3 ways homebuyers kill their own real estate deals

Mood of the Market

I recently bought a couple of spa treatment packages for a friend’s birthday (as much as a gift to myself as to her, to be sure). The package included a pedicure and a massage for the price of the massage, but had a bizarro restriction that required I pick the gift cards up at least one day prior to spa day.

The problem: The spa was across a bridge from my town. Despite my very best calculations, I hit unexpected traffic and it took me an hour’s drive just to pick them up.

It’s a good thing for the spa that I was literally stuck on that bridge, unable to turn around; otherwise, that would have been an undone deal. I was very clear that the value of my hour far exceeded the value of those two "pedis."

In the end, the conditions I had to surmount to take advantage of the bargain negated the value of the deal — and then some.

And that happens much more frequently than you’d think in the world of real estate. Today’s ridiculously low prices and interest rates, combined, seem like the perfect storm for finding a great deal.

But some buyers run into — or even unwittingly create — circumstances in an effort to cash in on the bargain that deactivate or diminish the full value they otherwise stand to gain from buying at the bottom of the market, for both home prices and interest rates.

Here are three ways homebuyers are defeating their own deals in today’s market:

1. House hunting too long. As many as 60 percent of the homes for sale in some markets are short sales. Many other listings are bank-owned (also known as real estate owned or REO) properties, and those homes tend toward two extremes: terrible condition, or so nice at such a low price they receive multiple offers.

Even the nicer, nondistressed homes on the market can end up in and out of contract over and over again due to appraisal or other lending-related issues.

As a result, it is not at all bizarre to hear homebuyers today say they’ve been house hunting for a year, 18 months, even two or three years. When you house hunt that long, you become susceptible to house hunt fatigue, which causes irrationally extreme overbidding out of sheer exhaustion.

Alternatively, it can cause you to settle for whatever house you can get, even if it doesn’t actually meet your needs — then spend the next 10 years obsessively spending to upgrade, improve, repair and furnish the place to try to make it more like the home you actually wanted.

Both of these outcomes negate and deactivate the bargain you stood to score.

To avoid house hunting too long, it’s uber-important to get and stay clear on the differences between what you want and what you need, and to work with a local real estate professional you trust.

Look to your agent to get and keep your expectations centered in reality, so you can make more strategic decisions throughout your entire house hunt, like house hunting in a price range where you’re likely to both find homes that will work for your life and be successful in your efforts to obtain one.

2. Making lowball offers way too low. Overbidding seems like an obvious way to cancel out the bargain potential of your deal. But making excessively low offers — offers sellers couldn’t afford to take if they wanted to — can have the very same result.

Buyers who think they can operate strictly on the basis of buyer’s market dynamics — without realizing that most sellers will need to make enough to pay off their mortgage or at least receive the fair market value for their home — are cutting off their own noses to spite their faces, all in the name of trying to score an amazing deal.

Note to "lowballers": If you don’t actually secure the home, the superlow price you offered is no deal at all.

3. Freak-outs, stress, drama and mayhem. Once was, it was mostly the buyers uneducated about the homebuying process who tended to freak out and stress the most, especially at the top of the market. These were the folks who found themselves defeated at every turn by buyers who knew what they were up against and were prepared to make their best offer on their first offer.

Fast forward, and now the norm is for buyers to spend much more time reading up on what to expect, but the inundation of information can create brand new mindset management challenges.

Almost every buyer is stressed about whether they can qualify for a loan, and about buying into a down market. Some buyers try to apply national headlines about home prices being depressed to the superlocal dynamics of their neighborhood market.

This is unwise if you happen to be, for example, trying to buy a home in the boomtown real estate markets of Silicon Valley. Others go the opposite direction and deny that the basic truths about, say, buying a short-sale listing will actually apply to them (attention homebuyers: buying a short sale usually takes a long, long time).

The emotional freak-outs that result from having your expectations shattered, sometimes brutally, in the course of buying a home often lead to panic-based and fear-based decisions, which can be costly in the short and long term. Additionally, the stress itself can take a toll on your ability to be productive at work, and can even impair your relationship with your mate, neither of which are worth any deal you think you stand to strike.

Again, managing your expectations by working with a trusted broker or agent you feel comfortable relying on to understand the market in your neck of the woods and the type of transaction you want to pull off is essential to downgrading the role emotion plays in your real estate decision-making.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

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