Month: February 2010

When LOCATION isn’t enough

by John Rice

I had to take a different route to get to my kid’s school today since I had to park and go inside.  So I’m at a light at the end of a very prestigious street and I see this house that is for sale.  I’ve recently been in it, so that is how this all came about.

See, this house is on the corner of a street full of very old and grand homes.  It is one of those streets that has the huge old awesome houses where the rich people lived when it was new, and  still do.  This house is at the very end of that stretch of houses.  Beyond this house you start to have commercial zoning, smaller houses, and even some houses that have been chopped up into student housing.  It has location…..in theory.

This house has something else working against it too.  Like I said, the houses on this street are very grand.  The street has elaborately detailed houses of architectural significance…….This house looks like a giant farmhouse.  It has wood siding, simple architecture.  It really looks like something from a Norman Rockwell painting, just jumbo sized.  It doesn’t really fit in with its surroundings.

Then there is the fact that it has a tiny back yard, which is taken up by the 2 car garage that practically sits on the street.  When I parked there, my car hung out over the sidewalk.  And when you are in the backyard, you don’t feel like you are even in this nice neighborhood, you just feel like you are on a busy, loud corner.

Now that I’ve run though all that, let me tell you a little bit about the recent history of this house.  It sold for $400k in 2006.  Somebody spent a fortune on it, then tried to sell it less than a year later for $679,900….then $649,900…..then $599,900………then $437,000………then $380,000.  They even tried to auction it at one point with no success.  Now, you may be thinking that it was just a declining market, and that may have had some effect, but the real issue here is that the house just wasn’t right, despite having “Location, Location, Location.”  I am sure when they listed it for $679,900, that the comparable sales for that street supported that price……..again in theory.

So, I guess my real point here is that you really need to step back and take a look at what all is going on with a house before you make an offer.  Does it fit well with its surroundings?  Is it on the edge or in the middle of its defined neighborhood?  What negatives does it have?  All those things have market value.  See, when a realtor or an appraiser look at the comps, they don’t put a value on things that are more of a vibe issue  ( I do though!!)  If two houses were the exact same side by side and one had a really steep driveway, which one are you going to buy if they are priced the same?  What about one that has power lines running over the backyard?  Backs to apartments?  You’d pay less for an identical house with any of those negative features, and YOU are the market, even though on an appraisal they would be worth the same.   (Maybe I’ll blog about the difference between market value, appraised value, and tax assessment value sometime!)

If I had been the buyer’s agent for this house, I would have told him that even though this house seems to have location, it still has plenty of things that just aren’t right, and those things are going to make it worth much less that the comps.  I am sure he has learned all this now, but he has been foreclosed and the house is back on the market, this time for $285,000. 

If you ever buy a house with a big negative, you’ve really got to buy it right so you have some room to sell it right when that time comes.  The negatives may not bother you, but you need to know about them before you buy because one day you will need to sell.

Neighborhood Video Tour: Brighton Woods

by John Rice

Sorry for the rough audio at first…..guess I should keep the camcorder INSIDE the car!  Also, I apologize for the prune face at the beginning.  The sun was in my eyes (Please tell me I don’t really look that bad.)  I’m hopefully getting better at these!

Random Houses Don’t Sell as Well

by John Rice

I woke up at 3:44 this morning thinking about the differences between how a buyer and a seller view a house, what a buyer needs to know when looking at a seller’s house, and the other way around.

A buyer is going to come in a house, stay for 20-30 minutes if they like it, and wander around all the rooms.  They view the house as a whole at this point.  They are trying to decide if they like the whole thing since they can’t cut and paste features.  This is the main difference.  When a buyer goes from room to room and all colors are different, that just seems random to them.  A seller sits in each room for longer periods of time and tends to view the house as different spaces.  Same thing for finishes.  When a buyer sees brass door knobs, a nickel light fixture, and maybe bronze cabinet hardware, it throws them off.  It has a confusing vibe for them, just as it would for you if I spent the next few paragraphs talking about the Olympics and how much more I like coffee from South America than I do from Kenya.

If you are a seller, the best thing you can do is to give your house that cohesive vibe.  Paint all the walls the same color.  Makes things match.  It sounds silly, but those things have a calming effect on people.  People want to feel calm/relaxed in their home and this is one way to make  a buyer feel that way.  If two houses are side by side and identical, the one with the cohesive vibe is going to sell before the one with every room a different color.

Now I don’t want to make this about updates.  I think with HGTV we all believe  Stainless appliances and granite will make ANY house sell.  I’ve been in  houses that are totally random, but have these upgrades.  You know what happens if the house has the random vibe?  All a buy does is want to cut and paste those features to another house.  They say they really like that feature, but don’t buy it.  Often, real estate is more about minimizing negatives than accentuating positives.

If you’re a buyer, what you need to realize is that you can create that calming, cohesive vibe pretty easy.  You were probably going to paint anyway, right?  Another thing to remember is that you don’t want to over pay for a house just because all the rooms match.

How the $8k tax credit can effect neogtiating

by John Rice

Okay.  You want to buy a house.  You qualify for one of the tax credits.  You need a contract by April 30th.  But, who do you think has a little more power when negotiations begin?  Especially if your realtor let the listing agent know that you qualify?

I think we’ll see a little power return to the seller……..atleast until the credit expires.  For those sellers with the best listings on the market, they will probably get a few thousand buck more for their properties.  Buyer’s won’t mind paying a little more either since they will be getting it back through the tax credit.

What is one thing you can do to make sure this doesn’t happen to you?  Tell your realtor NOT to chit chat with the other agent and let the cat out of the bag that you qualify.  They may as well write “Sucker” on your head.  Especially once we start getting really close to the deadline.  I can honestly say that I didn’t bother to remember which of my buyers get it and which ones don’t.  So, when a listing agent asks me, I can honestly say “I don’t know.” 

Here is something else to think about.  Let’s say your somebody that gets the credit, writes an offer right before the deadline, then gets the house inspected AFTER the deadline.  If the seller and their agent know you will get the credit, and the deadline has passed, they know they can likely tell you no to any repairs you want.  You’ve lost a lot of leverage in negotiating repairs.

It sure is a great time to be a buyer, but it would be wise to find a house and get it inspected before the deadline.  It wouldn’t hurt to have a second or even third house on standby.

Comps can be like the weatherman

by John Rice

I had to run the comps for a house in that area between Chevy Chase and UK.  My buyer wanted to know what I thought the place was worth.  Usually, comps aren’t too hard.  In a newer neighborhood, they can be really easy since sometimes you can even find three of the exact same floor plans to use.

Older houses are a little harder to comp.  For example, the 3 best ones I had to pick from today were all in the same area, but were very different.   A lot of realtors would have just divided the sale price by the square footage, then added/subtracted for number of bathrooms or a garage.  It is all a very logical process of averaging data to come up with a number.  The only problem is that it doesn’t always work.  It’s kind of like the weather man.  According to him it was suppose to be a certain temperature, rain, not rain, etc. 

Back to my story….

The cheapest one was on the edge of the neighborhood near where the commercial section ends on South Ashland.  That corner of the neighborhood has a very different vibe than the one I saw with my buyer.   The next one was right around the corner from the house.  You’d think that would have been a shoe in.  But, it was much bigger, had been converted to student housing a long time ago, had a surplus of bedrooms, and was handicap accessible.  That isn’t going to attract anybody from the same buyer pool as the one we saw either!  Sorry if this is starting to sound like the real estate version of “Goldilocks”, but the last one was just right.

The last place was similar in square footage, was more updated, had never systems and would attract buyers from a much broader pool.  It went for $5000 less than the asking price of the one we saw.  I had to tell him that I thought the one we saw was over priced.

I also had to tell him that with old houses, you just never know.  Somebody could see that place and totally fall in love with it, with the end result being they paid too much.  I try to come up with a price that I think 80-90% of the buyers would pay.

All this reminds me of 2 houses I had listed on Wabash a long time ago.  Both of them were totally and tastefully updated.  The first one I listed was everything anybody could want in an old house, with the exception of very rough and very steep steps that went up to the converted attic space.  It was really nice up there, but getting there was posing a problem.  Time after time (not trying to sound like Cyndi Lauper either) we would hear how nice the house was and if it weren’t for those stairs…….  Eventually we sold it.  I should add that we actually sold it for much higher than the neighbors and a realtor who lived a few blocks away ever though was possible.  See, the comps didn’t really support the asking price.  We kind of pushed the envelope and it worked.  We just needed that buyer who would fall in love with it……or who was transferring from California, had a tight time line and everything looked like a bargain!

The next house I listed on that road was equally nice.  They had remodelled the upstairs, bumped out the roofline of the back and added a killer master bathroom and a walk-in closet.  Those are 2 things you don’t see often in an older house, especially for the price range we were in.  That house posed even more of a problem to me.   See, the downstairs rooms were just too small.  It was a little too cozy.  If you just looked at the comps, you’d have thought the house was worth about $15,000 more than it was.  We had to sell it a little under the comps to make up for the small rooms because this time, the buyer who would fall in love with it didn’t show up in time before my folks had to move.  Neither did another California tranferee.

So, you really have to have a feel for how buyers will perceive the house as a whole to know where to add or subtract value.  That is the art part of the deal.  Even to the most unemotional buyer, they still have to like the house to buy it.  On the comps sheets all the realtors use, it has the scientific stuff  like values for square footage, a bathroom, a finished basement, the number of garages, etc.   The problem is that if we don’t throw a little art into the comps we’ll just get them wrong…………unless the house is one of those where 3 identical houses have sold in the past 6 months!