I couldn’t help but think about gambling when I sat down to write about someone I know who recently purchased a new home without the benefit of professional representation. As the saying goes, everyone gets lucky sooner or later. Las Vegas built an empire in the desert based on America’s inherent belief in this axiom. The key clause in that phrase, however, the one on which Vegas has made billions, is the “or later” part. A statistical analysis of gaming odds clearly shows that for the vast majority of those who gamble, luck comes later before sooner.
When Matt (names are changed to protect the innocent) told me about his recent home purchase, I told him I was very happy about him finding a new place. I could tell he felt awkward, and possibly guilty for not enlisting my representation when he added the following, “The sales guy told me that if I didn’t use an agent, he would take that 3% and use it to pay my closing costs.” As Matt told me about the “amazing deal” he had negotiated, the pain in my stomach grew larger, and larger.
I felt pain not because Matt didn’t hire me to help him find a home. I felt pain for Matt because I knew he had left at minimum $25,000 on the table with the deal. An agent I work with had recently represented a buyer in that same community, and I knew their real bottom line. Matt obviously didn’t know this fact, but the builder was paying 5% toward closing costs right off the top to all buyers, represented or not. In addition to giving up the benefit of having an experienced professional managing his negotiations, and the 200 plus details involved in closing a transaction, Matt gave away $4000 before the first page of the 30 page purchase contract had even made it out of the builder’s printer. Builders make their money off of guys like Matt…buyers who feel lucky, trust the builder representative, and decide against professional representation.
Here is what Matt would have known had he worked with me. At this same community, with an identical floor plan, my colleague had negotiated an additional 1% in closing costs (for a total of 6%), as well as $10,000 in free upgrades. But the story gets even worse. Most builders will only offer incentives like seller paid closing costs if you use their preferred financing. My colleague told me that his preferred lender beat out the builder’s lender by .5% on the rate and $1500 in closing costs. If you have ever lost while gambling in Vegas, you know the pain of losing money. Just imagine the pain of losing $25,000 gambling and you can understand what I was feeling for Matt.
So if you are feeling lucky, book a trip to Vegas. If you are buying a home, enlist an experienced real estate agent with expert market knowledge and mastery of real estate contracts. Everyone gets lucky sooner or later, but deciding to go into a real estate transaction unrepresented is like playing the financial equivalent of Russian Roulette.