The downside of delaying commitment

The Poppendieck’s helped push the idea of delayed commitment in software development. The idea is relatively straightforward and on the surface seems good. If you don’t need to make a choice, don’t. In terms of LEAN thinking, if you consider a decision in software development to be akin to creating inventory in manufacturing, then this makes perfect sense. Any decision made too early has the potential of becoming invalid with time. In the same manner, a part made in a factory too soon runs the risk of becoming useless.

We’re in the process of buying a home, and one of the very often delayed commitments is to an insurer. In the USA, and presumably elsewhere, if you want to get a mortgage, the lien holder wants you to insure your property. After all, without the collateral of your property, the lien isn’t worth very much. So, it’s very much in their interest to assure that if something bad happens that it will get repaired. You don’t need the binder from your insurer until within days of closing. You’ve probably already done the inspection, paid for the appraisal, perhaps paid money to lock the interest rate, etc. The seller will have turned away other buyers. After a month and a half, everyone is pretty well locked into this transaction. Tens of thousands of dollars may be at risk.

But that’s not my personality. If I can get the data to make a choice and make one, I will. And getting a quote on insurance was something I could easily do well in advance of closing. Delayed commitment? No, far from it. It’s usually just a formality to request the quote and lock in the insurance, but things have changed. Higher losses due to delayed maintenance and more extreme weather have made insurers more cautious. When I called, the first insurer refused to underwrite the risk because of the age of the roof. So did the second insurer. Had I waited to get these quotes then I would have found this out within days of the closing. No insurance, no closing. We’d be heavily committed to this house with a strong possibility that I would have lost all the money I put down.

At this stage, all I’m risking is the cost of the inspection. Sure, I don’t want to lose $500, but I’d far rather lose that than 5% of the purchase price. At this stage my goal is to renegotiate with the seller regarding the roof. My negotiating position is strong – I’m only into it for a few hundred while the seller now faces the possibility of being completely unable to sell without replacing the roof. Any buyer who isn’t paying cash faces the same problem. They won’t be able to get a mortgage without insurance and insurers won’t underwrite the house in the current condition.

Had I waited, my negotiating position would have been incredibly weak. I’d have put out perhaps $30,000 between inspection, appraisal, legal fees and earnest money. I’d be forced to pay for the roof myself or lose all that money. Delaying commitment isn’t always the safest choice. No matter how routine the delayed decision has been in the past, if you don’t understand the risks of not knowing the answer, you put yourself in a precarious position.

I’d argue that for anything you can know, don’t delay knowing it. Some minor rework costs are more predictable and preferable to the occasional complete blowout loss. There is value in predictability, even if the costs are slightly predictably higher.

Update: Interestingly, the seller chose not to negotiate over the replacement of the roof. We went on to buy another house, since we were unwilling to assume all the risk. The seller did eventually sell, and not terribly long thereafter, but at $15-20,000 less than our offer. In the sellers case, delaying the decision to negotiate cost them as well. Sometimes what you have right before you is as good as it is going to get.

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