Risk, investment and home buying

Tonight's Nightly Business Report on PBS was about risk and investment.  One statement made during the program is that most people invest emotionally rather than rationally.  An example given in the program that all of us have experienced is the purchase of lottery tickets rather than putting money in savings.  We would rather take long-shot chances on a fast and big return rather than a much surer, but lower return.

I have seen the same when it comes to the way most people buy homes.  I partially discussed this point in another blog post.  However, it bears repeating.  Most people purchases homes from an emotional rather than rational level.   I have often heard potential buyers say how much they love a home before I begin a home inspection.  That goes further during the inspection when I can almost hear them hold their breaths when I mention a finding.  The same is true even at the hiring level in that many buyers hire a home inspector either because the bank or other agent requires that one be hired or as a formality.  The buyers really do not want the home inspector to find any problems.

I recommend that potential home buyers look at the home inspection in a different way.  The home inspector should help bring the buyer down to the rational earth from the emotional clouds.  Good home inspectors can strip the home down to its bare skin to see what the home buyer might not be able to see through his/her rose-colored glasses.  While some of the inspectors findings might be related to his/her skills and experience versus that of the buyer(s), in many cases, the inspector has no invested interest in the property other than a fee.  So, in many way, the inspector is the buyer's anchor to reality.  The inspector should be considered that way.

Buyers should not be afraid to receive information from the home inspector and should not hesitate to ask the inspector questions.  A home purchase is a major investment decision.  As many found out during the latest economic downturn, making a wrong home investment can end up financially setting back a family and in some cases destroying a marriage.   Know up front what you are facing and make your decisions based on that knowledge.  Moreover, remember that part of the investment is those you hire to get that information; be sure to know who you are investing in.  Most of all, treat the home purchase more like a stock purchase than a lottery ticket.