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

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.