We’ve gotten to the point that our Real Estate value is on the order of 10% of our net worth with our investments being roughly the remaining 90%, minus a little in cash-flow accounts and home inventory.
So, if the stock market goes down around 11%, we’ve lost approximately a house, give or take a little. Alternatively, if the market goes up by 11%, we’ve increased our net worth by roughly a house.
When the stock market fluctuates by 10% or so, I don’t get very bent out of shape. I just accept it that that is the way the stock market is. And yet, I get anxious about getting the house ready for sale and in making sure we price it appropriately to get a good return. The same thing on buying a new place and trying to get the best deal. I guess Real Estate just seems more “Real”. Perhaps also that we do real estate transactions much less frequently than stock investment transactions. But, I guess I have to consider, does a few thousand or even $20k difference on a house really matter all that much to us anymore. Our investment portfolio can fluctuate that much (and sometimes does) in a month, a week or even a day.
We intended to make an offer on a place this morning. We were a day too late on a townhouse that had been on the market for 3 days. Sometimes you’ve got to be quick and decisive. We dithered a bit on what our bid would be. Maybe best to aim high the next time we get a chance.
Perhaps also that we do real estate transactions much less frequently than stock investment transactions.
Stocks are liquid, houses aren’t.
You can liquidate your entire portfolio with one click. A house, not so much. Also, when you buy a stock and realize a month later that you made a mistake you can sell it. Again, a house is more difficult.
Maybe the biggest difference is that within retirement accounts there’s zero transaction costs. You can buy and sell all day long and pay $0. When selling a house you’re going to pay 6% or so. That’s $30,000 on a $500,000 house.
When selling a house you’re going to pay 6% or so. That’s $30,000 on a $500,000 house.
And I guess what I’m saying is that even that $30k (more like $18k for us) is no longer all that much money in the grand scheme of things. Things can change, but I don’t anticipate making another move for 10 years or so (We’ve been in the current house for 26 years) at which point the closing costs & sales commissions on this trade will be like a rounding error.
6% x 10% = 0.6% of net worth for real estate transaction costs.
And I guess what I’m saying is that even that $30k (more like $18k for us) is no longer all that much money in the grand scheme of things.
OK.
And?
$2 is even less consequential in the grand scheme of things. And yet when I’m buying cereal at the store I still compare the price per ounce and (usually) buy the store brand cereal which is only ~$2 cheaper. And sure the stock market might make me $200 richer or poorer in the few seconds that I spend grabbing that box off the shelf. But that doesn’t mean I am going to change my behavior and get less value for what I have.
Maybe best to aim high the next time we get a chance.
I would suggest starting below your top number, but using an escalation clause up to your max. And your escalations should be in increments that are meaningful compared to the price of the property. So if you’re purchasing a $400k property, escalations should probably be in a minimum of $4,000 increments, or 1% of the property price.
OP: {{{Maybe best to aim high the next time we get a chance.}}}
“I would suggest starting below your top number, but using an escalation clause up to your max. And your escalations should be in increments that are meaningful compared to the price of the property. So if you’re purchasing a $400k property, escalations should probably be in a minimum of $4,000 increments, or 1% of the property price.”
aj already mentioned, but I would explicitly repeat that if you do use an escalator clause be very sure to include a maximum price/cap and consider what you will if you cannot finance as much as you intend to finance if the winning price is higher than your lender’s appraised value because if the market is that hot I imagine that many (most?) offers are written without a financing contingency and possibly without an inspection contingency, too.
Moving twice can be a PITA but being over-extended on a real estate deal can be a very uncomfortable position.
My original post wasn’t so much about ignoring the price, but about not obsessing over it and getting anxious about it. Gotta watch out for my mental health and it helps to change my perspective. With respect to the money involved, we are not talking about amounts that are likely to affect our standard of living one way or another. That’s a good thing. Enough anxieties can potentially creep into these large decisions without money having to be one of them anymore.
$2 is even less consequential in the grand scheme of things. And yet when I’m buying cereal at the store I still compare the price per ounce and (usually) buy the store brand cereal which is only ~$2 cheaper. And sure the stock market might make me $200 richer or poorer in the few seconds that I spend grabbing that box off the shelf. But that doesn’t mean I am going to change my behavior and get less value for what I have.
Yeah, I do that too. Well, sometimes. But, there’s no danger of my getting anxious about the price of a box of cereal. At least I hope not.
On the other hand…
“Watch the pennies and the dollars will take care of themselves.” - B. Franklin
I would suggest starting below your top number, but using an escalation clause up to your max.
I can’t say I’ve heard much about escalation clauses. When I bought my house in 2020 the listing came out on Monday, I saw it on Tuesday, Thursday I put in an offer for the full asking price ($365k). On Friday I was told there were three offers and I’d better make sure mine was at my limit; I raised it by $20k to $385k. I never worked out the % before, but it was a 5.5% raise. I was told that there was a lower cash offer behind mind that the seller (a relocation company in Florida) was inclined to take. They were worried the house wouldn’t assess high enough for my intended 20%-down mortgage; I told them if that happened I would simply increase the down payment to make up the difference. For what (little) it is worth the current Zestimate is $490k.
I can’t say I’ve heard much about escalation clauses.
I first heard about them in 2002, when I was buying in a crazy multiple offer, going pending 3 hours after listing type of market in Reno, NV. The clause typically says that your offer will be a minimum of $x, but if there are offers that are the same price or higher, you will offer some increment over that offer’s price, up to a max of $y. The seller needs to be able provide proof of the other offers if asked. When you get competing escalations clauses, they will escalate against each other until one offer is an increment above the other offer’s max price.
I used it another time, when I knew I was going to be in competition (after a >10% price drop because the house had been on the market for 9 months), and it got me the house for $2k over the lower list price. Even though the other offerors knew there were competing offers, they apparently didn’t include escalation clauses.
I was told that there was a lower cash offer behind mind that the seller (a relocation company in Florida) was inclined to take. They were worried the house wouldn’t assess high enough for my intended 20%-down mortgage; I told them if that happened I would simply increase the down payment to make up the difference. For what (little) it is worth the current Zestimate is $490k.
In the hot markets I’ve seen, most sellers who had appraisal concerns like this would want you to show proof of funds to be able to increase your down payment and/or require you to drop any appraisal/financing contingencies before your offer would have been accepted.
In the hot markets I’ve seen, most sellers who had appraisal concerns like this would want you to show proof of funds to be able to increase your down payment and/or require you to drop any appraisal/financing contingencies before your offer would have been accepted.
Absolutely. When I saw the new listing on Monday, and called my realtor, she immediately connected me with the mortgage guy in her office. I provided him with a heap of info, including my IRA and ROTH balances, which were sufficient to pay cash several times over. He certified that I could get a mortgage that night, he must have been working overtime. So my realtor could assure the seller’s realtor I was in good shape before I saw the place. (That was July 2000. I went with a 30 year mortgage through the same guy at 1.9%.)
(Side note on the mortgage. It was immediately sold to another company, PHH, with which I am not at all impressed. For example, email about my mortgage comes from a different company name with no mention of PHH. Likewise, email arrives telling me there is new information about my mortgage at their web site (not PHH site). When I get on I don’t see anything particularly new. I contact them asking them what new information the notice referred to. They don’t know either.)
Thanks for the information on the escalation clause. That was something that I was previously unaware of, but that our realtor also suggested, without any prompting. We put in an offer yesterday with an escalation clause, and though we were competing with 2 others, our bid was accepted, actually at the low bid that we made, so we saved more than a few bucks.
Lots to do to complete the transaction and get things moving on our current place.
I’m glad that this board survived the purge and that I was able to bounce some thoughts off people and receive some good information and ideas.