Why You Shouldn't Look at Homes Outside Your Price Range

By
Real Estate Agent with William Raveis Real Estate RES.0772823

I'm working with a lovely young couple.  They did what most buyers do before they sign up with a real estate agent.  They did their research on the Internet and then they went to Open Houses.  They even got a pre-approval letter before coming to me.  They did everything right, except one thing.  They went to an Open House outside their price range.  And, they fell in love with the home.  They asked me to go see it with them today. 

The husband said, this is exactly what we are looking for, except in a different price range.  Uh oh!  The wife is very specific about the location she wants.  It's an excellent location with good resale value.  It has the school system they want.  This ideal home is in that area.  So if we can't go to a less expensive area, how can I help them find a home just like this one for less?  I explained the dilemma to them.

To complicate things, it is a home of amazing quality, craftmanship, and unique charm.  A high end builder built this custom home using the touches he uses on homes twice as expensive.  

I feel bad for them, because they have really fallen in love and now they will feel like they are settling when they purchase their first home, instead of feeling excited about it.  They don't want a starter home and don't plan to move again, so this makes it particularly frustrating.

The lesson learned from this is to figure out your price range early.  Not just what you qualify for in terms of a mortgage  (they could qualify for a loan for this home), but what you should spend on housing given your lifestyle and plans.

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Re-Blogged 13 times:

Re-Blogged By Re-Blogged At
  1. Lenn Harley 02/02/2013 07:16 PM
  2. Jan Green 02/04/2013 08:09 AM
  3. Cheryl Ritchie 02/04/2013 10:31 AM
  4. Karen Rice 02/04/2013 10:13 PM
  5. Dana Hollish Hill 02/04/2013 10:24 PM
  6. Lanise Warrior-Johnson 02/04/2013 10:29 PM
  7. Scott Gleason 02/04/2013 10:59 PM
  8. Jill Watts 02/04/2013 11:28 PM
  9. Linda Just 02/05/2013 12:27 AM
  10. Rhonda Duffy 02/05/2013 01:09 AM
  11. Lynn Ganster 02/06/2013 11:22 PM
  12. Robert L. Brown 02/08/2013 02:32 AM
  13. Doug Patterson 03/13/2013 06:14 AM
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looking within your price range

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Rainmaker
832,232
Bob Miller
Keller Williams Cornerstone Realty - Ocala, FL
The Ocala Dream Team
Hi Gail, we are sure you did this but it begins with setting expectations for what they are looking for in that area.
Feb 05, 2013 07:30 AM #124
Rainmaker
468,408
Sandra Nickel
Sandra Nickel REALTORS - Montgomery, AL
The Hat Team

You just might approach the owner about doing a 3-2-1 buydown.  That might resolve the issue IF your young buyers' income is on an upward trajectory.  With rates as low as they are and their plan to stay put, there simply won't be a better time to stretch to their absolute limit to get pretty much what they want.  I find it sad when a buyer tells me a year or two after their purchase, "I really wish I'd gone ahead and bought a bigger (nicer, better located, more updated, whatever) home in the first place."

Feb 05, 2013 07:36 AM #125
Rainmaker
229,218
Dale Taylor
Re/Max 10 New Lenox Illinois - Frankfort, IL
Realtor = Chicago Illinois Homes Townhomes Condos

Amen - somes up how what you've shared needs repeating over and over and over again.  Thanks for the posts!

Feb 05, 2013 07:53 AM #127
Rainer
133,134
Deleted Account
Fort Myers, FL

One would think why look at a home that is out of your price range?  I was doing an open house, the price of the home was $140,000 and someone came in to look at the home.  They said they could only spend $100,000, but looked at the home anyway.  When they were done, I asked them what they thought and we started talking.  Just like your client did, they fell in love with the home.  It turns out, the reason they looked at the home, they realized they didn't have the money yet to buy the home they really wanted, so they decided to wait until they could.  So, there is a reason for someone to look at a home they can't afford, as long they are not in dreamland.

Feb 05, 2013 08:19 AM #128
Rainmaker
297,790
Toby Barnett
KW North Sound - Marysville, WA
Toby Barnett

Oh the frustration of becoming emotionally attached to a home one can't afford. It happens all the time in our business and while on a appt. last night with a couple we had this very discussion. Hopefully a home comes up that they can live with and they truely love.

Feb 05, 2013 08:41 AM #129
Rainmaker
497,441
Mary Hutchison, SRES, ABR
Better Homes and Gardens Real Estate-Kansas City Homes - Kansas City, MO
Experienced Agent in Kansas City Metro area

Excellent post!  I totally agree with you. It is frustrating when your buyers think they are settling. I remember this very scenerio when I was house hunting!

Feb 05, 2013 09:34 AM #130
Rainer
489,458
Dörte Engel
RE/MAX Leading Edge - Bowie, MD
ABC - Annapolis, Bowie, Crofton & rest of Maryland

Dear Gail,

Their choices are to win the lottery real quick, get help from their family if possible, or be satisfied with something that fits their budget better. You can always hone in on the designer gown that is 70% off at Nordstrom, but still too much for your budget. Nice to have good taste, but you have to have the money to afford it.

Feb 05, 2013 10:05 AM #131
Rainmaker
888,138
Gail Robinson
William Raveis Real Estate - Southport, CT
CRS, GRI, e-PRO Fairfield County, CT

I've been reading the comments and I think it's very interesting how there are so many different opinions on this.  First of all let me just say that my client could pay cash for the house now.  It's not an issue of prequalifying them.  They have the money.  It's an issue of how this works with their financial goals.  They are more than qualified, but being qualified for a mortgage is very different from deciding how much of your income you want to spend on housing. 

The fact is that 90% of buyers start their search on the Internet and go to Open Houses (according to NAR's 2012 Profile of Buyers and Sellers study).  They come to us rather late in the game, so this is going to happen to us as agents.  We will not get clients at the beginning of their search.  What happened to me is not unusual.  In fact, these folks had a preapproval letter in hand before they met with me, which is more than I can say for most buyers.

Ideally they would have met with their financial planner first and figured out how much they wanted to spend on housing, then they would have met with me, and then we would only have looked at homes within their price range.  That didn't happen.  It's too late for them, but not to late to warn others, which is why I wrote this.  Every buyer should be happy and excited about their new home.  It the same with buying cars.  If I can only afford a Kia, I'm not going to look at a Mercedes, and then go buy a Kia. 

I guess what surprises me is the number of agents who commented on this post who think that just because my client can afford the expensive home they should buy it and I should try to persuade them to buy it.  Remember the book,"The Millionaire Next Door."  It is perfectly fine to live in a modest house, less house than you can afford, because you want to use the money for other things, e.g. travel, private schooling for your kids, savings.  Just because someone can spend a lot of money on a home, doesn't mean that they should do so.  I look at the preapproval letters and then ask people about their lifestyles and how much they want to spend on housing.  Some people want to stretch and buy the most home they can afford and others don't, but we don't know that until we have conversations with them.  The preapproval letter tells us the upper limit, but not what they are comfortable spending on housing.

Feb 05, 2013 10:10 AM #132
Rainmaker
763,038
Kasey & John Boles
Jon Gosche Real Estate, LLC - BoiseMeridianRealEstate.com - Boise, ID
Boise & Meridian, ID Ada/Canyon/Gem/Boise Counties

Yes, this is a great point.  There is a reason that it is in the price range that it is in, and unfortunately if you are in a price range less than that you are going to have to give up something...-Kasey

Feb 05, 2013 12:28 PM #133
Rainmaker
150,760
Jeremy Joslin
Coldwell Banker Residential Brokerage - South Windsor, CT
Professional Real Estate Marketing and Sales

That is too bad.  Hope you find them what they are looking for.

Feb 05, 2013 09:51 PM #134
Rainer
7,782
Marianne Leizure Realtor Ocean Pines and Ocean City Home Sales
Coldwell Banker Residential Brokerage - Ocean Pines, MD

I sell Resort Homes/2nd Homes as 90% of my sales - where Buyers usually qualify for more than what they intend to spend - and the motivation to spend is 'because they want it' - nothing to do with NEED it.

Because LOCATION is the top VALUE in a Resort, they are often disappointed with the quality of the Dwelling and Forget they are purchasing to be closer to the OCEAN and BAYS. Their money is in the 'lot value'. Hard to get accross sometimes. Have to risk one or two Rejected Offers until they finally 'get it'. The long drive to come here and 'shop' during busy weekends usually makes them 'get real' after a couple trips. Then all the paperwork involved making each 'offer' drives the nail.

My market has been averaging between 95% last list to sale for the past 4 years....and we have had few distress properties (less than 20% of market) in this time to make the spread much different. We just had a lot of 'inventory' to sift through to finally get to a somewhat flat market (2003 prices) that looks like its on the way back up. Buyers expectations on a 2BR Oceanfront or Waterfront Home for $200K (more than 50% off Value) is a learning process for them. I show the best homes for price on their low end (usually gag reflex here) and something at the Top where its a no-brainer 'like' and hope that I have something to show near that where its at their comfort spending. IF they are 1st time buyers of a 2nd home - they come with the same naivety as a 1st time primary home buyer when it comes to important and customary value in a resort home. I find most learn quick - Summer Is Coming!

Feb 05, 2013 11:29 PM #135
Rainmaker
25,599
Susan Ani
Baird & Warner - Chicago, IL

Yes, reality hurts sometimes. On the other hand, seeing their "perfect" house and learning that they cannot afford it will allow them the opportunity to realign their criteria for a new home.

Sidenote: I was working with a young couple a few years ago on their first purchase. We looked for WEEKS in their price range, everything was very disappointing and in poor repair. Weeks turned into months. As I was driving them home after yet another failed tour, I asked them "Has anything changed in your financial situation? Job promotion, any debts paid off recently?"  Eureka!  They both had just received a raise at work, and they paid off their car loan since getting the first mortgage pre-approval. And guess what happened next. Yep, new price range, and only one more tour was needed to find the house they fell in love with, purchased, and started their family there (2 little girls so far!).

All that just to mention that sometimes the buyers' finances change, and that can change their home buying strategies as well.

Good luck with your clients. I'm sure you will help them turn the disappointment into something exciting for them very soon.

Feb 06, 2013 12:34 AM #136
Rainer
46,127
Nancy Middleton
Counselor Realty, Inc. - Excelsior, MN
Nancy Middleton, Counselor Realty, Minnetonka, MN

Excellent reminder, Gail. My first discussion after learning more about the financial ability and motivation of a client is what I call "The Reality Check." They have choices, and unfortunately, they found a dream home before it realistically fit into their financial over-all plan. I admire you for not pushing them. Just because we want something doesn't always mean it's the best thing for us to have at the moment we see and want it. This age of instant gratification takes some adjustment and the ability to deal with the reality of what is the best choice for their over-all plan. I know you'll find them something else at another time that will work for them. Good luck.

Feb 06, 2013 02:50 AM #137
Rainer
25,843
Dave Kohl
First In Promotions - Chicago, IL
Real Estate Advertising & Marketing Expert

I think agents faced with this situation should be able to turn this around in their favor. First, I would ask those clients for specific details, as in the most important elements they "fell in love" with. What an ideal way to find out what is really most important to them as you help them look in the range they can afford when they are ready to buy.

 

In addition, I see a "value" in looking at higher priced homes. It's interesting to compare how they are staged and to hopefully get ideas to make "my" home look even more valuable. What are the sellers doing to present a home which is priced at twice what mine is? Personally, I have taken some staging ideas and used them in my own home. Not only to make it more practical, but to (hopefully) make it appear to be even more valuable. I have often suggested "mansion" concepts to agents I work with (handling advertising, marketing, or market research for) in order to enhance the appearance of a lower priced home for sale.

 

The next time you look at clothes at Nordstrom to decide what you want to buy at Sears, think about this.

 

Feb 06, 2013 05:54 AM #138
Rainmaker
531,169
Jon Quist
REALTY EXECUTIVES TUCSON ELITE - Tucson, AZ
Tucson's BUYERS ONLY Realtor since 1996

Sad but true. We've all heard this before. I'm dealing with a couple right know who have described their "must have" house to me. Too bad it is almost twice what they qualify for.

Feb 06, 2013 02:55 PM #139
Rainer
106,834
Lynn Ganster
Morris Williams Realty - Orlando, FL
P.A.

Good Post and I feel for people who know their financial goals and then trip over them repeatedly.  If they know their goals and have set limitations to stay within those goals they should not be disappointed.  They should be glad they are working with an agent who respects and responds to their goals and then follow her advice to find exactly what their means can afford them.  

Feb 06, 2013 11:20 PM #140
Rainmaker
423,731
Jean Hanley
Coldwell Banker Kivett Teeters - Hemet, CA
Specializing in Folks Who Want To Buy/Sell Homes

You know Gail, buyers always want more than they can afford.  I think we all go thru this with buyers.  Like your buyers, they love to go thru open houses and fall in love with what they cannot have. 

Feb 07, 2013 07:10 AM #141
Rainer
453,270
Diane M. Phillips Realtor 443-286-4365
Frankly Real Estate Inc. - Manchester, MD
Specializing in Carroll Co., MD

Gail ~ I'm with you, just because they can afford this house doesn't mean they should. I always recommend looking at the big picture. Being house poor is no fun. 

Feb 08, 2013 01:46 AM #142
Rainmaker
507,600
Robert L. Brown
www.mrbrownsellsgr.com - Grand Rapids, MI
Grand Rapids Real Estate Bellabay Realty, West Mic
Oh how i've had this conversation with several buyer's. The champagne taste and the beer pocket book effect. They need your wise council and trust me they will listen in the future.
Feb 08, 2013 02:31 AM #143
Rainmaker
2,339,082
Charles Stallions
Charles Stallions Real Estate Services - Pensacola, FL
800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl.

Oh how true is this, no matter the market this hold water most of the time. If a home is over priced I find that even offering less and even if accepted the transaction will be dificult, why bother find the buyer a better home

Feb 26, 2013 01:41 AM #145
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Rainmaker
888,138

Gail Robinson

CRS, GRI, e-PRO Fairfield County, CT
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