I recently read a blog post from SEOMoz where they used an outline of “Predictably Irrational” to help educate webmasters on irrational human behaviors and how to leverage them to improve web marketing. I wanted to take a similar approach and apply it to real estate.

1) The Truth About Relativity

• “We always seek to draw comparisons. Thus, given three choices, A, B (very distinct, but equally as attractive as A), and A- (similar to A, but inferior), we will almost always choose A, because it is clearly superior to A-.”
• “When Williams-Sonoma introduced bread machines, sales were slow. When they added a “deluxe” version that was 50% more expensive, they started flying off the shelves; the first bread machine now appeared to be a bargain”

Lessons to apply to Real Estate

• For internet listing services (ILS’s), offer a variety of packages. Three works the best here.

For real estate investors, offer three different lease agreement options

• Standard Lease Agreement (example $1250 / mo)
• Standard Lease Agreement with a $50 credit per month if they mow the lawn twice a month
• Standard Lease Agreement with a $100 credit per month if do lawn and pay early

2) The Fallacy of Supply and Demand

• “Herding: Assuming that something is good (or bad) on the basis of other people’s previous behavior Example: People wanting to go to a restaurant where people are waiting outside”
• “Simonsohn and Loewenstein found that people who move to a new city remain anchored to the prices they paid in their previous city. People who move from Lubbock to Pittsburgh squeeze their families into smaller houses to pay the same amount. People who move from LA to Pittsburgh don’t save money, they just move into mansions.”

Lessons to apply to Real Estate

• When showing your home, try to schedule showings for multiple people at once.
• Advertise on the Internet. There is a larger % of people outside of the area looking to move. LA to Denver for Example.

3) The Cost of Zero Cost

“In the real world, this effect was demonstrated by Amazon’s free shipping.

• After Super Saver shipping was introduced, Amazon saw sales increases everywhere except for France
• It turned out that the French division offered 1 franc ($0.20) pricing instead of free pricing.
• When this was changed to free, France saw the same sales increases as elsewhere”

Lessons to apply to Real Estate

• For ILS’s, offer free trial listings but have them enter the data themselves. When an individual has a vested interest, “their time” they tend stay with the product. SalesForce.com is a great example of this.
• For real estate investors, offer a free month if they sign a longer term contract

4) The Cost of Social Norms

• “Why we are happy to do things, but not when we are paid to do them.”
• “A real-life example: The AARP asked lawyers to participate in a program where they would offer their services to needy employees for a discounted price of $30/hour. No dice. When the program manager instead asked if they’d offer their services for free, the lawyers overwhelmingly said they would participate.”

Lessons to apply to Real Estate

• If you are a real estate blogger, have other real estate writers contribute to your blog for free. You will be surprised how many will take you up on it.
• For websites, open up your data. Let others do the work for you by building on top of the data you have already collected.

5) The High Price of Ownership

• “There are three fundamental quirks of human nature:
• We fall in love with what we already have
  
• We focus on what we might lose, rather than what we might gain
  
• When thinking about selling something, you think about all the things you’ll miss, rather than the hassles of ownership
  
• We assume that other people will see the transaction from the same perspective as we do”
  

Lessons to apply to Real Estate

• Make the renter or buyer fall in love with the house or apartment. Stage the house, make them love the idea of what they might have.
• For existing apartment communities. Generate an environment where positive memories can be made. Example, have monthly pool parties, organize get togethers for residents, play monthly games, etc.
• If selling, eliminate all emotions you have about the property. Think of it as a simple business transaction.
• For ILS’s concentrate your efforts on providing more to your existing customers, you can get more out of them since they have a sense of ownership with your existing product.