3 ms·

These are fair points. I've met Patrick in person and used to follow patrick.net a while ago (>4 years ago), but the discussion threads appear to have gone down

by declan 12y ago

These are fair points. I've met Patrick in person and used to follow patrick.net a while ago (>4 years ago), but the discussion threads appear to have gone downhill a bit. But as someone else pointed out, there are some FAQs there that provide a useful counter to the conventional wisdom. Also it looks like Patrick now has a book out you can buy on Amazon.com: http://www.amazon.com/Housing-Trap-Buyers-Captured-Yourself/dp/1479156213/?tag=patricknet-20 http://www.amazon.com/Housing-Trap-Buyers-Captured-Yourself/... Put another way, even if there's an 0.9 probability that the advice there is wrong, buying a house is nevertheless the most significant purchase of your life for most people. It's also a very illiquid purchase, meaning it's difficult to sell and you need it to appreciate ~7% just to make back what you paid (that's because of Realtor(tm) commissions). You owe it to yourself to seek out a different opinion even if there's only a 0.1 probability it's accurate. Edit with an addendum: My goal is not necessarily to get people to avoid Realtors(tm). This is not yet possible given the state of the market; I made some effort in that direction and was unsuccessful when I bought a single-family home on the SF peninsula. Instead, it's to get folks to realize that especially in coastal markets, they are likely not worth it, have minimal mandated training, and do not necessarily have your best interests in mind. In the long run, what I'd like to do is encourage HN readers to come up with ways to make real estate transactions more efficient. Some Realtors(tm) with deep knowledge will probably stay in the industry; most others will end up doing something more productive with their lives.

burntsushi 12y ago
You make a good point. The site is off putting, but it's worth it to spend a little time investigating. I'll check out the link that huherto gave me and maybe take a look at the book. > It's also a very illiquid purchase, meaning it's difficult to sell and you need it to appreciate ~7% just to make back what you paid (that's because of Realtor(tm) commissions). Indeed. Realtor commissions are a huge drag. I do somewhat skip over the part about the importance of a house appreciating in value because I'm not purchasing a house as an investment in which the primary goal is to make money. It's a purchase of a good whose main value to me is its utility as a domicile. A secondary goal is for it to benefit me financially. I acknowledge that this may be an uneducated opinion, but I definitely know what a house means to me, and its financial value isn't terribly high on that list. Perhaps that will change as I learn more over the coming years. (I'm considering building a house too. I get the feeling it would be financially better to start smaller, and then incrementally add to the house as we accrue the necessary capital to do it. I very much intend for my first house to be my primary residence for at least a couple decades.)
- declan 12y ago
  >I'm considering building a house too. I get the feeling it would be financially better to start smaller, and then incrementally add to the house as we accrue the necessary capital to do it. I don't know anything about your personal financial situation, so this advice may be completely off-base. But perhaps buy a house that's unrenovated but structurally sound and then hire a contractor to renovate it to your specifications? At least if my experience a few years ago was any indication, you'll learn a tremendous amount about permits, appliances, electrical upgrades, fixtures, moulding, doors and windows, insulation, decks, landscaping, and how to manage a complex undertaking that's likely (depending on the size of the house and the geographic area) to run into the six figures and last at least half a year. Then, a few years later, you can hire an architect and do everything right the second time around. :) Also if you live in the SF bay area (and I know your profile says you're in Massachusetts), be warned that all the good land is already built on or unavailable for building or vacant and extremely expensive -- as in millions of dollars for just a lot in Portola Valley, Los Altos Hills, or Woodside. There was a discounted property for sale two blocks down from me a few years ago for only $800,000 (!). But there was an active landslide on the property and the town expressed some doubt about whether the owner actually had the legal authority under the deed to subdivide in the first place... So if you have a liquidity event, you can buy that 800 ft^2 shack in a great location in Palo Alto for $2M, tear it down, and spend another two years and $2M building a nice modern 3,500 ft^2 house (1,000 of that may have to be underground because, well, it's Palo Alto). Otherwise, well, New Hampshire is a nice place to live! :)
- DougWebb 12y ago
  If you're purchasing a house that you intend to stay in for a long time, reducing the cost of your mortgage as much as possible will save you far more money than the Realtor commissions will cost. The interest on a mortgage can easily double the cost of a home, and for the first ~third of the lifetime of the mortgage your monthly payments will be more interest than principal. You reduce the cost of a mortgage by making a larger down payment, especially if you pay more than 20% in cash. You also want to avoid 'points' (which are just more interest) and to get the lowest interest rate you can. (A very good credit score helps a lot.) If you go for a variable-rate mortgage, read the fine-print very carefully; you want to make sure that the rate can't go up more than a reasonably small amount or more often than a reasonably long period. You should also consider a lot of the non-purchase costs involved in home ownership. I wish the commissions had been the most significant expense I faced. Remodeling, repairs, improvements, decorating, re-decorating, and general maintenance added up to a large multiple of the commission I paid over ten years. And living in NJ, my property taxes have rising to nearly as much as my mortgage payments after a decade! I had never planned for any of that when considering what I could afford to buy.
dnr 12y ago
I bought a TIC in SF using Redfin as my agent. They rebate around half of their commission back to you (with a minimum for the amount they keep). It's not quite disrupting the industry, but maybe it's a start. Part of the way they keep their costs down is letting you do all the searching and scheduling of visits on their web site, so all the agent has to do is manage the process once you're ready to make an offer. Not that that's so easy: I had a few complications with mine, and I've heard much worse stories. My agent had just moved from the east coast, and I've lived in SF for several years, so I was more familiar with local market conditions than he was and I didn't get any value from that. But it was my first real estate purchase and I didn't know much about how the general process worked, so that was very useful to me.

by declan 12y ago

burntsushi 12y ago

You make a good point. The site is off putting, but it's worth it to spend a little time investigating. I'll check out the link that huherto gave me and maybe take a look at the book. > It's also a very illiquid purchase, meaning it's difficult to sell and you need it to appreciate ~7% just to make back what you paid (that's because of Realtor(tm) commissions). Indeed. Realtor commissions are a huge drag. I do somewhat skip over the part about the importance of a house appreciating in value because I'm not purchasing a house as an investment in which the primary goal is to make money. It's a purchase of a good whose main value to me is its utility as a domicile. A secondary goal is for it to benefit me financially. I acknowledge that this may be an uneducated opinion, but I definitely know what a house means to me, and its financial value isn't terribly high on that list. Perhaps that will change as I learn more over the coming years. (I'm considering building a house too. I get the feeling it would be financially better to start smaller, and then incrementally add to the house as we accrue the necessary capital to do it. I very much intend for my first house to be my primary residence for at least a couple decades.)

declan 12y ago
>I'm considering building a house too. I get the feeling it would be financially better to start smaller, and then incrementally add to the house as we accrue the necessary capital to do it. I don't know anything about your personal financial situation, so this advice may be completely off-base. But perhaps buy a house that's unrenovated but structurally sound and then hire a contractor to renovate it to your specifications? At least if my experience a few years ago was any indication, you'll learn a tremendous amount about permits, appliances, electrical upgrades, fixtures, moulding, doors and windows, insulation, decks, landscaping, and how to manage a complex undertaking that's likely (depending on the size of the house and the geographic area) to run into the six figures and last at least half a year. Then, a few years later, you can hire an architect and do everything right the second time around. :) Also if you live in the SF bay area (and I know your profile says you're in Massachusetts), be warned that all the good land is already built on or unavailable for building or vacant and extremely expensive -- as in millions of dollars for just a lot in Portola Valley, Los Altos Hills, or Woodside. There was a discounted property for sale two blocks down from me a few years ago for only $800,000 (!). But there was an active landslide on the property and the town expressed some doubt about whether the owner actually had the legal authority under the deed to subdivide in the first place... So if you have a liquidity event, you can buy that 800 ft^2 shack in a great location in Palo Alto for $2M, tear it down, and spend another two years and $2M building a nice modern 3,500 ft^2 house (1,000 of that may have to be underground because, well, it's Palo Alto). Otherwise, well, New Hampshire is a nice place to live! :)
DougWebb 12y ago
If you're purchasing a house that you intend to stay in for a long time, reducing the cost of your mortgage as much as possible will save you far more money than the Realtor commissions will cost. The interest on a mortgage can easily double the cost of a home, and for the first ~third of the lifetime of the mortgage your monthly payments will be more interest than principal. You reduce the cost of a mortgage by making a larger down payment, especially if you pay more than 20% in cash. You also want to avoid 'points' (which are just more interest) and to get the lowest interest rate you can. (A very good credit score helps a lot.) If you go for a variable-rate mortgage, read the fine-print very carefully; you want to make sure that the rate can't go up more than a reasonably small amount or more often than a reasonably long period. You should also consider a lot of the non-purchase costs involved in home ownership. I wish the commissions had been the most significant expense I faced. Remodeling, repairs, improvements, decorating, re-decorating, and general maintenance added up to a large multiple of the commission I paid over ten years. And living in NJ, my property taxes have rising to nearly as much as my mortgage payments after a decade! I had never planned for any of that when considering what I could afford to buy.

dnr 12y ago

I bought a TIC in SF using Redfin as my agent. They rebate around half of their commission back to you (with a minimum for the amount they keep). It's not quite disrupting the industry, but maybe it's a start. Part of the way they keep their costs down is letting you do all the searching and scheduling of visits on their web site, so all the agent has to do is manage the process once you're ready to make an offer. Not that that's so easy: I had a few complications with mine, and I've heard much worse stories. My agent had just moved from the east coast, and I've lived in SF for several years, so I was more familiar with local market conditions than he was and I didn't get any value from that. But it was my first real estate purchase and I didn't know much about how the general process worked, so that was very useful to me.