Don’t Make It A Gamble
“I bought some bitcoin” said the 30-year-old. I followed with, “What do you know about bitcoin?” “Not much” he responded, followed by a more honest assessment:
“It’s gambling. I set aside some money to gamble.”
Gambling produces adrenalin and endorphins, providing fun and excitement according to a Stanford University study. With home buyers spending crazy money and waiving many protections – absent information – gambling might be the operative word for home buyers today.
Humans crave excitement, but when large dollars are involved, it’s helpful to have someone on your side who’s trying to be unemotional – providing objective information so that you can make an informed choice.
Our goal for our clients, beyond education, is to act as a check on emotions, to point out the good and bad about housing choices from our many years of experience. It’s not just to help people buy a home. Hell that’s easy, just pay crazy money. Our goal is to help our clients understand the finer points of the home buying decision they are about to make.
As you begin your home search be careful with the following:
1. Confirmation bias: Where you see what you want to see, accept these desires as truth, and act accordingly.
2. Overconfidence: “Ignorance more frequently begets confidence than does knowledge.” – Charles Darwin
3. Herd behavior: We run with herds……jump on bandwagons……and latch on to fads, willingly – eagerly – dispensing with good sense on the way.
Bitcoin caused me to think of residential real estate and the conundrum buyers face today. Do you pay anything just to get the home? Take pricing. It pains me to say it but buying a home today most often requires paying more than value. Value is something you don’t hear about in traditional real estate (but you will from us). For example:
The asking price on a home is $325,000 and a buyer pays $355,000 to get their offer accepted. The story is then reported that a buyer paid $30,000 over asking price with the assumption the buyer paid $30,000 more than value. What if the value was $310,000? Now the buyer paid $45,000 over value. That story is not reported.
Would I spend more than value in today’s real estate market? It depends. If I knew the value of the home (not asking price…value), rates were low and I knew how long I had to remain in the home to recover from overpaying, then yes, I would buy a home.
This approach requires knowing the value of the home, the historical rate of real estate inflation, mortgage interest rates and how long I’ll remain in the home. If one intends to upgrade the home, it is important to have a sense of the cost of the upgrades. because that too will affect how long one must stay to get back to even. See, it really is about information.
Taking cues and advice from people with different goals, abilities, and desires than you (herd behavior) is an easy road to bad decision-making, but it’s common. The number of things that are true for everyone in housing is small; everything else is just figuring out how much risk you want to take and what you want out of life, which is different for everyone
If you aren’t paying attention, you’re gambling. You’re buying bitcoin. Contact us if you’d like help purchasing a home. To gamble, I hear Vegas is open again.
Thanks for reading,
Michael D. Holloway
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