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Christine Baker



Common Real Estate Purchase Mistakes

These true stories contain SOME of the most common mistakes buyers make:

Buying the largest/nicest/overimproved property in the neighborhood for substantially more than the average sales price and buying just to "get it over with."

Young family buys nicest house in the neighborhood in spite of appraisal problems-- Loss: $20K

First-time buyers purchase over-improved property --
Loss in less than a year: $20K+

Young family buys nicest house in the neighborhood in spite of appraisal problems -- Loss: $20K

In summer 1993 I brokered a loan for first-time buyers in San Jose.

They were referred to me by former clients and worked with a real estate agent "team" in San Jose. They fell in love with this beautiful home, the most expensive house in the neighborhood. The appraiser had a tough time finding comps to substantiate the sales price.

I advised my clients not to buy or to re-negotiate.

Now, I was "only" the loan broker. The buyers consulted with me more than with their agents, who were rather incompetent. The buyers wanted the house. The lender's appraisal review required two additional comps.

Most buyers don't understand that an appraisal is very subjective.

It's an art, not a science.

As loan broker I have received countless calls from appraisers asking me if I "have" to have the property appraised at the sales price. Your average loan broker will NEVER kill a deal, never tell a borrower that they are paying too much, that there are potential problems in the neighborhood, etc. Many loan brokers as well as bank loan officers get most of their business from real estate agents and builders.

If a loan broker was to tell a buyer anything negative about a property and the agent found out, he or she wouldn't get another referral from that agent.

It is SO important to understand how this business works. One hand washes the other. Often federal laws prohibiting kickbacks for loan referrals are ignored.

Every marketing seminar includes "partnerships" between real estate and loan agents.

They will compliment each other in front of buyers/borrowers, they'll put on this great show. And it works.

Anyway, let's get back to our buyers in San Jose.

They bought the house.

An important factor was that they were frustrated due to the tremendous amount of problems with their "agent team."

The agents were not very good at returning calls and often had no answers to the buyers' questions.

I still remember when the buyer called me, VERY upset because he thought they didn't have enough cash to close.

The agent had quoted $2,000 for fire insurance.

Usually the premium ran around $300 to $400. Since I wasn't familiar with the area I was also worried that maybe we needed flood insurance or some special circumstances applied. Eventually we got insurance for only a few hundred dollars.

Apparently the agent just didn't have a clue.

At a certain point buyers as well as sellers just want to "get it over with."

That's what agents count on and that is why so many buyers just try to close no matter what. There are literally thousands of houses for sale every year just in San Mateo County. Often buyers act as if they're trying to purchase the last house on the planet.

My clients called me in early1995 to order a new credit report to ensure that there were no problems.

They were moving to Texas, had an offer pending and were going to take a $20,000 loss.

A great way to lose equity is buying the most expensive house in the neighborhood or a new home.

I know, the models look great! But it's just like buying a new car. Drive it off the lot, and you IMMEDIATELY lost several thousand dollars. Ever try to sell a "used" house in an area with ongoing new construction?

In the 90's, all my clients who bought new homes in the East Bay and later sold LOST money. Read in the BayHouse Forum the discussion on new homes.

First-time buyers purchase over-improved property
Loss: $20K+ in less than a year

In 1990 I spent a lot of time working with a young couple.

They had 10% down and were looking in the $300,000 range. We wrote up several offers, always asking for a seller second as they couldn't otherwise qualify for the loan. None of the sellers agreed to finance.

Eventually they found a FSBO (For Sale By Owner) in San Bruno near Skyline College with an asking price of $349,000. If you are familiar with that area, you know that it was way overpriced.

I advised my clients not to buy the most expensive house in the neighborhood.

The prevailing sales were around $260K to $270K in that area at the time. "Their" house was by far the largest and nicest house. My clients really had to have that house.

The sellers listed the house and we submitted an offer, but the sellers refused to finance.

I quote from my fax to the listing agent dated Nov. 1, 1990 "The buyers would only want to pay $275K with the sellers' terms."

I recommended that my clients let the property sit for a while.

We agreed to take a break from the home search until January. I thought the sellers would be more realistic by that time and we could try again then.

A couple of weeks later the property had a sale pending. I was stunned. Who would purchase that overpriced house?

In January my clients had some excuses why they wanted to wait for a while. I thought that was odd and after the sale closed, I checked the public records.

Sure enough, my clients owned that house.

I ordered a property profile and just couldn't believe my eyes. They had purchased the house for over $295K. The brokers had carried a second loan jointly with the sellers and they got a World Savings ARM.

Half a year later the property was back on the market. I have no clue why they were selling, but it could have been my curse.  I had sent them a postcard "I hope you'll enjoy your new home as much as I enjoyed working with you." Needless to say, I don't enjoy working literally hundreds of hours without getting paid.

There seem to be several lessons in this true story.

The house eventually sold in the $270s and according to the MLS, commission was offered to the buyer's agent.

My most conservative estimate is that they lost at least $20,000, but more likely $30,000+ in less than a year.

Young family buys nicest house in the neighborhood in spite of appraisal problems-- Loss: $20K

First-time buyers purchase over-improved property --
Loss in less than a year: $20K+


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