Real estate transactions are incredibly frustrating. In most transactions, someone gets really screwed – either the buyer or seller. And often times, both parties feel they got screwed regardless. There are any number of reasons this happens, not the least of which being the misaligned incentives of real estate agents, who tend to strike much better deals for themselves when buying personal properties than for their clients. You’ve gotta remember that an agent is going to get their 5% or 6% or whatever, regardless of how well they represented you – and they have an incentive to just get the deal done. But aside from that, much is about leverage and pissing matches. And finally, the buyers often get screwed because they become so emotionally attached to a prospective property that it’s death by a thousand cuts. They can be drawn into more and more costs along the way because they’ve already made up their mind they
want – need a property.
We have a set of close friends who are looking at a newer larger home in an affluent area. They’re leaving the townhouse behind and moving into an area where the real estate isn’t cheap, but there’s some “name recognition” to the area and the homes listed are in nice condition. They landed on one that seemed too good to be true. It was just a bit out of their price range (we all play this game right? If your range peaks at $400,000, of course you’ll at least peak at something listed for $450,000 right?) and had lots of upgrades – marble, finished basement and a pool in good shape. What’s not to like?
- Paid over ask price – Apparently, this property was so sought after that the first day it was open to the public there were 2 bids. They had to put theirs in and were competing with an all cash bid allegedly. While they were never told what the other bid was, the opposing realtor said that they had to put in $5,000 over the ask price so they could tell the other cash buyers that they had offered more. This was posed as some sort of legal requirement or something which sounds like total BS to me. It was just to extract an extra $5K over the ask price, but they bit. So, they’re already starting off $5K more than they intended (which was already above their initial range of houses they were looking at).
- Mold – This is the most prominent piece here. When most people hear mold, they run. End of story. Well, during the inspection, the inspector found a pretty bad mold problem on the house because they had stucco which wasn’t done right. That’s a recipe for disaster, especially in the northeast where it’s quite wet. Here’s the best part. The realtor was like, “What? I don’t smell any mold!?” I shit you not. The realtor actually said that, kind of insinuating that the inspector was just making it up. I started laughing when I heard this and said, “What, they also don’t see any Radon?”. I mean, if that’s not a red flag, I don’t know what is. But regardless, they want the house so badly that not only are they willing to buy it upon remediation but the seller can smell the fear/desire and proposed that they split the remediation cost of $15,000. This sounded nuts to me. I mean, clearly, the mold is a prior owner issue and there’s no logical reason why this should be open for negotiation. In a situation where, sure, there’s a debate over whether you really need to repair a cosmetic issue, or replace a window with broken seals or whatever, fine, sometimes the buyer just eats it and moves on. But mold? Well, they bit. See, the seller said if they don’t go along, she’ll just sell to that cash buyer (who, incidentally, has no idea the house has mold). So, boom. Another $7500 gone.
- New Siding/Stone – Of course, since the stucco was the problem to begin with, that has to be replaced/repaired. But they don’t want that to happen again so they’re going to get a new facade of siding/stone. That’s another few grand on the buyers.
- Appraisal Fibs – This was a bit interesting as well. Apparently, the buyer forced them to accept a contingency that if the appraisal comes in low, which means the bank wouldn’t normally give them a loan for the full 80% LTV or whatever, they have to come up with the funds themselves to cover the difference. In other words, if an appraiser finds that the house isn’t worth nearly what they’re willing to pay, they’ll pay it anyway. And dig into emergency funds/other to make it happen, since the bank will only lend up to the appraised amount. That should be another red flag that perhaps they’re overpaying (not even counting all the mold/siding costs). And they’re not supposed to mention the mold thing to the appraiser either; I guess the bank wouldn’t lend the money otherwise? I dunno, sounded pretty shady to me. Not like the buyers are doing something wrong, per se, but taking on inordinate risk just to get this coveted property while the seller keeps screwing them at every turn.
This Is What Emotions Do
I’m not criticizing these buyers. I know what happens when you’re all excited about buying a new home. You always “push the envelope” a little. A couple grand on a 30 year loan is only a few bucks a month. There are a million ways we justify extending ourselves further than we initially promised ourselves we would. We were looking to build a few years back. Things kept getting more and more expensive. I outlined some new construction option costs ($1300 for a garage door opener?) here that I’d never even heard of. I’m trying to make my wife happy, have that nice big house that many of our friends and co-workers have, ya know? I wanted that big yard for the boys. It all sounded so ideal. But I had to start to detach myself emotionally and force more discipline and analysis on the situation. Not only were we getting worse and worse bids on our current home, but the builder finally started selling some lots and we lost our leverage there, so his prices started going up (or the gracious discounts he was initially offering started to dwindle).
The spread became too big. Could have “afforded it”? Of course, I could afford to do a lot. But did it feel right? No. We were taking a larger and larger loss on our property and paying more for new construction than we had promised ourselves we would. We walked. It was time to pull the plug. Sometimes, you need to set a threshold and when you’re past it, that’s it. It’s called a walkaway price in negotiations. The problem is, when people get too emotionally attached to an idea, they keep altering their walkaway price to the point where it doesn’t exist anymore. We ended up putting in a pool, upgrading the home here, and at this time, we’re quite happy with our lower taxes, smaller mortgage payments and the same school and neighbors we already liked. Would we have been happier in the other place? Maybe, but we’ll never know.
What Painful Lessons Have You Learned or Seen Due to Emotions?