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Mistakes That Cost $75,000

Having read my January newsletter, here is what she (now retired V.P. of Recruitment for Aurora Health Care) said:

“You were a coach and I was a salesperson (selling people on working at Aurora). I would have driven the point home even harder…We can save you from making emotional decisions that end up costing you money in the home buying process.”

That would be my sister Mary Beth who has helped me much in life.  People rarely use my name and the word “subtle” in the same sentence but that is how I ask for business.  I write the  newsletter to inform.  My hope is that people will see there is a better way to buy a home and investigate the Homebuyer Associates’ approach to home buying.  Now that I’ve got her of my back…

They are identical condominiums.  Identical as in indistinguishable, uniform or interchangeable – but one sold for $100,000 more than the other.  One sold 5 years ago and the other 5 months ago.  You would be hard pressed to find data supporting an appreciation rate of 28.6% in the past 5 years.

Buyer 1 was a liberal arts student who secured a solid C average in college.  Buyer 2 was a couple – one a university professor and the other an accountant.  Each set of buyers the same age.  Why would someone pay $100,000 more?  How did this happen?  Buyer 2 made 3 mistakes ($25,000 per mistake).

Assumptions are made.  We are impressed with titles and the perception of intellect.  We would guess the professor to be smart, the accountant to be good with numbers and the C student to be average.  Other assumptions follow:

1.  The real estate system will protect buyers;

2.  The agent has the best interests of the buyer at heart;

3.   A lender will not make a mortgage loan unless the value is substantiated by an appraisal.

Assumptions and choices resulted, in my opinion, with Buyer 2 paying $475,000.  That’s $75,000 – $90,000 more than the condominium was worth.  The asking price was $475,000.  The median sale price of 14 similar area condos over the past five years was $376,000.

What led to this $75,000 mistake?   Let’s begin with “The real estate system will protect home buyers.”

At worst the buyers were sold the condominium.  I don’t blame the real estate agent or system.  The agent did his job – he sold the condominium for the seller for the highest price possible (remember “Agent” includes the listing agent and any subagent).

A buyer has the responsibility to understand who works for whom just as any investor in financial markets has the responsibility to look at how her money is invested, who gets paid what and how they are paid.  If a home buyer or investor is not asking questions maybe they deserve what the system does to them.

At best the buyers were not given objective information.  I’ve written before, “ask the question and question the answer.”  Under Wisconsin’s real estate system, the buyer is not entitled (unless you have a contract with the agent – more on that in coming newsletters) to objective information.

The agent’s loyalty (absent a contract) is to the seller.  This is true whether the agent you are speaking with is the listing agent (the one with the lawn sign), an agent at an open house or an agent walking you through the home.  $75,000 divided by 3 questions = $25,000 a question.

The system didn’t break the law – the buyer did not perform due diligence.  We’ll look at numbers 2 and 3 in our upcoming newsletters.  You will be surprised what Seamus discovered at an appraisal workshop.  In the meantime, keep in mind due diligence is important to success.

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Homebuyer Associates
1835 N. Riverwalk Way
Milwaukee, WI 53212
Phone: 414-254-4129