Dave Barry's Money Secrets (13 page)

In other words, an older home is a giant collection of costly defects held together by a few coats of grime and latex. But many people, when they look at an older home, don’t see these problems: They see
character.
I know this because I am one of these people. More than once I have had my brain paralyzed by what psychiatrists call Old House Delusion Disease (OHDD).

My wife and I bought an old house that had every known old-house problem, including termites, not to mention a grand total of one closet, and
an entire room that had no electrical outlet
s—
a clear indication that the house was not built by or for people with a need for, say, lighting. Were we discouraged? No! We thought it was quaint!

Here’s how delusional we were. We had plumbing problems (of course), and at one point, in an effort to fix a leak, some plumbing guys were crawling around under our house. They emerged holding some yellowed, crumbling, rolled-up newspapers, which they’d found wrapped around our pipes, apparently as insulation. We carefully unwrapped one of the newspapers and found that it was a
Miami Herald
from 1927. It had a story in it about Charles Lindbergh.

So consider our situation: There we were, confronted with stark evidence that our pipes, in addition to leaking, were very old. It’s like being aboard a boat in the middle of the Pacific and discovering that not only were you sinking, but also that your hull was made entirely of Triscuits.

And how did we react to this horrible news? We were
thrille
d
! Charles Lindbergh! It was so
charming
!

The plumbers were also very excited, but in their case it was because they knew we would be putting all their children through Harvard.

Old House Delusion Disease is very powerful. Usually, when you buy an old house, you hire professional house inspectors. These inspectors are very thorough: They spend a whole day crawling around the house, and then they give you a detailed, written report, which says
DO NOT BUY THIS HOUSE, YOU IDIOT.

Not in so many words, of course. The report breaks the house down by major defects, which are further broken down into subdefects, sometimes hundreds of them. The house, according to this report, consists entirely of defects. You
read
this report, but because you have OHDD, none of it actually penetrates into your brain. Your brain remains impervious, even when the inspector goes out of his way to warn you about serious problems:

INSPECTOR:
OK, there’s something I want to show you here in the living room . . .

YOU:
Don’t you
love
the living room? It has such character! The molding!

INSPECTOR:
Right, about the molding, I wanted you to see this.
(The inspector takes a screwdriver and taps the tip gently against the molding. The molding disappears in a smokelike puff of wood particles, and then a large part of the wall itself collapses, leaving a gaping hole, through which can be seen, in the gloom, an exposed wire that periodically emits a shower of sparks, illuminating a dripping pipe covered with green slime. A rat darts past, pursued by what appears to be a boa constrictor.)

YOU:
Ha ha! These quirky old houses! That can be repaired, right?

INSPECTOR:
Well, yes, I suppose it could, if you’re willing to completely . . .

YOU:
I’m not worried about cosmetic problems, as long as the house is structurally sound. They knew how to build these babies in the old days.
(You stamp your foot on the floor to emphasize this point. Your foot goes through the floor.)

INSPECTOR:
Um, that’s another thing I wanted to mention. Your floor joists have been almost entirely eaten away.

YOU
(
retracting your foot
): Termites? No biggie! A lot of these old houses have termites! We can just have it treated by . . .

INSPECTOR:
Actually, it’s beavers.

YOU:
Beavers?

INSPECTOR:
They’re building a dam in the basement.

YOU:

INSPECTOR:
I’ve never seen that before.

YOU
(
recovering
): The kids have been wanting a pet!

At this point the inspector, who has dealt with OHDD before, gives up and edges out of the room, taking care not to put too much weight on any one part of the floor.

You, of course, go ahead and buy the house. As a true OHDD victim, you would buy this house if it was actively on fire. Once it is yours, you begin calling what will become a never-ending parade of skilled, highly paid craftsmen, who will spend so much time at your house that eventually they will become a part of your family and invite you to attend all their children’s graduations from Harvard.

To summarize what we have covered so far, the first proven technique guaranteed to lose you money in real estate is to buy an older house. This leads us to:

Mistake Number Two: Buy a New House

Unlike old houses, which fall apart over time, new houses start falling apart immediately. Often the last subcontractors on the job have to sprint from the house as it begins to collapse around them, like Indiana Jones in the Temple of Doom.

There are several reasons for this. First, new houses are crap. No, wait, that’s unfair to crap. In parts of rural Nepal, people make houses out of actual dung, and these houses are much sturdier than new American homes in subdivisions with names like Manor Oaks Estates Phase IV.

One problem is materials. We’ve established that a major flaw in older-home construction was that the houses were built out of wood, a material that not only rots and burns but also is viewed as lunch by large segments of the animal and fungus kingdoms. So today, new houses are built out of: wood.

Yes! We’ve learned nothing! Only now, thanks to modern manufacturing techniques, the wood we use is much flimsier. Take the “two-by-four.” This was originally a sturdy piece of lumber that measured two inches by four inches, which is how it got its name.*
 
³³
But over the years, the lumber industry—whose executives live in homes constructed entirely of stainless steel—has been cutting costs by reducing lumber sizes, so that now a “two-by-four” is more along the lines of a Popsicle stick:

Modern “Two-by-Four”

(actual size)

Scientists in the lumber industry are working day and night to reduce the size of the “two-by-fours” even more. They dream of a day, in the not-so-distant future, when a “two-by-four” will be invisible to the naked human eye, and a single termite will be able to consume an entire home in forty-five minutes.

Another problem with new homes is the quality of the builders. Don’t get me wrong: I’m not saying there are no good builders. There
are
good builders: Their names are Arnold and Herb Frinker, and they are honest, competent, reliable, and reasonably priced. They retired in 1987.

But the rest of the field is pretty bleak. In parts of the nation, all you need to do to become a professional house builder is take a brief course and pass an exam that is not overly demanding, as we see from these actual questions:

Professional House-Builder License Exam Questions

1.                  What type of vehicle should a professional house builder drive?

a.                  A truck type of vehicle.

(Correct Answer: a.)

2.                  You’re building a house for a customer who is locked into a very rigid move-in date. You have repeatedly assured this customer that the house will absolutely, positively, definitely, no question, count on it 110 percent, be finished in six months. Assume that the date is March 1. When will this house be finished?

a.                  You mean, like,
completely
finished?

b.                  Not this year, that’s for sure.

c.                  How the hell should I know?

(Correct Answer: These are all correct.)

3.                  A buyer has just moved into a house you built and is calling you repeatedly to complain that there is a toilet installed in the middle of the living room; that there is no floor in the kitchen; and that hot water is gushing from the electrical outlets. How do you respond to these problems?

a.                  Get a new phone number.

b.                  Explain that these are normal things caused by the house “settling.”

c.                  What problems?

(Correct Answer: There is nothing wrong with any of these answers.)

To review what we have learned about real estate so far: It is a huge mistake to buy an older house, because it will fall apart and you will forever be repairing it. The same is true if you buy a new house. But you can’t buy
any
kind of house unless you have money, which leads us to:

Mistake Number Three: Get a Mortgage

A mortgage is a great big wad of money that you borrow so you can buy a house that you cannot, by any sane standard, afford.

There are many different kinds of mortgages available, including fixed rate 30-year, fixed rate 15-year, variable rate 30-year, variable rate 10-year jumbo with balloon, variable fixed year 15-balloon jumbo rate, and 30 variably rated ballooning yearly jumbos, to name just a few.

Before applying for a mortgage, you should thoroughly familiarize yourself with the advantages and disadvantages of each type of mortgage. Then you should pick one at random, because they all work exactly the same way: Every month, you send a payment to your lender, and no matter how many times you do this,
you still owe the same total amount.
It’s like the movie
Groundhog Day,
where no matter what Bill Murray did, he always ended up starting over in exactly the same place.

Fact:
Inside the mortgage business, customers are commonly referred to as “Bill Murrays.”

The difference is that
Groundhog Day
eventually ends, whereas a mortgage never does. To date, the Egyptians have made more than 55,000 monthly mortgage payments on the pyramids, and they still owe exactly as much on their mortgage—a 30-year variable jumbo balloon—as they did in 2600
B.C.
(They’re thinking about refinancing.) You should just accept the fact that you’re going to have a giant mortgage balance until you die, possibly as a result of beaver bites.

Conclusion

As we have seen, real estate is an exciting field, offering many opportunities for a financial novice such as yourself to screw up. In this chapter, I have done my best to cover as much ground as possible without imparting a single shred of useful information. Now it’s up to you to get out there and apply these techniques. Because as the late football coach Vince “Vince” Lombardi so often said: “If you don’t get up off the bench and get into the game, you can never suffer a career-ending knee injury.” Those words are still very true today, and although Coach Lombardi has passed away, I have no doubt whatsoever that somehow, somewhere, his mortgage lives on.

16

HOW TO NEGOTIATE A “WIN-WIN” OUTCOME

You Must Crush Your Opponent Like an Insect

L
ET’S SAY TWO MEN—call them Bob and John*
 
³⁴
—both want to buy a new car. They go to the same dealership on the same day and order the same model of car, with exactly the same options. Yet John pays $3,500 less for the car than Bob does. Why?

Simple. Throughout the entire course of his discussions with the car salesman, John was holding an eighteen-inch machete. This basic tactic—which rarely occurs to most car buyers—gave John a big edge in his negotiations, an edge that he was able to take to the bank.*
 
³⁵

Yes, knowing how to negotiate is a very useful skill—and not just in financial transactions. Although you may not realize it, you’re negotiating constantly, from when you wake up in the morning and negotiate with your spouse for access to the bathroom; to when you negotiate with your kids to get them to stop playing their video game, “Death Killer of Fatal Murdering II: The Slaying” for
ten freaking minutes;
to when you negotiate with your boss to give you a raise and a promotion, or at least a better chair; to when you go to bed at night and negotiate with your spouse over whether you’re going to have any kind of intimate carnal relations at all during the current fiscal year.

So if you want to get ahead in life and the bathroom, you need to know the rules of effective negotiating. The most important one is:
Never pay list price.
I mean
never.
For
anything,
including intimate carnal relations with your spouse.*
 
³⁶
List price is for
suckers.
If somebody tries to charge you list price, you need to make it clear to this person that you are a savvy individual who knows how the game is played, and you need to
stick to your guns:

You:
How much is it?

Person:
$1.50.

You:
That’s too much.

Person:
What?

You:
It’s too much. I’ll give you 75 cents.

Person:
This is a
toll booth.
The toll is $1.50.

You:
Eighty cents. But that’s the best I can do.

Person:
But
everybody
pays $1.50.

You:
That’s your
retail
price.
You
didn’t pay that much. Listen, I understand you need to make a profit. But let’s work together here. Let’s find a middle ground we can both be happy with.

Police officer:
What seems to be the problem here?

Person:
He doesn’t want to pay the toll.

Police officer:
You have to pay the toll.

You:
I realize that, Officer, and I am perfectly willing to pay a reasonable price. We’re negotiating that right now.

Police officer:
OK, I’m going to give you a ticket for obstructing traffic. You just got yourself a $250 fine.

You:
I’ll give you $125. Take it or leave it.

Police officer:
Is that a machete?

See how easy it is? By sticking to your guns and insisting on a better price, you have negotiated yourself into a position where, instead of settling for the same deal that “everybody” gets, you will receive special treatment.

Most of us experience our first serious financial negotiations when we attempt to buy a car. A lot of people hate buying cars, because they feel that car dealerships use unethical sales tactics. This is not true! Car dealerships operate under an extremely strict code of ethics. Here it is:

Car Dealership Code of Ethics

•                  
ETHIC 1.
The salesperson shall never, under any circumstances, reveal the True Price of the car to the customer
until after the customer has agreed to purchase the car.
Until that point, the True Price shall be shrouded in deep mystery. Even though the dealership is in the business of selling cars, and has been selling cars for years, and sells cars every single day, including the exact car that the customer is looking at; and even though the dealership knows to the exact penny how much the car costs, and how much profit the dealership needs to make, the salesperson will insist that he has NO IDEA what the True Price is. The only way he can find out the True Price is to ask the Manager, and he cannot ask the Manager until
after the customer has agreed to purchase the car.

•                  
ETHIC 2.
Once the customer has agreed to purchase the car, the customer and the salesperson shall work out an Offer. The salesperson shall then inform the customer that it is the lowest Offer that he, the salesperson, has ever dared to take to the Manager, and that he could very well be in physical danger. But, darn it, the salesperson
really likes
the customer, so he is going to give it a shot.

•                  
ETHIC 3.
The salesperson will then leave the customer alone sitting on a hard plastic chair in the little sales cubicle for a period of time that is not less than the gestation period of a yak. During this time the customer shall have nothing to do except stare at the framed photographs of the salesperson’s children, who shall look cute but waif-like and hungry.

•
                  ETHIC 4.
If the salesperson has no children of his own, he may use photographs of waifs cut out of
National Geographic.

•
                  ETHIC 5.
When the salesperson returns, he shall look weary but triumphant. He shall inform the customer that the Manager was very, very angry about getting such a low Offer and at one point struck the salesperson with a telephone directory. But the salesperson fought for the customer like a tiger and was able to get the Manager to agree to a price that, while somewhat higher than the Offer, is still so low that the dealership is actually
losing money
on the deal, PLUS the deal
includes floor mats,
which, according to the salesperson, are worth, like, $17,000, making this deal so amazing that the dealership will probably go out of business at any moment because of its insane generosity, so the customer had better sign the deal
right now.

•
                  ETHIC 6.
If the customer balks, steps 2 through 5 shall be repeated as often as necessary, until the customer has been in the sales cubicle so long that his butt has become chemically bonded to the plastic chair and the salesperson is returning from the Manager’s office with blood on his shirt from fighting so hard against the Manager and getting a price so low that he, the salesperson, will not make any commission at all, and his children will have nothing to eat except boiled gravel, but that is all right, because the salesperson has formed a deep personal bond with the customer and cares only about getting him this excellent deal. Finally the customer, realizing that he is in danger of spending his golden years in this cubicle, will break down and agree to the deal. The customer now believes that his ordeal is finally over, and that he at last knows the True Price.

•
                  ETHIC 7.
The customer is an idiot.

•
                  ETHIC 8.
At this point the salesperson shall broach the issue of “undercoating.” The salesperson shall explain that, although the manufacturer did a thorough job of finishing the
upper
part of the car—the frame, body, interior, engine, transmission, etc.—for some mysterious, totally inexplicable reason, the manufacturer failed to protect the
underside
of the car, which, the way the salesperson describes it, is made of low-grade shirt cardboard, so that, if left uncoated, it could dissolve at any moment and dump the customer and his loved ones onto the interstate at speeds in excess of 70 miles per hour, and, as a fellow parent with waifs of his own, the salesperson simply cannot sit idly by and allow that to happen to a customer he cares so deeply about.

•
                  ETHIC 9.
Once the customer has agreed to purchase the undercoating—and the customer
will
agree to purchase the undercoating—the salesperson shall broach various other essential dealer-installed features that the manufacturer, incredibly, forgot to include with the car, including: an alarm system that will annoy the hell out of everybody within a two-mile radius but never actually summon help; an Extended Total Customer Security Protection Plan offering numerous benefits that the customer will never actually benefit from; embossed-leather owner’s manual; driver’s-side ashtray light; lug nut defroster; moth deflector; rear-seat catheters, etc. In time the customer, weak from lack of food and realizing that the best years of his life are slipping away, will agree to purchase all of these things.

•
                  ETHIC 10.
But the customer shall
still
not know the True Price, not until it is finally time for the Ritual Signing of the Papers. This is when the customer discovers that, in addition to the price of the car and all the extras and the taxes and the license and registration fees, he has to pay for “dealer prep.” Dealer prep means cleaning the shmutz off the car, removing the stickers, adding fluids, etc., so that the car can actually be driven. In other words, the dealership, after charging the customer many thousands of dollars for the car and the various extras, is now going to charge the customer several hundred MORE dollars
for getting the car into usable condition.
This is not unlike a restaurant that lists steak on the menu for $23, and then, when a diner orders the steak, the restaurant charges $5 more for “thawing and cooking.” But the customer, like millions of car buyers before him, will pay the “dealer prep,” because by this point, after hours of intense cubicle pressure, the customer has the functional intelligence of a Rice Krispie.

As we see, when you enter a car dealership, you are going to be exposed to a very tough ethics code. Few people can stand up against it. I, for one, cannot. I’m the world’s worst car buyer. I come from a long line of Presbyterians, who get their name from the Greek words
pre,
meaning “people,” and
sbyterian,
meaning “who always pay retail.”

In ancient times Presbyterians were nomadic goat traders. They would arrive at a market with, say, fifty goats, and then, after several hours of bargaining, they would leave with twenty-three goats. Everybody loved to do business with the Presbyterians. The reason they became nomadic in the first place was that they traded their entire village for a pound of lentils.

So when I’m in a car dealership, I am basically prey. My idea of an opening tactical salvo is to look at the car’s sticker price and say to the salesperson, “This looks like a good deal! Are you sure you’re making enough profit on this?” I buy
all
the dealer add-ons. I buy Extended Total Customer Security Protection Plans for
other customers.

If you’re like me, you should never go into a car dealership, or even
walk past
a car dealership, alone. You should always take along a designated negotiator. I recommend my friend Gene Weingarten. He actually
likes
to bargain with car salespersons. It’s a blood sport for him. He can sit in the cubicle for
days
and not change his position by a dime. He would rather undergo a vasectomy with a WeedEater than purchase undercoating.

Consider the Louisiana Purchase. In 1803, President Thomas Jefferson negotiated a deal with France under which the United States agreed to pay $15 million, in return for which France gave the U.S. full title to 800,000 square miles, or nearly 525 million acres, which works out to
3 cents per acre.
Thus, in one stroke, Jefferson doubled the size of the fledgling nation and gave it control over a vast territory, strategically vital and rich in natural resources, stretching all the way from the Mississippi River to the Rocky Mountains:

The Louisiana Purchase As Thomas Jefferson Negotiated It

Photography Credits

Gene would have gotten a
much
better deal. He would have started by demanding that France knock at least $2 million off the asking price because the package included North Dakota. Gene’s position would have been that he was doing the French a
favor,
taking North Dakota off their hands. He would have also demanded that France knock off another $3 million because the Great Plains were basically covered with bison dung.

In addition to demanding a lower price, Gene would have insisted that France sweeten the deal by throwing in various extras. Ultimately France would give in, just to get rid of Gene, and the Louisiana Purchase would have been more along these lines:*
 
³⁷