Last October, I mentioned that I had finally hit a net worth of zero, celebrating the occasion of being officially worthless. At that point I mentioned that my next step was to buy a house. I can now say that I finally did get down and buy a house, closing a few months ago on June 13th. I started looking in November just to see what was out there but didn't seriously crack down and take it seriously until about April. I plan on writing a four-part series about my experience with the mortgage process and some of the hilarious and depressing encounters with the various people along the way.
Part 1: How I Learned to Stop Worrying and Love the ARM
Part 2: Realtors Bite
Part 3: The Long and Winding Road
Part 4: Thank You for Selling
There are a lot of people involved in the mortgage process. There are inspectors, appraisers, underwriters, closers, notaries, realtors, sellers, agents, mortgage consultants, escrow agents and let's not forget buyers. The various responsibilities that these entities have with each other are complex and varied but, besides those who go unrepresented, the most trusted relationship exists between realtors and the seller or buyer they represent. I ended up using RedFin for my home purchase and I can say that they were a breath of fresh air compared to all the other agents I dealt with or discussed during the process. The refund on closing costs I received wasn't bad either.
"I love these drapes!"
As mentioned above, I began looking in November to get a feel for the homes that were in my area as well as to gauge what I want to specifically look for and ask for when I purchase a home. I hadn't completely built up a down payment and wasn't ready to go through the process for another few months. I went mostly to open houses and had to deal with all the lovely realtors greeting me. Small kitchens were 'cozy'. Busted furnaces were 'rustic'. Unmowed lawns and saggy gutters were 'colorful'. Outdated carpets were 'retro'. And god-awful bathrooms were 'polarizing'. I am used to flowery language to put a better face on undesirable features but this seemed excessive. It was impossible to get a straight answer out of anybody.
"It mentions here that this house is actually put in the other worse school district."
"Yes, but they are spending a lot of money refurbishing their gym!"
"That sounds like a useful use of taxpayer money."
Do you think the market is going up or down?
I signed into most of the open houses with nothing but my naivete and e-mail address. I received weekly e-mails from about 30 realtors for the following 6 months. I am still trying to get off all of their mailing lists, some of whom don't have working 'Unsubscribe' buttons in their e-mails (which forces me to e-mail the sender directly, leading inevitably to the 'fill out this survey please'). After a while, upset with the apparent chicanery, I started to play a game with the realtors I attended. Anybody can play this game and I think you will thoroughly enjoy it:
When you first enter a house, the realtor tries to gauge where you are in the housebuying process: with a pre-qual or without, just looking or ready to move, from the area or moving and, especially, do you currently own a home or not. Realtors want the ability to represent a seller and buyer because very often it means a more lucrative fee for themselves, even if they offer a slight discount. It also lets them know your relative wealth so they can try to upsell you or if there will be issues at funding because you are waiting on selling your house.
Anyway, play this game if you are ever looking to buy a house. You need a sample size of about 10 test subjects for the effect to be emphasized but when the realtor asks if you currently own, pick randomly 'Yes' or 'No'. Mention that you are excited that housing prices are going to go up if you are willing to buy or mention that you are ready to cash in on the housing price increases (what?) if you are planning to sell. Try to find a disagreeable realtor. Very often you can back them into contradictions or fun wordplay games without them even knowing it. This gives you bonus points in my game.
Me: "I own a house and am excited about being able to cash in on the equity of all the gains in the market."
Realtor Bob: "Well, it is a great time to sell. Housing prices have skyrocketed in the past year."
Me: "So, you're saying that I shouldn't also buy a house? I don't want to overpay 6% for a house if it just skyrocketed recently."
Realtor Bob: "No, no, no. You have me wrong. I still expect real estate to be a great investment, Firm XYZ projected over a 7% increase in home prices next year!"
Me: "So, you're saying that I shouldn't sell my house? Bob, you are quite candid."
However you lead in, the realtor will agree with you: great time to buy, great time to sell. Perhaps it is just the nature of selling in general that suggests agreement fosters trust faster than disagreement. I have found quite the opposite. If somebody is agreeing with me over and over again, I must be saying something wrong. Nobody agrees with me that much.
Ethical Gray Black Area
Although much of what I have said so far is more a critique of competence, there were also run-ins with clear ethical violations. Not once, not twice, but three times did I have to force a buyer's realtor to admit that they would have a dual agency conflict of interest in a house they were trying to peddle *cough* sell. I can only imagine the sap that would find this out after the purchase contract has been signed. There were realtors suggesting and promoting various contractors whose services were rated poorly by the BBB and prices were well above par. Reading through the reviews on Yelp! and Google, it was clear the only positive reviews were from other realtors. I cannot say for sure (frankly, I don't care enough) but I think it's safe to assume that the realtors received a portion of the fee for the contractors.
I live in a very low-cost area (shout-out DFW) where $/sqft very often is around $90/sqft or lower in some parts. Comparing my experience resisting against paying 6% to the realtor monopoly, I can only imagine somebody like my colleague who lives in an area where $500+/sqft is the norm. It takes the same amount of paperwork to sell a house in Bay Area as it does in Texas. What makes it worthwhile to be paid $30,000 commissions in California but only $6,000 commissions in Texas. Is there anyway around this? I have heard Bay Area writers try to rebel against this pricing scheme to little avail.
There is no industry or service more overpriced than 6% fees to realtors.
Stay tuned for the rest of this four-part series!
Cheers,
Cameron Daniels
