Buying a home is one of the most significant decisions a person will make in their life. But contrary to popular belief, it’s not always based on cold calculation. Behavioural economics shows that cognitive biases – persistent errors in thinking – play a key role in how and why we choose a particular property.
Understanding these biases helps explain why people overvalue some homes and ignore others, why they are willing to pay above market value, and how emotions crowd out analysis. In this article, we’ll look at which biases influence buyer behavior and how this knowledge can be used to make more informed decisions.
The Anchoring Effect: How the First Number Sets the Frame
When a person sees the price of an apartment, it automatically becomes a reference point for all subsequent thoughts. Even if this amount has no objective value, it affects perception. This is the anchoring effect – one of the strongest distortions influencing buyer behavior.
For example, if the listing price is too high, the buyer will judge the “discount” not by the actual market value, but by this high “anchor” figure. The result is a perception of a bargain where there may not be one. Even experienced investors are susceptible to this distortion.
Sellers and agents actively use this effect: they list the property at a higher price in order to later “lower” the price and make the buyer feel like they have won. At the same time, the real value of the property may be significantly lower. This generates behavior based on emotions, not analysis.
How does the anchoring effect manifest itself when purchasing:
● Emphasis on the first price named
● Comparing similar objects relative to an “anchor” rather than a market
● Psychological attachment to the starting number
● Over-expectations regarding bargaining
The Illusion of Control: Belief in Your Superiority
Many buyers believe they can spot good deals and “feel the market.” This is a classic illusion of control—overestimating one’s own abilities in a complex and uncertain environment. It causes people to make risky or obviously unprofitable decisions.
The problem is that the real estate market is more complex than it seems. It is subject to external fluctuations, legal nuances and the influence of other participants. The average buyer rarely has enough information to objectively assess the situation.
However, the illusion of control makes a person self-confident. He refuses help from specialists, ignores analysis and hopes to “bargain” or “intercept” a good option. Such behavior leads to purchases that do not correspond to goals and possibilities.
Consequences of the illusion of control:
● Neglect of professional expertise
● High expectations from the deal
● Ignoring risks and pitfalls
● Underestimating market cycles and trends
Fear of missing out: the fear of missing out
The FOMO (Fear of Missing Out) phenomenon is widespread in the housing market. It leads to haste, impulsive purchases and the refusal of deep analysis. This effect is especially active in conditions of a shortage of offers.
It seems to a person that “this property” is the last chance, and it will only get worse. He is ready to abandon criteria, compromise, and even go beyond the budget, just not to miss out on the apartment. In fact, such behavior does not give an advantage, but on the contrary, creates excessive stress and risk.
The fear of missing out is often fueled externally: agents, marketers, even close people can convey the idea of “hurry up before it’s too late.” This increases the pressure and reduces the rationality of choice. The object is assessed not by its characteristics, but by its availability “here and now.”
How to recognize FOMO in buyer behavior:
● Willingness to rush without full information
● A sharp reduction in the bar of requirements
● Emotional arguments in decision making
● The conviction that there will be no other opportunity
Confirmation effect: selection in line with expectations
When a person wants to buy a home, they start looking for information that confirms the decision they’ve already made. This is the confirmation effect: ignoring facts that contradict our choice and focusing on what supports it. This is one of the most persistent cognitive distortions.
For example, a buyer can ignore information about poor sound insulation or a bad neighborhood if he likes the apartment in other respects. He will only notice the positives: a comfortable kitchen, sunny windows, or a new elevator. Everything else is “temporary,” “unimportant,” or “fixable.”
This behavior replaces analysis with the desire to be right. It leads to an objective assessment of the property, an inflated price, and disappointments in the future. This effect is especially dangerous when combined with an emotional attachment to the place or appearance of the home.
Signs of the confirmation effect when buying:
● Ignoring negative reviews and signals
● Search for information confirming the selected option
● Exaggerating strengths and underestimating weaknesses
● Rejection of alternatives, even more profitable ones
The Endowment Effect: When “Mine” Is More Valuable Than “Better”
As soon as a person imagines an apartment as his own, its value in his eyes increases. This is the effect of possession: a psychological revaluation of what is perceived as personal. This is very evident in the process of choosing a home.
Even a brief imagination of yourself in a new apartment – mentally placing furniture, walking around the area – creates attachment. And then rational arguments fade into the background. The object to which the buyer has become “attached” becomes more important to him than more suitable alternatives.
Sellers and agents often exploit this by offering visualizations, renderings, or the opportunity to “feel like home.” This works because the brain perceives potential ownership as a fact. The buyer does not want to “lose” something that they have not yet purchased.
How the endowment effect works:
● Emotional attachment to the chosen apartment
● Resistance to changing the decision even if there are downsides
● Increased willingness to overpay
● Negative attitude towards alternatives
Emotions versus Rationality: The Role of Stress
The process of buying a home is almost always accompanied by stress. High prices, fear of making mistakes, deadline pressure – all this reduces a person’s cognitive resources. In such conditions, decisions are increasingly made emotionally, not logically.
Stress activates the intuitive system of thinking. It is fast, but not always accurate. This makes the buyer more vulnerable to distortions, marketing ploys and external pressure. He may give in to impulse, choose irrationally or miss an important detail.
An emotional decision often feels right “by feel”, but in the long run it leads to disappointment. The person realizes that the choice was made under the influence of the moment, not analysis.
Why emotions interfere with informed choice:
● Decreased concentration and attention to detail
● Strengthening reactive solutions
● Increased sensitivity to external pressure
● Distortion of perception of advantages and disadvantages
Cognitive biases are not uncommon, but the norm in the behavior of real estate buyers. Even educated, experienced people are subject to the influence of attachment, emotions, illusions and false expectations. This is natural, because buying a home is not only an economic decision, but also a personal one.
However, awareness of these distortions gives a chance. Those who can recognize errors in thinking and compensate for them with analysis, reflection and expert support gain an advantage. After all, the best choice is not just an object you like, but one that meets your needs, capabilities and real quality.
Questions and Answers
Because of the endowment effect – imaginary ownership increases the value of the property.
Focus on market analytics, not the seller’s starting price.
Yes, especially under stress and information overload.