The short answer is yes; weather affects buyers. In an interesting study done by The National Bureau of Economic Research, four researchers scoured millions of automobile and home sales and analyzed how the weather affected buyers. And, if your guess would be that more people are impulsive in the summertime, then come on down, because you’re right.
We all make “high frequency” decisions on a daily basis- Should I put extra creamer in my coffee, Where do I want to have lunch?, Should I leave the office early today? Those decisions don’t necessarily have a long term impact on our lives and those choices are less weighted and more easily made than “low frequency” decisions. “Low frequency” decisions are decisions like- Should I get married? Should I buy a new car?, Should I buy this new house?” According to behavioral economics, many decisions can be impacted by various factors that may be seemingly unrelated. For the purpose of this article, we are going to focus on housing and purchase price as impacted by the weather; that’s right, the weather… But, you probably knew that from the title.
The fancy-pants term researchers use to describe the mistakes that people make when projecting what they will need in the future is called “projection bias.” We humans sometimes believe that things that are valuable to us now will be equally valuable to us in the future. That, however, isn’t always true. Think about all of those times that you spent money on something you thought was “cool” to only think it was super lame the next year. Projection bias exists across all industries including the real estate industry and it drives sales and sale prices.
Due to projection bias, people will often pay more for homes with a swimming pool and/or central air in the summer months than in the cooler months. Researchers discovered through these crazy, amazing formulas and data sets that a swimming pool adds more value to a house that goes under contract in the summertime than it adds to the same house that goes under contract in the wintertime. According to the report:
[A] house with a swimming pool that goes under contract in the summertime sells for an average of 0.4 percentage points more than the same house when it goes under contract in the wintertime. Given the average value of homes with swimming pools in our dataset, this effect suggests a swing in value of approximately $1600 between summer and winter contract dates.
There’s a good reason that a buyer may act in a potentially irrational way and it’s not just from the heat… well, it kind of is, I suppose. The idea of the immediate utility of a pool may be worth more to buyers given the season and they may be more open with their collective wallets because of that. But, very simply, buyers are willing to pay more for the same property if its hot should that property have a pool and central air.
The logical follow-up question for anyone in the Real Estate industry is then: How can we leverage this natural behavioral impulse given how we list or even show our properties?
We’ll leave the answer up to you.