- Years ago, I blogged about an extremely successful homebuilder (one of America’s largest) who attributed all of his success to his willingness to leave money on the table whenever he negotiated. He made less money because of that, but it paid off in spades with stronger and more trusted relationships, much less stress, more customer and vendor loyalty, and an extremely rich network of friends, family, and co-workers.
- When I was in law school, I listed a beat-up Nissan Sentra in the newspaper for $1,800 and had dozens of calls because it was under market. But I remember one gentleman in particular who spent the entire day trying to negotiate me down to $1,700. He came to my house several times to wave “1,700 cash!” in front of my face and called me several times as well. I sold the car to someone else for $1,800. I’ve been amazed by “Mr. $1,700’s” mindset ever since because he wasted an entire day trying to save $100 when he could have been earning much more.
- I take our cars to a repair shop that charges more than other shops, and I send others there too. I go there because their integrity (they often tell me not to do work that dealers recommend) and their skill is well worth the premium.
- I’ve blogged many times too about a “shopper” we had in north Oakland, CA in 2012 – who just had to get the best possible deal on a house – right before the market took off. She underbid repeatedly until she was priced out of the market entirely and forced to buy in a much lower-end market. That Oakland market has since gone through the roof. Trying to save $25,000 has now cost that buyer at least $1 million.
- I worked with an agent for years who would demand repair credits at the 11th hour, right before close, with almost every transaction. Sellers, wanting to close, usually acquiesced. But it often upset listing agents and made them less likely to work with him in the future.
- I blog often about how borrowers rarely keep their mortgages for more than 5 to 7 years. It is not just because they refinance into lower rates, but it is also because of life events that force them to move or refinance. These events include marriages, divorces, births, deaths in the family, or kids leaving for college. Sudden increases in wealth via an inheritance, a huge bonus, a large raise, stock option grants, or an IPO will also foster a move-up. And many borrowers also do cash-out refinances to consolidate debt, to pay for tuition, remodels, or home repairs.
- There were hundreds of media reports about “excessive agent commissions” during the NAR lawsuit hullabaloo last year, and everyone seemed to expect commissions to plummet as a result. But it turns out buyers and sellers are still willing to pay those commissions because of the benefits they get, and because people have figured out that agents do a lot more than just fill out a contract.
- We often have young investment property buyers who are determined to get rich in real estate. And they seem to have been taught to grind anyone and everyone down to the last dollar. But will leaving one lender for another to save $20 per month or $395 in fees, like we see all the time, make them rich? Probably not. And, I’d say that focus on minutia instead of on the big picture is actually a detriment to building wealth. (It’s a myth that people get rich by not going to Starbucks and instead investing that $5.95)
So, Am I Just Whining About Rate Shoppers Again?
Only sort of, as we tend to do better than other lenders when it comes to rate shopping, and it is probably a net benefit to us.
What I am really trying to illuminate is that excessive rate-shopping is often not worth the hassle, as borrowers risk poor service and late closings, and they will likely not keep their mortgage as long as they think in any case.
It can also be brutal for lenders, as they spend far more time on a loan than people outside the industry realize. This is why we don’t “steal loans” from other lenders unless we can substantially beat the rate (and that is especially the case when the market is improving).
Experienced loan officers, similarly, often send our shopping borrowers back to us for the same reasons.
And no, I am not saying people should unnecessarily leave money on the table (we very aggressively grind our software vendors because they’re constantly trying to grind us).
But I am saying the super-shopper mentality is often counterproductive for everyone.
And Here Is the Most Important Point of This Blog
The wealthiest people I know got rich by focusing on earning more money rather than just saving money.
