Getting Housed: Learn the Process of Buying a Home through our Story of Epic Failure, (Likely) Charlatans, and Home Buying Lessons Learned

by Broke Professional on February 10, 2011 · 16 comments

Most of our readers by now know that we are in the process of purchasing a home.  It is a pretty little colonial that is unfortunately located adjacent to a tiny cemetery.  What only our super “early adapter” type readers know, (and I’m not sure if those people even exist) is that we originally purchased another house six months ago.  That deal ultimately fell apart during the inspection process.

This post will detail what steps most people take in purchasing a home today, and will try to relay those steps through the retelling of the story of our first failed home purchase.  Please note that we are not offering legal, financial, real estate, or any other type of advice.  These things are very local in nature.  This post is merely for entertainment purposes, as they all are, and merely meant to be illustrative of what our failed house search/purchase was like. Ok….legal disclaimers out of the way….so away we go

Deciding You are Interested in Home Ownership

Mrs. BP wrestled the covers, in a state of consciousness somewhere in the nebulous middle-ground of lucidity and sleep.

“Why won’t those freaking squirrels stop having sex already!  It’s freaking 5 a.m.!  I can’t take it anymore!”

Now, Mrs. BP may try and deny that such a vulgar line ever came out of her mouth.  She will definitely deny that this line was the impetus for our house search.  However, deny it all she likes, it is the truth.  (Editors Note: I never said that.  I just complained about all the noise the squirrels were making).

Your probably thinking….squirrels?  Here’s the thing.  The squirrels lived in the attic of our apartment.  There had also been some well documented problems with bed bugs in other units.  We were, in our minds, besieged by all types of disturbing and invasive creatures.  Worse yet, the water had been running somewhere between Newcastle brown and Killian’s red.  So it goes when you’re broke professionals trying your best to pay down a ton of student loan debt.

I figured a house was outside our means, but promised Mrs. BP I would go with her to a local realtor to see whether we would prequalify for a loan and if so, whether we could find a buyer’s agent there to work with.  Note: Many major real estate companies also do mortgage financing.  I guess the sentiment is: “who better to resell the homes if a foreclosure is necessary?”

Mistake #1: Choosing a Random Real Estate Office

My law firm does not practice real estate law.  To be honest, I knew very little about real estate law and I probably still do.  However, I should have used my network of real estate attorneys I am friends with to find a decent buyer’s agent.  I neglected to do that the first time around.  Even if you’re not in an industry that has real estate “connections,” you should be able to find, through a degree or two of separation, a decent buyer’s agent.

We preferred a buyer’s agent because that way we would have (in our opinion) someone who was not aligned with the sellers.  That said, a wise friend of mine once told me to remember that at the end of the day, even the best buyer’s agents only get a commission if a deal is made.

Meeting with Agent/Pre-Approval

For those readers who have not purchased a home since the “subprime” meltdown occurred, you would be amazed to learn that in our experience very little has changed.   Sure my wife and I both have nearly perfect credit scores and earn decent salaries, but the amount of purchasing power we had was way higher than it probably had any right to be given our six figure student loan debt.  During this period in time the interest rate was only 4% on a fixed thirty-year mortgage, the lowest rate since the Great Depression.  That helped extend our purchasing power as well.

We met with our “buyer’s” agent after getting our pre-approval (up to 400k, if I remember correctly).  We told the agent that we wanted to stay in the 200k area, and we were told that it was impossible to find a single family home in that price range.   We live close enough to New York city (in the suburbs of New Jersey) that the realtor was right.  We went to several houses and started looking daily on websites such as realtor.com and Garden State MLS.com.  We did not want to buy a condo or a townhouse.  We wanted some land and freedom.  A little bit of ground that was all ours.

In the 250k area we could swing some homes in nice areas of the surrounding community.  Of course there was no perfect home in this price range.  The homes would always have some limitation such as being on a busy road, being a major fixer-upper, or only having two bedrooms.

We finally fell in love with a two bedroom cottage-type house.  It was beautiful and sat up on top of a little hill, surrounded by nearly an acre of perfect New Jersey land.  Dreams of gardening and room for Sophie our dog to frolic and run danced in our heads.  The house was listed in the 260k range.

You Found the Home you Want to Buy, So Now What?

The next step is to do some research on the prospective home and to have your realtor do some research as well.  Zillow.com will or other like sites will provide you with some clues of prior sales history, a rough idea of comparable home values, the cost of taxes etc.  We looked at Zillow and noticed that this house had been sitting on the market for nearly two years.  It is also important to ensure that some research is performed (by you and/or your agent) with regards to zoning, scoping out the neighborhood, the school district, easements, etc.  Most towns have a county official who can help you out with many of these issues. NOTEOne time on another house we were getting serious about possibly purchasing the county official of the town told us on the qt that the house had previously been the site of a major chemical leak.  (this was never disclosed, so we dodged that bullet).

Mistake #2: Not Being More Skeptical of the Amount of Time the Home Had Been Sitting on the Market

Our agent told us that the owners of the home had moved out nearly a year before we came to terms.  When we asked why it had been taken off the market a few times there was no definitive answer given.  The agent explained that sometimes good homes sit on the market and that this was normal in this market.  It is important to note here that the “buyer’s agent” and the “seller’s agent” both worked with the same company and in the same office.

Seller’s Disclosure Form

Perhaps the single most important document to obtain during this period in time is the Seller’s Disclosure Form.  *The Seller’s must (in most states) disclose certain problems/issues unless they are selling the house “as is.”  This is important because you can then generally force the seller to be responsible for any problems with the house found during inspections, and walk away from the deal if they will not comply with fixing major defects/issues.  In our case, the Seller’s Disclosure sheet listed no issues at all with the home.   “Kind of strange, we thought.  How is a home built in the 40′s without any problems?”  Something did not sit right in our stomachs, but we decided to proceed anyway.  We were in house love, bad….and our hearts ruled over our minds.

Mistake #3: Ignoring our Negative Gut Feelings Towards the Situation.  Mistake #3a: Falling in Love with a House

Mistake #4: Not Questioning the “Perfect” Disclosure Sheet on an Older House

Making an Offer

As an attorney, I negotiate a lot during my day job.  (Looking back I’m not sure if my negotiation background was a help or a hindrance).  You see, I am used to direct negotiating.  I am used to being the intermediary and having a modicum of control.

Now the script was flipped, and I was the client.  I felt: out of my element, out of the loop, and desperate for any control I could find over the situation.

“I insist we come in with a lowball offer.  Winter and its heating bills will be here soon enough, I said.  I’m sure they just want to be rid of the place.”

“You will insult them and they will walk,” our realtor insisted.

“Let em”!  I replied back, defiantly with some mock cool thrown in, there are plenty of other houses out there on the market but it doesn’t seem appear to me that these people have too many prospective buyers.”  Note: (I read once that you should never let any realtor know how much you like a house, because even the best intentioned of realtors may let this information slip in some way, shape, or form).

Once you make an offer (which will be in writing and will likely include your letter of pre-approval, a prospective closing date/earnest payment, etc) it is conveyed to the other agent, who will then pass the offer to the seller.  The seller’s will accept, reject or counter, and let their agent know their response.  The seller’s agent will then contact the buyer’s agent (if there is one).  The buyer’s agent will then contact the buyer.  Simple, right?

In essence, it’s kind of like the world’s most nerve-racking game of whisper down the lane.

The seller’s agent said the sellers were in fact insulted, but not so much that they weren’t willing to counter at 260k.  To spare you the boring details of the rest of the negotiation, let’s just skip to the end and say that we ultimately came to terms at a price in the low 240k’s.

We Have an Agreement, Where’s the Keys!

Not so fast…as now the process starts to get really complicated.  First off, both sides should at this point find/already have attorneys.  It is called the “Attorney Review Period” for a reason.  Next, you should contact the mortgage broker/provider to start preliminary plans for obtaining a mortgage.  During this period in time a smart tip would be to gather up all of your financial information, so that it will be easier to sort through when the time comes to submit your mortgage application.  Note: Pre-Approval does not mean all that much in the grand scheme of things, be ready to provide a lot of additional information.

There are other considerations, many of which your attorney will help you with, such as planning a home inspection and a septic inspection (if applicable).  The mortgage company will generally send someone out for an appraisal.  Meanwhile, you should try to make sure you have all the money you need for the closing costs/down payment.

Inspection Day

The day of our inspection it was discovered that the septic system at the house was inoperable and a new pit needed to be dug.  ”It will take at least $30,000.00 and 3 months to put in a new seepage pit,” the septic expert said, grimly.  ”Good thing you guys paid extra for the camera scope, otherwise we would have never caught it.”  Note: If your purchasing a home with a septic, spring for the scope.  The seller’s said that the septic was brand new and our agent tried to talk us into not getting the scope. * More telling was the septic inspector’s final comment, “They must have known about this…..the tank was backed up big-time.”

I remembered at that moment a distinct smell I had sometimes caught when the wind swept a certain way across the property…..it was the same thing that I was beginning to suspect the sellers themselves were full of.

Mistake #5 – If it looks like &#&!, and it smells like *#@*, then it must be *#*@.

Lawyer Battle

Now I imagine if things had gone well with the inspections we could have nitpicked over a few things, perhaps, and then finished up our mortgage paperwork (which we were nearly finished with anyway), and hurried towards closing day.  Instead, we had our lawyers battle back and forth over whether we could get out of the contract or not.  They had subsequently brought in a second expert who said there was nothing wrong other than some simple grading problems around the property.  They weren’t letting us go easy.

We decided we were done with the house, and ultimately we were protected by our lawyers and able to walk.

The Aftermath

We had spent, all told, $1,500.00 between the appraisal, the house inspection, and the septic inspection.  We had also wasted months of our lives and lost out on a historically low interest rate.

Mistake #6: Placing Yourself in the House Before it is Yours

We were already picturing what our unborn children would look like playing in the bountiful yard.   We were already redecorating the rooms.  There was only one problem: the house wasn’t ours yet.

We got lucky and dodged a bullet, but the fact that we got burnt hurt real bad.  It hurt even worse when a few weeks later the house was re-listed with the same agent.  The price was back up to 265k.  The listing still said that the septic was new.  For a few weeks we pondered suing.  We were certain that the seller knew of this problem before.  If they would do it to the prospective buyer after us, who was to say they did not know when we made our offer?

We didn’t want anyone else to play the part of “sucker” like we just had.  But then, we got busy with our jobs and life, and we never got around to our small claims suit.  Even though I am a lawyer, I am not very litigious, but it still irks me how everything went down.  Hopefully this time around, things work out much better, and prove my mom’s cliche’d parent line that: “Everything happens for a reason.”

Conclusion

So, that is the Cliff Notes version of our story, and a general outline of the process of purchasing a home.  I am not convinced that the market will not double dip.  I am also frustrated that we had to go with a 15 year fixed mortgage to get the 4% interest rate we once could have had with a 30 year fixed.  Although it is a “buyer’s” market, many sellers bought their homes at the peak and are underwater.  They think their home is still worth the inflated price they paid for it.  Whatever you do, please try and not pay for another person’s mistake.

Finding a good deal is tougher than you think, and there is no way of knowing how things will look a few years down the line.  If you know your local market, you will develop a sense of what homes are fairly priced and those that are not.  In our experience, homes that are on the market for a very long time have been sitting there for a reason.  That reason is (in our experience, usually) that the sellers are unreasonable.

So, you’ve heard my diatribe.  Now tell me yours.  Have you ever had a “shady” real estate encounter?  Anything I messed up or that needs to be clarified?  Any advice for those looking to buy?  Is the double dip on its way?  Is buying a home no longer the “American Dream?”  I for one do not believe homes to live in are generally a good investment, but I do think if you can find one at the right price, it may be an alright way to spend your housing money.  A good book (although it is a bit of a downer) on the fallacy of home ownership is David Crook’s The Wall Street Journal:Complete Home Owner’s GuideBook: Make the Most of Your Biggest Asset in Any Market

I am looking forward to hearing your thoughts on the matter.

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{ 14 comments… read them below or add one }

1 MoneyCone February 10, 2011 at 8:14 am

Excellent post BP! Hits home hard since we are in the exact same situation!

I realized the whole process is a game of ego between the buyer and the seller! I think our seller is mental. He would rather pay heating and taxes on an empty house than come down a even a bit on his price. Meanwhile we lost out on a good rate. Now the seller is stuck up on a few hundred…yeah hundred dollars to fix what’s broken from the inspection report!

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2 Mr. Broke Professional February 10, 2011 at 8:35 am

Sorry to hear your having the same types of issues, because it really stinks. Is this your first home? What drives me nuts is when (either) party will kill a deal over some small sum of money like $500.00. Another thing that kills me is when a home is newly listed. You make a fair strong offer. And then the Seller freaks out, thinking that since you showed an interest so early on that maybe they shouldn’t have priced the home so low. As a final point, I have had at least five different sellers skoff at our offers and say they were “insulted,” only to 4-6 months later come back at us practically begging for us to take the home at the price we previously offered. It’s the same thing I say in my day job, if you get a fair settlement offer within a certain window, then take it to the bank. (A bird in hand)

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3 Evan February 10, 2011 at 10:31 am

First thing first, there is no such thing as beautiful New Jersey land.

I don’t think you should look at it as a $1,500 and months wasted, but rather $240,000 and YEARS saved. You dodged a bullet not because you made 6 mistakes but rather you made the single most important move correctly – you did your due dilligence.

How is that for a pick me up?

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4 Mr. Broke Professional February 10, 2011 at 10:45 am

Thanks for the pick me up. I agree that we definitely dodged a bullet. Where we live in New Jersey is actually really pretty. And I was not born in New Jersey so I don’t think I’m just being deluded!

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5 Philly area February 10, 2011 at 12:27 pm

We’ve been considering an investment property for a few years, so I watch the real estate market closely. Prices are going to continue to come down, however, I believe the interest rates will start going up so there’s a tradeoff. Here’s my advice – don’t buy a place unless you can get your total monthly payment at or beneath what you’re already paying in rent.

Buying our home is probably one of the few smart financial moves we made in the early years of our marriage when we were up to our eyeballs in debt. Our PMI payment was actually $200 less than what we’d been paying in rent.

Are you handy? If so, a fixer upper is the way to go. Buy the neighborhood, not the house. We did not use an agent, though we did have the contract looked over by a real estate attorney.

We put in offers on 3 different places, all within walking distance of our current home. We knew what we were willing to pay and walked away from the other two when they wanted more. It’s a buyer’s market right now (as it was back in 1996) and there are plenty of houses in the sea.

About 10 years ago, we added on a 3 story addition which more than doubled the size of our home. (Mostly cash, but also a 60k cash out refi). We could’ve completely cashed out by selling at that time and purchased something in a nearby grander neighborhood that would’ve left our kids in the same school. It also would’ve doubled or tripled our taxes. Staying put and keeping that payment low has been huge in helping us build wealth.

We now owe 130k on our home, which was exactly what we paid back in Feb of ’97.

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6 Mrs. BrokeProfessional February 10, 2011 at 2:27 pm

It sounds like you have made some great decisions over the years that have set you up in a great neighborhood. I will argue that it’s NOT in fact a “buyer’s market” as I so often hear. I feel our experience in particular reflects the situation where we encountered so many homeowners stuck on a price. By that I mean, they overpaid at the height of the bubble and now owed so much money that they were clinging to unrealistic home prices. At that point, it became difficult to negotiate because they truly believed their home to be worth what they paid for it around 2003, which is now not the case. As Mr. BP said, we couldn’t pay for their mistakes (even if we wanted to, no bank was going to approve a mortgage at that price). So in the end I argue it’s not a buyer’s market in that we continuously encountered seller’s unwilling to see the true picture.

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7 Philly area February 10, 2011 at 7:25 pm

Hang in there. There are two empty homes in our neighborhood. Owners own outright. Both moved permanently to their homes in Florida. They each need to come down about 50k on their list prices. Eventually, these folks are going to get tired of paying taxes, minimal utilities, and lawn (and snow!) maintenance and will take a lowball offer. Neither has had a single offer.

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8 Squirrelers February 10, 2011 at 1:57 pm

First off, in response to the opening of the post, I feel the need to defend the honor of Squirrels everywere!

No, not really. But I got a kick out the line that Mrs. BP apparently blurted out.

On to the post – you guys dodged a bullet. Based on what you detailed here, you’ve learned some really good lessons. That’s the thing, it takes first hand experience to learn these lessons, so you’re actually in a much better place now than you were prior to having this experience. The $1,500 or whatever you lost was probably not all lost, considering you paid for this experience that will help you avoid a bigger mistake in the future. That’s how I would look at it.

Choosing the right realtor, and considering all factors – including time on the market – are important steps to take. I have had experience buying/selling homes (not as agent but as a homeowner), and I can tell you that all information should be considered. People unfortunately mask problems, so it’s good to keep a very skeptical eye on things. I’ve heard of some good stories, and as I type this, the idea for a potential post has entered my mind:)

To close, a good realtor can be quite helpful for a buyer, though moreso for a seller in my view. I’ve experienced it first hand.

Anyway, good post and thorough assessment of your experiences and lessons learned.

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9 Mr. Broke Professional February 10, 2011 at 3:05 pm

Just be thankful we didn’t link to your site with that squirrel story (j/k). We should follow their personal finance decisions but not the hours they keep, in my opinion. By the way, never feel bad for voting against Mrs. BP. Ever. I need any support I can get, particularly with 101 Centavos voting against me all three times. I may have to cut him a check soon.

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10 Nicole February 10, 2011 at 3:02 pm

Wow, what a lucky dodge!

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11 101 Centavos February 10, 2011 at 9:22 pm

Great post BP! $1,500 is a lot cheaper than a new septic system. I agree that homes are not a surefire investment, but merely shelter. Whether it pays to own or rent is all locational. And sorry about the votes, but it is what it is.

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12 Mr. Broke Professional February 10, 2011 at 10:09 pm

lol I respect that you call them how you see them. I think people tend to underestimate how local real estate is, like as you mentioned. I know I use to.

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13 Kellen February 24, 2011 at 3:16 pm

I am in the process of trying to buy a home myself, and it’s far more complicated than I ever realized. Halfway through making offers on a house, I realized that my total monthly payment to the mortgage company was about $300 more than I had been calculating because taxes are so high – my mortgage lender had sent my fees breakdown to my buyers agent, but never thought to send me a copy!

Also, the seller we are trying to buy from is incredibly unresponsive, and tried to negotiate us up above list price! (Now he’s increased his list price, so I guess he can pull that price on someone more legitimately now.)

It’s a process with a steep learning curve, plus something most people don’t do very many times in their lives. Thank you for sharing your lessons, because it’s one less thing I need to learn through my own mistakes!

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14 Mr. Broke Professional February 24, 2011 at 7:28 pm

Kellen,

The home purchase is really complicated to me, although it has gotten easier since this is technically our second time through. I hate how many people you have to go through to get things done. I always felt like if you just put us and the seller in a room we could work things out in just a few minutes. The other thing is, if you make a bad decision, it can really hurt your financial future, so there is a lot riding on it. Best of luck on your home purchase as well.

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