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Sorry for the long delay in posting. To answer the question many of you—OK, several of you—have been asking: No, we haven’t yet bought a house. We almost did. (This one, if you’re interested. And this one was also tempting.) And we’re getting closer. But we remain renters.
Part of the issue, obviously, is that we haven’t found a place we’ve both liked enough to want to spend most of our life savings on. But part of the issue is also, I admit, a lack of urgency (mostly on my part).
(On mine, too. I’m happy with our apartment, our neighbors, our friends here. I like apartment living—being able to leave our door open and run down the hall to feed our neighbor’s fish or have that very same neighbor watch Joe while I’m running home from work. So what if the people upstairs use their exercise machine at 9 p.m.?—Nora)
Note I did not say a lack of desire: We’d like a bigger place, and will need one, and it makes sense for us, at this point in our lives, to buy. We have a pretty good idea of what we want, both in terms of house and neighborhood. We have savings. We have loan approval. We have a lawn-care catalog.
So what are we waiting for, you ask. (And if you’re a realtor, you don’t so much ask as shout it.)
A few reasons. One, prices are continuing to fall, and I don’t think we’re hurting ourselves by waiting. (Though I don’t think we’ll wait until 2010, despite this forecast.) Two, as Nora said, we like our current neighborhood, and we certainly can’t afford to buy here. But we can enjoy the sidewalks. Three, and most important, we have to find a place that all of us feel comfortable in.
(Michael, you might as well fess up: By the time we get into this place, there will be four of us.—Nora)
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Maybe it's because of my job, maybe it's because of my upbringing, maybe it's because of my heritage, but anything or anyone described as "earnest" immediately arouses my suspicion. So when the topic of "earnest money" came up last week, I was not favorably inclined.
Earnest money is basically cash that you give to your real estate agent to show sellers how serious—excuse me, how "earnest"—you are about buying their house. Your agent then hangs on to it until the deal either closes or falls through. If it closes, it's put toward your purchase. If it falls through, you get it back. Theoretically. The law varies, but if the deal falls through for reasons not spelled out in your contract, the seller can keep your money even though you don't get the house.
There are other ways to show earnestness (the amount of your offer, the size of your down payment, a heartfelt note hand-delivered to the sellers). But, in homebuying as with wedding gifts, people generally like money. So the question, essentially, is this: How earnest a buyer are you?
With this house, I can tell you exactly: We were prepared to be 1 percent earnest. With an asking price of $638,000, this is not an insubstantial amount of earnestness. Besides, as far as I can tell—in real estate as in life!—there is no agreed-upon standard of earnestness. Sometimes earnest money is a percentage of the asking price; sometimes it's just a few hundred or thousand bucks.
But our Realtor was aghast. Our offer wouldn't be taken seriously, she said. But what about our offering price, I asked. What about our proposed down payment? What about this contract we are prepared to sign? What about this essay Michael wrote in high school about the dignity of work as portrayed in the songs of Bruce Springsteen, which he is prepared to fax to the sellers? [That essay sounds awfully earnest to me!—Nora.]
The one thing we were not prepared to do was to be 4 percent more earnest, which is what our Realtor suggested. Maybe we were wrong. And I understand that the seller wants assurance that the buyer is serious and will see the transaction through. But this argument seems to ignore the presence of a contract. If you sign an offer, which protects and obligates both parties, then what's the purpose of "earnest money"?
I'll tell you: It has no purpose. Sellers, with the encouragement of Realtors, extract it simply because they can. And because they have been working this way for decades, maybe even centuries. I wonder how much earnest money Abe Lincoln had to pay to get this place.
All this said, I concede that this position is not entirely rational. After all, if we really want the house, and if all the conditions we spell out in the contract are met, what does it matter? We can just subtract the earnest money we pay now from the down payment we plan to make later. What's a few thousand (or tens of thousands) bucks among friends (or parties to a contract)?
Well, I'm not there yet. I may have to be irrational about this for a while. Earnestly irrational.
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It has been more than a week since our last posting/confession, so please forgive us for the absence. Where have we been? Pondering making an offer on this house. Debating our real estate agent about the various components of this offer. Pondering again. Talking to lenders about this offer. (OK, Michael did that.) In the end, we made no offer on this house. It’s now under contract to someone else.
Michael: And we’re OK with that. At least I am. This man has never led me astray, and he says I should always be prepared to walk away from a deal.
Nora: This is a great house. Am I sad we won’t be living in it? A little. But I would be sadder living there knowing we’d overpaid for it, and $638,000 is too much for what we’d be getting. Could we have gotten it for less? Possibly—we’ll know when the sale price becomes public. But given the signals we were getting from our Realtor (which were about as reliable as our own intuition), we weren’t going to get it for the amount we were prepared to offer. We’ll keep an eye on how this one pans out. If we’re proved wrong, and the house goes for $600,000 or less, well, we’ll have learned a lesson. Though I’m not sure what. ... Not to not listen to a Realtor?
Michael: Three points. One, “overpaid” is a loaded term. The market will bear what the market will bear. If someone is willing to pay $638,000 for a house and we’re not, that doesn’t necessarily mean they overpaid. It just means they wanted it more. Two, sometimes the market will bear a lot of foolishness. And I think we both agree that this market is still pretty foolish. And three—always my clincher!—it doesn’t matter. We can make the argument, based on any given house’s rental value or replacement cost, that it is overpriced. But where does that get us?
Nora: I was feeling glum and frustrated when Michael passed along the uplifting news that we could get a loan for 3.99 percent. I guess this is what people mean when they say, “Money is cheap right now.” Money is never cheap to me!
Michael: There is some fine print, but we can probably get the rate. Money we don’t have, burning a hole in our pocket—this is what 2005 must have felt like. But I resist the notion that, just because we can get it, we should spend it. I also resist the compliments that accompany a good credit score. I feel like that character in a spy novel who has been secretly monitored for the whole book and at the end the bad guys tell him he’s OK, and he’s supposed to be grateful for the compliment, but really he’s mad that they’ve had him under surveillance all this time. I have been reading too many spy novels lately.
Nora: But while rates may be going down, prices in desirable areas are not. A three bedroom with no backyard on a busy corner for $669,000? A two-bedroom Cape for $725,000? Are the lower rates meant to encourage people like us to buy overpriced houses—yes, a squishy term, but I’m using it anyway—simply because our payments would be easier to handle? Isn’t that what got us all into this mess in the first place?
Michael: My own personal barometer of the bubble is this house, a “foreclosure special” that is sagging and peeling and needs a lot of work. Yet it sold for an astounding 25 percent above the asking price. I don't know the details, and they could change my assessment, but for now I look at this place and think: The bubble is dead. Long live the bubble.
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We may have finally found a replacement for the yellow house. When I saw this house come on the market Friday, I wanted to make sure we got to see it before the open house. But this time, in an effort to elevate Michael’s enthusiasm and tamp down mine, we decided that Michael would see the place first without me (since one of us had to be home with the napping Joe) before we went to see it as a family.
Michael: I was honored: I felt like the scout sent ahead of the rest of the traveling party. Growing up, I always wanted to be an Indian scout, and when told that would be impossible, I wanted to be a plain old scout. Sad to say, seeing this house a day ahead of time may be as close as I’ll ever get. When I got there, I met the seller’s agent, and we wandered around like we didn’t own the place.
Nora: We’ve looked at quite a few houses in this neighborhood—at least five by my count, including one right around the corner that looks like its twin. I liked that house, too, though I was concerned about the lack of central A/C, the small kitchen and backyard, and the absence of a bathroom on the lower level. But that house (which was taken off the market), like this one, had very spacious bedrooms with nice views and a great main-floor layout. For one thing, the stairs don’t hit you in the face when you walk in the door.
Michael: I liked this place as soon as I reached for the handle of the screen door. I am a sucker for a wooden screen door, especially if it slams.
Nora: Funny, screen doors make me think of sleepover camp and mosquitoes. Still, when Michael got back from his scouting mission, I was even more worried: He liked the house as much as I did. So, in a role reversal, I took it upon myself to curb our enthusiasm. My objections boiled down to one: This house was too nice. OK, maybe two: It was too expensive.
Michael: That’s what the Internet says, too. And when it comes to “comps,” I trust the Internet as much as any real estate agent. Maybe more. (What is so frustrating about “comps” is that, like Iraqi WMD intelligence reports, people use them to reinforce what they already thought in the first place.)
Nora: When we all went to see the house on Sunday, I was swooning. Even the small kitchen, probably smaller than the one we have now, didn’t bother me so much—it opens into the dining room. Still, there wasn’t a whole lot of counter space, and while the expanded pantry is useful, we’d have to do some serious paring down. I may even have to throw away that box of spaghetti that’s traveled with me from Brooklyn to Manhattan to Los Angeles to D.C.
Michael: Not your ancestral spaghetti! I will part with my World Series Champions Red Sox Wheaties box (the 2007 version, not the 2004) before I allow that to happen.
Nora: A bigger concern about the kitchen was that, in this small space, the owners have managed to cram in some serious, high-end equipment: an Asko dishwasher, a Bertazzoni chef stove, and a Fisher & Paykel refrigerator. These additions have no doubt added to the price of the house, but I’d be perfectly happy—in fact happier—with good old GE. I don’t need such a fancy kitchen.
Michael: It’s sort of a U.N. kitchen: stove from Italy, refrigerator from New Zealand, dishwasher from Sweden. (What’s that joke about the difference between heaven and hell? Oh, here it is.) Like you, I never would have bought these high-end appliances—and with the money we’d save on good old GE, we’d be able to afford an extra fridge or freezer for the basement, which we’ll need because if we live here we’ll have to do all our grocery shopping at this place. But I would request that we still get a refrigerator with an ice-cube maker. I’ve never had one of those.
Nora: I don’t know. Do you think we could tell the owners they can keep their appliances if they lower their price?
Michael: Sure. Or we could just offer a lower price. It’s not as if this is a perfect house. Besides the kitchen, for instance, there is the matter of puny upstairs closets: The current owners have basically given over most of a wall in their bedroom to shelves and hangers. Then again, as Sarah Susanka says, there is no such thing as the perfect house. There’s just a house that we like that we can afford. I don’t think there’s any doubt we like this house. The question is whether we can afford it.
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Thank you for all of the diligent research you did last week, Michael. Unfortunately, the picture you paint is a not a very optimistic one: We shouldn't buy a house we can't afford (of course!), and the landscape of what we can afford (barring an unexpected windfall) won't be changing anytime soon. Add to that the thin inventory of houses in our price range and, well, I'm not feeling terribly hopeful.
Michael: Break out the violins! What's the name of that song?
Nora: Then along comes an intriguing listing: a five-bedroom, four-and-a-half-bath house not far from our current apartment that has been reduced by $800,000. This is more than the asking price of every house we've looked at.
I know what you're thinking, Michael: Wait—is this house free? Well, not exactly. But its price has dropped more than $800,000 since it was first listed almost a year ago.
Of course we can't afford this house. But why not take a look anyway? If nothing else, it will give us a sense of what makes a house worth (a little more than) three times one in our price range.
Michael: I had two questions in mind. 1) Is this house really three times better/nicer/more valuable than this house? It is not even yellow. 2) Why do rich people get all the discounts? If houses in our price range start selling for 31 percent off, we could get this house for $662,000.
Nora: I felt a little awkward about going to this open house, knowing full well that we weren't going to buy the place. Should we pretend we're very serious, dress the part? (What do people who buy such houses look like, anyway? Do they even go to open houses?) I decided, no, we'd just be ourselves. I didn't even shower, and Joe was wearing his best $3 "Thomas the Tank Engine" T-shirt.
Michael: Can you believe she was actually worrying about what to wear to an open house? Unfortunately, as my tux was at the tailor, I had to wear my running stuff. My sneakers are relatively new.
Nora: From the front, this house looks like an average 1920s colonial. Very nice, yes, but not $2-million nice. Some of that value, no doubt, comes from the simple fact of its neighborhood, which is among the priciest in the city. Nearby houses have sold recently for more than $7 million. It's lovely over here: close to a Metro stop, near Rock Creek Park, in a good school district. These things cost money—lots of it!
Michael: I note here for the record that Joe's T-shirt got a compliment from the agent.
Nora: Once we stepped inside, it was clear that this was no ordinary 1920s colonial. The footprint of that house was there, yes, but it was barely recognizable. Everything had been opened up and gussied up with the finest of finishes. The kitchen had custom-made cabinets, two dishwashers, two sinks, and a fabulous window seat overlooking the main selling point of this house: an enormous landscaped backyard, complete with trampoline and swing set. Joe parked himself right there and began sucking his thumb with glee. (And I must mention, here, too, the powder room, where the toilet and sink were embellished with hand-painted leopards.)
Michael: I found that bathroom (note to Nora: We're not the kind of people who have "powder rooms") creepy. I do not want leopards, or anything else with eyes, painted on my toilet.
Nora: All of this was part of a huge renovation that was done about 20 years ago. It continued on the second floor, where the master bedroom featured a fireplace and large deck, and the master bath, decked out in marble, included a picture window and Jacuzzi tub that Joe thought was hilarious. (How come he doesn't get so excited when we turn on the bath at home?)
Michael: Joe clearly liked this place better than either of us did. It met almost all his requirements: Stairs? Check. Easily opened kitchen cabinets? Check. Jacuzzi faucets? Check. Private playground for intimate, catered play dates? Check. On a bus line? Uh ... sorry, buddy. But we can have the agent call Metro and see about rerouting the L1, 2, or 4. Anything to make a sale!
Nora: Walking through the rest of the second floor, I was reminded that this was once a small, plain house. The other bedrooms and an office were tiny compared with the lavish addition in back and looked a lot more like those in the $600,000 houses we're used to looking at. There was also a large finished basement with its own kitchen, I assume to help with the cooking for a knockout party, since this was clearly not meant to be a mother-in-law apartment.
Michael: It did feel like we saw two separate houses. The bottom two floors fit together better than the top one. It's a question of taste and finances, I suppose: When you add on to a house, how much do you want people (including those who live there) to notice the difference between old and new? I guess Nora and I fall closer to the not-noticing end of the spectrum.
Nora: No question: This is a very nice house. Is it $1.9-million nice? I guess so. (In 2008, its improvement assessment was $1.5 million.) But if we picked up this house—and its yard, including the trampoline and swing set—and moved it, to say, Pittsburgh, or even five miles out in Takoma Park, what would its value be then?
Michael: That's a brilliant idea, Nora! Maybe we could move this house and find out.