Commentary: If you love it, buy it

Good morning. We like to mix it up here, and our mix lately has been lacking in some ways. So today we post another contrary view, this time from Silver Lake real estate agent Brock Harris. You may not agree with him, but hear him out:

Buyers are nuts about price. I think it's a stupid way to choose a house. Why?

All day long I ask potential buyers “How soon do you need to buy?” and “What areas are you looking in?” and all I hear is: “I am flexible, I just want a good deal.”

It’s crazy – most buyers will wait YEARS and live in houses they don’t even LIKE to get that “good deal.”

I say bollocks.

Ever talked to someone who bought well and bought early? What they paid is IRRELEVANT. The homeowners in Burbank who paid $240K instead of $220K (they decided they couldn’t wait for the “good deal” anymore), and it’s now worth a cool million?

The guy who bought the commercial property on Hollywood Blvd in the mid-90s for $350K (NOT a good deal, in fact he overpaid 10%), and it’s now worth $4mil?

Heck, my uncle and aunt in Vancouver “overpaid” for their house back in the day. Yep, they spent $35K on a house they could have gotten for $33,500. Boo-hoo, the place is now worth $500K. They bought it because they LOVED it.

I will take a well-located, prize home I love at MARKET price all day long over a not-so-nice place at 30% below market. Because in ten years it’s not going to make a bit of difference to me, and the nicer place will be worth more anyway.

I am calling through my entire database and I am not kidding you, there are people who have been waiting since 2001. “I’m not in the market,” they say, “but if a really good deal comes along, give me a call.” Yeah, right.

Thanks, Brock. You're a brave guy to wade in here with those words.
Comments? Thoughts? Insights? Be polite, for once in your life.

Comments

[JamesW]

After reading this post, I'm beginning to think that the high prices of homes and their use as an investment vehicle has to do with the disproportionate distribution of wealth in the USA more than anything.

People don't have a secure retirement plan and have no investments other than their homes, so they end up putting all their hopes that their 200K homes will appreciate past a million to fund their retirements.

It's just sad.

[D Baker]

Now, let's talk about the people who loved it and bought it in 2005 - 2006...how about the guy who paid $4 million and now can't sell for $3.5 million - which just happens to be the balance on his loan....uh oh!

[Jax]

Is the author smoking crack? Of course, the price is important. As everyone who lives in SoCal knows, prices are absurd when compared to the majority of the rest of the country. The taxes are tied directly to the purchase price which piles on the $$$$ to the total outlay for your little slice of real estate. That has to be the most absurd argument that I've ever heard about prices for real estate. It certainly proves my long held point that most people who sell real estate are dumber than door knobs when it comes to economics.

[MyLessThanPrimeBeef]

I know, there are buyers waiting to buy since 10 years ago.

And in 10 years, the same broker will tell you there are sellers waiting to sell 10 years ago, but not able to get the prices they wanted, pulled their houses off the market. He will tell you these sellers are still waiting to sell so they can get on with their lives - you know, like moving to a better neighborhood, living closer to work, etc.

He will say, bollocks. You, the seller, you must drop your price. He will say, look at that piece of property in Beverly Hills. In 2007, it could have fetched $4 million had the credit markets not come to their senses. I advised the seller to take a 10% cut, but he was greedy and refused. Today, it sits there quietly not bothering anyone, least of all potential bueyers, asking $350,000 and no one even notices it.

The smart guys today know they should get out and get out early...if they can.

[mike]

i agree with this but the public as a whole does not. you are clearly a casualty of an overheated market and now you need to sell some houses. i am also willing to bet that when you were selling houses -at over-inflated prices over the five year run-up- at breakneck speed you bought filet mignot and mercedes benz instead of rental houses. so once again i agree with you, but good luck getting the general public to embrace that idea...

[Todd]

It is true. Buy what you like, buy what you can afford. The same can be said for art or precious coins. I just purchased an Andy Warhol for $25,000. 4 years ago I could have paid $8,000. I liked it at the time but couldn't afford it. I still like and can now afford it at the higher price. Income property still needs to cash flow. One cannot buy a building which bleeds red. But in regards to owner occ personal homes, just buy what you like, and buy what you can afford. With that said, I prefer people to stay out of the housing market because it helps drive my rents as a landlord up! People rushing to buy houses is the opposite of what us income property owners want. With that said, all my tenants should grow the hell up AND move on!!! (I have a married couple in a 3 bedroom for 4 years. Folks, it's time to progress)

[Tim in Sylmar]

I'd rather get the place I love at a great price.

[LA Land Fan]

OMFG

I've been reading this blog since it's inception, wanting to comment here and there but never making the dive. But this, this is incredible. What planet is this douche living on? I don't even know where to begin. I'm not waiting on the sidelines for the "good deal", I'm waiting because I can't afford anything even with a combined income with my bf. These examples of "overpaid for a home" don't even mirror what's going on now. Deciding whether or not to buy a house in LA isn't the difference between paying 5-20k more. It's the difference of paying 400k+ or more from prices just a few years ago. And there is no way that if you buy that expensive dream home now that you'll see the same kind of appreciation that's created this bubble. Get your head out of your @ss, Brock.

[Kate in the Valley]

Yep, if you hold for ten or twenty years then it's all good. But what if, before the ten years are up, you get sick? Or lose your job? Or get divorced? Suddenly that 10% you overpaid makes all the difference.

Likewise, if you can afford a house you love, go ahead and buy it. But what if you can't afford a house you love right now because real estate is 300% higher than it was just a few years ago? Why not hold out a year or two for the house you love?

Your advice is great for those who have fully funded their retirements, are in perfect health, have a rock-solid marriage, and are gauranteed to not have any meaningful misfortune for the next decade. For the rest of us, it makes more sense to let the market shake out a bit.

[silverfern]

I actually agree with him, as the examples he cites are of people who bought homes and property and have HELD ON TO THEM for 10 or more years. BUT they "overpaid" by 10% or a few thousand.

Current housing prices are over-valued by 30% or more, i.e., the tens of thousands, if not hundreds of thousands (IMO), given the price increases between 2002 to 2006 relative to salary increases/median salary.

Big difference between those he cites who bought in the past and the current housing situation.

If someone wants to buy now and STAY in their property for at least 15 years, if not more, they will probably do just fine. But if it will only be a few years, not even five? Not a good idea.

/my .25 cents.

[Mike S]

There's brave and there's stupid. Buying in the mid-90's was a no brainer and when your talking 20% drops on $1mil+ houses you are talking about a significant amount ($200k) of your future labor/time/other opportunities being promised away in the transaction for buying now. In my case, I my circumstance it is best I pay myself that $200k by waiting another year before buying. BUT THERE ARE CERTAINLY MORE INTELLIGENT AND COMPELLING REASONS TO BUY THAN MR. HARRIS'S "WHAT'S $5K?" ARGUMENT. SUCH AS:

1. Life circumstances. If your wife is pregnant with twins, really wants to settle down in a neighborhood and your swamped at work in a steady job, than buy so you can get on with life.

2. Interest rates. If you haven't saved much money, or saved a bunch, than buying in this winter before interest rates really start climbing may be the only way you qualify. Greenspan's inflation warning is akin to a hurricane warning rather than a hurricane watch or alert. When weather forecasters issue you a warning it means the hurricane is going to hit you! Within a year or two, probably after the election, we are going to see a significant increase in inflation because of exactly the kind of short-sighted things that got us into the real estate mess and government actions, like lowering the fed rate 50 pts, that only exacerbate inflationary pressure in a 'global economy. And unfortunately, the market perturbations created by flawed federal policy means rates are going to climb quickly when they do break, perhaps more than a 1-2pts/month for a couple months. His prediction of double digit--yes 10-12% interest rates on the horizon is dead serious, and dead on target.

3. Love. Home purchases are emotional decisions and you find that true 'home of your dreams,' well... how are you going to feel watching someone else buy it next month?

[Lionel]

With only a slight alteration to his monologue, one could make Brock Harris into a Simpsons character. (His name is halfway there.) And when I write character, I mean charicature. Where did you dig this guy up? He probably has a a great grandfather who urged everyone in the summer of 1929 to buy stocks, because they always go up long-term.

[frank]

He's right.

[Bill Jones]

I hope Brock is as flexible with his commissions as he wants buyers to be with the price they are willing to pay for a property. After all, if it shouldn't matter to me what the house costs, it shouldn't matter to him how big (or how little) his commission is.

[Giacomo]

This gentleman is feeding us anecdotes from a bygone age: pre-bubble days when real estate appreciation was (properly) slow and modest.

We're living at a different point in history- coming off a peak when prices were driven up by irresponsible speculation. Buy today - while prices are still outside a normal range dictated by incomes - and you may be financially in the hole for decades. That's might be okay if you can keep up your payments, and don't need to move, but if your income takes a hit, or you need to move, you'll find yourself in a bad place.,

[John Bard]

He's a real estate agent - he would say that, wouldn't he.

[Rob]

Yes, I love that 899K home on the hill. However, I don’t love the property tax I will overpay "forever" or the fact I will be upside down for many years. Will I be able to move in the average 7-year reloc? Will I still be upside down? Am I stuck now until it's worth 10 million in 30 years?

[tritesprite]

I agree with you completely, especially with regard to the price differences between market and "good deal" that you give as examples. Believe me, $20,000 one way or the other won't make or break a deal for me.

Unfortunately, I and many others aren't in the position you describe. We're in the position where nothing we can afford is even likable, much less lovable. We aren't waiting for a good deal, we are waiting (hoping? dreaming?) that prices will fall enough to make merely livable affordable.

[J.W.]

What would you expect a Real Estate broker to say????

[Jason]

He's got a point if you're only overpaying by 10%, but when you're overpaying by 50% and can't afford the mortgage, his logical argument crumbles.

Right now, buying residential real estate in LA is like buying shares of Enron after the indictment came out. Everyone knows the price is going down, and the drop could be huge, so why buy if you don't need to. Of course this fellow is going to make these statements, he's gotta eat. But the buying frenzy is long since over and no one's going to put food on Mr. Harris's table at the expense of their own.

When you're clients tell you "I'm looking for a deal," they mean a house priced close to 2003 sales prices, not 2006.

[Jules]

What..you think we're all a bunch of tightwads waiting for a "good deal"?
I'm sure most of us would LOVE to find a house for 400-500K that's not a P.O.S.!! You're dam right we are waiting this out to get a "good deal" so we can have a life outside of paying for our $4,000 mortgage.
You are hung up on the past dude-the bubble is finally starting to leak , and ohh...too bad for you-you're not making anything CLOSE to what you were last year are you? Better check your mail for that N.O.D.!

[waitingitout]

I suppose there is an audience that Brock Harris is addressing - back benchers shouting burn, hollywood, burn - but it's not this buyer. I'm not on the sidelines because I'm waiting to get the deal of the century; I'm on the sidelines because the properties that Brock Harris is selling are currently UNAFFORDABLE.

There is a maximum I am capable of putting down, and a maximum I am prepared to finance, and right now in this environment, at these prices, that doesn't get me a house I love. When it does (and it will), I'll buy. I may even buy from Brock Harris!

[Mike]

Okay, so the realtor urges us not to worry about overpaying for a house. Instead, he writes, we should enjoy living in a home and, moreover, we might end up making money anyway. But you don't need to buy a home to be have one. The question is: with prices so high, how do you justifying the costs of ownership (realtor fees, property taxes, interest, etc.) when you can save so much money by renting? The usual answer is that the house can be expected to appreciate enough to offset those costs. That held true from 1997-2005, though not from 2005-2007 or 1991-1996. In this market, we probably need to go back to the old rule: buying makes sense if you can negotiate a decent deal and you plan to stay in the home for many years.

[Ultrabear]

realtors and brokers praying on people's emotions are part of the reason we are in this mess. "Pride of ownership", "Don't be a loser and stop renting!", "Owning a home is the american dream!". The truth is that people should buy a home if they can afford to and makes financial sense. Especially now. In some areas houses are not dropping 5% or 10%. They've dropped by 30% in 6 months!. Obviously you should buy a house that you also like and not buy a dump only because is cheap, but buying a house mainly because "you fell in love with it" right away disregarding your finances is just moronic.

[Cal]

His fundamental position would be correct if you believed the market was near a fundamentally sound level and not bubble inflated.

It all falls apart if you think a major adjustment is underway due to a credit bubble.

I always enjoy the different arguments that come out during transitionary periods, its fascinating to me.