What you need to know vs. what you want to hear

blog-consultation
If an investor or buyer wants to purchase a home and is ready to write up the offer and move forward, what should a good Realtor do? Unfortunately, many will of course write up the deal immediately and mentally deposit the commission, and perhaps already have it spent. This isn’t the type of Realtor you want to work with.

Instead, you want a Realtor who will ask a lot of questions and provide more information. One who will, in a sense, make you justify why this purchase is the one that best accomplishes the outcome you seek.

Purchasing real estate is an emotional decision, but one which must be supported and justified by non-emotional considerations, namely the financial side of the equation. In helping the number of buyers we have, Sylvia and I observe, as one would expect, that different buyers operate from each end of the spectrum, from emotional to financial, and at all points in between. But no decision made entirely based on emotion or numbers can be the best decision. A balanced blend of the emotional and financial considerations will result in the “smartest” decision.

Some buyers are so fixated on the “numbers” that they are blind to other realities, such as the fact that the cheap crackerbox starter home being contemplated is way too far from everything and comes with serious risks due to it’s stage in the neighborhood life cycle, poor schools and unpredictable and undefined development of the surrounding areas.  But it’s “cheap”, and that seems to override the thought process if left unchallenged.

Others fall so in love with a property that they engage in a willing suspension of scrutiny on other important considerations, and operate instead from a place a happy denial. The home doesn’t fit with the stated criteria or needs, it’s over priced and it has misfit attributes such as a super steep driveway or backs up to a very busy street, yet the buyer fixates on something mundane such as, “it has a magnolia tree … we had a magnolia tree growing up and I’ve always wanted a home with one. My mother loved Magnolia trees”.

This is the point of recking for the Realtor. As a buyer, do you want to “hear what you want to hear” or do you want to “know what you need to know”?

Should the Realtor say, “oh, I love magnolia trees too, and if your heart is saying this house is the one, then let’s do it!”

Or should the Realtor say, “you can purchase and plant a 10ft tall magnolia tree at any home for about $200-$300, so let’s not allow that to be a deciding factor”.

The latter is the correct answer, in my opinion. Despite the availability of massive amounts of data and information online and tons of home decorating shows and 1,000s of opinions and notions about what makes a home a good home, how to buy a home, etc., smart buyers still remain focused on the same three things that have always mattered – Price, Location and Condition (including age, style, floorplan, etc).

Buyers get into trouble when they drift away from these three core considerations and start allowing other factors to govern their thinking process. It’s the job of a good Realtor to ask the questions that help buyers remain focused on what really matters, including all the benefits and risks of a particular home, instead of simply going along with and agreeing with whatever seems like the shortest, easiest path to a written contract.

Although I could go into a long bullet point list of things that I see buyers drift toward when straying from the three core considerations, one of the most overlooked is the concept of “total cost of ownership”. The TCO concept is one widely applied to car ownership (check Edmunds.com), but not to housing. I’ve posted on this blog in the past an analysis of why a $200K home in South Austin is cheaper for a downtown worker than the same $150K home in Hutto, once commuting and other costs costs are factored in.

Yet I find it interesting that the same over-analytical, spreadsheet driven real estate investor who performed detailed analysis that resulted in purchasing a brand new Honda Accord, due in large part to quality and resale value considerations, fails to apply the same logic to a real estate purchase and is thusly draw to the Yugo of houses because of price per square foot and nothing else! It is truly is a fascinating phenomenon!

It explains why so many investors in Austin from 2005-2007 purchased cheap, newer starter homes in outskirt areas of Austin that are now worth, on average, $20K less than what they paid. They focused on their spreadsheets alone, ignoring resale potential and other factors. Those buyers didn’t have a Realtor advising them properly of the risks of investing in those areas. None of mine and Sylvia’s buyers purchased these types of starter homes because we strongly advise against it. And none of our investor buyers are $20K under water on homes 20 miles from downtown.

It’s our job as Realtors to say to buyers, “look, I’m going to help you get the house you want, no matter what, but I’m also going to be truthful about the things I think your future buyers will find important when resale time comes, and help you stay focused on the things that I know from experience to be the key considerations of a smart purchase decision”.

In other words, when I ask, “what do you like about this house with no game room upstairs at the end of a “T” in the road that shines headlights into the downstairs master bedroom at night and has a small steep back yard that slopes toward the back patio door where water will pool?”, you have to come up with more than the pretty Mangolia tree.  I’m going to run you through a set of questions to help you understand the risks involved with accepting the misfit attributes present in the home.

If you convince me that other factors outweigh everything else, such as your aging mother lives next door, or you’ll be able to walk your kids to the private school 2 blocks away for the next 12 years, and the location trumps everything else, then I’ll think you’re making a sensible choice and we’ll do it. Otherwise, I’ll try to talk you out of it, or help you talk yourself out of it because I know there are better homes to be found, all things being equal.

If you are working with a buyer’s agent who is constantly leading you through a series of scripted closing questions, in an effort to just get you to write up an offer on any house that seems good enough, then you’re working with an agent who might be a good salesperson but possibly not the best real estate advisor. If you, on purpose, just to see what happens, express interest in writing an offer on an over-priced dog of a home, and your agent tries to move straight to the write-up process without first asking a lot of question to ascertain why you think that home is the best one for you, then you’re working with someone who is simply telling you what you want to hear instead of telling you what you need to know. You’re working with an agent who isn’t taking care of and protecting you from a bad decision.

Posted by Steve
7 years ago
Steve

Steve is a Real Estate Blogger, Husband and Dad, UT Austin Grad, Runner, Real Estate Broker and owner of Crossland Team and Crossland Real Estate in Austin TX.

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Bob - 7 years ago

This may be the most important blog entry you have ever written.

I’m a young married person, of that age where my friends and colleagues are getting married and buying starter homes. I am fascinated by real estate. I check those great map-mls mashups weekly, even though we love our home and have no intention of moving. Again and again I see my friends get agents – usually a friend of a friend of course – and buy in neighborhoods that necessitate moving again in a few years once they have wisened up.

Young buyers are naive when it comes to schools, and the value of school districts. They think that even if they had a kid right away, it would be 5 years before the school even mattered. Which is true, except that an informed buyer know that schools are important for resale, even if they have no intention of having a family themselves. All too often I think they get distracted by the ‘newness’ of recent construction and building trends and discount older established suburban neighborhoods with arguably far superior location.

My friends seem obsessed with the concept of having a room dedicated to a home theater, but have no idea how far the elementary and middle schools are. And its so seductively easy when checking out homes to go “just one exit further” and get just a little bit more per dollar. The agent – having no inventive to keep them looking and eager to close a deal – simply encourages them to make an offer and be done with it.

Which brings a question of etiquette: lets say my friend has put in an offer and are still in the option period of what I consider just a tragic mistake (long commute, poor schools, still being constructed neighborhood). Should I say something, since its a huge financial commitment, or is it a bit like commenting on a new girlfriend/boyfriend: you smile and say they seem nice and you are glad they seem to make them happy?

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Steve - 7 years ago

Hi Bob,

> Should I say something, since its a huge financial commitment, or is it a bit like commenting on a new girlfriend/boyfriend: you smile and say they seem nice and you are glad they seem to make them happy?

Wow, my first etiquette question ever! Thanks.

If you switched roles, and it was you making the mistake, would you want this friend to say something to you? Is your friendship strong enough to handle frank candor such as this? Would your opinion be appreciated, even if they continue with the purchase, or might it get you dis-invited from the future house warming party?

Also complicating the matter would be whether or not the friend has a spouse/so who is excited and happy about the purchase. Throwing a wet blanket on their first home together is not a good idea.

I would simply be supportive and ask questions. Ask how the process is going, if they’ve had the inspection yet. Ask what he or she likes most about the house and neighborhood and what made this house the best choice. Just act curious. Also ask if there is anything scary about the process, or anything he or she is worried about, such as whether it will hold value.

I would offer an opinion only if invited to do so. But in opening up a conversation that provides an opportunity to be asked your opinion, you might get the chance. Still, I wouldn’t call it a “tragic mistake”, but simply ask if they’re ok with the possibility that the home may drop in value if it has to be sold in the next few years.

But in the end, friends support friends even when they make decisions that might not turn out well. Nobody wants to be constantly judged or made to feel stupid, so I’d lean toward keeping my mouth shut unless invited to offer an opinion.

Steve

Good Luck,

Steve

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Garreth Wilcock - 7 years ago

Great points Steve – for resale you have to consider the basics – the essentials. Location is paramount.

I enjoy spending my time trying to talk buyers out of buying a home for emotional reasons. It’s sometimes an uphill battle, and I think that buyers appreciate it.

And it’s good to admit my biases too. Heck, there are reasons I like where I live. Those reasons aren’t the same for everyone though.

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Debbie M - 7 years ago

I want to hear what I need to hear.

One thing I needed to hear was that resale matters even if you plan never to sell your house because things don’t always go according to plan. I didn’t really understand that until this real estate meltdown. If you suddenly want or need to move, it’s very nice not to be upside-down on your mortgage.

I definitely had an agent who told me what I wanted to hear, and worse, what she wanted me to hear. I held the line on price, location, and quality, and something finally came up. There were a lot of things I didn’t think about, but I got lucky with those.

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Steve - 7 years ago

> One thing I needed to hear was that resale matters even if you plan never to sell your house because things don’t always go according to plan

Hi Debbie,

That’s it in a nutshell. Every home owner should imagine the worst case scenario and know that they have an exit strategy that can be accomplished in case they have to move unexpectedly.

Steve

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kelly silva - 7 years ago

Hello,

I stumbled across your blog today and yes, I want a realtor who tells me what I need to know, not what I want to hear!

I’m trying to decide between two homes right now. Or neither. We’re in Washington state, so you probably can’t help 🙂 I wish my realtor would give me an actual opinion! If my gut told me which house to choose I would be set, but I’m an extremely indecisive person (as is my husband) trying to decide between two totally different types of homes and can’t decide.

Anyway. My point is that I definitely prefer your approach.

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Staten Island Real Estate Agent - 7 years ago

Honesty is the best policy. I feel you need to tell it as it is and not sugar it up. People can sense it a mile away when you lie too them.

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