Psychologically hazardous real estate transactions: the land installment contract

This chapter examines how vulnerabilities in buyer information processing and decision-making affect residential real estate transactions by focusing on land installment contracts, whose legal structure and contract provisions exploit buyer psychology. In these contracts, sellers finance home purchases by low-income buyers by conveying legal title only after buyers pay the full purchase price in installment payments. Buyers frequently believe they own these dwellings, but legally do not, and standard real estate legal foreclosure protections do not apply. If buyers miss even one monthly payment, sellers can evict buyers and retain the down payment, all past payments, and the value of buyer-financed repairs. Sellers lure buyers using an arsenal of psychological techniques, including leveraging the common schema of homeownership to mislead buyers, exploiting optimism and sunk cost biases, manipulating social trust and peer influence, and employing deceptive cognitive anchors for pricing. The psychological manipulation and buyer home loss warrants stricter regulation of these “psychologically hazardous” transactions.