Buying Without An Agent - My Own Experience

I had the idea for this article some time ago. It took me a long time to decide to share it publicly, because quite frankly, knowing what I know now, I was an idiot. I was still young enough to think I knew more than I did. Now that I've learned a lot more, I still don't know what I thought I knew then, but I'm getting closer. When I repeat transactions of this nature now, I don't repeat these completely boneheaded mistakes.

The year was 1990, and I was still working for the federal government in my first career, air traffic control. Controllers are not your most humble of people, and for better reasons than most. Most days, I could go home secure in the knowledge that without me there, a couple of airplanes would have crashed together, and even if everyone walked away from it, however unlikely that was, there would have been anywhere from a couple hundred thousand dollars in damage to millions. But, as you're about to see, this has nothing to do with competence in real estate.

Before I go any further, let me tell you that things could have been much worse than they ended up being. I understood a lot of things about real estate and finance, even then. Even then, I knew enough to know how simply full of excrement most of the people claiming do it yourself real estate was the way to go were. Ignorant. Guilty of wishful thinking. Neglecting terms in mathematical equations. Just plain wrong.

I simply thought I was better than that. At the time, I thought I did pretty well. But in retrospect, boy did I get taught a lesson by a pro.

Let me tell you what the problems weren't. It wasn't that I didn't understand how to check out a property. I grew up a contractor's son. From the time I was old enough to wield a paintbrush with a modicum of control, I was helping my dad on his projects. Some of my earliest memories are of helping my dad mix and pour concrete. You name the project, I've pretty much done it. I learned how to spot construction defects, problems, and things that needed to be fixed before I figured out that girls didn't have cooties. I have an excellent idea of what's involved in fixing most of them, much better than you get by watching any of those home repair or decorating programs. Furthermore, I had my dad with me to help me spot potential problems.

I did pretty darned good on the loan. Through both intentional and accidental learning (i.e. formal classes and having friends and co-workers older than I was, and listening to the problems they had had), I had a pretty good understanding of the pitfalls there. I knew what the options to compare were, and I knew why a 5/1 ARM is better than even a 7 year balloon, and how both compare to 30 and 15 year fixed rate loans. Through the financial markets, I understood that there was a tradeoff between rate and cost. I could have maybe shopped it a bit more, and probably should have taken a less expensive loan, but the higher cost for the lower rate worked out in my case.

(Amazing that for all the "do it yourself without an agent" advocates out there, I've never encountered a single person encouraging you to be your own loan broker, despite the fact that I can get a newly licensed person up to speed on common loans a lot more quickly and easily than I can teach them the rest of what they need to know to act as an agent)

My problems wasn't location, or lack of knowledge of the area. I bought less than three miles from my mom's house, about four from my dad's. I had been on that street at least dozens of times prior to buying that property. I knew the area cold, and I love the area even today.

It wasn't a failure to shop, or not knowing what would do well upon resale. I did my homework, and looked at a dozen properties before I made my offer. It certainly wasn't failing to do research, on the internet or elsewhere. I read several books that are still well-regarded today. Yes, this was before the World Wide Web, but newsgroups and forums existed back then, and were easy to access, and I always had a good internet connection. It's become easier to use the internet since then, but the signal to noise ratio has gotten considerably worse. Not that it was stellar in the first place, but I find more spectacularly wrong "information" out there now with an agenda of selling some thing or idea in particular, than I did then. At least in the newsgroups, you could always count upon having opposing points of view. Just surfing the world wide web, you're at the mercy of the publisher of that particular website if you don't know any better.

Now here's what the problem was: My ignorance. Ignorance of the market, ignorance of procedures, ignorance of what everything meant and the implications thereof.

Let's be honest. It could have been much worse than it was, even with everything else covered.

What I was paying attention to was asking price, not comparable sales. Furthermore, since I hadn't been in any of those comparable sales, I didn't have the basis for a valid comparison and pricing. That listing agent did. Furthermore, the local real estate market at that time was getting ready to fall, much like things were in much of 2006. Sellers were just starting to realize things were not likely to fall their way in the future. A good first offer would have been $10,000 less than I offered, then negotiate hard, and settle on maybe $8000 less than I actually paid. Considering prices were much lower then (still under $100,000!), I overpaid by about 10%, and there were enough properties on the market, and few enough buyers, that if they hadn't been willing to negotiate, I could have walked away and found something just as good for about that price in the exact same area.

It gets worse. Because I didn't know what local procedures were, I ended up paying just under $3000, more than a buyer's agent would have made, in various fees that were really the seller's responsibility. Not to mention using the wrong escrow and title company.

All told, my ignorance cost me somewhere between ten and fourteen thousand dollars, out of a purchase price significantly under $100,000, and it could have been much worse. There were no issues with title of construction defects or anything else. This meant ten to fourteen thousand dollars more to pay interest on. Rates then were higher than most people have since become accustomed to (The seller was proud of the fact they had an assumable loan at 10%). I can do a better loan cheaper today on a thirty year fixed rate basis than was available on a 5/1 ARM back then. On top of that, it made the difference between not needing PMI on my loan and PMI being required, at about $80 per month in addition to the extra interest. PMI used to be much more expensive than it is now, also, and the whole piggyback loan thing was not yet a real option.

Lest you not understand, the listing agent was doing nothing other than her job with all of this. She was responsible for getting the best possible deal for her seller. If a sucker swam into the net, so much the better. I understand this now. I didn't then.

One more thing that may not be clear to the average reader: Most real estate transactions doesn't get dissected like this, in retrospect by someone who is now a trained professional with lessons to learn from it. Most people never realize how much they've been taken for, and I did a lot of things right that most people working on their own behalf don't.

Why did I make this mistake? I was in, "I don't want to deal with sales people!" mode, even though that's precisely what I was doing, and even if it had been "For Sale By Owner," that doesn't magically change the fact that the person who wants to sell it has become a sales person by that act. I was so focused on "not wasting money with a commission," that I rationalized doing one of the biggest transactions of my life without expert help. Even if I had ended up paying the buyer's agent commission out of my own pocket (I wouldn't have) that would have been at most a quarter of what not having one cost me, and it could have been much worse. Even so, I rationalized my way into completely wasting four to five times the amount I would have spent. The difference between 99 percent of the "do it yourself" crowd out there and me, is that I have subsequently looked at what happened with more experienced and educated eyes, even though what I have now learned makes me want to hide my face in embarrassment.

I could pretend it came out better than it did. This was before I was married, and the only person who was hurt by this was me, and my wife wasn't there, so she doesn't know enough to keep reminding me about what a loser I was (not that she would). But that wouldn't help me not to make the same mistake again. I can have my ego and false illusion of invincibility, of thinking "I'm da MAN!", or I can face my mistakes, learn from what I did wrong, and not make those same mistakes again. I know which bodes better for my financial future, and that of my family. I've decided I can take the ego hit more easily than I can take repeating the same mistakes next time, let alone for one of my clients. I've since acquired one of the most valuable skills anyone can have: The ability to assess when you're beyond your level of competence. I've done a lot of loans since then, and a not insignificant number of real estate transactions, and I keep learning new things with most of them. The largest difference between me, now, and me, then, is that I've learned a lot more about the problems with believing you know something that is not, in fact, true, and how to investigate and research and just plain ask other professionals who have previously dealt with a given issue. This knowledge and experience and skill doesn't come at a price most people consider "cheap". But it will save most likely save you several times what it costs. Offer most people the choice between spending a flat $1000 or a ninety percent probability of being forced to spend between $4000 to $5000, and the rational, logical choice is obvious. It's the cheapest insurance you will ever buy, in terms of real cost to expected benefit - you're getting several times the expected value in return. Now consider that with property values several times higher than that now, the amounts at stake locally are ten times that or more.

Caveat Emptor