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July 16, 2008


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Assuming you are truly speaking for both of you, it sounds like your wife is quite atypical. Lucky you!

Same thing happened to us when buying our first home. The real estate agent simply could not understand that buying a home was, for us, almost exclusively a decision based on running spreadsheet calculations that showed the 'best' price range to look in given the size of our down payment and current market trends. I guess that's what you get when two engineers are dating :)

From my point of view, I find it utterly bizzare that someone can "fall in love" with four walls and a roof.

Our first real estate agent was actually shocked that we had a specific price cap when the back had qualified us for more than $100,000 more. She kept forwarding us homes in a higher price range than we were willing to be in and kept saying, "Oh, but you'll just fall in love with this home!" It wouldn't have mattered if we did, we weren't going to spend that much! Needless to say, we got another real estate agent.

Congrats on your approach! Although the other approach is surely easier for your realtor!! You are making a wise move.

Realtors, by and large, are idiots. Anybody with 6 weeks and limited spare time can pass the RE exam. Then, this mostly financially inept workforce goes to work for a cartel that hoards information to make its profits, and struggles with reality when smart people like yourself don't approach homebuying with a "when you wish upon a star (or a mortgage) your dreams come true" mentality.

Kudos to you for running the numbers.

We kept spreadsheets and knew what our top number was for each house taking into consideration how much work we needed to put into it (we were looking at fixers and foreclosures). I have to admit, it is hard to not get emotionally attached, but the spreadsheet always brought me back to earth!

My buying agent didn't like it when I wasn't emotionally attached either. I gave her a hard offering price on a house and she couldn't understand when I didn't want to counter offer.

However, I will play the devil's advocate because here is a conflict of interest built in and I think agents many times get a bad wrap. They only get paid when you buy a house, yet, as the buying agent, they are suppose to research many different areas and houses, show you many houses, negiotiate the best deal, handle of the contract details, etc. Most of the time after all of that they care less about the price just that the sale goes through. If I was doing it, I would love a client that would buy at any price too. Research, driving clients, making offers, writing contracts and negotiating takes lots of their time. Even with their 3% commissions it can be hard to make a solid living if they had to spend hours upon hours with each sale.

Just like everyone on this blog is concerned with money, so are agents. Many agents are broke. There is no money in being a buyer's agent only in being a selling agent.

I think many people over-price their homes on purpose, especially if they're not in a hurry to move. By asking more than fair value, there is more room to bargain and negotion. But more than this, they are hoping that someone without that rational thought to come along and "fall in love" with the home, and pay closer to what they're asking for the house. Sure, if you want to sell your home immediately, go ahead and price it at "fair value". But if you want to try to maximize profit and are not in a hurry, price it a bit higher and hope someone will bite.

Rationality goes both ways. The rational buyer like yourself wants the house for a cheaply as possible, and the rational seller wants to maximize his profits.

@Todd - and that's why real estate agents will likely soon go the way of [most] travel agents: Replaced with free online systems where the client does their own research.

Let's face it, their job may be time-consuming, but if For-Sale-By-Owner companies are any indication, it's not that difficult to learn.

@Nick - same here. Buying the max the bank will lend you is a great way to be paying for a house for the next 40 years.

My 2 cents is this, even in TX where the national "drop" is not in full swing like it is on east and west coast, we have been spoiled with 10-15% annual property value increases in many parts of TX. Many people who are selling their homes are asking waaaay too much, and don't drop the price! Even if you do put your home on the market high, and find a "sucker", unless he is paying 100% cash, the lender will look at the comps for the area, and just laugh. My wife is helping someone sell their $135k home, a great price for our seller, but the appraisal was for $127k, her client had to come off the price to $127 AND as the buyer had no cash for closing cost, another $5k. What would you do? Take the hit, or risk trying to find a new buyer at $127 who has closing cash? Our sell took the chance, and the home is under contract again, but the $127k appraisal now looks great compared to what it may appraisal for now. So, unless your area is getting above average sales prices, you will still have to drop your price to match comps in the area anyway.
A note on Realtors, yes, there are many who are very poor, and unfortunately, even if you have a good Realtor, the other Realtor you have to deal with could mess up your sale/purchased. (they dont have email, they don't use proper forms, don't understand the mortgage side, etc...) Also, a good Realtor does not take you all around town, or try and persuade you to just buy/sell. A good Realtor listens to what you want and narrows the search info they send you. Someone mentioned sellers are better pick for Realtors, but really sellers cost more to a Realtor as marketing cost play a big roll, and in a poor market, a 6mo contract to sell may not move the home, if the seller refuses to move the price of home even a little, Realtor would be out all cost associated with attempted sale. Sellers are great if they also want to purchase, as many Realtors will do 2% sale comission, and 3% they get to help you buy = 5% total comission vs. 3%sale only.

Ah, but emotion is a big part of selling. Car salesmen use it all the time, so it would make sense that real estate agents would too ...

It's a good thing you're looking out for your financial interests when it comes to a home, cause it sounds like your agent clearly isn't. But then again, it's a conflict with her since you buying the house for the higher price will make her more money.

My boyfriend and I are in the same situation. He's been looking for a house in upper NY for nearly two years now, only because he refuses to pay more than what the house is worth. There was a house we looked at once. It was on the market for ~$200,000 but realistically with everything falling apart and becoming a health hazard (septic system was shot, house/garage/barn were standing up because of the termites holding hands,etc), fixing costs racked up to more than $80,000. Talking to an appraiser and friends in the business, real worth of the house should have been around $75,000. It was on the way to foreclosure too, but we just didn't want to deal with it. In the end, we heard some other fool bought it for more than asking price.

This post has been chosen as part of the 69th Carnival of Money Stories at Almost Frugal, going live July 22, 2008.

Cheska: Isn't the house worth what the market will pay? If other people are consistently paying the amount that sellers are asking, then the sellers are valuing their houses correctly and your boyfriend is out of step.

Well, I did fall in love with my house, and I probably overpaid for it by around £5k. This is not the end of the world because I kept within the fixed budget that I had to start off with which was based on what I could actually afford.

A year on, and I still love my house I suspect that it's gone down in value, but I don't think I'm in negative equity yet. I imagine many people will stretch to get their *perfect* house, but as far as I'm concerned, there are lots and lots of perfect houses.

I no longer "fall in love" with houses - I may really, really like them but I see them for what they are: a cash drain. I learned that the very hard way. For me, no better way to learn. As for this baloney that RE agents serve up regarding "falling in love" with a property, that's because RE marketing focuses on the emotional aspect of purchasing a property and buyers get very emotional. High emotions = higher chance of making a sale.

"Falling in love with a house" (good grief!) is one of the biggest financial mistakes you can make. I speak from experience. When our son was born, we did an expensive add-on to a beautiful house in a historic district because we couldn't bear to part with the place.

Sooo.... Our kid had to go to private schools whose tuition was higher than the state medical school's (no joke!) because the public school did not come up to the level of inadequate. He could not play outside without an adult present at all times because of the number of homeless mentally ill who haunted the neighborhood. I dodged a rapist who tried to break in the side door. Our German shepherd (acquired after the rapist episode) chased off a cat burglar who succeeded in getting in the house without waking her or us...and those are only the high points.

Eventually we moved to a much less romantic house in a safer area. We would have saved untold tens of thousands of dollars had we behaved rationally and moved at the time our son was born.

Good comments here. We just bought a house. We qualified for the FHA limit (346k-ish) and decided the market was nowhere near that, we would be happy only with payments under $2k/month, and that $1200-1400 would be nice if the right deal was out there. For a while we had solid prospects in the $190k-210k range and figured that was the sweet spot. A fresh MLS update from our realtor showed us a $250k place that was phenomenal, a distress sale from a seller who was forced into assisted living by illness. The comps were in the $270s. We made our offer within hours, and long story short we moved in last week. I encourage other prospective buyers to be patient, don't rush anything, the market is incredible for buyers and an absolute disaster for sellers, and make sure you're happy with the numbers before you ink up.

Around 8 years ago, my parents "fell in love" with a home not far from where we lived, and in the same school district. It was a very old home, and my mom and stepdad are crazy antiques / old stuff cuckoos. When this goofy old place went up for sale, they went nuts. I don't think there was very much competition, because I think we got the house + 4.5 acres for a fair price. There was a LOT of fixing that needed to be done, and frankly, the place still sucks. There was a point where I got scolded if I told other kids at school about it because it was so important that they got this old dump. It has some nice glasswork and stuff, and is probably worth a lot more now since we've cleaned up the place. That, and our realtor was a real jerkoff. Spreadsheets for the win, can't wait to buy a house without emotional attachment now :D

@ Funny About Money: Kudos for buying for less than the max you were approved for, but if you had solid prospects and wanted to buy in the 190-210 range, and you ended up spending 250, then I think you may have fallen in love...

You know, spreadsheets are all fine and dandy. I used them to figure out my pricerange before even starting to search, and stuck to the range. (OK, I paid 5K more - well within the tolerance range I set)

But if you don't buy a house you love, you're making a giant mistake. This is where you'll spend most of your life. It pays to choose one that works for you.

You don't have to do the choosing via price - we have been looking for almost 5 months before we found a place that was within the price range *and* made us say "I love it". I'd never buy a home just because the numbers are right. It's a necessary precondition, but not the only qualification.

Robert --

We certainly won't buy until we find a house that we "love", but we won't "love" a house so much that we'll be willing to pay almost any price for it. See the difference?

It seems many of you forget that this is a market and the worth of a house is based on that market. A market made up of many many potential buyers. It is good to not be emotional about a house as you try and drive that market down, but the reason you are unemotional is because you may be wrong about how low the market really is. You see, you can't be emotional because you may be out bid for the house.

While I appreciate that many of you are so smart that you would never "over-pay" for a house, but really what does that mean. You buy a house you like, in a location you like, and for a price you can afford. Obviously, you want to keep the cost down, but you have to pay for the house in the end.

Our real estate agent has never met sane people, either. We told her that the bank had approved us for a $275K loan, plus our $50K down payment, so she showed us a bunch of houses for $325K (and slightly above). I kept insisting that she show us houses that were below $260K. I was determined to avoid the classic trap of being house-rich but cash-poor. Our realtor absolutely could not understand why we didn't want to spend as much as possible on a house---she kept shaking her head every time I brought it up. We ended up with a very nice place for $258K; the "extra" cash that would've gone toward our mortgage payment instead goes into our retirement fund and savings, providing a cushion in case one of us loses our job for an extended period or some other financial disaster befalls us.

There is no reason to tell the realtor how much you qualified for a loan, it's like telling a car salesman how much you can pay a month. Despite whatever you say your REAL price range is from then on they will only show you places at the top of that range. I saw this with my sister and brother in law, who asked to see houses for 250K but were shown houses 350 and up. They ended up buying a 300K+ house, which is beautiful house but not what they were originally intending on paying, but after seeing all these very expensive houses they they didn't want to go back to their original price range.

If you "fall in love" with a place and are willing to pay "whatever it takes" how exactly do investors (i.e. landlords) make their money? It may be hard to believe but renting a condo or apartment MUST be more expensive than owning in order for the landlord to make a profit. If you pay more than what an investor would pay, you are overpaying.

We just bought a month ago, and even our mortgage guy had never met a sane person!

We explained that although we knew we'd qualify for more - we qualified for about twice what we wanted to spend - we wanted a mortgage that we could afford on only one of our incomes, and that we could pay off within about 5 years if we were both working.

He said he'd never - NEVER - heard of someone with a goal to pay off a mortgage early! Can you believe that?

On top of that, we had our realtor showing us houses out of our price range too - and our realtor was my mom!

It's good that people are 'running the numbers' before they buy and try to remain rational about the transaction. I need to state a couple of observations:

- Don't say that you used a 'spreadsheet', it is called a pro forma.
- In building said pro forma, you need to factor in price appreciation, opportunity costs of capital, capital improvement expenditures, and anticipated future sales prices. The vast majority of house buyers have no idea what any of this means.
- I agree. Don't fall in love with a house/home. Hell, don't even fall in love with a great deal underwritten on with a robust pro forma. This is a financial transaction, plain and simple.

My husband and I tried buying a house back in 1993 through a realtor but they kept showing us stuff totally unlike what we asked for. We wanted a yard for the cats and they kept showing us townhouses with concrete patios. We kept saying "the cats won't like this" and they would look at us like we were insane! Hey, as all cat owners know, if the cats aren't happy, nobody's happy!

We were approved for (back then) up to $150,.000 but we bought a house for $113,000 with 10% down. We finally searched on our own and found a house from a private seller. At the closing, our lawyer explained about PMI and about pre-paying the mortgage to us. (We didn't make the mistake of not having a lawyer present since we knew we were newbies.)

We liked the house, but didn't "fall in love" with it or any of our cars. We're in love with each other--who cares about the house or the cars? We are sort of fond of it now, I admit! It has served us well!

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