I was watching House of Cards the other night when one of the characters said something that really struck a chord with me. When asked if his decision was based on emotion, he replied: “You don’t make decisions based on emotion. Decisions based on emotion aren’t decisions. They’re instinct.” I love a show with good lines. Lines that make me think. In this case, the line made me think of real estate. (Which isn’t all that unusual since so many things make me think of real estate.)

Buying or selling a home can be a very emotional experience. But there’s very little place for emotion when you’re trying to make a rational decision involving hundreds of thousands, or millions, of dollars. When I’m advising my clients, I try to remove emotion from the equation. It isn’t easy to do, but it’s well worth the effort. Why? Because you don’t want to fall in love with a home so much that you overpay for it by a massive amount nor do you want to feel so desperate to sell your home that you accept too low a price.

Like usual, there are exceptions to every rule, so if you feel the need to get emotional, it won’t hurt you to do so at the following two times:

1. When you see a home you want to buy, you’re allowed to “feel the love” for it until the negotiations begin because you shouldn’t buy it unless you love it; and

2. After you’ve done the deal and bought or sold your home, there’s nothing wrong with feeling thrilled with the outcome or relieved that the process is over.

But at all other times, you should be playing poker. With monopoly money.

Don’t get me wrong. I believe emotions have a role to play in the real estate process, just not with MY clients. I want my clients to make rational, logical and well thought out decisions. But as a Realtor, I wear two hats. I only represent MY clients’ best interests and not those of other buyers and sellers. A large part of my job involves representing my clients’ interests in negotiations. One way to convince other buyers to pay high prices and other sellers to accept low prices is to introduce emotion into the process. Not to my clients, but to the other buyers and sellers so they start to think emotionally and are thus unlikely to make the best decisions possible. There’s nothing underhanded about this. It’s part of any negotiation process.

Think of it this way. When I’m advising my clients, I’m like a sports psychologist telling my athlete to stay calm, focus on the process, try her best and not worry about the result. When I’m talking to other buyers and sellers, I’m like a football coach telling my players to give it 110%, play like there’s no tomorrow and think only of winning. (I don’t really talk like a football coach. That’s just not my nature. There are other very effective ways to convey the same type of message in a professional and calm manner.)

So how do you keep emotion out of YOUR decision making process? Here’s some advice Frank Underwood might give you if he was your agent:

• Keep  things in perspective. Remember that you’re buying or selling a home and not making life or death decisions. There will always be another home or another buyer. After all, if people can find true love and get married more than once, they can surely find more than one home to love.
• If your Realtor says things to you like “You’ll never see a home like this again” or “You should take this offer because your first offer is always your best offer” or anything else that gives you a sick feeling in your stomach, chances are your Realtor is attempting to get you to make a decision based on emotion. Get a new Realtor.
• Analyze the situation rationally. When you find a home you’d like to buy, determine its fair market value and establish the price you’re prepared to pay before the negotiations begin. You may decide to pay a little more than fair market value if you like it a lot or a little less if you don’t really love it, but have these numbers firmly embedded in your mind so they don’t change if you happen to get emotional in the heat of the negotiations. Likewise, when you’re selling, determine the fair market value of your home before putting it on the market. When you receive an offer, you can always decide to hold out for more or accept less depending on how motivated you are to sell, but at least you’ll be able to justify this decision.

Making rational decisions isn’t only beneficial to your bank account, it’s good for your long term happiness, too.

P.S. If I might be permitted a bit of a rant……I’m seeing too many buyers these days make what have to be emotional decisions and overpay by huge amounts for some homes in central Toronto, usually in the first time buyer segment of the market. It’s possible to justify paying $10,000, $20,000 or even $50,000 over fair market value if you really want a home, but overpaying by $100,000 or $200,000 just isn’t smart. Yes, interest rates are low, but think long term. If you pay 10% over fair market value, for example, you need prices to rise by 10% just to break even so while the market may rise, the value of your investment won’t until you hit the break even point. Over the long term, your home will likely be a good investment, but it will be a much better investment if your initial cost isn’t inflated. You can also think of it this way: if you paid fair market value, you’d have an extra $100,000 to invest elsewhere. The value of your home would increase as the market increased and your $100,000 investment would also increase at the same time. Depending on your age, you’ll likely find that $100,000 invested today will be worth a whole lot of money by the time that you retire. Overpaying by a huge amount just doesn’t make sense. Either these buyers aren’t getting good advice or they’re not listening to it. Or maybe they just have money to burn. Regardless, it doesn’t strike me as the right thing to do and I hope they don’t run into trouble down the road.