Alright, pure 100% excitement for you, the reader today!
Strap on that seatbelt, adjust your helmet and get ready to live vicariously through me as if plugging into some 3-dimensional Simm machine and looking for your first home in a market that has gone ape-shit mad and thrown all caution, as well as logic, to the wind.
So here we go, I’m two months into our house buying adventure, but already in this short span I have some good food for fodder and priceless learning experiences.
First, purchasing a home right now, is no fucking joke. This shit is a full contact sport. If you aren’t ready to wheel and deal, flex those muscles, bluff with the best of them, then you’re going to get your nose bloodied and sent back down to the minors.
Second, I’m just going to start this off by saying, buying a house right now in a competitive market is fucking C-R-A-Z-Y! Let me say that again… pure fucking pandemonium. In a 60-day period I’ve watched home prices in my market increase by $100K. No, that is not a typo. It defies logic, but this is the reality that I’m still trying to wrap my head around. Flat out, it doesn’t make any sense, and it’s leading me to be very careful and strategic about what I am and am not willing to do.
And to be up front, I’ve never bought a home before, so this is the first homebuying experience of my life and I have nothing previous to compare it to. But my mind is blown. Literally. Slice off the top of my skull and scoop out my brain as if it were ice cream in a cone.
Because I feel like a ghost drifting through some alternate reality.
Let’s first talk about our location. My search has been in Southern California – that la la land of movie stars and models, in which all we do is bask in the sun like pampered pets and shove gallons of avocado toast down our throats while complaining 70 degrees is too cold to go outside (I don’t think I did Mr. Fate’s description justice).
You get the picture, whether you want to live here or not is irrelevant, because thousands flock here every single year with golden dreams, diamond studded aspirations and gilded visions of paradise.
Hey, I don’t promote this shit, it’s just what happens, so don’t kill the messenger.
Now, with all these yuppies needing a place to live, our real estate market isn’t just hot, it’s molten-lava-burn-your-fucking-house-down-forest-fire-scorch-the-entire-Earth hot. I can literally see my melted flesh sloughing off my bones as I fill out my house offers.
This is one fucking painful process.
So, here’s what I’ve learned to date:
1.) Lenders are not used to people who do math.
I guess this shouldn’t have surprised me, but it did. As I’m trying to find my financing, I’m talking to these loan officers (bank, credit union, loan brokers and online) and they all keep saying, “Well, we’re not going to be the lowest rate, but we’ll only be off by an eighth or a quarter of a percent.” I stop them right there and ask them if they can talk to me in basis points and not fractions. Then I rephrase what they’re saying. “So, you’re telling me you’ll be off by a range of 12.5-25 basis points? Multiplied by (insert whatever loan amount you want here) times 30 years, and this is the amount we’re talking about that you say isn’t very much?” Spoiler, that amount was always a very big number, at least to me.
Hesitantly they will agree, and usually refer to their exceptional customer service and closing process as to how they justify this ridiculous mark-up.
I also cannot tell you how many times I had to stop a loan officer when they would tell me, “I’m not trying to sell you anything.” I was very careful not to be a dick about it, but I had to always stop them right then and there, and politely say, “Let’s just be up front. What you’re doing is exactly trying to sell me something. This whole conversation is your sales pitch for the value you can provide.” Once we get that out of the way, usually they cut to the chase and neither of us wastes any more of each other’s time.
2.) Bidding wars are a real thing.
Only two weeks into our search, we find our (relative) dream home. This must be fate I’m thinking. This house comes on the market and is WAY below our budget, checks every single box we want, and is absolutely turnkey.
What are the odds of that?
I’m going over in my mind all the different ways I can craft an offer to knock all these other yuppy buyers off this one. Fuck yeah. I’m going to be done with my search in record time. Who is saying house buying is hard? I got this.
The one thing about COVID, is it can delay your chance to see a house. You must have an appointment and make sure you aren’t overlapping with other buyers, so appointments on a hot property go quick. By the time we actually got to see the property, 3 days after being on the market, it was already bid up $80K over asking.
All that dry powder I thought I had at my disposal, went up in smoke. We still fielded what I think was a very competitive offer at the top of our budget for this house, but low and behold, we were not the chosen offer. We received a counter for final and best, so I know we were at least in the ballpark, but I’m curious to see what this house closes for in another month when the data goes public.
3.) The new buyer practice, waiving the appraisal contingency.
It’s in all buyers’ interest to play a certain game that gives everyone protections. However, when emotions run wild, the rules are easily forgotten and risky behavior follows, not just hurting that risk taker, but hurting everyone by the precedent it sets.
My goal is to try to buy a decent house, without waiving my appraisal contingency. I think a year ago, this would have been easy and a no brainer. However, today’s market has changed, and not in a good way.
I talked about in #2, the turnkey property that we lost out to in a bidding war. Then we took a shot at another two fixer upper properties. I believe our price range was good for each, but on both people had already bid the prices way up and were willing to wave the appraisal contingency.
This is tough one for me. I have the cash to be able to do this, but my return on that extra cash is the dismal interest rate of the loan. Not a sound financial choice and essentially all I’m doing is increasing my down payment to overpay for a house. Plus, with financing so cheap, I’d rather that extra cash going to furnishing or other more productive uses.
However, these are the rules of the game. Shitty rules, but nonetheless, the rules that my opponents are currently playing by.
How I decide if/when to adjust my strategy in the future, we’ll just have to see how the market continues to play out.
4.) Emotions are hard to keep in check even for someone who understands behavioral finance. FOMO is a real thing.
I have my budget. I have my strategy. I have my plan. But man is it fucking hard sticking to this script when you see something that you really want.
I thought I’d be better at this than I am, but what house shopping has taught me, is that I’m just like every other consumer. I see something shiny and sparkly and I want it. I start to get competitive and logic is thrown out the window.
The buying process is so weird, at least for me, because each house you put an offer on is like a jedi-mind trick. You have to mentally and emotionally commit to seeing yourself living your best life there. And as soon as you fully convince yourself, you lost the bid and now need to move on the next one like flipping a switch.
But I’m not a robot. I’m competitive and pissed off that I lost that house that I just spent the past week envisioning myself in. It’s not easy to simply turn the page and start all over again. But that’s the process. I’m not sure it gets easier as I go, but now on my fourth property, I think I’m getting better at it.
5.) Where I live, will not change who I am.
This realization probably took about the two full months to sink in.
Learning as I let these properties go, that it’s okay to lose out on a property you really want. You set your parameters and then “relatively” stick to them.
We have our budget. We have our endgame. I want to leave the work force early. So, in order to make that happen, I need a property in a certain price range. We can always be flexible, and not everything comes down to housing, but it helps knowing who you are and what you’re about.
Now going through this process, I won’t be so quick to judge others if they made a mistake and overbought. Sure, that’s not a good mistake to make, but it’s not as easy as I originally thought to keep that level head and remember, that I am who I am. What house I eventually buy, won’t change that at all.
6.) Unfortunately, I am competing against myself.
The reality is, I’ve put myself in a great position to purchase a home. I have prospered and benefitted during the pandemic while many have suffered. It makes me feel guilty to type that, but it’s the truth.
However, I am far from alone in this.
So, when I see these crazy bidding wars on a property, the first thing I question is who the fuck are these psycho idiots driving up prices? And then I must remember, these people are me. Higher income, work from home people, that have been able to save during the pandemic and now want more space. These are the pricks I’m competing against – me staring back at myself in a mirror. They feel FOMO breathing down their necks as if it were a living thing and have come to the same conclusion I have; the future corporate work environment will most likely continue to be some form of a hybrid work from home future.
We must strike while the iron is hot!
7.) Anyone who has ever bought a house, believes themself an expert, and has unending unsolicited advice for you.
Hahaha. I had to include this one and found this tid-bit probably the most peculiar and fascinating part of home buying so far.
When talking about home buying with friends or family, I usually end up getting into some numbers. I’m not some secretive paranoid recluse about what I’m doing. Most people know that my wife and I have been saving for a long time and now we’re excited to be first time home buyers. And people are usually genuinely curious about what our plans are. So, when they ask, I tell them this is the area and price range we’re looking at.
No big deal.
However, I wasn’t envisioning how many people would then tell me what they think I should do instead. Hahaha. And I found this part very entertaining. The advice is always along the lines that you can never go wrong with buying a house and we should be spending a lot more money than we have budgeted.
Typical American consumer answer. No surprise there.
And the math is always the same simple equation for them: I bought my house for this price, and now it’s worth this. No consideration for property taxes, interest on loan, upkeep costs, broker’s commission, closing costs or inflated price of next house they’ll have to purchase.
Classic, right?
So as of today, I’m still in the game and looking for that next diamond in the rough as if my life depended on it. There has been very little inventory for the past two months, so I’m hoping things pick up now that the holidays are behind us and a new year has dawned.
What’s going to happen… only time will tell.
-Q-FI
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Got any good first-time homebuyer stories for me? Let it rip… enamor me.
Pay only what you’re comfortable with, continue being mindful of the overall picture, and don’t make yourself house poor. There, that’s my unsolicited advice! 😛
Seriously, I don’t wish this process on anyone. I went through it, including bidding wars and lenders willing to give me far more than they should have because 1) I had outstanding credit, and 2) was a nurse. Um…I’m not sure those two factors necessitate giving me more money than I can afford to repay, but this is America.
I don’t know what to tell you other than to be patient and the right place will eventually come along. In the meantime, I think you have incredibly low rent, right? Enjoy it while you can. I can’t imagine what your market must be like other than I remember what the Manhattan market was like before I left. Everyone paid over asking, most people competed with all cash offers, etc. It was a nightmare for anyone not ready to fork over mega bucks. It’s kind of sad, really.
I did a no home inspection contingency in one offer, but only because my brother who’s in real estate did the inspection himself when we checked out the property. He was more thorough than any inspector I know, so I trusted him and knew everything that needed to be done. I made a more than generous offer and was totally fair. They got greedy and counter offered. That angered me to no end, so I walked away and never looked back. Don’t be afraid to walk away.
Good luck and keep us posted!
I think you said it best Katie with, “don’t be afraid to walk away.” And that’s what we’ve learned to do. We put in our best offer that we’re comfortable with and let the cards fall where they may. And we do have very cheap rent, which helps with being patient. However, we do have a clock ticking in needing more space to foster, so we can’t wait forever. But if the market continues to be insane for awhile we can always rent a bigger place. We have options and flexibility on our side, but we’d prefer to buy at this point in our lives and with future lifestyle plans.
That being said, it’s still been a trip and an eye opening learning experience. Hahaha. It’s kind of ironic how opposite my guess at the future has been. I knew there would be less inventory in Nov-Dec due to the holidays, but I thought the market would cool off after the crazy summer push, and it’s turned out to be the opposite. Hahaha. Couldn’t be hotter. Oh well, it is what is.
Thanks for the advice.
Wowzers! Exciting times! Well done for trying to keep a level head. We are in a similar position, but have a house to sell too. We have decided to bring forward our relocation from London to the country by a couple of years after the realisation that Covid means that my husband can easily work from home. However, lots of people have obviously got the same idea which I fear may be driving prices up in Devon where we plan to move to and down in London! We’ve decided to rent first and do our house search in situ as all the best places will get snapped up before we can even view them otherwise. Best of luck with your house hunt and Happy New Year!
Charlotte
Hey Charlotte and exciting times for you as well! Your situation is pretty interesting because you have to sell as well as buy. So you’re actually seeing prices decreasing in London and increasing in the countryside? I would have thought that London would always be holding prices well. My sister lived in London for five years and gained her citizenship and it seemed when I would visit that London real estate was similar to LA in how much it had appreciated. But if prices are falling in the city, then wow, that is pretty wild if that is the case.
Best of luck with your house search as well and happy new year to you too!
I’ll check back in the future with you, because I’d like to know how your situation eventually turns out.
Take your time but also realize very likely your first house will not be your forever home. You’ll likely have a must have list and frankly it’ll change after you’ve lived somewhere for awhile.
Beyond that I saw the speed in this market from the sellers side a few months back. I’ve wanted to wade in to real estate investing but because of that quick market turnover I’ve decided to stay out. Just not enough time to make educated investment decisions. Anyway best of luck with the search, don’t settle just because you get discouraged.
Sagely advice FTF. Much appreciated.
I’m usually a pretty particular and thorough investor, so the emotions have been a wild ride, but I’m used to playing the waiting game. And if it takes awhile, then it takes a while. But I wasn’t expecting the bidding wars to be so nuts during a downtime like the holidays. Hahahaha… shows how much I know.
But you’re right, this first house, most likely won’t be our last.
And just a side note, on house buying. It seems like the most backward process to me. You’re making one of the biggest investment decisions of your life, but you only walk through it once – probably under 30 minutes – then you have to make your offer pretty much right after. I feel that for such a large asset purchase, there should be a better process. Plus, I can’t believe there’s not a better system to get rid of or minimize closing costs. I’m not impressed.
It’s so stressful. We bought the 4th home we were seriously interested in. What we did was write a letter to the owner and it worked. The guy was in the military and I’m a vet, we were around the same age, they had a young kid same age as ours. A lot in common, and id like to think the letter helped out. It also helped he had orders to be in Delaware by the end of the year too…
Be very careful with your white hot market. Reading your post I was reminded of friends talking about buying in 06/07. I don’t think there’s a bubble or anything, just more of what you mention, that emotion can make you do things you might regret when the dust settles. Anyway, I’m excited for you. The stars will eventually align and you’ll find the right place for you. Good luck!
Thanks Noel.
I do a letter for each offer and try to hit all the right spots, middle age couple that has saved for over a decade for their first chance to own a home, moving only because we need more space to become foster parents, that yard would make all of our rescue dogs so happy, etc. I try pull at the strings of their heart… hahaha. It hasn’t worked yet though, but I keep trying.
I agree it’s not a bubble, at least in our areas – high demand CA metropolises – LA and the Bay. Obviously your area is the most crazy and highest prices. I have no clue what I’d be doing if I was living up there in the Bay.
But this recent spike has been concerning at least to watch and not get carried away. So as everyone has mentioned, I’m taking it slow, sticking to my guns, and we’ll see what transpires over the next few months.
Thanks for sharing your experience bud! All these stories help me.
First, I think you should buy that 6 bedroom place on the sand in Sunset Beach. Because it would make for a great place for me to stay when I’m down to visit.
Yeah, it’s definitely crazy down there and we did amazing well when we got out. However, the fact that people are waiving an appraisal is ludicrous. As an M&A dude, that’s like buying a company with looking at, let alone, verifying the revenue. Anyway, your strategy is spot on so stay the course. There’s zillions of great places down there.
Advice given to me that I followed was “buy the least expensive house in the most expensive neighborhood you can afford.” Last 3 words are key there, but I did. I used a “buy & hold” strategy and 17 years later, after I cashed out I got back every penny of my down, every P&I payment for the time I was there, and all of my property taxes (all of which is now continuing to grow in investments). PLUS, more than enough beyond all that to build a brand new, custom home up here. Basically, that 1 So. Cal. real estate transaction has effectively allowed my to live for “free” my entire adult life. If I had kids, it would allow them to do so as well.
The point here is that while I talk a lot of shit on So. Cal., investing in real there can, and likely always will be, an excellent move, particularly if you play the long-game. So, keep at it, stay sane and can’t wait to see pix of the new place
Hahaha… I was hoping you’d come back down here and pick up that beach house instead of me with all the money you’re saving not paying income tax in Washington!
Yeah, the appraisal shit is pretty wild. If people wouldn’t waive it, then sellers wouldn’t demand it. But so goes the market right now. We keep it in. And I have time on my side, so we’ll be patient, waiting and watching.
And always good advice pal… hope you had a good holiday!
i feel so lucky to not ever have gone through the home buying process. mrs. smidlap bought the place we live in for less than 100k back around ’99 or 2000. you’ve read my blog before and probably are familiar how lucky we got to have this enormous stone house that was in a so-so city that happened to bounce back. i agree with mr. fate that staying the course seems to be key. who the hell would want to pay those crazy transaction costs again any time soon? i’ve personally been in this place 18 years and almost hope we never leave.
i think you nailed it down really well about having more house with ongoing annual cost like taxes and upkeep. there is certainly an initial set of costs that come along with home ownership like furnishing the joint and all the crap having to buy a damned lawnmower and a hose and shovels, etc. all that being said i love living in a house that we own. good luck with the search.
Yeah… it’s a pretty shitty process. I guess if money wasn’t a concern or didn’t matter, it’d probably be a lot more fun. Hahaha.
And yes, I’ll be a buy and hold type guy unless something jobwise or way down the line in retirement changes. You need to stay put for years to even breakeven on the transaction costs.
Thanks for the well wishes and I’ll keep you posted Freddy.
The reason so many people consider their home an investment is that it’s their ONLY investment! And you’re right, no consideration given to taxes, maintenance, and on and on. I’m looking at the possibility of being able to purchase a home at some point myself–I will keep this list handy!
That’s true. I have another friend that just bought a condo and is paying high HOA and Mello Roos fees. Their idea is to let the condo appreciate and then buy a home. I didn’t want to break it to them that the home they want to buy is appreciating at the same time their condo is. The appreciation mostly only helps if you are buying down, which is not their goal. Might as well skip the condo and keep saving for the house if that’s what you want, at least in HCOL areas like us in CA.
I also believe you are in San Fran – so I have no advice for you. Hahaha. The one worse place than LA home prices.
But as I’m sure you know, housing is also a big lifestyle decision. So at the end of the day, get what you want and what will make you happy to live in day in and day out. Hopefully when you decide to get your feet wet, it’s a buyers market and not this current nut show.
I have been duped when I bought my first apartment the sample apartment that I was shown was furnished really well and when I paid my down payment on the apartment I only received a futon with my apartment and nothing else the price of the apartment was higher because it was furnished and I never got my money back.
Sounds like you got a bum deal. Sorry to hear that Himanshu.
Good luck! We decided to roll the dice and buy last year a month after lockdown. It was kinda scary, but we were able to negotiate a discount. Getting preapproved was key.
I gotta imagine things will stay hot all year. Money is so cheap and everybody wants a nicer home!
Sam
Hey there Sam! Thanks for the comment and well wishes in my search.
The one thing I have going for me, is that I’m not in the Bay Area like you… hahaha. So LA is still “relatively” cheap compared to San Francisco.
If you bought at the beginning of the pandemic, you made a good move but I bet that was pretty scary at the time with all of these unknowns surrounding us. Although that’s how you come out ahead, taking calculated risks. I bet you’re feeling pretty good right now.
Yeah man, money is dirt cheap and I if they end up doing another first time buyer credit it’s going to flood the market with even more buyers. I expect prices to keep rising but am being patient and picking my spots.