Thanks much for the link to the Secretary Problem solution. That’s will serve perfectly. Even if I don’t know the total number of houses that will be candidates for serious consideration, I do know there’s an average, which is (IIRC) six houses visited before a purchase.
As for cheating … what I mean by that is deluding myself about some aspects of the property I’m looking at so that I believe “this is the one” and make an offer just to stop the emotional turmoil of changing homes and spending a zillion dollars that I don’t happen to possess. “Home sweet home” and “escape the evil debt trap” are memes at war in my head, and I will do things like hallucinate room dimensions that accommodate my furniture rather than admit to myself that an otherwise workable floor plan in a newly gutted and beautifully renovated yet affordable home is too dang small and located in a declining neighborhood. I take a tape measure and grid paper with me to balk the room size cheat. But I also refer to the table, which requires me to check for FEMA flood zone location. This particular candidate home was in a FEMA 100-year flood zone, and the then-undeveloped site had in fact been flooded in 1952. That fact was enough to snap me out of my delusion. At that point the condition of the neighboring homes became salient.
The extent to which self-delusion and trickery are entwined in everyday thought is terribly disheartening, if you want to know the truth.
On weighting my functional criteria based on dollars, the real estate market has worked out a marvelous short circuit for rationality. Houses are no longer assessed for value based on an individual home’s actual functional specifications. The quantity of land matters (so yard size matters to price). Otherwise, overwhelmingly, residential properties are valued for sale and for mortgages based on recent sales of “comparable” homes. “Comparable” means “the same square footage & same number of bedrooms and baths within half of mile of your candidate home.” The two homes can otherwise be completely dissimilar, but will nevertheless be considered “comparable”. No amount of improvements to the house or yard will change the most recent sale price of the other homes in the neighborhood. What this means is that sales prices are just for generic shelter plus the land, where the land is most of the value and neighborhood location is most of the land value. So the price of the home you’re looking at is not really very closely tied to anything you might value about the home. This makes it very difficult to come up with a reasonable market price for, say, an indoor laundry versus laundry facilities in the garage. It’s certainly beyond my meager capacity to calibrate the value of home amenities based on dollars.
I’m told it wasn’t this way in the 1950s, but given the history of land scams in the U.S., which go all the way back to colonial land scams in Virginia, I have my doubts that prices for real estate were ever rational.
But I’ll try to find something for weights. Back to the drawing board. And thanks for your help.
The extent to which self-delusion and trickery are entwined in everyday thought is terribly disheartening, if you want to know the truth.
In some areas that’s not terrible. The thing is, if you’re building a bridge you want that bridge to not fall down and that will or will not happen regardless of your illusions, delusions, and sense of accomplishment. However if you’re picking something to make you happy, this no longer applies. Now your perception matters.
Let’s say you are looking at a house that checks off all the checkboxes, but on a instinctual, irrational level you just hate it. Maybe there’s something about the proportions, maybe there’s some barely noticeable smell, maybe there’s nothing at all you can articulate, but your gut is very clearly telling you NO.
Do not buy this house.
The reverse (your gut is telling you YES) is iffier for reasons you’re well aware of. However my point is still valid—when doing or buying things (at least partially) for the experience they will give you, you need to accommodate your perceptions and self-delusions, if only because they play a role in keeping you happy.
Houses are no longer assessed for value based on an individual home’s actual functional specifications.
Um, not sure about that. See, you can assess anything you want but you still need a buyer. You still need someone to come and say “This is what I will part with all my savings and get into debt for”. No one obligates you to buy a house which is priced “fairly” on comparables but does not satisfy you.
Markets are generally quite good at sorting these things out and the real estate market is not sufficiently screwed up to break this, I think.
Beware! The optimal solution depends a lot on the exact problem statement. The goal in the SP is to maximize the probability that you end up with the best available option, and it assumes you’re perfectly indifferent between that and all other possible outcomes.
That Wikipedia page discusses one variant, where each candidate has a score chosen uniformly at random between 0 and 1, and all you learn about each candidate is whether it’s the best so far. Your goal is to maximize your score. With that modification, the optimal strategy turns out to be to switch from “observe” to “accept next best-so-far” much sooner than with the original SP—after about sqrt(n) candidates.
Your actual situation when buying a house is quite different from either of these. You might want to hack up a little computer program that simulates a toy version of the house-buying process, and experiment with strategies.
Thanks much for the link to the Secretary Problem solution. That’s will serve perfectly. Even if I don’t know the total number of houses that will be candidates for serious consideration, I do know there’s an average, which is (IIRC) six houses visited before a purchase.
As for cheating … what I mean by that is deluding myself about some aspects of the property I’m looking at so that I believe “this is the one” and make an offer just to stop the emotional turmoil of changing homes and spending a zillion dollars that I don’t happen to possess. “Home sweet home” and “escape the evil debt trap” are memes at war in my head, and I will do things like hallucinate room dimensions that accommodate my furniture rather than admit to myself that an otherwise workable floor plan in a newly gutted and beautifully renovated yet affordable home is too dang small and located in a declining neighborhood. I take a tape measure and grid paper with me to balk the room size cheat. But I also refer to the table, which requires me to check for FEMA flood zone location. This particular candidate home was in a FEMA 100-year flood zone, and the then-undeveloped site had in fact been flooded in 1952. That fact was enough to snap me out of my delusion. At that point the condition of the neighboring homes became salient.
The extent to which self-delusion and trickery are entwined in everyday thought is terribly disheartening, if you want to know the truth.
On weighting my functional criteria based on dollars, the real estate market has worked out a marvelous short circuit for rationality. Houses are no longer assessed for value based on an individual home’s actual functional specifications. The quantity of land matters (so yard size matters to price). Otherwise, overwhelmingly, residential properties are valued for sale and for mortgages based on recent sales of “comparable” homes. “Comparable” means “the same square footage & same number of bedrooms and baths within half of mile of your candidate home.” The two homes can otherwise be completely dissimilar, but will nevertheless be considered “comparable”. No amount of improvements to the house or yard will change the most recent sale price of the other homes in the neighborhood. What this means is that sales prices are just for generic shelter plus the land, where the land is most of the value and neighborhood location is most of the land value. So the price of the home you’re looking at is not really very closely tied to anything you might value about the home. This makes it very difficult to come up with a reasonable market price for, say, an indoor laundry versus laundry facilities in the garage. It’s certainly beyond my meager capacity to calibrate the value of home amenities based on dollars.
I’m told it wasn’t this way in the 1950s, but given the history of land scams in the U.S., which go all the way back to colonial land scams in Virginia, I have my doubts that prices for real estate were ever rational.
But I’ll try to find something for weights. Back to the drawing board. And thanks for your help.
In some areas that’s not terrible. The thing is, if you’re building a bridge you want that bridge to not fall down and that will or will not happen regardless of your illusions, delusions, and sense of accomplishment. However if you’re picking something to make you happy, this no longer applies. Now your perception matters.
Let’s say you are looking at a house that checks off all the checkboxes, but on a instinctual, irrational level you just hate it. Maybe there’s something about the proportions, maybe there’s some barely noticeable smell, maybe there’s nothing at all you can articulate, but your gut is very clearly telling you NO.
Do not buy this house.
The reverse (your gut is telling you YES) is iffier for reasons you’re well aware of. However my point is still valid—when doing or buying things (at least partially) for the experience they will give you, you need to accommodate your perceptions and self-delusions, if only because they play a role in keeping you happy.
Um, not sure about that. See, you can assess anything you want but you still need a buyer. You still need someone to come and say “This is what I will part with all my savings and get into debt for”. No one obligates you to buy a house which is priced “fairly” on comparables but does not satisfy you.
Markets are generally quite good at sorting these things out and the real estate market is not sufficiently screwed up to break this, I think.
Beware! The optimal solution depends a lot on the exact problem statement. The goal in the SP is to maximize the probability that you end up with the best available option, and it assumes you’re perfectly indifferent between that and all other possible outcomes.
That Wikipedia page discusses one variant, where each candidate has a score chosen uniformly at random between 0 and 1, and all you learn about each candidate is whether it’s the best so far. Your goal is to maximize your score. With that modification, the optimal strategy turns out to be to switch from “observe” to “accept next best-so-far” much sooner than with the original SP—after about sqrt(n) candidates.
Your actual situation when buying a house is quite different from either of these. You might want to hack up a little computer program that simulates a toy version of the house-buying process, and experiment with strategies.