Paralysis by Analysis in Real Estate I am sure that all of you have heard term "Analysis Paralysis" and even seen or experienced the phenomenon yourself. Whatever the decision that needs to be made, it is forestalled and in most cases avoided, by excessive analysis. As Realtors we see it all the time. Commercial transactions may have a higher incidence of it but more and more residential buyers are suffering from the same malady. I may suffer from the reverse malady: "Ready? Fire! Aim!" but both maladies have some things in common and I would like to go over some of them point by point ( Is this too much analysis?? LOL): 1. The more complex the situation.

Ok, it's pretty clear if there is a deal or transaction that you don't understand, you will have to do some analysis first. The less background you have, the less experience you have, the more comparisons and indeed, study you will have to do. I guy like me, that may have many transactions under his belt on duplexes for rent may seem like a "ready, fire, aim" guy, when buying another duplex; but the reality is that familiarization lessens the need for analysis. I may make assumptions on past experience where the newbie cannot. He must analyze more deeply.

2. The higher the risk.

We must always keep in mind that the amount of analysis should be in direct relationship to the amount of risk. If I am a newbie making an offer on a duplex, and the only risk I am making is to spend the next thirty days doing my deeper analysis, then the actual making of the offer is a low risk step. Many newbie buyers fail to realize this. They will ask for all sorts of information that is not as easy to get as it would be if the property were under contract. I am often asked, for example, for the list of tenants in a commercial building prior to receiving an offer. The prospective buyer wants to look at lease expiration dates, the financial credibility of the tenants etc. Better the prospect should make the offer first, based on assumptions of what he expects to see in the due diligence period, and then adjust his offering price after due diligence based on the facts that he did find out. There are ways to mitigate your risk (due diligence, escape clauses, ) that will help you avoid analysis paralysis.

3. The ability to delegate

Buyers need to build a team of trustworthy advisors like a good real estate agents, attorneys, and accountants. The inability to trust those people will lead to analysis paralysis. I see it all the time. I will say this, trust but verify; after all it is YOUR money, not your agents and certainly not your accountants. But delegation to your support people should be routine.

4. Prioritization

In order not to get bogged down in minutia, set your priorities. I have often said in this column that sitting down with your real estate adviser and establishing priorities and objectives is critical. This is not to say that they cannot be changed, but actually writing down your objectives and sharing them with your trusted advisors will help crystallize your analysis and help you avoid paralysis

5. The Ritualist .

The ritualist is the person who goes through the ritual of the analysis but ignores the purpose. I see ritualists every day. I'll say to someone, "Did you get through with so and so and find out the answer?" They reply, "I faxed him", or "I sent him an email," or "I left him a message"; Just to let me know they are trying but don't have the answer.. They think the proof of the attempt will satisfy me. In the same way the ritualist loses sight that the goal is to make a purchase, not just to do the analysis.

6. Goals

"Setting the goal; Making the goal; Scoring; Keeping your eye on the goal post." We all hear these things but many fail to do so. Unclear goals will muddy the analysis. What are we looking for? What are we trying to prove? Is the goal an 8% cap rate? A certain cash flow? A home on a golf course from under $700,000? Without clearly defined goal analysis gets stalled.

7. Experience

Ever hear someone remark that good old so and so has good gut instincts on when a deal is right? This may be true, but his instinct comes from experience. He has seen the situations before, he recognizes a situation from the big picture. He picks up details while absorbing the entire picture. He may look at a deal for a ten year old rental property and make some assumptions during his lighting fast analysis. He knows that ten years is about the life of a water heater, air conditioner, and most appliances. He didn't actually go into the home and inspect them yet. He made his offer with out inspection, figuring he would get to look if his offer was accepted during the due diligence phase. To some he may look like a "Ready? Fire! Aim!" guy, but his experience tells us he really is not.

8. Pack Mentality

For some reason earlier this week I had to go to Tatiana's desk to look something up on her computer.. She had a note posted on her monitor that was a quote from. Warren Buffet: "Be fearful when everyone is greedy and greedy when everyone is fearful" I love it. It changed my attitude the rest of the day. People are very fearful right now; buyers are scared and sellers are desperate. Now is the time to get greedy. Following the pack? Not me. Too much analysis will slow us down.

9. Defensibility

Some people go though analysis so they can later say, "This is why I did not buy." They are doing the analysis for the wrong reasons. They want to be able to defend their inaction.

10. Alternatives

Remember Yogi Berra saying, "When there is a fork in the road, take it?" Successful people are all about alternatives. "If not this, then what? If you have already decided that you can invest, say $100,000, what are the other ways that you can do this? What are the alternatives? Any analysis should take this into consideration. There is always an opportunity cost. Look fot r it, look for alternatives.

11. Hung by their own Petard.

"Don't let him get hung by his own petard" Is an expression that I have used when talking about a decision made not on reliable analysis but faulty analysis that was self serving. He knows his goal and made the data support the answer he already had in mind. If you are going to be honest with anyone, make sure it's your self.

12. Fear of Failure.

If we keep analyzing we eventually will be right, or the deal will be gone and we will not have to fail. Weigh your risks. Sometimes you will not know if the fork you take is the correct fork or the wrong fork until you take it.. But it is not like jumping out of a plane at 30,000 feet.. You should be able to turn around and try the other fork. (Stick your toe in the pool before you jump in)

13. Romance versus Logic.

Buying a home and buying an investments are two different things.. Don't confuse them. You need romance in your home, you don't need it in your investments. More next Week, GreggGregg.Fous@engelvoelsker.com

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