About Me

WHY Would I Suggest a $50k House to Somebody That Can Afford $200k??

by John Rice

We’ve all been there.  You just got on a plane and the stewardess starts telling you where the emergency exits are and that your seat cushion doubles as a floatation device.  You’re thinking “BLAH BLAH BLAH lady, just give me my bag of honey roasted nuts!”  Although I don’t put on a skirt and have a demonstration for it, I like to bring up “The Exit Plan” with clients before they buy.

In the past, nobody really thought about the exit plan.  We all just assumed our house would keep appreciating and real estate was a bar of gold that you could live in.  I’ve seen so many sellers over the past few years whose house has become a noose.  I don’t want that to happen to my people.  It is always important to pick a house with decent resale potential, not pay too much for it, and to not over improve it.

Here’s a story about a recent deal:

My client is a young dude with his whole life/career ahead of him.  Pre-approved for $200k.  Likes the downtown scene and old houses.  We’ve looked at several that he liked.  I liked them too, but my concern was that this dude could get offered his dream job several states away in the not so distant future.  I didn’t want him to get stuck with a house that would be hard to sell.  We made an offer on one, but the seller wasn’t living in reality.  I got to thinking that I didn’t see too much difference between the houses at the top of his budget and those at the bottom.  So what do I do?  I take a guy that can buy up to $200k to look at a $50k house.  (Somewhere there is a realtor reading this right now that thinks I am  nuts for leaving so much commission on the table!)

Why would I do that?  For starters, I am older than this guy, and I know life has a way of changing on you……fast.  Plus I knoooooooow how expensive it can be to maintain any house, especially an old one.  I didn’t want him to ever be in a position where he couldn’t take that dream job, or not be able to save some cash for emergencies and all.  Bottom line, I was watching out for him.  We talked about all that, and fortunately he thought buying below his means was a good idea…..especially when there wasn’t that much difference between a $150k house downtown and a $50k house.

His mortgage is now going to be cheaper than most people’s car payment.  He got a house he likes, and likes even better the position he’s in.  If he needs to sell and  it takes a long time, making that payment isn’t going to put him in a bind.  Plus, it is on a street where there is a lot of redevelopment going on.  Lots of restaurants and bars just 3 blocks down his street.  If he stays long enough, there is a good chance that he’ll be able to make some money on it.

That’s why you always need an exit plan, cause one day, you will sell whatever house you are about to buy!

Playing “Bang for Your Buck” & it took longer than 30 minutes!

by John Rice

Ever watch that show on HGTV called Bang for Your Buck?  Let me let you in on a secret…..the winning house is ALWAYS going to be in a neighborhood that will best absorb the amount of money invested on whatever the improvement was.

I recently had a chance to play “Bang for Your Buck” with a client, only they were wanting to pick the house that had the best change to have been the winner.  They narrowed down their short list to about 8 houses.  I ran the comps, took what I knew about the neighborhoods and the market, and told them which ones would be the best bet to get back the $20-30k they want to spend on improvements.  Of the eight houses, most were at or near the top of the range for their neighborhood.  That never works for getting anything back on your improvement dollars.  If the range for the neighborhood is $150-200k, you can spend a million bucks on a house, but you aren’t going to get much more than $200k for it.  See, once you over-improve a house, you end up making buyers pick between the best house in an inferior neighborhood or an average house in a superior neighborhood…….and sometimes those people have a realtor like me who will tell them they can improve any house, but they can’t do a ding dang thing to change the whole neighborhood!

So, my folks picked a house in the lower end of a neighborhood that ranges from $200k up to well over $500k.  That should give them the room they need in the value range to get back most or all of the money they spend.  It is also in an area where it is the preferred neighborhood due to character and school district.  You’ve got to consider what other neighborhoods any future buyers may also consider.   We ruled out several good houses just because there were so many similar neighborhoods all in the same part of town.  In fact, we saw about 10 houses that were all pretty much the same floor plan within a quarter of a mile from each other.  You don’t want a future buyer to be playing “Where’s Waldo” with your house when it is time to sell!

 I also gave them some ideas for what would be the best things to do to the house.  Pretty much, what you want to do is offer a buyer just a little more than what they expect to see in your neighborhood.  Some people (and amateur Flippers) go over board.  I think I blogged about a Flipper who put granite and travertine all over a house in a neighborhood where 30-year-old laminate was typical.  That dude could have done just as well with a nice new laminate counter top and 89 cent tile.  Sure, who doesn’t like granite and travertine, but it was wasted money from an investment standpoint……especially since his higher material cost drove up his asking price and he couldn’t sell it.

Here are some things that never go out of style:

-Adding a fireplace

-Hardwood Flooring

-Crown Molding

-Plantation Shutters

-Adding a deck or patio or making the one you got larger

-Fencing a yard

-Landscaping

For things that a buyer will want to rip out in 10-20 years, (tile, counter tops, backspashes, carpet, light fixtures, cabinets, etc) you are only going to get a return on your investment as long as what you bought is not only still stylish, but in good condition.  For example, when your maple glazed kitchen cabinets are beat to heck a few years down the road, don’t expect a buyer to pay you back for them.  And in 15 years, they don’t add any value.

If you can’t tell, I really want my own reality show.

If real estate were gym class, would your house be picked last?

by John Rice

I was that kid in middle school that was always picked last in gym class.  You know the drill.  Two team Captains (Buyers) pick their team (Houses) until there is only one left and that person gets picked by default.  Don’t feel bad for me though…….I’m sure the past 30 years has been better for me than for most of those picked before me 😉

The real estate market is very similar to what we’ve all experienced in gym class.  Buyers organize the houses in order of preference.  Naturally, they are most interested in move-in ready houses that are priced right.  Then they move down the list to those that are less desirable.  Sellers want to be picked sooner rather than later……think “Days on Market.”

Once the Captains are chosen, that is like the beginning of the house hunting season.  The Captains pick those they think will be the best.  Once those kids are on a team, they are “Sold” and not available anymore.  All a Captain can do is pick the most desirable kid from what is left.  Once the best one has been picked, the second best one becomes the new best choice.  That is until it was just me standing there and the Captain says my name…….with the enthusiasm as if he had just heard the cafeteria was serving goulash for lunch.

Right now, we are in the time of year where not many new listings are hitting the market.  It’s kind of like when there are only about 6 kids left from the whole class.  These are the ones that maybe nobody really wants, but the next kid that gets picked is going to be the best of those that are left.  There are many sellers right now with average to below average houses that will get contracts simply because there are no better choices for a buyer right now.  I always say that fall is the best time to get rid of  house that nobody has wanted all spring and summer…….which I guess is my whole point.

  On a side note, the only time I ever got picked any higher than dead last was when it was for volleyball.  See, I am left-handed.  When I serve, the ball always goes on the opposite side of the court from where it lands when most people serve.  Everybody on the other team was always caught off gaurd……and nobody ever noticed the pattern of where the ball would go when I served.  Come to think of it, that is one of the first times I ever realized the benefit of zigging when most people zag and zagging when most people zig.

Say yes to the…..HOUSE?

by John Rice

Okay.  I hate to admit it, but I do…..sometimes….watch “Say Yes to the Dress” with my wife.  Not that I am into wedding dresses or anything.  To me, I enjoy seeing the process a bride goes through when picking the dress.

Seems to me, most of them go in with a specific vision of what they want, but they end up with something totally different.  It is often the same way with shopping for a house. 

Often, people come to me, or any realtor I assume, with a list of what they want in a house.  Usually people give a bedroom/bathroom count, part of town, square footage range and their budget.  I then take them out and look at houses that match that criteria.  While I am there, I try to pick up on the non-verbal cues about what they like and don’t like.  What rooms they spend the most time in.  Even which rooms they go to first.  When a buyer goes straight through the house and into the backyard, that means I better make the backyard they want a high priority.  All this is one reason I never lead people around and “Show” them the house.  I shouldn’t set the pace nor the order.  There is just too much I can learn about them by letting them set the pace on those things, especially the first few times we go out to see houses.

Just like on the show, you can tell by facial expressions if the house is a hit or miss.  Sometimes people do say things that they don’t even notice they have said.  If a buyer makes a comment that it was dark in the house, and all the lights were on, I know I need to be on the lookout for fewer trees around windows or more/bigger windows….or suggest cutting down some of the trees if everything else is good about the house.

Picking a house is so much more than just a logical choice.  Even the most unemotional person still wants to like their home, which is a feeling.   Often, a buyer will not be interested in a house that is perfect on paper, because it lacks the vibe they want.  Just like with the dresses.  You never hear a bride who has found THE dress say the dress is beautiful, they always say THEY feel beautiful in the dress.  It is a vibe thing.

Unfortunately, the vibe factor isn’t something that you can search for on the internet when looking at house.  A lot of the time, it is a process.  Often a buyer doesn’t know the vibe they are looking for.  You really just have to go out and look, and eventually the vibe starts to get more defined. I have had a lot of buyers apologize to me for taking so long, or  for the time we spent while they discovered the vibe they really want.  I always tell them not to worry about that since I know this is a process that we have to go through in order to get to the right house.

 

Lexington Ky Real Estate: How $59 Bought a lot of Trust

by John Rice

Well, it finally paid off today……and in a big way!  See, I am all about keeping the trust I work so hard to establish with my clients.  I want them to know I am looking out for them, and I often look for ways to reinforce that vibe.

Let me give you a little background about this story so you’ll understand how me spending $59 to have an air conditioner looked at by my HVAC person turned out to be a fantastic decision.

I have a client who is buying a house.  We had it inspected.  The inspector said the copper had been cut out of the air conditioner lines.  The other agent had their HVAC person come out who inspected the unit.  Since I know this agent, and my client knew I knew this agent, I wanted to make sure he knew that despite my friendship with the other agent, I was totally on his side.  The last thing I need is a client to even entertain the thought that I’m not watching out for them.  That’s why I disclosed that I was friends with the other agent to begin with!  When you’re in a business where you give advice,  you must have total trust with your clients.

  Since we had opposing opinions about the lines, I sent my HVAC person out.  I told my client I had no reason to believe what the other agent said was untrue, but I wanted to prove it to him.  Now really, I expected the lines to be there and all to be well.  It was really about putting my client’s mind at ease that all was well………..

Only all wasn’t well.  Turns out the copper lines were missing, probably recycled by now and the thief that took them has already spent the money.  With no lines, the compressor was burned out.  My HVAC guy said it would be about $1500-2000 to get it working again.

I am so glad I decided to get this checked out myself.  Not that I thought there was any deception here.  This was just one of those things where the person checking it earlier didn’t investigate all that well and my agent-friend passed on the info they were told to me.  If anybody is to blame it would be the HVAC person who said it worked just fine.  (So……other agent…….I am not pointing any fingers at you if you are reading this ;-))

Can you imagine if my client had closed on the house tomorrow, turned on the air, and it not work?  Then find out he needed to spend that much money?  Not only would that have been devastating, it would have killed any credibility and trust I had built with him.  In the end, it was worth every penny of the $59 to guarantee that my client’s wallet wouldn’t be drained, his house to be  cool, and to maintain the trusting relationship we have.