Whether a client is buying or selling, having a solid plan that is based on accurate information, and sound logic is essential.
But what about our gut feeling, or instinct. Does it have a place in the advice and recommendations that we give to our clients?
Laura Hang, Associate Professor of Business Administration at Harvard writes about the complexity of high stakes decision making and how sometimes, our gut instinct is an essential part of that process.
She warns that if data and analysis are available and applicable, then rely on those but if the situation is unique and pertinent information isn’t available, then gut feel can be helpful. Of course, we need to be careful in using instinct professionally; so what are the ways in which we can use it responsibly?
Let’s look at a real estate example.
You have been asked to establish an opinion of the value of a home for a potential seller. It’s a unique home that will appeal to a limited type of buyer. The data you are able to collect on recent properties sold or being offered for sale nearby doesn’t seem applicable as the homes are substantially different than the subject property. How do you come up with a value? And more importantly, how do you establish a solid listing strategy that includes the right price, timing, preparation and marketing to get the seller the best possible outcome?
I spoke with a handful of industry experts and top performing agents on this and received some interesting responses. Some thought you should use a combination of your experience and intuition to come up with an estimated price and then try to justify that price with the use of reason and logic.
Others felt that you should dig deep to gather all of the data available and combine that data with your experience and intuition to estimate the value.
Either way, it seems that you can justify the use of intuition but only when it is combined with the best quality of data that you can get.
There are several approaches to gathering data and when you are helping people make decisions about their biggest asset, we owe it to them to use all of them apply.
Here are a few approaches to consider in this situation:
The Comparable Market Approach which in this case isn’t giving us much pertinent information, but it does tell us what some buyers were willing to pay for a different type of property in this area. It’s limited information but it’s better than nothing.
The Cost Approach: This is establishing the land value, adding the cost to reproduce the improvements and then subtracting the accumulated depreciation. This will give us some much-needed data in this situation but it’s difficult to calculate the depreciation accurately since it is some mix of physical depreciation, practical depreciation and external depreciation. These last two can be highly subjective. (You should only use this approach if you have been property trained in it)
What Similar Properties Sold for in Different Locations: This can be helpful if there are similar properties in a different location and there is statistical information establishing the difference in value between the two locations.
Agent Collaboration: Inviting other area experts in to offer their opinion on the property can bring forth some valuable information but be on alert for bias’s as the other agent may have a buyer or a seller that would be affected by the valuation of this property.
What other sources of information might be valuable in a situation like this?
At the end of the day, market value is what a willing seller and willing buyer will agree to; so no matter how much research we do, we are using our intuition on some level because all we know is what a different seller and a different buyers were willing to agree on for a different property. By all means, allow your intuition to assist you when information is limited but don’t let it be a stand in for sound reason and logic. Intuition is often understood as being formed by extensive information that we collect and process all the time in our sub-conscious mind. This means that it can be a powerful tool in pointing us in the right direction. It also means that usually, if our intuition is telling us something, the logic and facts do exist to back it up.
Use intuition as a tool, to point you in the right direction, to give yourself a second to reconsider, to look into a unique element of a deal, but having great data, information, and knowledge is ultimately essential if you’re going to put that intuition to use.