Thursday, April 17, 2008

Real Estate Autopsy

Eleven months ago, in May of 2007, my wife and I bid on our first house in Hingham, Massachusetts. Here's the old post.

The house was listed at $750,000 and we BID (not "offered"!) $700,000. As far as I am concerned, that is a sh*tload of money to commit to for one's first home - unless of course you have a trust fund. I was pretty unsettled by the whole process. In fact, only when the seller refused to hit my bid (he came down to $720k) and it expired did I fully realize how nervous I was. I had such a sweeping sense of relief that losing the kick-*ss house was probably for the best - partly because of the geographical instability of Mrs. C-Nut's job and also because we really didn't know anything at all about the South Shore region. The thought that we would buy a house, move in, and discover we hated the area was nightmarish, to say the least. My wife was very disappointed and a wee emotional upon our bid's expiration - but that's what the women do, they fall irrationally in love with stuff, and occasionally undeserving men.

This post will catalog my interaction with the SOB seller and in doing so will illuminate some of the larger forces at work in this housing debacle.

Alias will be used.

Leroy - SOB owner and seller of the house

Lindsey - listing broker

BuyingBroker - didn't use one, you clowns. Only a Moron would.

C-Nut - himself

First, about the house. It was put on the market at near the very peak of the Massachusetts real estate cycle - December 2005. I don't know the precise offering price but I believe it was just north of $1 million.

Ten months later, in October 2006, with the house not moving, Leroy rejected/ignored his first bid of $725,000.

The house sat, and sat there on the market. By April of 2007, when my wife and I found it, it had been listed for 17 months now, and had just been lowered to $750,000. We absolutely loved the house. It had high ceilings, plenty of light, an open, flowing floor plan, and it was almost 4,000 square feet. There was a ginormous oak paneled room replete with a bar and fireplace in addition to the four bedrooms, study, dining room, formal living room, and a sunroom. There was something wrong here because even in this teetering market, homes much smaller in Hingham were selling for substantially more. It took some thinking and research but we came up with three possible explanations:

1) Folks in family-centric Hingham highly value a backyard. Though this house was huge, and sported privacy, it really didn't have much of a yard.

2) Folks in Hingham, in that price range, for a family-sized house like that, highly value a "neighborhood". This house was sort of off a main road and wasn't exactly on a quiet tree-lined street; they're just weren't tons of kids nearby who could entertain your own.

3) Folks in Hingham don't value contemporary homes; they like center-hall colonials - which I detest. So great, the market undervalues what I really like!

Given the house's attributes, we talked ourselves into decertifying the "no neighborhood" and "no backyard" drawbacks. After all, just about every house has its tradeoffs.

Now, Lindsey, the broker, couldn't have been more direct. She had just gotten the stubborn bastard to lower his price from $800,000 to $750,000. He insisted, and she relayed, the caveat the he wouldn't take anything less than $750,000. This guy will epitomize the reality-blind, market chasing seller of the past few years.

So my wife and I dug in and crunched the numbers. One thing that did concern me was the apparent un-salability of the house. If it wasn't moving then, in a slow market it should also expect to languish at least as much and trade at a steep discount to its theoretical value. Since we follow around my wife's career - from Philly to NY to Charlotte to Boston, to...??? - we had to assign a significant probability to the chance that we might not be there that long and thus forced to sell the house in the near future. Remember that selling a house costs $$$$: 5%-7% of the list price, plus closing costs, inspections, attorney fees, and boxes and moving trucks - so we are talking close to $50,000 of post-tax dollars, not even counting whatever loss you might take. The last thing in the world we wanted to do was buy a house, settle in, and then find out we have to move a few months later. This is what happened to us in Charlotte. We were not there six months before my wife's job got removed to Beantown. Thankfully, we had decided to rent down there.

The number we came up with for our bid was $700,000. It certainly wasn't based on "the most we COULD pay" but rather on more intelligible factors like where the real estate market was headed, what I expected the economy to do (i.e. tank), transactional costs, etc.

My wife wanted to bid around 675k and then end, via "negotiation", around 700k. As a professional bidder-and-offerer I refuse to play those amateurish games. I decided that we'd start almost at our limit, articulate that to the broker, and not budge. So we took a deep breath and made the bid official. It might have been live for a two or three days - my memory fails.

Now Leroy was beside himself. He spoke with the broker seemingly every day and was well aware that a bid was, finally, materializing. When it came in 50k below his recently reduced offer, he was devastated, literally. He was rendered so speechless that he couldn't even muster a counter offer, maybe he said 745k, I can't recall. One thing I do remember him saying was, "Well, they can't afford my house!" Can you believe that? But otherwise, Mr. Big Shot was so wracked with emotion that he turned over the entire process to his father! Now Leroy had relocated to Florida and his father was local, but c'mon - a middle-aged man who couldn't handle selling his own house? Bear in mind, from Lindsey, I had been informed that Leroy "owned a few businesses" including "a trading or investing type of firm". Keep this last detail in mind.

So the clock was ticking and new cast member Daddy, at the last minute, countered at $720,000. My wife half-heartedly implored me to go to 710k or 715k but I vetoed her. The fact is, we were exhausted from months of house hunting; we really didn't have much in the way of other options. The rental market is tough in Boston. Anything with 3-4 bedrooms gets pretty expensive due to college student demand (let me tell ya, my toddlers don't contribute sh*t yet for rent!). And in suburban Hingham, there was almost nothing for rent. Still, I saw little reason to capitulate - especially at this point. As I told my wife, that house has been sitting and will continue to sit there on this foundering market. Let him call us back in a few weeks.

My wife and I soldiered on. With 2-3 months left on our lease there wasn't really time to find, vet, and bid on another house so we focused on finding yet another rental. Lindsey kept badgering me over email because well, Leroy was pestering her. There was another "young couple" taking multiple, hard looks at the house. They were "probably going to make a bid"....

Imagine me yawning off these provocations.

The "young couple" did in fact make a bid. Six weeks after we were out of the picture, this couple matched our bid 700k for Leroy's house. And guess what, the SOB countered at $725,000, five grand higher than his counter to us! Into the teeth of this plummeting market, he had the nerve to fade his offer. I don't know, maybe he was working off a 2005 calendar or something.

The fact is, Leroy's ego was running the show. He had just gotten two $700,000 bids within a couple of months and figured he had found the price floor - as if the housing market was a static animal that could deteriorate no further. So after "losing" about 300k from his original personal value of the home (remember it started over $1 million), he was now going to get real serious about the last $5,000, $10,000, or $25,000. Above all rational considerations, clearly his ego feared "selling the bottom".

So it turned out that the "young couple" likewise didn't raise their bid; they walked away, and quickly bought another house in nearby Hanover. So Leroy had been jilted twice in succession now and the most recent potential buyer was completely out of the picture.

It's now the end of June and after much scouring we did find our current, glorious abode for rent.

Of course, as I predicted, Leroy's house was still sitting there a month plus after our failed bid. After losing the "young couple", Leroy (via Lindsey) reached out to us to see if we were still interested. Having mentally moved onward, here is the email I sent the broker:



Haha. If I emailed you what my wife said about Leroy after I told her that your other couple bid 700k, and he countered at 725k (5k higher than he offered us – while rates were higher!), the Coldwell Banker profanity filter would explode. We could have been all done (and happy) at 710k, six weeks ago. Instead we’ve been scrambling all over for a place to live, he’s still paying taxes and upkeep, and you didn’t get a commission. We’ve been dragging our two babies in the car, every single weekend, and wasting all sorts of time.

Leroy is a pig. On Wall Street the expression is "bulls and bears make money, but pigs get slaughtered". He deserves every penny of his "loss".

There're 200+ homes for sale in Hingham – many of them are beautiful and the buying season is nearing its end. Mortgage rates today are 6.61% versus 6.21% when we bid. Leroy’s house (and every other one in America) is worth 4% less than when we bid. My bid, if we were still interested, would be 675k. But of course, that would "insult" his highness.

Leroy has to understand that even if he sells his house for a lower price than he wants, that he’ll get more interest on his cash in this higher-rate environment. So it’s a wash for all involved except of course for his ego.

This guy thinks he’s so smart but what exactly about the last 19 months has signaled to him that he’s got the SLIGHTEST CLUE about real estate prices in Hingham?

I told you the first time I met you that mortgage rates would rise. Guess what, rates are going higher still and the economy is about to take a dive.

I feel your pain Lindsey. You should drop his listing.


Now Lindsey, who as a typical broker only wants a sale, at any price, asked my permission to forward that email to her obstinate client. Sick of trying to convince the SOB to get realistic herself, she leaned on me. Do y'all think I have ever turned away an opportunity to agitate? She titled it - "A Buyers Opinion" and sent away.

The next day I receive this steaming pile of condescension from Leroy (via the broker)

(Leroy's response)

SUBJECT - Fwd: Now i understand/ probably too much house for him anyway"

LOL- God am I smart, I guess I know it all. Why would C-Nut ever buy any piece of real estate given his prognosis of the economy, interest rates and housing market, not to mention weather forecasts? Give me a break. Doesn't sound like a good investment if he's right. I do think the housing market is a problem, but saying every house in America is worth 4% less given a 50 bp move in interest rates is so absurd and shows his ignorance. In fact I believe the house is priced to reflect much of what C-Nut is saying at this point. With that said, a house is only worth what some one will pay for it. C-Nut also fails to realize that the market is a leading indicator, not a lagging indicator. Much of what he is predicting is already priced into the housing market. Sure could get a bit worse but every market is a bit different. Also I believe, if you look at it on a bellcurve looking out 5+ years, prices now will look attractive. A house is a long term investment, and there should be many factors that go into decision- sometimes its easy to be dollar wise and pound foolish. I am not insulted by C-Nut's thoughts or offer. He is entitled to his opinion. We are both big boys here. I am not sure I agree with C-Nut's prognosis, and long term predictions. Despite what C-Nut says, the economy is in relatively good shape, and longer term America will be just fine. In fact, I expect some of the money to shift from various asset classes to real estate over time given the correction. I also don't think interest rates are going to move much from these levels, and if there's many who also think the next move could be down. Regardless still relatively low historically speaking. . With that said, I am not going to sell the house below $700,000 and that has nothing to do with ego. If C-Nut's willing to step up a bit perhaps we can get something done here, but sensing its a long shot as the house is worth less and less every day according to C-Nut. The best time to buy is when there's blood in the street? C-Nut must have loved the Lennar preannouncement and all the weakness in the home builders today. My house probably worth $625K now in C-Nut's mind. I appreciate you following up w/ C-Nut and passing along his email. I will keep it to myself, as I can see why my dad did not want me to see it. No worries here, as I am pretty thick skinned. Speak with you soon and thanks again for your efforts on my behalf.

All the Best,


PS- Can tell C-Nut that I am not a pig despite what he thinks. Far from it. I remember that saying from my rookie days on wall street. Remind him Best time to buy is when there's blood in the street's.

So now, a dispassionate business transaction has turned into a pissing contest - at least for Leroy. Just as I has supposed, selling his home at market prices was proving an ego management crisis for Leroy. Apparently, my *sound economic reasons for the magnitude of my bid* really chafed the guy. "Too much house" for me? Hah, how about "not enough money" for him. He can't have it both ways. If he's such a big shot, so wealthy, then why niggle over $20,000???

Despite his no doubt, self-acclaimed rejoinder, he was still up all night thinking about C-Nut. He's hardly the first bonehead I have ever caused to lose sleep. As proof, he had to send ANOTHER, even more condescending email first thing in the morning - the fruit of his lucubration. Here it is in all its glory. Try to remember that this is a middle-aged adult who is supposedly a very successful entrepreneur:

The funny part of C-Nut's analysis is he's the one shlepping around Hingham w/ a couple of infants, wasting all sorts of time, and can't seem to find a house to buy despite being a buyers market. So now he's going to rent, and have to relocate the family again. Tell C-Nut I will be thinking of him when I am offshore fishing in my sportfish next week as he tried to find his temporary home. ### ***** street is a great home, and don't mind holding for time being until we find someone who appreciates it as much as I do. Tell him can [he] get a great deal on a house on the railroad tracks, probably can save a few sheckles, Mr Wallstreet- lol. Give me a break- He's talking one trade as the difference between owning a house or not, kind of short sighted in my view, but not surprised. My wife also laughed and said tell C-Nut and his wife that we hope C-Nut has fun moving into his rental when are [sic] family will be out boating and enjoying life- Enjoy the weekend Lindsey and don't worry about C-Nut.

First of all, I submit that anyone over the age of 40 who uses "LOL" is an unmitigated tool - he's used it twice now.

Yeah, Leroy, I am a "Wall Street rookie". If being a pig, trying to squeeze water from a rock is a rookie mistake, he needs to remember that I am not the one who started at $1,000,000 and chased the housing market down 30% - and counting.

Now I could go on splice and dice his email at length. For example, he claims that the idea that housing prices drop with rising mortgage rates is "absurd" and "shows C-Nut's ignorance". But then he says that "much of what C-Nut is saying is priced in".


If it's so "absurd" then why address the notion of it being "priced in"?????

So big deal, the guy doesn't understand real estate. On that he's co-ignorant with 99% of the country. Heck, there are guys that write for the Wall Street Journal and Forbes that don't get it either.

But the interesting part of this exchange is Leroy's gross immaturity and transparent, if not pathetic, chest-thumping.

C-Nut can't afford his house?

Boy am I smart?'re renting?

I'll be thinking about C-Nut while I am out sportfishing and enjoying life?

That's about as grown-up as this sand sculpture:

Remember this is the guy, this big shot, who was so distraught over my *lowball* bid that he couldn't even continue with the negotiation. Daddy had to step in. And apparently Daddy temporarily shielded his middle-aged son from my unpleasant email as well.

Leroy is clearly what men, young enough to use "LOL", would deem a "poseur".

Throughout this exchange, there was also the angle that Leroy was challenging my financial manhood. He was trying to goad me into paying up and proving that I had the cash for his house.

Cripes, he even said:

"...and don't mind holding for time being until we find someone who appreciates it as much as I do."


In other words, my bid didn't show enough appreciation for his beloved house?

Now, we loved the house. I'd have never bid on it in the first place otherwise. I am just not the type to settle - for anything, ever. Unfortunately for Leroy, I also highly value cash in the bank and my precious four hours of sleep at night.

I am sure there are some people Moronic enough to pay-up for a house when their financial manhood is questioned but it certainly wasn't the case for the only bidder for Leroy's house within sight.

Now whenever I mix it up with clowns, Mrs. C-Nut is invariably the first one to scold me. "Why are you getting into it with Leroy?", "Why are you picking on Perry Eidelbus?", etc.

My wife said to me.

"These people are idiots. Don't piss him off because then he'll do something irrational like NOT SELL to us simply because he doesn't like us."

"Take it easy," I told her. Almost everyone, even my wife, forgets that I am a professional bidder/offerer - an extremely experienced financial negotiator. I am well aware of all the angles, all the politics, and all the realities of a transaction. I told her, listen, Leroy is probably atremble thinking, "Hey, maybe I shouldn't have patronized C-Nut??? Perhaps he'll be less likely to ever bid again because of my email...????"

The mistake almost everyone makes when analyzing interactions is focusing too much on their own perspective. A month later I was proven 100% correct. Read this rather rich email Leroy, with his house still sitting there, sent me:

7/20/2007 11:37am

Hi C-Nut-

I figured I would touch base directly with you. Perhaps we got off on the wrong foot, as I did not mean to run you around with the little ones and waste your time as I have 3 little ones myself, so familiar with that drill. With that said, not sure where you head is at. Please keep in mind that the whole process is a bit emotional for me, as I truly love the house and enjoyed living there. I have relocated to Florida as I am sure you are aware. Despite what you think, I don't have much of an ego, quite the contrary. Feel free to contact me directly if you still have a sincere interest in the house. It's a great home, I know firsthand.

All the Best,


We "got off on the wrong foot"?

That sure is a curious way to describe his childish, baseless condescension.

Clearly, he was, ham-handedly, trying to placate any hypothetical animosity he provoked in me - just as I had predicted to my wife. After all, he's the one carrying a house that needs to be sold in a downtrending market.

Mind you that he now only wants to know if I have a "sincere interest" in his house - as if a dollar-denominated bid demands an emotional rider.

My wife wanted me to respond kindly (Ha!) and to explain to him that we had just signed a 12 month rental lease (that Leroy mocked) - a $30,000 contractual obligation.

I RERAINED from any such conciliatory action - Puuhleez Mrs. C-Nut! There're countless things she's more competent than me at - but we're talking about my métier here. Did Muhammad Ali take boxing advice from his wife?

I said let the SOB squirm. Let him continue to wonder if I am still a possible buyer. Don't tell him anything about my lease - which could always be broken or sublet. We still liked the house and I didn't want to tell him we were out of the picture in which case he might wise up and fire-sale it. Why help injure a possible $650,000 purchase in December?

(For those of you reading this in the distant future...the stock market tanked shortly after Leroy's "conciliatory" email in August of 2007 and then bounced to new highs in November. Meanwhile, house prices continued to crater everywhere but NYC and a few other places like Portland, Seattle, and Charlotte. In January of 2008, the stock market tanked again; this time taking out August's lows, credit markets froze up, a large investment bank went under, and housing continued it's downward spiral.)

In November of 2007, seeking to extend his two year run of precise 50k overpricing, Leroy dropped his nominal list price from $750,000 to $729,000. In January of 2008, he dropped the list price to $699,000.

And this month, April 2008, I saw on the web that his house finally sold, 28 months after listing it for over $1,000,000.

Mr. Big Shot, Mr. Wall Street Veteran eventually reaped $670,000.

By rejecting not one, but TWO 700k bids ten months earlier, Slick cost himself at least $60,000 - as I estimated the carrying costs for his unsold home at 3k per month added to the bid differential. And let's not forget the headaches and anxiety inherent in such a prolonged ordeal - for such an obvious emotional basketcase.

The other day I licked my chops and sent Leroy a "congratulatory" email:

Greetings Leroy,

I see on the web that you sold your magnificent house for 670k - it's definitely the nicest house to sell in the 600s in Hingham in many, many years. So well done! According to my email files, you did vow to me that you would never sell it for less than 700k; so I applaud your grown-up flexibility. By my calculations, "fair value" for that house is 640k today so it's like you MADE 30 grand!!! I am so glad you found another family that "appreciates" the house more than we did - even if said appreciation expressed itself in the form of a lower cash flow to you, plus another 10 months of carrying costs.

I do want to thank you for not budging on your 720k offering to us last year; in fact we were definitely prepared to settle at 710k or even 715k. But it was the wrong house for us and I am a firm believer that things always work out for the best. We are renting in [another town] now and have determined that we like it a bit more than Hingham; it's less "diverse" if you know what I mean. The fact that we are renting a house NICER than yours for $2,500 a month (a full 40% cheaper than the total cost of owning a 700k home at 6% rates) allows me to sleep soundly at night. I just renewed the lease through July'09 and I will continue to laugh at all these sheep who got sucked into the real estate trap at bad prices. The fact is, mortgage rates are headed inexorably higher and your large oil-heated house is headed to the 500s. I think you and I both learned over the past year that Hingham-ites don't value square footage; they want and pay up for backyards and neighborhoods. It's got to be a cruel joke for you that even today, has your house worth $968,500.

I got to thinking the other day that, depending on when you bought your Florida house (2005?), between that and the Hingham house selling debacle, you might very well have hemorrhaged $1 million bucks or so on real estate in the past few years. Now I have no idea whether or not that is pocket change for you. Some Googling research has revealed to me that you are a successful businessman and you may indeed be one flush dude.

BUT, that would just make your obstinacy and niggling over $5,000, $10,000, and $25,000 pittances - not to mention all the "deferred maintenance" on the Hingham house - all the more bewildering. I mean really Leroy, wall-to-wall carpeting in this day and age? And as for your kitchen - or as I dubbed it the "shitchen" - did anyone ever cook in it? Or was your cookbook a stereotypical "collection of take-out menus"???

All the Best!


He did send a weird response that I may broach at another time.

My wife is gonna LOVE this blog post!


Taylor Conant said...

Two things:

1. A house is not an investment, making Leroy a moron for sure.

2. You are definitely an ego-maniac and turned what was a dispassionate business transaction into a contest of emotional wills.

'Twas fun to read!

CaptiousNut said...


First I want to publicly thank you for sending me that pic of you and your sand sculpture!

You are correct, a house is not an investment - as I have discussed before. I had plenty more to say on this grand misconception of Leroy's but it might be better suited to a follow-up post. Heck, HGTV conflates "house" and "investment" all day long on its programming.

If the Commi's of our Big Government were consistent, they would probably ban using the words together - just as they ban *promised returns* and whatnot for agents selling stocks and mutual fund "investments".

As for my maturity level...

I recently discovered that I am *perfectly mature*.

Meaning those more childish than me are immature. And those more grown-up than me are over-the-top extremists.

Taylor Conant said...


Hahahaha awesome. And your welcome for the sand sculpture photo. That is a "rounded down" approximation of the actual size of my... y'know. Best I could do with the resources available to me at the beach

Anonymous said...

Funny all around-but you really are an A-hole. So was Mr. Leroy. Really, riding a sinking ship.

My wife and I walked away from two house purchases in a declining market because of obtuse sellers. Both were unwilling to give. All around us we saw houses not moving and these clowns were unwilling to budge. As with you, it all worked out. We waited 11 months by chance and did much better (we feel).

Less "diverse". Really? Or was that sarcasm?

Really, I can't tell.

I gotta get some work done today.

Slow out.

CaptiousNut said...


I can't explain the "less diverse" remark. It's somewhat of a complicated, private ribbing.

You are a trooper for reading this post. Now read it again and again until you completely agree with my point of view and my actions!