People are fascinating. A long-time client, now friend, recently referred someone she knows to me. Let's call him John.

John and his wife own a home in Oakland. They bought it directly from the homeowner as a For Sale By Owner (FSBO) in 1989, the peak of the market's frenzy. Having previously been outbid on several other homes before finding this one, they wrote a contract that was high for the neighborhood. Of course, during that period of rapidly escalating values, it seemed that prices would continue to rise. An historical survey of market trends over the years tells us otherwise, but, at the time, they had no one to temper their urgency. To compound the problem, the home was built in the 1920's and had substantial "deferred maintenance," some of which they knew prior to buying, the rest discovered over the years. Although the age of the home contributed to the need for repairs, it was also a major component of its charm. They loved it. They allowed their hearts to rule their heads.

Now, almost six years later, they decided to sell their beloved palace. They realize they have multiple issues to face. The property is worth a minimum of twenty-five thousand dollars less than they paid. Not only that, it still needs considerable pest control work, painting, and, possibly, a new roof and drainage system. This is not to mention any requirements the new buyer's insurance company may demand, such as additional earthquake retrofitting and electrical upgrades. The alternative — not doing the work — will more than likely either lower the price they could get or, worse, make the property unsaleable. In psychology, this is known as an "avoidance-avoidance" dilemma."

Another obstacle is that the home has been refinanced. If the loan is not paid off on time and in full, the lender can go after their personal assets. In this scenario, their credit rating would suffer a serious blow.

In all likelihood, they will do more work to the property, sell it for as much as they can get, and "come our of pocket" for the balance to pay off the loan. Hearing about their situation, I felt badly for them; I felt even worse after listening to the rest of their story.

John and his wife, after finally deciding they would sell their old charmer, bought a vacant lot and made plans to build their dream home. They looked at lots in all the best neighborhoods with prices ranging up to $250,000. In the end, they bought a beautiful lot for $75,000 in a good neighborhood. The predominant home values in the area range from $150,000 to about $300,000. The lot is picturesque, spacious and will afford them privacy. It is also within two to three hundred yards of known earthquake fault lines.

Their thought was to spend about $200,000 on construction. Assuming they are able to keep their expenses to around this figure, they will have spent enough to place their home near the very top of the value range for their area. As we have all experienced, however, things tend to cost more later than originally planned. For one thing, the city may impose expensive engineering and building requirements to mitigate the earthquake danger. Even then, their proximity to the fault line might prevent them from getting earthquake insurance. Earthquake insurance or not, this factor will likely diminish the value of their property.

John told me they were undertaking the new home project with no thought to ever selling — this will be their "last home." When I asked what would happen if one of them died and the other had to sell, he realized this was a consideration they had overlooked.

Do we see a trend here? With each property, John and his wife tried to "beat the system" without fully understanding how it operates. This probably was not a conscious process, but a result of selective perception. They focused mainly on reasons to buy and discounted the risks. They bought attractive properties in mid-range areas, but failed to heed three age-old maxims: 1) you get what you pay for; 2) location is critically important; and 3) do not fight the "principle of regression" — buying the most expensive property in a neighborhood leaves you nowhere to go but down.

This very bright, professional couple is repeating the same mistakes they made in the past. When I pointed this out to John, a successful attorney, he agreed. He told me he protects his clients by being cautious and conservative, but does not always apply these same principles in his own interests.

I recently wrote an article about protecting sellers. John's situation is a classic case of why buyers also need protection, even from themselves. Intelligent, articulate and knowledgeable people can overlook important issues by virtue of being caught up in the emotional excitement of the buying process. 

An experienced, professional real estate agent maintains an unemotional perspective and can point out the 'blind spots." Agents help clients clarify reality.