What to expect from me for the next 17 years

It feels so strange to think about how real estate has changed over the course of my 17 year career.

Back when I was a newbie, agents hung around the office. We had like 14 phone numbers on our cards and one of them was a fax number. We dressed up….well, others did. I wore shorts year round back then. We licked the back of stamps and mailed people silly stuff like calendars. I did it once but thought it was pointless. All I’ve ever done is Christmas cards.

Then the PDF came along and changed it all. It was so much easier than a fax. There was nothing and I mean NOTHING worse than getting a fax from somebody that was illegible after several rounds of counter offers. Then electronic signature programs made it even better.

The biggest change has been to everything being online and consumer driven. When I got into this, many old school realtors back then didn’t realize that being online meant they were dealing with the public. The MLS had mostly been just for realtors. Before computers, they had books that came out once a week with listings. Since space was limited, you got stuff like “Cute 3/2 on unfin, dining room chandelier does not convey. Lockbox on backdoor.” A lot of realtors were putting that in the marketing remarks still. Also, there was one tiny black and white picture of the outside.

While so much has changed, some things remain the same. At the core, this business is really about people more than about sales or houses. It’s about helping and advising people on something that most people think they know a lot about but don’t really. I often describe my job as “Talking people into good decisions and talking them out of bad ones.”

I’ve probably got at least another 17 years left of my career. The trendy things (like the short lived QR codes) will come and go since the next generation always wants to reinvent the wheel, but I am sure that the core of this business will remain the same. I will be talking people into making good decisions and talking them out of bad ones and I will still be wearing shorts (at least on warm days).

Don’t believe the Chicken Littles in the media

I love YouTubers. Always a good laugh. Always predicting the market is going to crash.

They get a little nugget of data, like that the number of people refinancing their mortgages has dropped and draw the craziest conclusions. Well, when rates were between 2 and 3%, everybody rushed out to refi. Even if the rates had not gone up, eventually everybody who would have refinanced would have done so. That statistic was bound to decrease on it’s own eventually.

My favorite ones are those that predict a major housing crisis. It is just not going to happen, especially in Lexington.

Why?

The number one reason is that Lexington is almost out of land. Lexington cannot grow any more. The surrounding communities will of course grow. Lexington will always be the most desirable town in the Bluegrass and prices will remain higher than anywhere else around us due to that. (FYI-we will see a whole lot more remodeling in the future than we see building in Lexington.)

What else do I see in the near future? A slowing market, mainly due to interest rates and nothing being for sale. Right now everybody is complaining that 5% interest rates are the worst thing to happen to the market. I disagree. While rates being low were nice, it is the low rates that spoiled all of us and are affecting the market right now. We currently act like rates in the 2-3% range were normal and 5% seems excessively high. However, I don’t see prices dropping though. That’s because all those sellers who refinanced their mortgages when rates were under 3% are not going to move until they have a need. We need sellers in the market. When sellers are scarce, that means more demand than supply. People will likely only move when they outgrow their home, lose a job, get transferred, their family grows, Grandma needs to move in, or a divorce. You’re not going to give up a 3% mortgage on a cheaper house to get a 5% mortgage on a more expensive house unless you really need to move.

So, in Lexington at least, we have little room to build more houses, sellers who are less likely to move just because they want a nicer home, and higher interest rates. All of which means less supply at a time when we have Gen Z trying to get their first home and millenials needing to move up.

I guess if I had a YouTube channel, it would be pretty boring because you don’t get much attention by saying prices will remain at least stable and the market will stay slightly tipped in the seller’s favor.

Price of new construction driving up “Used” home prices

Used to be that new construction in your area held back the value of your house. The “Used” houses needed to sell for much less than a new one would. Even in a mildly appreciating market, your newer home didn’t really go up in value until that last brand new house sold. It was like the thought was “Why wouldn’t I just get a brand new one instead of buying a ‘Used’ home?” I know this is hard to believe for those of you new to the real estate market, but you used to be able to be the only offer on a completed new home and if you had time, you could pick your lot and pick your floor plan and have your house built. Today, builders like to finish the house and put it on the market to see how much they can get for it. Construction times have gone from 6-8 months to 10-12 months. Builders don’t want to be locked into a sale price where they won’t get paid for 10-12 months in inflationary times and with supply chain issues.

While an existing home will still sell for less than a brand new one in the same neighborhood, I am seeing something that hasn’t happened before. Since new construction is sooooo expensive these days, I am seeing the value of existing homes being boosted by the sticker shock of new construction homes. Yeah, the market is good and inflation is driving the prices of everything up, but prices are rising even faster than I expected in some neighborhoods with a lot of brand new homes going up, such as Masterson Station and The Home Place.

A brand new 2000 square foot home in Masterson is about $325k and the same size in The Home Place is about $440k. Now, instead of saying “Why wouldn’t I just get a brand new home instead of a used one?” buyers are saying “This existing home is a bargain compared to what the brand new homes are!

Are we in 2005? Yes and No

17 years. That’s how long I’ve been in real estate. Man, have I seen a lot!

When I got into this in the spring of 2005, here is what it was like:

  1. No realtor wanted to work with buyers.

2. It took no real skill to list a house and sell it since they were selling so fast.

3. We all thought the market would be like this forever.

4. Affordability was an issue and people were considering moving outside of Lexington to find cheaper housing……until gas shot up to $3 a gallon.

Here we are in 2022 and all that is still the same at the moment:

  1. No realtor wants to work with buyers now since all you do is write offer after offer on every new listing in any buyer’s price range.
  2. It takes even less skill to list and sell a house today since you don’t even need to know what the house is worth. Today you could list the house at 9:AM for $1 and by 5:PM the same day you’ve got 5 offers all at market value. The moment being a realtor gets a little tough, you will see 25% of all realtors get out of the business……starting with the ones who suck at being a realtor but are brilliant at self promotion.
  3. We still think it will stay this way forever. It won’t. While I think the market will stay strong short of a major economic catastrophe, it will slow down. Houses still sold in the late 70s and early 80s when interest rates were the highest they have ever been. Don’t think for a minute that 5% or even 7% will kill the market. Don’t think that inflation will kill it either. Wages will rise. They have in every inflationary time. Right now they haven’t caught up to inflation but they will. If you made $1600 a month in the 80s and your mortgage was $400, that is the same percentage as if you make $6400 a month now and have a mortgage of $1600.
  4. Affordability is still an issue. Used to be finding a first home under $100k was hard. Now it is hard to find anything decent for less than $200k. Many people that work in Lexington have been shopping in surrounding towns for cheaper prices. I have always discouraged that for a couple of reasons. I did the same in the late 90s with my first house. I was driving back and forth between Lexington and Winchester all the time and hated it. What I saved on the mortgage I spent on gas, tires and maintenance for my car. I encourage people to live where their life is. If work and your social life are in Lexington, well, you should live in Lexington. Also, I remembered what gas hitting $3 a gallon did to the market back then. It killed the first time buyers interest in buying outside of Lexington. Now $5 a gallon seems to be the magic price that keep people from doing this.

Appraised value verses Market value

Seems no matter what the market is, I’m explaining the difference between Appraised Value and Market Value.

Many people think whatever the appraiser says their house is worth, is what it is worth. The real value is whatever number a seller and a ready, willing and able buyer agree upon. Appraisers study past buyer/seller behavior and give an opinion of current value.

When the market was bad, I was always explaining how appraised value was usually MORE than market value. It was more like the house’s potential. In this crazy seller’s market, I am sometimes explaining how appraised value is LESS than the market value. A lot of the reason is because market value happens in real time. It is right now. Appraised value is saying what the value should be based on the past.

Just this week, a house I sold for $429k appraised for $417k. As I read over the appraisal report, it became clear to me why it did not appraise for the full sale price. Two of the three comparable sales were 6 months old. In an appreciating market, you must make a value adjustment for this. The appraiser gave the two houses 2 and 2.4% appreciation. We have seen much more appreciation in values than that since last October.

In response, I was able to obtain two other offers the listing realtor got. One was $421k and the other was $427,500. If you average those two offers plus the winning offer of $429k made by my buyer, that is an average of $425k.

The appraiser refused to adjust his opinion of value. This is how appraised value and market value differ. Market value is the 3 ready, willing and able buyers who desperately wanted to purchase this home all agreeing the value is between $421k and $429k. Appraised value, in the case of this home, is some stubborn dude with a big ego who isn’t actually in the market to buy anything cutting and pasting a lot of numbers on a sheet of paper and charging $425 for his outdated opinion.