We always hear from clients that this real estate closing will be simple. When I hear that, I cringe because even under the best of circumstances I know that clients will experience a bit of stress as they move from contract to closing. Change produces stress. To be sure, some handle the process better than others and it is difficult to predict who will hold up better – but stress always exists.
I know we need a bit of stress as such motivates us to take actions that will benefit us, like calling the movers or forwarding the mail to the new address. But what causes the stress level to move the needle to solid red – the harmful kind of stress that causes panic and dysfunction?
Keith Bayer, a licensed clinical social worker at North Shore Family Wellness in Skokie, IL, is quite familiar with real estate transactions, having purchased and sold homes last summer. Keith believes that sellers and buyers have the same type of stress, but experience it from different lenses. Both can experience the “What Ifs” that take them out of the here and now.
Some experts have written that sellers experience the Endowment Effect and Loss Aversion. The Endowment Effect in sellers prevents them from being objective in negotiations as sellers place more value on their home simply because they own it. Loss Aversion is the sellers’ strong preference to avoid a loss (even at the expense of a gain), such as holding out for a better price even when the offer they presently have is likely the best one. Buyers may experience an Aversive Reaction where they sabotage their good fortune of buying a home and realizing the American Dream because their self-esteem cannot handle the sudden realization of good fortune. In this case, the buyers create problems to bring the home-buying event from a wonderful experience to chaos.
But in the end, Keith Bayer sees buyers and sellers causing their own stress by “Catastrophizing” – imagining disasters and building layers of doubt upon doubt, mixed with gloom based on an ounce of truth or unlikely probabilities. Think of adding gasoline to a once controlled campfire. Bayer says that closing has many stressors and the fear of the unknown, more than most situations people encounter in their daily lives. For the buyers, there is the offer price decision, the closing date compromise, second thoughts about everything – is this a good move for us and so forth. For the sellers, the stressors include doubts about the market, the sales price, maybe their agent, the inspection and loan prospects, on top of buyers’ and sellers’ remorse. The real estate transaction contains enough stressors on each side for a whole year. In Bayer’s eyes, lots of layers of doubt to allow Catastrophizing and stress.
Failure of the parties to reach agreement also is a stressor. Bayer sees the parties “Minimizing” – diminishing the positive aspects or underestimating their good fortune, which is just a function of human nature. For example, sellers can have a full price offer and then reject a reasonable request for an inspection repair. This is something I am guilty of when I sold my first home. The buyer asked for a new furnace because the old one was developing a crack in the heat exchanger, a big issue that can lead to carbon monoxide poisoning. I should have been grateful that they discovered it before something tragic occurred. Instead of taking action to pay for the new furnace, I Minimized the full price offer and demanded that the buyer pays for 1/2 of the furnace. The deal almost fell apart and I agreed to the repair in full – I learned my lesson there.
I asked Keith, what can bring us back from the brink? He said to ask yourself, are these thoughts “reasonable?” Are the buyers or sellers really trying to take advantage of if we look at things from their perspective, would we have the same doubts and concerns? I suggest calling an expert. For example, if the inspector says that a particular item needs fixing and the sellers think the position is unreasonable, ask a specialist in the area or read up on the issue. Inspectors are usually generalists and sometimes alarmists, in my opinion. For example, one inspector said a laundry closet needed a costly fresh air intake because the gas dryer was not properly vented. But the fear was not real. We called the inspector and asked if we use the dryer with the closet door open, did any danger exist? The response when we pressed the inspector – no danger at all.
Bayer also suggests that we take a mindfulness approach – do not get ahead of yourself. Take care of the here and now. For example, will the buyers get their financing and will the appraisal work out? Think about it, the buyers want to get the loan and want their bid price to be confirmed as well. The loan officer has a disincentive to take a loan he thinks has any chance of being rejected, as it wastes time and company resources. Loan officers are judged internally on their percentage of loans taken from application to closing. You have done what you can. You researched the price with your agent, you have seen the pre-approval letter from a well know lender – you have taken care of the here and now.
Finally, Bayer recommends self-soothing. Breathe deeply, take a hot bath, exercise, take care of yourself. The best thing you can do is talk to a calming and knowledgeable person. Stay away from alarmists and bomb-throwers.
I often suggest you look at the worst-case scenario. Even if the worst happened, is it all that that catastrophic in reality? Will fortunes be lost and people injured? Look at the bright side; is the glass half full or half-empty? All this is easy for Bayer, as he is just glad to have some water to drink! I will remember that next time I Catastrophize.
Keith Bayer practices in Skokie, Illinois and has more information on the practice group site – http://www.northshorefamilywellness.com/
Gregory A. Braun concentrates his practice in real estate law, serving individuals buying and selling houses and condominiums, builders, developers, and investors. Greg provides counsel to these clients in areas including FHA submissions, short sales, lending issues and foreclosure workouts/bankruptcy, compliance with federal, state and local development requirements, construction, insurance, corporate and tax matters, including 1031 exchanges. The firm offers a host of legal services, please visit www.myreallaw.com for details. Greg can be contacted at gbraun@myreallaw.com, 847-424-1005.