Lessons Learned From Not Selling My House

San Francisco Bay Area Home Price ChartsBack in the summer of 2012 I decided to test my house on the market to coincide with the Facebook IPO. (Should I Sell My House As Facebook Goes Public?) Although I didn’t want to sell my house, I was in a peculiar stage in my life where I was just coming off my WARN Act income after leaving my job of 11 years. With the great unknown ahead and a recovery in the housing market, maybe, just maybe I could entice a newly minted Facebook millionaire to buy my house for top dollar. With the cash proceeds I’d immediately fly to Vegas and bet it all on black to double my money! Just kidding.

My realtor was a tennis friend of mine who hounded me for literally a year to give him the listing. Because I was so reluctant to sell, I basically told him to list 5%-8% above the market hoping that my house would either not sell or I’d find an avid buyer and have no choice but to sell. It’s always a good idea to underprice your house in a hot market to create a bidding war. Overpricing is a buzz kill. The listing also gave me an excuse to finally paint my living and dining rooms I’d been putting off for years.

After about three and a half weeks on the market with several serious inquiries but no silly money I decided to pull the listing. My realtor begged me to keep the house up for a couple more weeks but I was sick and tired of the private showings. Deep down I continued to feel like selling at that time was a mistake given the recovering markets. But I also felt a little bad for my realtor given he spent so much time decorating and working on the marketing material. However, as soon as I thought about the six figure commission I’d have to pay, the guilt was replaced with disgust at the collusive pricing structure in the real estate industry.

Now that a year has passed, I can honestly say that I’m ecstatic to have kept my home. For starters, my house is my home where I plan to continue making great memories. Financially speaking, the real estate market in San Francisco has moved up anywhere from 8-30% depending on who you talk to due to a tightening labor market and continued low inventory. Prices are up about 12% nationwide YoY in April 2013 so the 8-30% range is in the ballpark.

This post will hopefully help homeowners who are thinking of selling or renters going through the process of buying in a recovering real estate market. Price gains should slow with the recent rise in interest rates, although you never know now that the herd is running in full force!

LESSONS FROM NOT SELLING A HOME

* Realtors are getting very aggressive. As soon as I took my home off the market I started getting large quantities of letters in the mail by random real estate brokers pitching to re-list my house. They were like sharks circling fresh chum. I repeatedly told the sharks I was just testing the market and really didn’t want to sell for less than a large aspirational price but they wouldn’t listen.

One real estate agent simply had her business card in the envelope that said, “Call me!” If she looked like Jessica Alba, I’d call her, but she was far from the case.

Another real estate agent sent a manila envelope containing about 50 pages of recommendation letters and previous sales. Impressive! When I e-mailed him to inquire more, his pitch was the classic, “Best to sell now before interest rates go up!” I decided not to respond.

Another envelope contained a letter from an agent saying he sold my house a long time ago, and would love to sell it again. He was more factual in his pitch, stating that inventory was down 50% year over year with increasing pent up demand. I told him thanks, but I had already made up my mind to not sell.

The most memorable letter came from one real estate agent who said she loved my house and had a client who was willing to pay more than my asking price. She wrote, “I am convinced he will pay XYZ.” Brilliant! I had her stop by my house to take a look again. While she was here, I realized she didn’t remember my house at all. She basically got herself in the door to make a pitch to become my new listing agent. That tricky woman.

Given inventory is down 45-50% year over year in SF, commissions are also down 45-50% for the year. Real estate agents need to hustle more to get business as a result.

* Many real estate agents focus on the quick buck. None of the real estate agents took the time to hear my story about just testing out the markets and selling only if I get a major overbid. If they bothered to listen, they would know that in a couple years time I am seriously considering relocating to Hawaii. All the agents were interested in was pushing their own agenda to earn an immediate commission. Buying and selling a home isn’t as easy as flipping a switch.

One agent sent me the listings of four comparables that recently sold nearby instead of sending me the last three listings HE sold in order to demonstrate his experience. When I asked again he eluded the question and literally wrote back, “Now is the best time to sell! Let’s rock and roll!” I learned the agent had never sold a piece of property before. No thanks buddy.

Agents please take the time to listen to your clients’ needs. Play for the long game instead of always trying to search for instant business. If you focus on 10 clients who all plan to sell in 1-2 years, in 1-2 years you’ll have more business than you can imagine. Your clients will be so pleased with your patience that they’ll recommend you to all their friends. Nobody likes a hard sell, especially from real estate agents who don’t have the best reputations.

* Hold on for the long term to build real wealth. It’s important to give your property time to compound in value. Owning for less than 10 years is suboptimal due to the ridiculous commission fees and transfer taxes. Think back to how much wealth our grandparents created after decades of holding on to their homes. It seems like the younger the generation, the more impatient we are.

Treat your house as a home first, and as an investment a distant second. During the past eight years of ownership, the principal value owed has declined by over 20% while my mortgage interest rate has gone from 5% down to 2.625%. The mortgage payments are on autodeduct so I don’t even feel the cost of homeownership, except for when property taxes and random maintenance projects are due (Read: How To Lower Your Property Tax Bill). The other surprise has been the rocket ride in rents.

Your house could seriously be your biggest surprise financial windfall if you simply focus on enjoying life and using your disposable income to invest in other assets.

* What seems expensive now will seem just as expensive to future generations. I’ve been seriously looking at property for the past 13 years and I never thought prices in desirable areas were ever cheap. Part of the reason was due to my lack of finances. Another reason is due to increasingly expensive tastes. I am no different from all of you. Very few of us want to live in the same crummy apartment with a bunch of roommates as we grow older and accumulate more money.

Every time I think prices can’t go higher, they seem to breach new highs with enough time. At least once a month for the past 12 years I go for a 3-4 mile jog around the neighborhood during Sunday’s 2-4pm open house window. Back in 2007, I thought there was no way a 1,400 sqft two bedroom, two bathroom flat would sell for $1.35 million.That unit ended up selling for $1.5 million! Surely, that was the high water mark, and it was for the next five years. But then just recently a similar sized flat in the same location sold for $1.65 million.

The rental market is even more surprising. A two bedroom in a great neighborhood used to cost $2,200-$2,800 10 years ago. The same apartment now costs $3,500-$4,500 a month. I know because I’m charging in this price range with my latest tenant. Inflation is a wonderful thing if you own real assets. Don’t be a price taker. Be a price setter.

* Open houses do create buzz. One of the main conditions before I agreed to list my house was no open houses. I didn’t want lookie loo neighbors and strangers going through my house that I probably wasn’t going to sell. I didn’t want potential thieves figuring out a game plan to rob me some time in the future. Open houses are intrusive, dangerous, and more for the agent to pick up prospective clients than for generating demand.

The fact of the matter is that in order to generate top dollar, you need as many people walking into your property and telling their friends and agents as possible. It’s a numbers game when finding a buyer. One of the triggers that pushed me over the edge to submit a bid in 2004 was because I saw a doctor couple sitting in the living room talking things through. A sense of urgency came over me to buy, even though I had just bought my first property a year and a half ago.

Not only is it worth it to have at least two weekends of open houses, I suggest then setting a deadline for offers three weeks after the house is listed if you are in a hot market. The deadline gives buyers time to get their financing in order, while creating an extra sense of urgency at the same time.

* Ask yourself where you’re going to go. I took a look at several rentals before and during my house listing. What I found was depressing. One dingy two bedroom property for $2,800 a month and no parking literally had 40 people at the open house when I went. I submitted an application and didn’t even get a response. This is partly the reason why I respond to every tenant’s e-mail as a landlord today. Ignoring someone who has taken the time to submit an application and provide private financial information is unprofessional.

After striking out on a couple properties, I began to worry that I’d never find a suitable place to live for under $3,500 a month. Sure, there are places for $4,000-$5,000 a month but there was no way I was willing to throw that much money away on rent every month. I also didn’t want to buy another place because that would defeat the purpose of selling to be more mobile.

If you plan to sell, definitely have a very concrete idea of where you plan to live afterward. You might just get shut out otherwise.

* Make sure your realtor’s experience matches your home’s status. Because my realtor was a tennis friend, I failed to do as much due diligence on him as normal. He never sold a house in my price range before, which means he doesn’t have the installed clientele for the initial buzz. The last place he sold was less than 50% the value of my current house.

The other thing I totally brushed aside was that his own property went into foreclosure just several months before listing. Instead of seeing this as a warning sign for someone who might not be thinking straight, I was empathetic instead. I rationalized that at least the large commission would help him shore up his finances.

My future real estate agent will have a multi-year history of selling homes at my price range and higher. He will have a web presence and already be a top producer. He also won’t show properties in sweaty clothes after a tennis match! There are definitely great realtors out there. You’ve just got to search hard to find them. (Read: How To Find A Good Realtor Because Mine Sucks)

* You are instantly destroying wealth if you sell. This is one of the biggest reasons why I did not want to sell. The real estate industry is a monopoly that has successfully maintained its 5-6% selling commission despite a massive increase in property prices in the past hundred years. Even with the invention of Zillow, Trulia, and ZipRealty, commission levels have not dropped. Even with a 45-50% decline in inventory resulting in a 45-50% decline in commission revenue, realtors aren’t willing to budge. It’s still worth checking out Zillow.com to see what the latest comparables have sold for.  (Read: Why You Can’t Trust Zillow’s Estimates)

You would think that if your business is down 50% a year for years you’d lower your prices right? Not the stubborn real estate industry. They’d rather starve than see their precious commission levels get cut. Given they’d rather starve, then let’s let them starve! 85%+ of homes are found on the internet nowadays. What do we need a real estate agent for? I can go on the Multiple Listing Service site (sfarmls.com for Bay Area) to search for my own homes.

As a seller, I can list my home on the MLS and Craigslist with terrific content and pictures for all to see. I can pay a lawyer $1,000 to draft up a sales document so why would I pay a real estate agent $100,000+ in commissions? It’s absolutely stupid to pay 5-6% commissions, especially in places with high median home prices. There should be a flat rate because it doesn’t take 100% more effort to sell a $2 million dollar home than it does a $1 million dollar home. Until there is a reduction in commissions, I will not sell. It’s my way of going on strike.

SF Median Record Home Prices

Median home prices have surged in 2013 alone

HOLD ON FOR AS LONG AS POSSIBLE TO BUILD WEALTH

Going through the selling process has taught me that selling is a suboptimal way to build wealth for the long term. Plenty of people who sold stocks, bonds, property, gold, and businesses over the past four years are probably regretting their decision now. The only people who don’t are those who successfully reinvested their proceeds into another appreciating asset or who decided to simplify their lives, which is something I’m always looking to do.

If I sold my house last year I would probably try to kick my own face everyday for months if I had the flexibility. In a twist of fate, the lack of marketing ability by my realtor and the industry’s refusal to lower their commission rate kept me from aggressively selling my house and losing out on another year’s worth of gains. Of course if the market was in decline, this would be an entirely different post. But as I wrote in my 2013 predictions, real estate is going to be a hot asset class over the next 12 months.

If the commission level was dropped to 3% or less, I probably would have sold. If my house was a stock, I definitely would have sold because the transaction cost would only be $7.95! Why not lower debt with a decrease in income? This would be the classic “sell too soon” syndrome I suffer from due to impatience and fear of missing out. (Why I Dislike Investing In The Stock Market Even In Good Times)

I encourage everyone to hold on to your property for as long as possible. Keep inventory lean so that the real estate industry finally starts lowering their commissions. The less inventory there is, the higher prices will go as well. There’s no barriers to entry to becoming a real estate agent which is why so many people have bad experiences. When you find a great real estate agent, hold on to him or her for dear life.

I strongly believe property and rental prices will continue to move higher over the next three years. There will likely be a pause in appreciation as interest rates go higher, but so long as you focus on enjoying life in your property rather than the noise, you’ll be fine. Enjoy your home and sell only when it’s absolutely necessary!

RECOMMENDATIONS FOR OWNERS OR NEW OWNERS:

* Get the best home insurance possible. In order for your property to grow in value you must protect your property from damage. Fires, floods, leaks, theft, and other accidents happen all the time. If you have cut-rate insurance, you could very well pay way more than you should. I highly recommend checking with USInsurance.com online to find the best home insurance rates. They have a huge network of providers that will compete against each other to provide the most tailored home insurance coverage possible that is affordable. Mobile home insurance, renters insurance, condo insurance, and homeowners insurance are just a few of the options based on the type of home in which you reside. Leverage the internet to save money and protect your largest asset.

* Check Your Credit Score: Take a moment to check your free TransUnion credit score through GoFreeCredit.com, a company I trust. 30% of credit reports have errors, which could put a serious hamper on your refinancing or new loan borrowing abilities. I had a $8 late payment I didn’t even know I owed crush my score by 100 points come up during my last refinance! If you don’t want the credit monitoring service, simply cancel before the grace period is up.

Regards,

Sam

 

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. says

    This is yet another great example of why some of the best deals are the ones you don’t make.

    I’m curious, why hasn’t competition driven the price down on the commissions? If you were a realtor, wouldn’t a great niche be that you specialize in million dollar homes and you only charge 3 or 4% ?

  2. says

    That’s one crazy SF chart and as a resident I totally believe it. Things have been rockin lately. So yes it’s good you didn’t sell. Funny how things work out. You were able to learn not to use that agent again and his lack of skills saved you from selling prematurely.

  3. says

    Housing prices usually do start to really appreciate as rates start to move up off the bottom. It’s a bit counter-intuitive, why would housing prices increase if rates are going up? The reason is that if rates are going down, it pays to wait. There is no urgency. With rates increasing, you’ll get a bunch of folks who were waiting to come out of the woodwork and buy because now they’re afraid of missing their opportunity. Neat how the human brain works.

  4. says

    When it comes to real estate, it’s always best to hang on to it for as long as you can, since you’re not just able to save money on rent, the price of your investment is also going up.

  5. Eric Shun says

    Since 1992, I’ve purchased three FL homes and never used a buyer’s real estate agent. Two were for sale by owner and the most recent one was an all-cash bank-owned short sale in late 2011. This most recent one cost me $10 to close the sale.

    Due to an unexpected job transfer, I used an agent to sell my first place in 1997, five years after purchasing it — a S. FL waterfront townhouse with dedicated 20′ boat dock, a mile from Miami Beach. 1992 purchase price = $115K. 1997 sale price = $132K. The market value of this place peaked at $400K in early 2006, and is now at about $275K.

    • says

      Buying is definitely easier since the buyer can find the property himself and there is no explicit upfront cost. It’s the selling that is trickier. A good agent is worth it. And then there was my agent…

    • sojourner00 says

      You can buy without a buyer’s agent no problem. But trying to get that buyer’s commission off the table is very tricky. Usually the seller’s agent would assume “dual agent” role and will take over the buyer agent’s commission. Even after getting rid of one middleman, the only one who benefits is the remaining middleman, not buyer or seller.

      Way back in around 2005 I realized how absurd the realtor business is in the age of internet, and expected it will–and should–go the way of the dinosaur. It hasn’t happened and shows no sign of happening and I do find this absurd.

      • says

        It is absurd. I can usually negotiate 1-1.5% off the price without a buyer’s agent but not the full 2%.

        The only solution Is for sellers to go on strike and buyers to also look for lower prices ops to save money on the final price.

  6. says

    It would have been an interesting experiment for you to try when receiving all the cold calls from real estate agents. Tell them you’re getting a lot of interest in listing your property & will give them the listing if they agree to lower their commission %.

    I’ve never sold a property, but I came away from my buying experience wondering what my agent was getting 3% for. Other than unlocking the door for the viewings and sending my offer to the other agent she really did very little during the process.

  7. says

    I sold my mother’s condo in 2005 when I could literally name my price. I actually did pick a price above the market and got it. I reinvested the proceeds in SF real estate. Normally it would be a wash, but I bought a fixer. So I think we came out ahead. It is no different than investing in the stock market, sometimes it is better to hold and other times to sell. The real issue is where do you put the proceeds? It is easy to sell, it is much harder to buy better or get more value!

  8. CA says

    Sam,

    First, great blog. I started reading last month and it’s one of my favorite PF blogs. You present strong analysis and logic, and avoid some of the fluff that I see on other blogs.

    Second, this is another example of a post in which you provide some upfront analytics (your story of not selling) and then a frame / set of principles for folks to consider in their own investing. It’s a helpful set of principles, and – as I’m in the midst of determining whether to sell or not – I’d love to get your thoughts when applying those principles to my specific situation.

    Here are the facts:

    - my wife just finished grad school and is on the job search. I will continue in my current job, but her job will VERY likely be in another city.
    - we’re thinking that we’ll rent for 2-3 years in that new city, in part to get to know said city better, and in part to save up a down payment for a house that we plan to raise a family in (in the 750K-1M range, per your recommendation from previous posts)
    - once my wife lands a job, we’ll need to decide whether we sell our current condo. Enter my question for you…should we sell or rent it out?
    - Financials on the condo:
    Paid 395K in 2010
    Owe 298K (3 yrs in to a 5 yr ARM at 3.5%)
    Put in 12K in improvements, so basis is 407K
    Total monthly outlay (mortgage, tax, HOA) is $2200/month
    We could rent it out for $2700-3000/month
    My guess is that we could get 410-435K for the unit

    - My current thinking is similar to your approach above – put it on the market and see if anyone is willing to pay premium for the unit. I’d be very happy to get back my cost basis after realtor fees (so sale of 435-440k). If we sell, then we’d potentially look to buy more quickly in new city (since we’d have more available for down payment). If it doesn’t sell, rent it out for next 2-3 yrs. We would be able to find tenants very easily.

    Thoughts?

    • says

      Hi CA,

      Thanks for stopping by!

      Lots of questions and moving parts to consider. The questions are:

      * Do you need the equity in the property to buy a new property in the new city?
      * How long do you plan to live in the new city and will you ever move back to where the existing property is?
      * Lots more questions on your financials which this medium might be too public for you to disclose.

      This article emphasizes to build long term wealth to not sell your property, especially cash flow positive property if you don’t have to. I’m glad I didn’t sell my main rental when I bought my current house because it pays for a large part of my living expenses now that I’m retired. Cash flow usually just gets better over time, and cash flow is king.

      Good luck!

      Sam

  9. JayCeezy says

    The ‘commission’ issue is a tough one. A $2 million home in CA (where the rate is 5%) would mean a $100,000 commission. Expenses for advertising, MLS listing, etc. are deducted from this $100K, but let’s forget it in this example. The $100K is split between buying agent and selling agent. The selling agent then splits with their company, leaving them $25,000. A selling agent would need to sell 4 homes a year at this price to make $100,000/yr. The number of active RE agents ebbs and flows with the RE market, and with other more stable job opportunities. Quite a significant percentage of RE agents get into the business, sell a home or two to family, and then never make another sale. Kind of like show business, you don’t know you are out until years after the phone stops ringing.

    Combine this with the fact that buyers don’t mind on the front end, as they are not going to enjoy any of the savings. Cut-rate RE companies (ZipRealty, etc.) offer discounted commissions (3%), but cannot get broker cooperation, so the pool of buyers is much smaller (consisting of people who shopped on the internet and believe they can estimate the price savings close enough to realize half of the 2% savings; this is $10,000 on a $2mm home).

    For most of us, this example is crazy anyway as our primary and rental real estate purchases are just a fraction of this amount. I have been told that it takes about 10 years to really establish a name-recognition and network, with a track record of success. I do know I could never do it, just to tough to deal with the people aspect. An anecdote: my RE agent on a prior transaction told me an amazing horror story. She was representing a difficult buyer, looking at homes in the $3-$5 million range; the buyer was quite passive-aggressive, and seemed to enjoy creating problems and objections. When asked about this, and what the agent could do to make this go smoother, the buyer replied “it is going smoothly for me, and I don’t care about how it goes for you, you need to work for your commission.” Wow. Anyway, the buyer (after ignoring many phone calls) called the agent at 3am from an airport, announcing “you now have my full attention.” The agent never made the sale, after one year of trying.

    I have twice sold homes that received full offers on the first day; I won’t lie, that 5% commission stuck in my craw for what was essentially an ‘order-taking’ operation. One possibility that was part of my contract, was if the agent represented both buyer and seller, the seller would receive a .5% rebate (4.5% total commission); this did not do me any good as a buyer, and was not the case as a seller. So it was a ‘perceived value’ never realized. In any event, I’m sure this will continue to be a subject of discussion for a long time to come.

    • says

      Being a RE is definitely not an easy way to six figures given how competitive the industry is. It’s often times worth just getting your broker license for this friends and family transactions to save them or make the 2.5%.

      It’s pretty telling and ridiculous that an agent isn’t willing to show a perfect property to their buyer bc the selling commission offered is lower than the “industry norm.”

      If volume is down, cut pricing folks! If not, then accept lower revenues.

      • JayCeezy says

        FS, on a whim I checked out discount realty agencies in SF. There is a ZipRealty in SF, and they just listed a $1.9mm view condo at 338 Spear St #35e. Also, there is a company called HungryAgents.com, that enlists local agents to bid for a listing with discounted commission rates and rebates. Maybe something to keep in mind, for when you do sell?

        Just curious, FS, would you buy a property through discount broker? This subject does come up when my contemporaries and me get around to selling; nobody is happy with the 5% (in CA), especially when another 1-2% in expenses is incurred off the selling price. But interestingly, none of my friends wants to buy through a Discount Realty agency; they prefer the full service, as none of the expense (or savings) impacts them as a buyer. One complaint I do hear about Discount Brokerages, is that the come-and-go as the market goes up, then down (true). But one thing to keep in mind, is that RE agents ALSO come-and-go with the market; only the brokerage company remains, expanding and contracting agents who just need a desk, phone, and business cards.

        • says

          Sure id buy via a discount broker. The Internet makes everything easy to find. Just need to get the inspection done, kick the tires, read the disclosure packet, and ask the right questions.

          I’ll check out hungryagents. Good point on buyers not wanting to go via a discount broker.

  10. Marcel says

    Thank you for the article Sam. It’s funny how clueless we all are when it comes to buying and selling assets.

    I’m regretting selling a South Lake Tahoe vacation rental back in May 2011. If there’s any lesson for anyone to learn from this is that, if you don’t need the money, keep your real estate. Especially, if it’s in a “brand” location, like Lake Tahoe. Why did I sell? Here are the reasons:

    - I was going to have to invest about 100-150k to bring the place up to date to either sell or continue renting it out. I had the money and just didn’t feel like going through the process, as I was living/working outside the country.
    - Beware of the sharks out there! My property manager/friend had convinced me that the place was worthless, due to all the work that was necessary on the place. He even offered to buy the place from me for about 250K and I was actually considering it. Fortunately I talked to a broker first and two days later, somehow, a couple from the Bay Area bought it pre-market for $520k.
    - Today, the place has a Zillow estimated of $540k and would probably list for 640k and sell for $700k or more. Ooops.
    - I was burned out on the place and, looking back, it wasn’t a good enough reason to sell. Sure, at the time it looked like real estate was going to keep going down and the $520k price looked very good. Well, here we are just two years later and, dang, that place would be a gold mine right now!

    Oh well, you can’t look back with too much regret on these kinds of trades. Would have never imagined the real estate market to bounce back this hard and that fast, especially in California.
    Gotta keep saving now, for the next dip . .will we ever have one again?

    • says

      Marcel,

      I can empathize with you 100%. My family sold a wonderful piece of property end of last year/beginning of this year because it was too much hassle. It was also causing one parent a lot of grief. I now sort of wish they kept the property and let me take over in improving it. But that is two years from now as I’m still in SF.

      Going from $250k to a $520k is a huge swing that is hard to ignore! If you were indeed sick of it, then it’s not so bad. What did you do with the proceeds? Perhaps there was a nice return there as well?

      Has Tahoe rebounded by that much? If so I’ve got to check out the latest prices in north and west lake!

      Sam

  11. Marcel says

    Yea, most of the proceeds stayed in cash and maybe half in bonds/stocks. Six months ago I put the rest of the cash into a condo in the Dominican Republic. It’s kind of my home base right now and will eventually probably become a rental property. As for Tahoe, I do think it’s bounced quite a bit, depending on the neighborhoods. Get in touch with me if you’re looking to invest in rental property over there. Cheers.

    • says

      Good to know about Tahoe. I love that place for the hiking, snowboarding, and general nature.

      I’d love to learn more about the Dominican Republic as well. I haven’t ventured in overseas property and am curious. I should have bought Chinese high end property a whole ago as the RMB continues to appreciate, but I have a problem not being able to see and you h my real estate investments.

  12. says

    Last year I got married and bought our house in Kailua, it was a lot at once. Our housing cost tripled as we were living pretty cheaply in her condo. Expenses for the wedding and the house left us very cash poor. The market was rising, the house was perfect, so we stretched to purchase. The financial situation made me wonder if that was a good decision.

    A year later the price appreciation on the house means we basically lived for free. With interest rates zooming had we bought at this time with the higher prices and interest rates, it would mean an additional $1000 a month in mortgage payments. That’s equal to a new LV bag every two months! Today I am relieved that we stretched, as I couldn’t afford to buy into this neighborhood now.

    Sam like you I’m bullish on real estate especially in Hawaii. After getting outbid on several properties I found a condo that was not yet listed. The seller worked with my wife, however he had already signed with an agent. I’m buying this unit with a friend. I negotiated 3% for the selling agent, 2% credit for us at closing, saving the seller 1%. I’m arranging for financing, scheduling home and termite inspections, and working with escrow on all the details. Not really that hard, while the seller agent will make $10000 for filling out some paperwork and a few emails. (Which will come out to about 1000 an hour for her).

    Real estate agents do NOT sell houses, they sell themselves as experts for us to pay overinflated commissions. In every industry the internet has driven down fees and commissions, from cars, jewelry and travel. Real estate is the only industry that has not happened in.

    • says

      So the question is, with volumes down 40-50% for three years in a row and the Internet making everything easier for sellers and buyers why hasn’t commission levels dropped?

      • charles says

        The NAR conspires to keep commissions high, as most people presume you are required to pay 5-6%. Agents that take less can get blackballed, that is why discount agents here are often badmouthed. There are several discount agencies that offer a flat fee or a 2% selling commission and 2.5% for the buyers for 4.5%.

        If volume is down 40% but prices are up 20-30% the drop is income is minimal as the commission is higher.

        Why does an agent need to make 60K when an open house draws 10-15 offers in hot markets. Agents only earn that in a buyer’s or declining market.

    • says

      Charles, I forgot about your wife’s expensive tastes. Does she work?

      May I ask why you bought in Kailua vs. Kaimuki or elsewhere? I’m just trying to understand values in various markets and such.

  13. Flat broke says

    Interesting you write an article on homeownership the same time Forbes publishes an article that states Showed Schiller’s definitive research on residential housing, stated that “the American dream of building wealth through home ownership is a fallacy.” Schiller is quoted:

    I’ve documented that the home prices in real terms didn’t increase from 1890 to 1990. [But] bubble thinking . . . it’s still fresh in our minds.

    So be warned bubble investors!

  14. says

    I too was actually debating for many months at the end of summer last year on whether to sell my house or not. It was basically the perfect opportunity to move up into the next “level” of house for roughly the same monthly payment since rates and home prices had fallen so much. I was very specific about my 2nd house though, having realized more of what I wanted in a home by owning one for around 3 yrs. I looked at a ton of houses over a 6 month period, but didn’t find anything I liked. Eventually fatigue set in and I decided to just stay put. I’m actually glad I did as well. I ended up refinancing back into a 30 yr mortgage (i was on a 15) and am now using the difference to fund retirement accounts.

  15. says

    I have dealt with tons of realtors last year when trying to sell my property, their game was saying “hey, your house will sell for a lot!” and they asked for a cool 10%, like you said, for not doing much more than putting the listing online. One even added 13% to my selling price as his cut, removing any change for the property to ever sell. Then after a month or so of not selling, they call you back, tell you you are too expensive, ask you to slash your price, while they “make a big gesture” and lower their cut by $500. So I started putting up ads at my price, found a buyer myself, and kept the money.

  16. says

    Sam, Why not make up your own rules? Next time a letter comes through say you are willing to sell for absurdly high price and that the max commission you are will to pay is $Y? What’s the worst that happens?

    • says

      That’s exactly what I plan to do. By the time they started aggressively contacting me, I had already made up my mind to not sell for at least a couple of years.

      I did go back and forth with one guy, a hilarious exchange I might post here actually. And the lowest he’s go is 5.5%. And only after not responding to him for a couple weeks does he “break down” and tell me he’ll ask his managers what he can do. He’s sold a total of 0 properties this year by himself :)

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