5 Things Our Realtor Told Us That Weren't True
I wanted to share this post because if this happened to me, it is undoubtedly happening to thousands of other Americans who are being "represented" by realtors.
Let me start with a quick background. Our realtor was a friend, sort of — he is the husband of my wife's friend. He helped us out with a sale years ago. We've hung out together, and he offered to list our house at 2%. I still believe he's a pretty good, honest guy and represented us better than a typical realtor would have without the personal attachment. He did put in a lot of time on the deal, and ultimately, he didn't get a commission since we decided not to sell when we couldn't reach terms on both the buyer and seller ends. But in the process, he told us a few things along the way that turned out to be untrue.
Whether these were honest mistakes, or attempts to prod us along to get a deal done, we'll never know. But when your realtor tells you something, consider the source — because in many cases, they don't even know you and maintaining a friendship, reputation, or future business is even lower on their list than it was in our situation.
"It's A Couple Thousand Bucks"
During the process of looking at new homes, my wife and I considered houses with pools. We figured that since pools don't add much (if any) value to a home, we could potentially get a pool essentially for free in a home with an existing pool. We have young kids and thought it would be a neat addition to a new home since we don't have a pool now.
A few of the pools we looked at had pitting on the gunnite surface. It was evident the pools would need to be resurfaced if we moved in. Each pool was around 6-8 years old and we had serious concerns about the cost since we were pool newbies. When we asked what it cost to resurface a pool, he said with confidence, "A couple thousand bucks, that's it." Subsequently, we learned it's closer to $7,000-$9,000, depending on the size of the pool and other specifics. So, right off the bat, we would have been looking at an additional expense of approximately $5,000 over what we had budgeted if we took his word for it.
"Use My Mortgage Guy"
You'll probably encounter this a lot when working with a realtor. They'll suggest a particular mortgage broker and say he can get the same or better rates as the going market rates or something along those lines. In our case, because we were going to have to move fast and time a buy/sell simultaneously, he suggested we use his mortgage broker to make sure everything happened quickly and accurately rather than working with an unknown third party.
Well, the thing was, I had refinanced a few years back and had a great experience with another mortgage broker. Just to compare, I contacted both of them each time rates moved a bit (every few weeks). I asked each mortgage broker for their going rates, as if we were "about to do a deal" and I needed to estimate my costs if we proceeded. Each time, my old mortgage broker's rates were 0.125-0.25% lower than the recommended mortgage broker with comparable terms and closing costs. This would have meant thousands of dollars over the life of a loan! So, following his advice wouldn't have been in our best interest.
"Interest Rates Aren't Going Anywhere"
There came a point where we became discouraged enough with our lousy offers and lack of "dream homes" to move into on the market that we indicated we were ready to throw in the towel and just stay. I indicated that interest rates were at incredible lows and I was thinking about refinancing into a 15-Year Mortgage while rates were low. He said emphatically that rates weren't going anywhere — they couldn't until the economy improved, which wasn't going to happen soon. This was ironic on so many levels. (See also: Low Interest Rates Do Not Make Homes Affordable)
First off, it's a realtor trying to sell you into a larger home while he's saying the economy is going to remain weak (which is bad for home prices). Next, nobody ever does a very good job at predicting movements of the 10-Year Treasury bond, mortgage rates, or any free market movements — least of all, a realtor. As it turns out, he was dead wrong. We kept our house on the market, the White House made their QE2 announcement (which was meant to keep rates low), and they spiked. They have never come back down after that. We missed the refi rate I was targeting.
I think he honestly believed what he was saying when he predicted rates would remain low, but he was in no position to make such a prediction. It's like me predicting where stocks will be in a year with any assurance. I'm in no position to do so, nor is any financial "expert." Invariably, the vast majority of such predictions will be wrong and any that were right would be due to luck.
"You're Outgrowing Your House"
I was both amused and annoyed by this statement. When we were considering not moving, he highlighted why we were making a mistake — because our current house was too small. Yes, we have 3 kids and a dog and my wife likes to hang on to a bunch of stuff instead of throwing it out. We're not minimalists. But our current house is both bigger than the average house in America, and if you look at home size trends over the years, it has continuously risen each decade. Americans have felt the need for ever-increasing home sizes, which isn't a reflection of what's "needed" but rather a continual trend of waste, low self-esteem, and keeping up with the Joneses. (See also: McMansion to McCottage: Why Smaller Houses Are Smarter)
I grew up in a 1,300 square foot home. We now have a 2,500 square foot home plus a finished basement. So, I think our house is fine. We had been looking to move into something newer and slightly larger because we could — not because we outgrew our current home. Don't let a realtor convince you that you need a new home. If you haven't already convinced yourself, then maybe you don't really need to move.
"We'll Price The Home at $440K and Target $420K"
We knew we'd end up taking a slight loss on our home when we sold since we bought at the peak in 2005. Since we made over $100K on the sale of our first home I bought in 1999, I didn't look at it as a net loss of money per se, just market realities with a net gain still in the grand scheme of things.
We were willing to live with a sale around $420K, maybe even slightly lower. The thinking was that if we were buying into something larger or in a better school district, we'd be saving much more on a comparable purchase. As it turned out, we didn't get a single offer anywhere near the list price, nor even anywhere near our target price of $420K. Our offers ended up all being in the high 300s and at the end of the day, even with purported savings on the purchase front, we just couldn't swallow selling the house at over a $50K loss. If I had to relocate or lost my job or had a lot of money to play with, maybe it wouldn't bother me as much. But it just seemed irresponsible to take such a huge loss when we didn't really have to move, especially when it was for so much lower than our target.
In retrospect, if he'd said at the start that we'd list at $410K and target selling at $390K, we probably never would have gone down that road at all and saved everyone a lot of time. But by starting with a somewhat palatable target, we were enticed to start the process. Again, I don't know if this was intentional or not, as our offers evolved over a multi-month period. But if you're on the fence and a realtor gives you a target price, you may want to go out and get some comps independently and make sure it's realistic.
I'd say our relationship is not the same after this experience, as he's annoyed and frustrated that we didn't follow through and do a deal after all the time he put in. But we had to do what was right for us obviously. Things changed. So, even if you're using a realtor you know — friend, family, or prior acquaintance — be on the lookout for semi-truths that make a transaction seem a little more palatable as well as other unanticipated moving costs. You'll probably want to independently check things you're being told rather than blindly take their word for it.
Do you have any similar realtor experiences?