How Real Estate Agents and Market Experts are Failing You

Expect home price appreciation to “fall further,” Mark Fleming, chief economist at First American and author of the report said, “as the hot sellers’ market of early 2022 turns in favor of buyers.” (Marketwatch, October 22, 2022)

There’s a home one minute walk from me that recently sold for $1.2M after 5 months on the market. A couple of weeks before they listed their house this past Spring, I had closed on my new house, reasonably identical, for $1.4M.

Seeing their house close for 11% below original asking and others’ thoughts about a buyer’s market, I had feelings of guilt that I had been made a fool. During the buying process, my agent had told me of another home, slightly larger, that just sold for 1.6M a few days prior. My price was supposed to have been a steal. But…

If I had waited six months, I’d be in a buyer’s market and look at the savings I could have had. I’ve screwed myself and my family for years.

I went deeper to understand the individual economics, and it turns out this is wrong. As I write this, mortgage rates today are around 7%. Someone who buys a house (standard 20% down, 30 year term) for $1.1M today is going to pay about the same in monthly costs that I did even though their price is 23% less (the difference in down payment is ~$60K). (Use Bankrate to see this for yourself)

Anyone who pays more than $1.1M is technically paying more than me for their house. To really see if I made a big mistake, I have to see if similar homes drop below $1.1M in the near future.

This isn’t what we’re taught however. The articles above, and even the agent who sold my house (more on that below), the story is prices drop = buyer’s market, prices rise = seller’s market.

What’s being missed is the actual cost to buyers and what rising costs mean to sellers.

For both buyers and sellers, agents should be comparing house prices based on costs, almost in deflationary / inflationary terms. Your targeted X monthly spend would buy you a home at $1.1M today, $1.5M 6 months ago, and $1.7M 12 months ago.

When I listed my previous house, my agent was very optimistic it would sell for over $1.2M. This was right at the beginning of the Ukraine/USA conflict and rising interest rates. Almost immediately, we (and everyone else in the local market) were dropping prices. It ended up selling 4.5 months later for just $870K. This was an incredibly deflating experience. My agent told me interest rates are rising, this is becoming a buyer’s market, etc.

Looking back on this, what she should have said is, when we went to market the typical buyer with $X spend would be able to afford $1.2M. What that spend looks like at this moment is only $1.1M. Should we change the price to match this?

Instead, it was more like, people think this is high, they can’t afford the same level of house, no one is selling in this market, we should lower. It was vague and reactionary.

If I had been given that information, it would have been very clear what to do, and to which target I needed to reach the same type of buyer.

To show you this, using the $870K price point:

  • 7% = $5300/month
  • 6% = $4838
  • 5% = $4400
  • 4% = $3983

Paying $1.2M at 4% rates (around the time we started to sell) would be $5219/month; buying my former house now for $870K would have been around the same monthly cost as buying it for $1.2M 6 months ago.

Does this imply a buyer’s market? I argue that this is neither a buyers nor sellers market.

If I had known what was about to happen (war, economy, inflation, interest rates) around the time I was make the decision to sell, I would not have put the house on the market. I ended up suffering an expectation loss of over $300K, nearly 30%. For new sellers, who already see these rising rates, why should they sell?

In other words, if I were to sell my new home right now I am totally screwed. We’ve seen that a buyer purchasing for $1.1M right now would have been able to afford $1.4M six months ago. I can’t expect more than 1.1M for it. I can’t afford to lose money on the transaction, so I hold off and wait. Even if I got a better job that required me to move, this impact of interest rates might make it impossible for me to do so in the coming years.

Over the long term, more sellers will hold off because they can’t get a worthwhile price, even though buyers will actually be paying the same amount in monthly costs. No one wins, buyers nor sellers.

The interest rate is a friction that prevents transactions and mobility around the nation. A hot real estate market is hot for both buyers and sellers. When sellers can benefit from selling, they’re more likely to do so. It doesn’t work for just one party, at least when it comes to mortgages.

Sellers need to understand changes in actual buyer cost and the affect on their selling price. Buyers need to understand their cost and how this relates to price in the market over time. (Is a house price rise of 20% fair? That depends on what the cost was at those moments in time)

5 Secrets to Maximize Your MBA Investment

It’s been nearly 5 years since I graduated from Northwestern (Kellogg)’s MBA program; I’ve had plenty of time to reflect on business school and consider its true importance as I finally get close to paying off my six digit student loan.

(Image of the Global Hub building taken from Kellogg’s web site)

Here’s what I would tell anyone looking to start on their own quest for huge paychecks, debt, and a life of constant comparison to your peers:

1) Go as early as possible.

I started at Kellogg with 10 years of multinational work experience, 7 years of people management experience, and a few years of true (small startup) executive experience. All that does not matter in the context of business schools, however. MBA programs are optimized to give students opportunities into template big corporate roles such as product manager and consultant. If you want one of these roles, fantastic. Big brand-name companies will be coming on campus with these roles to recruit you. If you do not, however, you’re on your own. Since so many people come to business school looking to change careers, this makes sense – if you couldn’t work in tech without a background in tech, for example, business school would lose most of its appeal.

Thus, since everyone going to Business School can compete for the same jobs, regardless of their pasts, extra experience does not matter. Conventional wisdom suggests the more you experience you have, the more you can get out of the education. Theoretically, that’s true. But Business School…is a business, and the first step into having a business mindset is understanding return of investment and opportunity cost. Like reading a book, you’re not going to retain much of what you learned over the program. If you can hold on to 10 lessons 5 years after graduation, I would be impressed.

You are in Business School to rebrand yourself as a top-tier business professional. When I went to school, there were a number of younger candidates who were only a couple of years out of undergrad. However, they competed for (and got) the same jobs versus others with much more work experience. If you can work two years and get a $150K offer, that’s much better than working five years for the same offer. You’ve accelerated your career faster and spent less time making less money. In my case, I learned that all my extra experience and stress-honed skills weren’t worth even an extra dollar for the typical MBA role.

Schools including Stanford even have programs to allow you to apply as an undergrad.

2) Go to the most famous school you can…..

In the most recent rankings of U.S. business schools, Kellogg is ranked 2nd by The Economist,[56] 3rd by U.S. News & World Report,[57] and 3rd by Forbes.[58] In addition, Kellogg MBA has consistently been ranked 1st in Marketing by U.S News & World Report.[59]

Oh, is Kellogg ranked (quote from Wikipedia) so high? That’s in the world you say? Oh wow. I must be super good at this “business” thing then. Plus, I majored in marketing. #humblebrag

The reality is rankings don’t matter. No one knows what the rankings are unless you’re applying or currently in the program. It’s really about brand. Ask a random person where you should go to Business School – Harvard or Northwestern. Everyone will say Harvard. If you have a chance to go to Harvard, I don’t care how much you care about Marketing, go to Harvard. Plus, just because you focused on Marketing in your MBA, that does not mean you won’t gravitate towards something else down the road.

Here’s my personal sense of school brand prestige, your perception may vary.

Tier 1:

Stanford / Harvard

Tier 2:

UPenn (Wharton) / U of Chicago / Northwestern (Kellogg) / MIT (Sloan)

Tier 3:

Columbia / UC Berkeley (Haas).

If you’re an M7 fanboy and want to move Columbia or add some Ivy League schools to Tiers 2 and 3, go ahead. I won’t even be offended if you think Kellogg is tier 3 – a friend once told me that Kellogg is only known by people who went to business school. Go to the school, not necessarily the Business School, that’s most famous / in the highest tier.

In pure brand, I admit I’d rank Northwestern possibly in Tier 4, perhaps because I’m from the West Coast. Northwestern could outrank Harvard in Business School for the next ten years straight, but there’s a different longstanding perception (in academic pedigree) of someone who went to Harvard vs someone who went to Northwestern. Challenge me if you disagree. I went to UC Berkeley, perhaps the best public school in the world, but I still can feel a bit intimidated if I’m in the room with someone from Harvard. Tying your personal brand to the school brand helps you to anchor someone that you meet that you’re someone important. If you have to explain why you’re important, it’s too late.

Another way to think of it is that when people hear you work for Google, they’re generally impressed. “She must be the best of the best – I’ve heard how many people want to get in there and about the great compensation + benefits they have”.  There’s even a special term for ex Googlers. Even though there are plenty of mediocre people that work and have worked at Google, that association gives you the benefit of the doubt most of the time.

The bigger thing to remember about rankings is that no one knows if you would be better educated going to X school versus Y. There is no objective test, no clinical trial. The only thing you can rely on is a school’s brand and its history of maintaining its brand.

As another friend told me, brands are a filter to help someone appraise you in a few seconds. Pick the best brand, screw the best fit.

Unless you can go to a school that’s in the geographic area you want to be in post-grad…

Northwestern sends many people into tech now. They’ve had to adapt to what their students want, and thus they also opened an immersion quarter in San Francisco recently, similar to Wharton’s own program.

That said about tiers, if I wanted to work in tech, I’d be willing to sacrifice a tier to go to school in the Bay Area. That means I’d choose UC Berkeley > Kellogg, particularly if I’m not from the Bay Area or don’t have a background in tech. To find special opportunities, not the same MBA role that’s offered at every top tier school, you need to be close to the people that are going to hire you. Being in the local market gives you more time to expand your network, impress people, and gain access to those opportunities.

Then re-shift and make your own tiers based on your target factors (location, industry, etc.).

I’m not sure if this is still true, but during my time, Kellogg’s brand was really weak in Asia, especially in China. UCLA, however, was extremely famous there. UCLA’s Anderson School of Management might be a couple of tiers below Kellogg in any ranking, but if you’re looking to work in China, you should seriously consider UCLA instead.

It doesn’t matter how many links to rankings you share with a hiring manager, they’re not going to care. That’s why you’re investing in the school’s brand, to get you through gates faster.

3) Go part-time, it’s easier.

Most MBA programs, top tier or otherwise, are well over six digit investments. Is that worth it for a school that’s not known (will not help you anchor someone with the perception that you’re great) outside its region? I’d argue you that once you get out of the top 15, surely top 25 business schools, there’s a serious question of how much this degree will help you.

That’s why I suggest going part-time. Sure, you won’t get to party the same way and working while going to school for at least three years requires extreme focus, especially if you have any semblance of a family. However, it is much easier to get into the part-time programs and your long term financials will be better since you will still be working. I haven’t looked into this in detail recently, but I believe the difference of getting into part-time is at least a magnitude of one tier, and perhaps even two. That means the choice could be between full-time at the University of Texas, Austin or part-time at Northwestern.

There is no career penalty, bias, or stigma against part-timers.

4) Don’t bother with an MBA if you’re focused on early-stage startups.

Want to start something new or join an early stage (Seed, Series A with less than 30 people) startup? That’s basically the story of my entire career.

Working at an early stage startup is about understanding how you start from zero with little resources, support, or best practices to guide you. I do not suggest Business School for this, particularly if you’re going to come out of a program with student debt. Large debt can quickly damper any excitement you have to take on more career risk.

Speaking from someone who has experience at the early stage startup and an MBA, if an MBA came to me looking for work, I’d have two concerns:

  1. Can this person thrive on their own?
  2. How much money does this person expect? We can’t pay them that.
  3. I do not want someone looking at my company as a two year gap to something more prestigious.

5) Don’t bother going to Europe.

I thought about INSEAD and London Business School once upon a time. Having grown up in the US, and then working in Asia for many years, I thought it would be fun to check out Europe.

For my career, I am glad I didn’t. European companies do not value MBAs as much as their American counterparts and European schools simply aren’t known in the US – go ask a normal person if they know INSEAD.

I’ll reiterate: get your MBA at the most famous US school you can.

My wife went to IE Business School in Madrid, which is consistently ranked among the top 10 business schools in Europe. Remember what I said about sharing links to rankings to hiring managers? That would have been the case here in the US – no one knew about IE, thus her MBA was no better than any other generic MBA. Making things worse, there was a limited alumni network she could tap into to land a good role as everyone was too disbursed.

When schools talk about how great it is to have diversity in nationalities in student classes, this only pays off for you if most of the those students stay in the same area post-MBA. Otherwise, how else can you depend on alumni for help if they go back to the 100 different countries they came from? I have found that top-tier MBA students want to stay to work in the US because it’s the country that best compensates them for their new skills.

Bonus: About those networks.

I always hear how people go to business school to build personal networks. I think what that means is “I want to make new friends as an adult”. That’s perfectly fine, but I feel that almost everyone is missing out on obvious opportunities during the process. The alumni you interview with to get into the school, the ones you reach out to to learn about the school, or the ones you ask for connections and referrals into your desired companies – these are all people you should stay connected and give updates to. These people are already years ahead of you and can give information and insight far beyond anyone in your class. I always encourage people I talk to to let me know how they’re doing in the future, but no one ever does. Instead, it’s a cycle of “let me use this person for what I need now and just ignore building that potential relationship”. If people didn’t care, they wouldn’t talk to you in the first place, and as long as someone isn’t making demands of me, I’m always happy to hear how someone is doing. Older alumni needs friends too….

Alright! 5 steps and I even threw in a bonus too. I’ll end it here and hope I was able to help you frame your decision about Business School in a different way.

My Facebook at Work Launch Analysis – September 2015

As with my Minecraft post, I do have an ego-driven need to see my insights proven correct. (Don’t worry, I know I am often wrong) Below is a slide deck I put together in an interview with Facebook for Facebook at Work (now called Workplace) in September 2015.

After 1+ years and only thousands of paying users and questions about what how the site should be used, however, perhaps my Slide 5 was onto something.

Facebook claims it has already signed up “thousands” of paying subscribers to Workplace Premium, spokeswoman Vanessa Chan told CNBC. Facebook’s name recognition and user familiarity could be a major asset that should help it muscle into the marketplace. But the social media site needs to overcome the perception that the site is a productivity killer at work and convince employers that staffers will be using the tool for work, not social purposes.

Silicon Valley Business Journal – April 2017.

My Microsoft Minecraft Education Strategy – May 2015

When I research something and build a plan for it, I really get invested and passionate about it. Then, I hope to see it fruition so I can believe my instincts were correct. As we begin to see Microsoft open up its Minecraft platform and launch larger education initiatives, I look fondly on this deck I created while interviewing with Microsoft two years ago.

Post-MBA Guide: 10 Steps to Refinancing Your Student Loan

After graduating with a MBA, I started to look into refinancing my student loans. My financial situation wasn’t terrible, but not amazing either. Over $100K in loans, little cash on hand, and close to 7% (fixed) interest rate from FedLoan Servicing. (Note: links to SoFi and CommonBond include my referral code – if you find this post useful, I appreciate the click. As I remember, each services gives a referral bonuses to you – $100 to $200 – and to me)

Here’s what I did to narrow the gap down to 3.5% (fixed) over 5 years. Note, some of the later steps will likely apply only to those with a good credit score of 725+, US nationality, and a reasonable track record of credit history:

  1. Research Providers: I started the process by searching Google, but also looking at Reddit, Credible, and Student Loan Hero.
  2. Get Baseline Estimates: I looked through a list of services that offered refinancing, looking for the top filter of lowest rates (both fixed and variable), using Credible to get early estimates on what I might get offered.
  3. Set a Goal: I preferred fixed if I could get it low enough (4% was my target based on what services were offering “as low as” for rates and what I felt my credit history justified)
  4. Short-List Your Applications: I decided to focus on Earnest, SoFi, and CommonBond for my actual applications.
  5. Look for Ways to Improve Your Credit: My initial offer from SoFi was 4.5%. This was a bit depressing. I asked SoFi if there was anything I could add to help make the case for a better rate. I also looked at Credit Karma to see if there was anything significant affecting my credit score. It turns out, there was, and I was able to make a quick fix on it.
  6. Work with Companies to See How You Can Help Them Make a Better Decision: I don’t know if that fix helped with the financing companies, but a week later, my credit score went up by 40 points.
  7. Use Competing Offers to Negotiate Among Providers: Around this time, offers from the two other companies came in, one of which was pleasantly lower than SoFi. I then used that offer with the other companies, and asked if they could offer a better rate. After a few iterations of this easy (for me) negotiation, I ended up with a final rate of 3.5%, lower than I had hoped. I chose CommonBond.
  8. Complete the Paperwork: After the paperwork was completed, the loan was refinanced in a little over a week. The entire process from initial contact to disbursement took about six weeks.
  9. Be Happy!
  10. Handle Your Monthly Payments

Overall, I was happy dealing with all 3 companies, no issues in my interactions. In addition, do keep in mind that federal (government) loans have special provisions for debt forgiveness that you will not have when you go private.

However, I plan (and want) to pay off my loans in full, and many private loans providers are good about understanding and working with you if you ever do lose your job and must delay payments for a little time. Firms like SoFi even help you find a new job if you find yourself out of work.