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Why I Marvel at How People Buy Homes

February/March 2009 E-Note   

 

Homebuyer Associates                                         

414.254.4129

www.homebuyerassociates.com                            

homebuyeba@gmail.com

Michael D. Holloway/Seamus Holloway/Lynn Sarver/Paul Wollersheim                             

“Work hard, have fun” and remember that “attitude is everything.”  In these troubling times I remind myself that the real estate market will return, albeit different than before, which is a good thing.  I work hard planning and preparing for the turnaround, set aside time for fun and have a good attitude.  Here is wishing you the same.

Because all real estate is local it will return at different times for different areas.  My hope is that people will approach buying real estate differently now that the mistakes of buying a home based on emotion – with “the greater fool theory” as a guiding principle – have proved to be wrong.  Jeff Zaslow of the Wall Street Journal writes, We are living in an age of “accelerated change.”  I hope a small percentage of homebuyers now “change” and consider the approach we’ve been suggesting for 23 years – the boring, methodical approach to home buying.  On a larger scale, I’m not confident change will occur as the example below shows.

Mistakes were made in the run up to the housing bubble but not, at least on a percentage basis, by the clients of Homebuyer Associates.  The reason is that we often told clients not to pay a certain price for a home if our research showed the home to be overpriced.  I was reminded of this recently when I saw that a home a client of ours liked and wanted to buy sold for $370,000 – but not to our client.  When we looked at the home it was priced at $395,000 and then $385,000.  Our analysis said the home was worth $335,000.  Our client did not get the home and has since purchased another.

Some will ask if the home was worth $335,000 why did it sell for $370,000?   It is my opinion it sold for $370,000 because the real estate agent did a good job and sold the buyer the home.  The buyer was from Denver and probably had no clue to area values and worse yet, didn’t take the time to get the information necessary to make an informed choice.  The authors of the book Nudge would refer to this decision-making process as “anchoring”.

The buyer used the traditional real estate system.  This is hard to believe after all we’ve been through.  I continue to marvel at how most people buy real estate.

So what should future home buyers (first time and those with homes to sell) be doing?  In this time of accelerated change, which includes mortgage and underwriting changes, buyers should:

Know who works for whom and the conflicts of interest in the real estate process.

Check credit scores and take steps to clean up any credit score flaws.

Have 5% ready as a down payment.   While 3% may work, 5% is better.

Talk to Homebuyer Associates.  Talk, ask questions, understand the process and then decide               who you will use to represent your interests when buying.  Using a friend of cousin Bill, who bought one home and referred you to his friend, is no longer really a great option.  Using the agent who happened to be at the open house is at best a flip-of-the-coin option.

Begin the home search after your questions have been answered and you’ve outlined your goals and objectives for home ownership.

If you have a home to sell, get two market analyses of the home’s value as well as opinions on the condition of the home and what must be done to bring it up to the standards to sell.  At the same time, search the marketplace to make sure the home you are searching for exists at a price you can afford in a location you want to be.

I think Zaslow is correct when he says we are living in a time of “accelerated change.”  With change, the value of information becomes even more important.  Keep that in mind when it’s time to buy a home or be prepared to make the same mistake that helped get us into this mess.  Thanks for reading.

Michael D. Holloway

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