Freakonomics on Buying a Home

I made note of these two interesting points when I read the original Freakonomics a few years ago, to remember whenever buying and selling a home. They are from pages 7-9 and 71-76.

1. On Incentives

Incentives not aligned between seller and real estate agent—if the agent sells your house for $10,000 less, they lose only $150 in commission, while you lose $10,000. Thus, the incentives create a motivation for quick sales, and $150 or so is a small price to pay.

2. On Code Words

Real-estate agent code: Descriptive words (granite, state-of-the-art, corian, maple gourmet) mean it is a good house, and are associated with a higher selling price and used by agents when selling their own homes. Empty adjectives (fantastic, spacious, charming, great neighborhood, !) are code for “not much worth describing.”

  1. Fantastic and charming = not much worth describing
  2. Spacious = impractical
  3. Great neighborhood = this house not that great, but there are nice ones around
  4. ! = real shortcomings
  5. Granite, gourmet, corian, etc. are specific and straightforward. If you like granite, you might like the house; but even if you don’t, granite certainly doesn’t connote a fixer-upper.
November 13, 2009 | Filed Under Society | 3 Comments 

Comments

  • http://theincarnate.blogspot.com Matt Stephens

    What, in your opinion, is the best, reasonably short book on home buying & selling? We’re getting ready in the next 6-8 months to start looking. We’ve done it twice before, but will be buying in a brand new area this time.

  • Matt

    Matt,

    Interestingly, although I’ve had to buy and sell two homes in the last two years, I haven’t read any books on the subject. That’s not my normal approach! A friend of mine did read Home Buying for Dummies, though, and that could be worth checking out.

    But, we had a fantastic realtor who helped make up for this by educating us really well. When it comes to selling, here are some of the main points he made:

    1. Price is the magic bullet. Even in a horrible market, every home will sell at some price. You might not like the price this is, but this is the magic bullet if you need one.
    2. Price it correctly right from the start. In other words, don’t start higher than you think is realistic just to “see,” because it’s when the house is a new listing that it gets the greatest attention. So price it right, right away.
    3. Make the low-cost, high-impact upgrades. This is usually a few things: First, consistent light fixtures. Go with what is current, which at least two years ago for us meant brushed nickle. We changed all of our light fixtures to this when we sold our first house. It gave it an updated look, a consistency, and didn’t cost a ton. Then, we bought stainless steel appliances. It was not fun to buy new appliances for the next people, but in a competitive market this really made the kitchen sharp.
    4. Stage well. This means as empty as possible. Take non-essential stuff to storage even. Get the rooms as clear as possible, get everything off the kitchen counters that you can, etc. When the rooms look lean and uncluttered, the person can more easily envision it working for them.

    The result of these practices is that our home sold in one week in the fall of 2007, even in a really bad market. The second home that we sold we couldn’t afford to price as effectively, because we had to move so quickly, so it took longer.

    When it comes to buying, I have a few principles:

    1. Prioritize neighborhood over house. The actual house is secondary to me. My first priority is a neighborhood where our kids will have other kids their age around and where my wife will have other moms that she can get to know. I will take a smaller house (or pay more) for this, as opposed to a house that is exactly what we want but off by itself or in a neighborhood where younger families don’t live any more. This is because we place priority on being able to interact with our neighbors (at all levels, so including the kids). We also really value being able to be involved in the community, so we want to choose a community where we will want to be a part of the schools and etc.

    That’s actually our main principle. That, and trying not to buy a house that is going to take up very much of our time or expense in regard to routine improvements, or require too many upgrades to make it suitable. These are personal preferences and not something everyone would necessarily prioritize in the same way, of course.

    I guess there would be one more principle: when making an offer in this market, you can get a good deal of course, but you can increase your ability to do this if you come with objective reasons why you have put your offer at the level that you did. For example, if the list price is XYZ, and you offer XYZ – $20,000, you are more likely to convince them if you can say “well, we’ll need to get new carpet because the current carpet is at it’s end, and that will cost X. We will need to create a drainage solution the backyard, due to the really poor drainage, which will cost X; and etc. And similar houses to this one are selling for something closer to what we are offering.” By giving objective reasons, rather than just making the offer, you increase your chances of being persuasive, because often times the sellers aren’t able to see the obvious, namely that they’ve over priced the house, until 4 weeks later after they already rejected your offer and you’ve moved on. We didn’t actually do this–we learned about it after–but it definitely would have helped.

  • http://theincarnate.blogspot.com Matt Stephens

    Thanks, Matt. Those are helpful. I’ll have to get a copy of the book you mentioned. I’m trying to think through real estate from an investment standpoint: how to know whether to buy or rent at a given time in a given place, how to get the most bang for your buck, how to anticipate the future market, short-term vs. long-term real estate investment, etc.