Buying a House? A Parable for First-Time Homebuyers

Johnny wanted to buy a house. He had a great job and no debt, and his savings account was, well, big and getting bigger. 

He had excelled at school his whole life, from grade school through his MBA. Since graduating he'd taken a prudent approach to his money -- squirreling away savings, living within his means, and maxing out his company's 401(k) match.

Johnny was the embodiment of prudent financial management. He was years ahead of his peers. He wasn't even 30 yet.

He decided the next step in his financial evolution would be buying a house. The notion of owning a piece of land was deeply appealing to Johnny. His father, in fact, had success investing in rental properties.

But this investment decision was motivated by more than money. This would be a home. A place he could live in for the next phase of his life. A place he could put his money and, perhaps, his future family. 

He hired his childhood friend, Tony, to be his real estate agent. Tony was young, yes, but he was smart and Johnny trusted him. And Tony had led his agency in sales the prior year, so he must be good, Johnny reasoned.

Together they identified a house, and Johnny made an offer, which was shortly accepted with minimal negotiation. Johnny headed to the banks.

He visited Bank of America, the bank his father always did business with. But times were different, and Johnny was unimpressed with his father's banker/golfing buddy. Later that day he read that Bank of America had ranked below average in overall satisfaction by J.D. Power.

Next, he visited BB&T (NYSE: BBT  ) a very well-known regional bank in his native North Carolina, and a bank ranked very highly by J.D. Power. With his finances in such fine shape, Johnny had his loan quickly approved.

With Tony as his guide, Johnny eased through the buying process without major incident. The appraiser did find that a small area in the crawlspace looked odd, but after reviewing the appraisal, Tony advised Johnny to move forward. In his judgment, the spot was insignificant.

Within a month, Johnny was the proud owner of his very own three-bedroom, two-bath ranch-style house. He had the biggest lot on the whole street, in fact -- nearly three-quarters of an acre.

Weeks and then months passed. Johnny was on top of the world. And then one day, stepping out of the shower, he noticed a spot on the floor that gave under his weight a little too much. 

Each day he noticed the spot. It was getting worse. A few weeks later, it gave in so much it nearly sent Johnny tumbling. He called a repairman to mend the floor.

The handyman soon discovered not just a soft spot in the bathroom floor, but serious wood rot all the way through the sub-flooring. He went under the house and cut out some boards to better assess the full extent of the damage. 

Hidden on the underside of the rotting flooring was a layer of mold. It was everywhere. The handyman sadly informed Johnny that he couldn't fix the problem. He'd need to hire a specialist. 

Johnny did exactly that. He didn't have any other choice. He couldn't sell the house now, as its value was seriously impaired by the cost to repair the rotten flooring. No buyer would take on such a project. He was stuck.

It took 12 months to fully eliminate the mold. All told, it cost Johnny nearly $100,000. He had to take out a second loan to fund the expense. His savings account had gone from five figures to three.

Tony was, of course, incredibly apologetic. He had never seen anything like this. He thought he was giving Johnny sound advice to ignore the spot the appraiser found.

Of course, he'd been a real estate agent for only two years. He hadn't really seen anything, when you think about it.

When it comes to taking advice, experience matters
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