
8 minute read
You Found It! Now What?
Shortchanged by Shortcuts?
I’ve seen this come up for people after they lost out on a house they loved. Now every other house is compared to that one – it became an anchor of sorts. Not only does every other house not quite measure up, but now every new house needs to represent the same price-to-size ratio as the one they lost.
Advertisement
The single biggest contributor to upsets and frustrations from Anchoring is brought to you courtesy of Zillow. Unless you’ve started your home search because you’ve been living in a cave, you know what Zillow is. It’s also likely you’ve seen their algorithm-driven home valuation called the Zestimate. It looks very slick on their very slick website. But don’t let looks fool you. The Zestimate is trash. It’s dangerous, damaging, trash. By Zillow’s own accounting, the Zestimate has a median margin of error of five percent. This means half their guesses are more than five percent off and half are less. Of course, you don’t know which half your home falls in, so it’s as practical as throwing darts at a board.
By way of illustrating the absurdity of thinking the Zestimate is somehow connected to reality, when Spencer Raskoff, the CEO of Zillow, listed his home for sale, the Zestimate turned out to be 40 percent higher than the sale price he received. If Zillow is off by 40 percent of their CEO’s home, how accurate do you think it’s going to be for you?
As we know by now, the accuracy and validity of an anchor has nothing to do with its impact. Virtually every client I talk with understands, intellectually at least, that the Zestimate is functionally useless when shopping. Yet, it’s out there for everyone to see and is, without a doubt, creating an anchor.
I’ll discuss this further when it comes to selling your home, but it applies to buyers as well. Buyers consider it when looking at the amount they are willing to offer on a home they’re interested in. It’s a shortcut-driven mistake, but people do it.
I don’t have any illusions about you avoiding the Redfin or Zillow sites and their algorithmically generated values. That’s
The “Pre’s” | 85
unlikely to happen. But you can countermand the impact by asking your Realtor to do a custom valuation for any home you’re interested in. Leave the Zestimates to less savvy buyers who don’t know how their own mental shortcuts are affecting them. You’re smarter than that now!
Un-Reality TV
Additionally, you should use the pre-shopping consultation to get answers to any questions you may have about buying a foreclosure, a short sale, or a fixer-upper. I’m afraid the slew of HGTV “reality” TV shows about fixing/flipping/remodeling houses that go from disaster to the cover of Architectural Digest in 30 minutes have romanticized a fantasy. Watching these shows, one could have what is representative of a good value shift toward fixer uppers. Watch enough and what’s available to your mind could be how easy/simple/frequent remodeling is. While this is fine if you have the accompanying skill set to do the work, most people do not. As I’ve said, every home is a money pit. Starting in a hole is a much greater challenge than as seen on TV.
These shows could be said to create an anchor of sorts – “If they can do it, so can I.” I always think they should come with one of those, “Don’t try this at home” disclaimers. Ask your agent, given your needs, is this something you’re ready for? Many businesses fail because the CEO is over confident in their abilities, so they take on more than they can handle. Don’t make that mistake.
Getting all your questions answered helps you and your Realtor understand your expectations and the market. Your own searching can now be more valuable and they can begin to send you various listings they find that will be suitable for you to consider.
Then, and only then, are you ready to get in the car and visit properties.
86
Shortchanged by Shortcuts?
Avoid Being Shortchanged: Shortcuts to Watch For
• Availability Heuristic: Using your bank as your lender because they come to mind when you think of getting a loan is crazy. Have you investigated their ability to close on time? Ask your Realtor for a referral and be sure to investigate and interview their recommendation. • Representativeness Heuristic: Are you choosing a lender because they look like what you expect a lender to look like? Or did you do your due diligence and explore which one is likely to perform the best for your needs? • Anchoring: How influenced are you by the Zestimate for a home? Are your expectations for the kind of home you should be able to afford driven by some past experience? • Confirmation Bias: Are you avoiding getting pre-approved because you already know what the lender is going to say? • Anchoring/Representativeness/Availability:
Are you clear that what people do on TV is not real?
Points to Remember
• Buying a home is a journey. The more patience you have, the better the outcome will typically be for you. • Find the right lender. Ideally, it will be a company that specializes in mortgages and has a track record of performing in partnership with your Realtor. • Pre-qualification provides only a rough estimate of what you can afford in a house. It can be helpful at the start of the process, but it’s not the whole story.
The “Pre’s” | 87
• Pre-approval is where the rubber meets the road in terms of what you can afford. Ideally, you should pursue pre-approval at the very start, even if you’re not looking to buy for a year or more. • In a competitive market, you won’t be able to make an offer until you’re pre-approved therefore, any good real estate agent, in that kind of market, won’t even take you shopping for houses until you’ve done that work. • Once you’re pre-approved and know how much you can afford, it’s time to list the amenities (size, location, style, etc.) that you want in a house and share that information with a Realtor. • A good agent will then share with you the locations of properties that fit your budget and wish list before you ever head out to an open house or to visit a property. • The pre-shopping consultation is the time for you to get grounded about what’s available and how much you can afford. This is when you need to align your expectations with reality. • Every house is a money pit, so don’t overspend.
88
Chapter Eight:
Shopping and Finding
“Whoever said money can’t buy happiness simply didn’t know where to go shopping.”
– Bo Derek
Now that you’ve covered your “pre’s” and gotten your initial questions answered – your “pre’s and q’s” if you will (I couldn’t resist) – you’re now, hopefully, grounded in reality and ready to shop.
If you haven’t noticed, almost everything in this book is an attempt to steer you away from using your gut feelings when buying or selling your home. The overall premise of the book is your instincts tend to be irrational and will cost you money. I generally assert using a more rational, data-driven approach will serve you better than going with your gut. That’s clear by now, yes?
Okay. Ready? In this step (and perhaps only in this step), using your gut makes all the difference. Boots-on-the-ground, standing in the driveway of a particular house, you’ll immediately get a feeling if this could be your home. You’ll open the door and you’ll just “know” it’s your home. Likewise, there will be other properties you pull up to and won’t even need to get out of the car because you know it isn’t your home. That’s how this phase of the process works.
In the information that follows, I’ll point to some shortcuts and biases that make the process harder and more stressful than it needs to be. However, the actual decision that any given house is your next home is almost entirely one of feeling, and you need have little rationality about it. I don’t mean you should fall in love with a house that creates a three-hour commute each way or is in some other way impractical. But I can tell you in every case, with every home I’ve ever sold, it’s the same – the buyers knew right away this was it; this could be their home. There wasn’t a lot of rationalizing they needed to do. When something fits, you know it. In fact, taking a more rational approach in every other step of the process creates the probability that when you find something that fits, you’ll have the odds on your side to seal the deal and get the house you want.
This boots-on-the-ground phase can take place both with your Realtor and on your own. Often people aren’t sure what neighborhood is right or are unsure exactly what they’re looking for. That’s fine. That’s what this phase is all about. Seeing what’s available. Standing in a house is different than seeing the pictures on Zillow. Driving a neighborhood is different than measuring the commute with Google maps. While I’ve shown, and sold, out-of-town clients houses via live video, that’s an exception. The vast majority of people want to see the house they buy in person before buying it.
While 3D video walk throughs and virtual reality headsets are here now, there’s little substitute to being in a house to know what it’s like. What does a 1,200-square-foot house feel like? Is there enough space? How does the ceiling height work for you? What does the neighborhood feel like? Like I said, I’ve been with clients who – when we’ve pulled up the curb – tell me to “keep driving.” Having seen it live, it’s clear to them that it’s not the house for them. They can’t see themselves living there so why bother getting out of the car.
90