it will. Prices rise and fall. Rates fluctuate. But the basic truths about human behavior remain. If you can master the psychology of real estate, you can make smarter, more confident decisions—whether you’re buying your first home, selling a beloved one, or navigating a challenging market. In the end, success in real estate isn’t just about the numbers. It’s about knowing how you make decisions—and making them wisely. If you’d like my help in putting together a sound plan for buying or selling a home in the western suburbs of Chicago that aligns with your goals, reach out anytime using my contact information, below. And if you found this video helpful, please like this video, subscribe to my channel, and turn on notifications. I’m Eric with Andersen Realty Group, a family-owned brokerage where we treat our clients like family.