How to Use the Power of Social Proof as a Real Estate Investor

The principle of social proof is an important one to familiarize yourself with when it comes to negotiating, selling, and the art of not being sold. The concept of social proof could be boiled down to simply “monkey see, monkey do.”

In other words, we are more likely to emulate what other people are doing for no other reason than that other people are doing it. Peer pressure didn’t die in high school, folks.

For example, I remember being in a seminar where a real estate guru—who will remain unnamed—was giving a sales pitch. I must say, this guy could give a sales pitch. First, he noted all the goodies each attendee would get. Then, he stated that the price was normally $10,000 or something ridiculous and began to throw in a few more goodies. Then he dropped the price (“for today and today only,” of course) to around $3,000. Then he offered more goodies, and finally he stated that under certain circumstances (i.e. buying a home from him or selling one to him with his system), he would refund the whole purchase price.

A good portion of the crowd was in something that might approach a zombie-like hypnotic state. He started walking down the aisle with his hand up and asked people to come to the back of the room. Probably 50 of them followed him to the back table as he continued his pitch. Then this near perfect sales pitch collapsed in a flaming Hindenberg-esque catastrophe of epic proportions.

The guru offered another small discount to the first person to sign up and actually pointed right at someone. That person backed away, and almost as if the whole room was communicating telepathically, the rest of the crowd followed him in almost perfect unison. The chatter amongst the excited “zombies” died down and people nervously started to step away from the table. It was a remarkable thing to witness, and from what I could tell, the guru didn’t make a single sale that day.

Why Social Proof Works

Both of these events were examples of social proof. As other people got up to follow the guru, this acted as a social signal that it was OK, or perhaps even close to mandatory, to get up and follow him. But when he put that one man on the spot and the poor man retreated as if his “flight or fight” mechanism had kicked into gear, that acted as another social proof to everyone else that they apparently shouldn’t be buying this product. Rationally speaking, none of that should have mattered. But, of course, we humans aren’t rational.

Once again, we turn to Robert Cialdini’s great book Influence: The Psychology of Persuasion:

“This principal [of social proof] states that we determine what is correct by finding out what other people think is correct. The principle applies especially to the way we decide what constitutes correct behavior. We view a behavior as correct in a given situation to the degree we see others performing it” (Cialdini 99).

This is normally fine and actually a nice shortcut that reduces unnecessary thinking. But it does cause all sorts of problems and annoyances. For example, Cialdini explains that social proof is why television sitcoms use laugh tracks despite the fact that they are universally hated. The social proof of other people laughing, even though we all know consciously that these are fake laughs, works. Cialdini notes that, “Experiments have found that the use of canned merriment causes an audience to laugh longer and more often when humorous material is presented and to rate the material as funnier. In addition, some evidence indicates that canned laughter is most effective for poor jokes” (98).

Another example Cialdini gives is the also hated “person on the street” advertisements. The most famous of these is probably the “Pepsi vs. Coke challenge” that led to a big gain in market share for Pepsi that lead to the introduction of New Coke that caused a consumer revolt that leads us down a bit of a digression.

Anyways, most of these “person on the street” ads, where people are asked what they liked about product X, are staged—and, I should note, transparently so. We all know it isn’t genuine or at the least, the bad and mediocre reviews were left on the cutting room floor. Yet the data shows that the ads still work.

In fact, this principle appears to be so powerful that even front page newspaper reports of a suicide actually seem to increase the number of suicides. People on the edge seem to be more likely to be driven off it after a high profile suicide. This is something called the Werther Effect, and indeed, the data on it appears quite compelling.

As morbid and disturbing as that is, it does highlight the power of social proof and why it’s such an important concept to understand.

Using and Defending Against Social Proof

The first point is to understand when social proof is leading you astray and how to defend against it. Again, this comes down to meta-cognition or mindfulness. Namely, you need to think about your thinking and ask yourself, “Why am I doing this?” or “Why is this a good idea?” Don’t just follow the crowds; think actively. In Cialdini’s words:

“An automatic pilot devise, like social proof, should never be trusted fully; even when no saboteur has slipped misinformation into the mechanism, it can sometimes go haywire by itself. We need to check the machine from time to time to be sure that it hasn’t worked itself out of sync with the other sources of evidence in the situation—the objective facts, our prior experiences, our own judgments. Fortunately, this precaution requires neither much effort nor much time. A quick glance around is all that is needed. And this little precaution is well worth it” (137).

As for real estate investors, we should always keep in mind what effect the environment is going to have in any given situation. Remember that just as in personal interactions, people will tend to mirror the emotional state of whomever they’re talking to. So if you are angry, they will be angry. And if they start angry, but you stay calm, they will calm down.

This is especially important with regard to tenant relations, and you can see more about that here.

Furthermore, particularly with any leasing agents, brokers, or receptionists you hire—and I would add maintenance technicians to that list as well—they should have a sunny disposition. If the face of your company is arrogant or mean, that will rub off on your tenants and prospects.

With regard to negotiations, you never want to act like you need to buy or sell something. The “willingness to walk away” is effectively part of social proof. What it says is, “I can do better elsewhere because others are willing to buy/sell/lease this to/from me.” Mentioning you’ve gotten other offers on a property you’re selling is always a good idea (if you have actually gotten them, that is; dishonesty is a dangerous and unethical road to go down).

I, for one, always mention the banks we’ve gotten loans from when talking to a new bank. This communicates to the lender, “Hey, if Banks X, Y, and Z lent to this guy, so should you.” Even if you’ve only gotten a personal home loan, I would employ this strategy. And it works well with private lenders, too.

Regardless of the context, it is critical to keep the principle of social proof in mind. People aren’t sheep, but they often behave as such. It’s important to know that—not just about others, but about yourself as well.

Where have you seen social proof at work lately?

Let’s talk in the comments below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.