I’m a realtor now!
This may be a surprise to many of you so allow me to share my story.
WHY am I doing this?
Over the past 7 years I have had several home purchasing experiences, both for my current home and for investment. After seeing how my past purchases have turned out and recalling my experience with each real estate agent, I started pondering how each purchasing decision would have changed had I chosen someone else. Once I compared a dozen agents side by side, their strengths and weaknesses became apparent and that’s when a light bulb flashed:
What if I take the best from each of them to help those in my sphere of influence so they don’t make the same mistakes I did?.
Real estate purchase is usually one of the biggest purchases we ever make and the experience can be extremely stressful. Below are some lessons learned that I’d like to share with you.
Look at the Big Picture
Back in 2018 when I purchased my current home in the bay area, I was not really in tune with macro economics news and FOMC decisions. The real estate market was red hot and many buyers joined the bidding war frenzy. The continued rate hike in 2018 soon cooled the market; many homes in my zip code corrected by 15% to 20% and did not recover until the COVID black swan event happened. Yep, I was one of the overbidding buyers and I paid the price for not fully understanding where we were in the economic cycle, as well as not reviewing other key real estate metrics like inventory and DOM in more details with my agent.
I don’t believe in timing the market and catching the bottom, but I believe home buyers should understand where they are in the economic cycle and the monetary policies.
Fast forward 4 years to 2022, we’re in a similar situation with many rate hikes expected for the years to come. With everything happening this year, it’s worth the time to think about the second order effects of rate hikes, inflationary pressure, and the fact that the nation is in a housing supply shortage.
Avoid Confirmation Bias
Have you ever had an emotional connection with something, like a car or a dress, that you find yourself justifying all the reasons to pull out your credit card and choosing to neglect unfavorable details? That’s the textbook definition of confirmation bias. Our confirmation bias was the pretty backyard and proximity to a park. While a home purchase definitely involves emotional connection, it’s critical to have someone neutral to reality check you so you can make an honest decision. Some agents don’t do that often enough unfortunately.
Understand the Growth Drivers
I’m sure you have heard of the saying “Location, Location, Location”. Obviously a good location is usually synonymous to faster growth; however, the downside protection (both % drop and time to recovery) of a good location can be easily overlooked. If your home value drops by 20%, how much does it need to go up to breakeven? IT’S NOT 20%! Understanding the growth driver and the relative performance of neighboring zip codes goes a long way to trade off home size vs. location. Had I understood the bay area growth drivers and seen the historical stats, my home purchase decision back in 2018 would have been very different.
Hit me up if you would like to hear more details about these topics or bounce ideas.
Another post on bay area locations and their performance is coming soon. Stay tuned!