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March 2, 2019

Part One: Risk and Real Estate

(Editor's Note: This is the first installment of a four-page series by one of America's leading real estate educators.) 

Hardwired into Us

Risk and the mental and emotional resources to live with it are hardwired into us yet somehow risk-taking has gotten a bad reputation. Its reputation is so bad, in fact, that folks who want to appear solid and dependable deny taking any risks at all, a position that is indefensible.  Humans are now and apparently have always been drawn, in greater and lesser degrees, to the dangerous or merely forbidden.  Before we can proceed with any meaningful discussion of risk, we must speak plainly and truthfully about the nature of risk as it intersects the nature of man.

In the dawn of our history as two-legged creatures, the risk was a way of life. There was a very real risk in leaving the family cave, but also a very real risk from remaining in it.  Later there were farming and industrial risks and most recently risks related to urban living.  Those who survived these risks and the stresses that invariably accompany them have a name; we call them ancestors.  It seems inevitable that such a long, constant and cherished history with risk must have left some permanent mark on Homo sapiens. 

Whether we possess the memory of basic reactions passed to us by ancestors (atavistic memory) is the subject of much scholarly debate. Ingrained behaviors such as the abilities to recognize, evaluate and live with risk are so much a part of our psyches that there just might be a “risk” gene waiting to be discovered by a scientist willing to take the career risk of searching for it.  Our purpose is not to dissect the origins of risk-taking behaviors, but to seek a way to contain our proclivity for risk without stifling our abilities to earn livings and attain balance in our lives.

Dealing with Risk

The ability to successfully deal with risk was fundamental to the lifestyles of our ancestors and it is fundamental to us, their descendants, today.  Do you:  drive; live near industrial areas; walk; swim; fly in airplanes; take baths or showers; sleep?  If you perform any of those activities plus thousands of others, you are taking risks.  If you agree that you are taking risks by participating in any of those activities, but it's okay because you are in control of the risk, you are living in a dream world.  Each decision, choice, action or inaction has the potential to exceed any control that can be exercised by humans.  

Think of making a decision as tapping a single point on a mobile; you tap one part of an object hanging from a balance bar and all other connected objects move.  So are seen and unseen forces set in motion when we make even the simplest decision. 

Remember, Abe Lincoln’s intention was merely to have an enjoyable evening at the theatre. 

The risk is the chance that an action, decision or activity will have an unsatisfactory outcome.  Wow.  Does it sound as though risk might have been invented for real estate licensees?  Each time we make a decision we risk getting an unsatisfactory outcome. We are involved in a career that requires us to make dozens, sometimes hundreds, of decisions each day. Is it possible that persons who are in real estate sales may be attracted to the career not primarily for financial gain but for the opportunity to take risks in a way that bears no social stigma?  

Have you heard anything about a self-help group called Real Estate Sales Risk Anonymous?  Of course, you haven’t; the whole world knows that the basic nature of real estate transactions is speculative.  We have well done our job of training buyers, sellers and ourselves to deny the risky nature of real estate investment.

Risks Come in Assorted Sizes

Most risks are small and not even remembered unless something goes wrong.  Do you have a taco or tuna salad for lunch?  Is one choice riskier than the other?  How do you know which is riskier?  Do you solve the whole problem by having yogurt or a hamburger instead?  Do you decide to skip lunch altogether?  Does that decision lessen your risk?  These mundane decisions are just a part of life, but they are the part that can make your life pretty miserable if you get more than calories from your lunch selection.

Some risks are large enough that we know in advance they will make a difference in our lives.  Do you buy a hot stock or do you buy a Certificate of Deposit?  The CD is less risky than the stock, but the element of risk is still there and the return may be less.  Do you take a job with a salary or a job where your earnings are paid as commissions on work successfully completed?  Most of us have chosen jobs that pay commissions.  

That decision makes us risk takers of the highest order.  In our society we are, business risk-wise, the equivalent of bull riders; even when the rider does his job successfully the bull has a chance of getting the last laugh.  

The Good News

The good news is that it’s okay to be comfortable with what others might view as a relatively high level of risk.  You might not want to discuss your risk tolerance with your mother, banker or CPA, but if you’re comfortable it’s probably okay.  If we can live with our personal level of tolerance for risk without any serious personality disorders then we have chosen correctly FOR US.  The bad news is that if it takes copious amounts of family violence, road rage, chemical assistance, etc. to get by that may be a sign we may have a bit of a problem living with our current risk levels.

The even better news is that we can satisfy our inbred need for risk while simultaneously making the world a happier place one transaction at a time.  Better still, we can indulge in risky behavior while protecting our lifestyles and life savings by employing a few simple risk management techniques. 

(Next: "Part Two: Risk and Real Estate - Recognizing Risk")

Carmel Streater is no stranger to risk. She listed and sold real estate for over thirty years and has been a real estate instructor for the past twenty years.  Finding herself a simultaneous victim of real estate sales burnout and empty nest syndrome, she completed a Ph.D. in Adult Education with an area of specialization in Training and Human Resource Development.  Streater’s work now is exclusively in teaching, course development, and assorted writing projects. Check her Broker Policy Manual web site.  Her hobbies are her six grandchildren and attempting to keep up with changes in the real estate business.

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