The disgusting home buying process.
I’m always shopping for a house. Investment property, rental property, or personal residence and I’m always looking for a deal. The problem is I hate the home buying process and the disgusting feeling of home shopping. Here are a few reasons why I find home sales disgusting to the point I wish I could walkaway from buying a home altogether and not be a part of the scam. The only reason I don’t, is financial independence does rely on having a predictable home cost or paid off home. I love renting, but the worry is predicting rental price growth. In Santa Monica I had rent control, I was set for life. I could predictably set a budget for the next 50 years and not have to purchase a home. Unfortunately, recently I had to move for family reasons and give up my rent control property, putting me back into limbo land of controlling home costs.
Here are why I feel the home buying process has been built by outright scam artists:
1) When you are at the grocery store and there’s one carton of eggs left on the shelf, does it go to a silent auction to fetch the highest possible price? Home sales are a silent auction and both the Buyer’s agent and Sellers agent are working together to get you to throw down the biggest number on a piece of paper. Silent auctions are used in charity events, because we want to feel good when we overpay for that wine. When did home buying become a charity event?
Even worse, most home buyers haven’t sat on the sidelines monitoring closing home prices in the neighborhood they are shopping, so they have a really bad idea of what to actually write an offer on besides what their agent says would “get the home”. Which that agent is getting from the sellers agent telling them what they are targeting as a closing offer. Add this process across an entire neighborhood and agents are responsible for building neighborhood property bubbles.
2) Since when did NO contingencies, NO property inspection become the norm? We might as well all be shopping on the courthouse steps, because these days your agent is going to tell you to write the cleanest offer possible. Meaning - NO contingencies. Being pre-qualified is a joke, so now it’s about being pre-underwritten. Meaning you already have the $1 million in cash no matter what the property condition is in.
3) Do you remember in 2008 when the blame came back to the appraisers? People yelled that the appraisers were tied to the banks and they should never have appraised the properties for the value they were underwriting them for. Wake up everyone! The same is happening right now, but maybe even worse, because today the banks will underwrite you no matter what condition or value the property appraises for. Even for a normal buyer, I’ve yet to see any property not appraise for the selling price, even when the selling price is 50%++ higher than the listing price, such is common in the Bay Area.
4) Buying in a flood zone? Meh, doesn’t seem anyone is taking that into pricing and definitely not the agents or banks that are giving you the loan that will be underwater in 30 years. Slap some insurance on that property and the banks are fine with it.
5) In Bozeman, MT housing prices are equal to that of some bay area suburbs. The problem? While Bozeman is beautiful, the job market -- well I’ll leave to you to decide where the better job market is. I’m not picking on Bozeman, I love it there and someday I’ll have my Montana home. What I’m picking on here is agents aren’t out to protect you from being a property slave. If you want to spend 35% of your income on housing in an overheated market, your agent is the last person that’s going to tell you to be careful.
6) When the market slows down, try to get your agent to tell you so. They’ll spin it ten ways from Sunday on why the market is even better now to buy in than it was six months ago. Need an example? Home sales slowed early in 2019, interest rates then dropped to the lowest in 2 years. Your agent is not talking about the length of times homes are staying on the market now - he’s going to tell you about how interest rates are the lowest in years! Positive spin baby!!! This is sales 101
7) Agents have a strategy to get the highest price no matter what the market condition. When it’s hot hot hot, they’ll list the home with a “teaser price” to get as many offers as possible and blow the listing price out the door. When the market is slowing, they’ll set the home to be “coming soon” to try and get a pre-emptive offer. When the market is slowing more, they’ll set the home for a two week offering period and then list the home closer to the closing price amount. There are so many strategies that agents use to get the highest price and it’s all non-transparent to you, a massive American consumer.
8) Location, location, location - That is until your agent decides he would rather sell you a property that you can purchase with little competition so that he can move on to the next client that’s willing to throw down far above listing price for location, location, location. Agents know exactly the type of buyer they are dealing with and their goal is to sell you a home.
9) When you as a buyer are taking too long to buy a home you become the bad client. It’s simple, when you aren’t willing to throw down a winning offer in a competitive market, your agent doesn’t have time for it. You can’t blame the agent, they have to make money and don’t have time for you to shop for the right home at the right price. It’s always your fault for not sacrificing on location, price, or some other variable they’ll come up with. In my case - I only care about location and price. The home could be a teardown, but these days tear-downs are being priced the same per square foot as a move-in ready home. Why? Because if you are looking at homes on the MLS, you are looking at a home with 10% of its value being spent on marketing! THink about it, the fact that the seller has spent 7% of the sales price towards commission, the sellers agent is spending a substantial amount of energy building buzz around the home. On a $1 Million property, that’s $70,000 worth of marketing potential on a single home. Sure, profit here and there, but I’m being simple, because when an agent controls a neighborhood, they can control the way that entire neighborhood is marketed towards buyers and use a group of home sales commission to market an image for the neighborhood. This is all base d on consumerism.
I could go on, but in the end - The home buying process is designed to be one BIG non-transparent scam. I have hope that with technology and a few boom and bust real estate cycles, the government will finally step in to protect the people from dirty sales tactics. You can blame buyers for spending money, but emotions are a strong thing. Home buyers are driven by impossibly strong emotions. Locking themselves in a lifetime of debt, buyers rarely think about how many more years of work they are signing up for when offering that extra $50,000-$500,000 on the property.