What is the herd effect on the real estate market?

herd effect

Before we talk about the herd effect on real estate, be honest and answer the following question: Have you ever bought a product just because everyone else was buying it and never got around to using it?

If your answer was “yes”, you were a victim of herd behavior. In other words, you acted on impulse and didn’t calculate the benefits (or harm) of your purchase. And believe me: the herd effect in real estate is more common than you might think.

After all, what is the herd effect?

Originally, the term is linked to the behavior of many animals that walk-in herds in order to protect themselves from predators.

When we talk about economics, the herd effect refers to situations in which groups of people react in the same way, usually in an unplanned way.

An example is when we buy products on Black Friday just because it’s cheap or because everyone is buying. Here, we act on impulse. And the herd effect can cause major crises: faced with an economic problem, shareholders start selling their shares, which can “break” the stock market.

Greater herd effect on the real estate market

A classic example is the real estate bubble in the United States that burst in 2008. The episode is portrayed in “The Big Bet”, one of the movies for realtors you should watch.

At the time, there was a relaxation of the rules for real estate regulation, large-scale loans made to people who were unable to pay and mechanisms to encourage real estate credit. Faced with this scenario, many people started to buy properties that they were unable to acquire. In just a few years, the bubble burst.

Other herd effects on the real estate market

Even on a smaller scale, it is possible to observe the herd effect in the real estate market on sales of subdivisions and commercial rooms, for example.

When builders launch numerous projects and there is little demand, they usually lower the price to sell the properties on the plant. This practice can lead to a herd effect as well.

Who causes the herd effect on the real estate market?

Several factors can trigger the herd effect on the real estate market. A key agent to generate this situation may be the government, offering flexible conditions for real estate financing.

A construction company that has a large financial contribution can also put the prices down on their projects and cause a new herd effect on the real estate market. 

Realtor role

More than selling a property and receiving the due commission, the broker must be concerned with customer satisfaction. By providing a great service, you have chances to receive more referrals in the long term.

Therefore, it is your duty to ensure that the client does not enter the herd effect. In other words, he cannot act on impulse. The real estate purchase must be carried out in a thoughtful and planned manner, so as not to cause any inconvenience in the client’s future.

To do so, the broker needs to know how to pass on the best real estate financing tips. Therefore, be always up to date with the conditions offered by the market.

Also, try to offer the right property for your client. This is only possible when you use a real estate platform with an intelligent Real Estate CRM. After cross-checking customer data and their property portfolio, the tool selects the properties most compatible with each person’s needs.