Property investing and ‘expert opinions’ Part 3

Investing in property

 

Expert opinion is not evidence however, people rely heavily on those opinions. As buying property is arguably the largest purchase people make, we need to separate opinion from the fundamentals. We should first ask who are these experts and why is their opinion sort.

Power and expert opinion

 

The reason you might listen to real estate predictions is primarily that the commentator has expert, referent and charismatic power. The expert refers to their knowledge, referent power is how society values the position they have – Dr, Professor CEO – and charisma is their likability.

The medium is also very important the broader the platform the more likely the message will be repeated. Commercial television channels exploit Australia’s love of property and they trot out experts weekly. It is obvious you won’t personally know these people so you rely on their credentials – referent power – for trust.

Consumers of information need to keep in the back of their mind that each expert has their own ‘take’ on the real estate data. Some experts will have a finance perspective, others might be focused on retirement planning whilst others might see value in the geography. All may have valid expert data but are highlighting their specific knowledge.

Experts don’t always agree

Many people – including the experts – often disagree about investing. This is evident through the choices of investments and the relative successes. If investment A is better than investment B for long-term prosperity, why isn’t A not generally accepted?  It is often because the experts who choose investment B have found that investment is superior in their experience. Perhaps there really is no difference and they are equally effective. Or equally ineffective. Or perhaps they have never really thought about the alternatives.

The health advice of chief medical officers nationally in Australia for Covid is an excellent example. There is one disease but different health approaches. All experts, all have referent power and people align with the most charismatic delivery of the information. In the case of Covid, the evidence or fundamentals is what people really care about – what works. Clearly, the effectiveness of vaccines and science cuts through all the opinions and we need to be that aggressive when we invest.

Challenging the expert and asking for evidence

 

Challenging experts may be easier said than done. Many investment strategies have been tried and tested but sometimes they need updating. We cannot always apply today what worked in the past and it can be daunting challenging an expert or ignoring mass media real estate coverage. Ironically that is how you determine the validity of claims and how you make good decisions.

We are not actually challenging the expert we are examining the evidence. Always probe into the evidence that underpins advice and recommendations. Choose an expert or accept advice that:

  • can demonstrate that for 75% of clients like you, this investment option has been successful over a specific time frame and
  • outlines the failure rates of the option being considered.

Focus only on the area you are interested in and not the whole state – the media generally commentates broadly. Always concentrate on who would buy or rent your property as the end consumer is the demand and you need to have that desired supply. Experts’ opinion isn’t always consistent but it is more likely to be right when it is based on solid, rigorous, evidence.