Tuesday, November 01, 2005
Cold Feet !! An Analysis of Buyer's Remorse.
Dear fellow Realtors, if there is a piece of advice I can offer it is never to tell a Buyer afflicted by 'cold feet' that he needs not worry because it is not his money. I did it once and the result was catastrophic. Cold feet is that special mental state by and through which someone - typically a real estate Buyer or a groom - can't bring himself to say 'Yes'. And it is surprising how many people, mostly men, are afflicted by it. Women do not seem to suffer of the same ailment, at least not nearly as disproportionately as men: a lady real estate Purchaser, just like a bride, will say 'Yes' anytime, anywhere. I am teasing you ladies, of course, but it is a matter of fact that men, come time to remove the conditions precedent, suddenly become fearful of completing the transaction. They are pervaded by all sorts of doubts about what they are purchasing, their financial future, and the Agent that is sitting at the table right across from them all of a sudden looks in their eyes much better dead than alive.
The origins of the expression 'to have cold feet' are in and by themselves very pictoresque. 'Cold feet' originates from the Italian 'piedi freddi', but the nuance is different. To have cold feet in Italy means to be penniless and rather financially stuck. There is no connotation of fear in the Italian expression, rather the meaning is more sarcastic - as in the case of someone who has squandered his riches foolishly away and is now financially stuck. To become suddenly fearful better translates in Italian with 'la gola secca' or to have a 'dry throat'. So, in essence, if you have 'cold feet' in America you have a 'dry throat' in Italy, and if you go to Italy and say that you have cold feet chances are they will give you money - or at least will offer some food and clothes.
Buying a home can be an overwhelming process. There are so many decisions to make and any of them can mean serious financial consequences. The darkest side of purchasing a home, after all, is that it is your greatest financial debt, even while it puts a roof over your head. As it appreciates, it also needs repairs and maintenance. Yet, you really want to buy a home because you know that few purchases will provide the quality of life that a home of your own does. There are plenty of advantages as well - rising real estate values, a stable environment for the family, increase in your net worth to name only a few. But then, what is it that routinely makes thousands of homebuyers literally freeze in front of their Agents when they have to complete the deal ? Here are the most common causes of cold feet and their remedies:
- Fear of Spending Too Much
Lenders will loan you money at the top of your ability to borrow. Realtors will suggest that you will be happier in a "bigger, better" home, eliminating the need to "trade up" in a few years. Stretching to buy the most home you can possibly afford is a good strategy, but only under certain conditions - like if you are confident your salary will rise, that your income is stable or secure, and that you can handle large surprise expenses. If you do not feel confident in any of the foregoing situations, then just do not take the step longer than your leg. You can't go wrong buying slightly under your ability and maintain a certain room for financial manouvering, should you ever be in need of it.
- A Conflict in Goals
Many couples purchase homes with the idea that they will have a child, so stretching buying power to have the extra space makes sense. But if you are trying to accomplish two big financial goals at the same time - buying a home and adding to your family, then you will have to make a choice. You can't have it all - peace of mind, a large mortgage, and burgeoning expenses all at the same time. It is imperative that you prioritize your goals and adjust your financial resources accordingly. If you are worried about cash flow, then making disproportionately large house payments will tarnish the joy of home ownership. Work to improve your cash flow by, for example, accelerate your credit card payoffs and by not incurring into new debt. Re-budget your outlays and eliminate unnecessary expenditures. And above all, do not be influenced by others to live beyond your means.
- Fear of the Future
All humans are fearful of the future one way or another, because of what psychologists refer to as the 'fear of the unknown'. We are raised and educated in our culture to be in charge of our livelihoods and deeds, but we can possibly be - or pretend to be - as such only in the present time. The same psychologists, however, will tell you that fear can be tamed by looking at the worst case scenarios compared to the best case scenarios. So face reality and examine the question that is really bothering you : what if you can't make your payments? This question can be balanced by the best case: what if you manage your money so that you can make double payments? You can easily see that fear is manageable in this terms. It all comes down to how confident you are about managing your money. If you aren't sure of yourself, get advice from a disinterested party like a financial adviser or ask someone whose money management style you admire.
- Fear that the value of your investment will diminish
Look at the properties surrounding the home you are considering purchasing and ask your Agent how much he/she would think they were worth one, two, five years ago. There isn't a single Real Estate Agent in North America - nor for that matter is there a single Lawyer, Notary, Banker or Appraiser - who will tell you that those homes in the neighborhood were worth more yesterday than today. It is a fact of life that real property appreciates, and that appreciation is in direct function of scarcity of available land. The secret in good, wise real estate investing is not to over-extend yourself.
Cold feet is an irrational behavior that has more to do with yourself and how you see things than what you are about to buy. Money is not the root of all evil, but it is the root of indecision - at least when you are paralyzed about buying a home.Think through the process that has led you to hire the services of your good Agent in the first place, the exhilaration you proved when your offer was accepted, the dreams and projects you and your spouse have mentally constructed while waiting to finalize the transaction, the soundness of both your financial situation - as proven to you by your own Banker - as well as the integrity of the house you are about to purchase - as verified by the Appraiser your bank has hired on your behalf - and be confident that the step you are about to take is the correct one. In ultimate analysis, we are the ones that lay out the foundations of our own future.
Luigi Frascati
Real Estate Chronicle
