The first house you buy is the most important one ever

First time buyers.  I’ve been working with a few of them lately.

Most first time buyers are thinking about finding a place they like.

I like to show them that their first house is so much more than that.

Every house you are ever going to own is impacted by that first one.

It is really the most important house you are ever going to purchase.

Why?

Because eventually you will sell that first house.  How well of an investment it turned out to be will impact how much money you have to put down on your next house.  It just keeps going until you are middle aged and in your forever home.  You know, the one you sell to help fund your retirement when you downsize to a cheaper home.

My dad called this compounding.  He was mainly referring to interest when he was teaching me this stuff in middle school, but it applies to real estate too.

It really reminds me more of bowling though.  To get a strike, you don’t knock down every pin with the ball.  You just hit one of them right and the pins begin to knock down the remaining pins.

Reading the real estate market in real time

One day this summer, I looked out across my backyard.  I do that every day.  All the time.  I love my backyard.

This time I noticed one of the pine trees in the corner had a bunch of brown needles on it.

I immediately reached out to my buddy Phil who knows just about everything there is to know about every plant there is.

He told me that usually once you see the needles turn brown, the tree is already dead.

I knew he knew what he was talking about, but just to be sure, I waited to cut it down until every needle had turned brown, fallen to the ground, and the branches snapped as crisply as the first Saltine cracker in the box.

That experience reminds me of the real estate market.  You never know exactly where the market is at the moment.  You just see the signs after the change occurred.

I got into real estate during the spring of 2005.  My first listing was in May.  I was so excited.  Houses had been selling for top dollar immediately.  I wanted to be a part of that.  The house took several months to sell.  I remember thinking, even as a newbie, that the house was priced right, had a good location, and statistically should have sold already.

Nobody knew it at that time, but the market was slowing down and was about to become the worst market in recent history.

After weathering that storm, I got to witness another change.  Early in 2013.  It felt like that first decent day in spring.  The one where you notice the sun stays up a little longer, you didn’t feel as cold as the day before.  Like that scene in Bambie where all the animals come out for the first time.

I was working with a really cool buyer named John.  He traded cars as often as I do.  He wanted the south end of town in an affordable price range.  We made a few offers on houses and lost them.  The offers we made were spot on within the recent comparable sales.  After the 3rd time, I told him that I felt like the market was improving, so all the sale prices for the recent comparable sales were going to be lower than what the value would be now.  We would have to made an adjustment.  Sure enough, as the ones we had made offers on closed, the prices were about 2% higher than the comps I had been using.  Meanwhile,  we had a backup offer on a foreclosure that he ended up getting.  He put very little money in that house and less than 6 months later we sold it for $41k more than he had paid for it.  By the time he sold it, everybody knew the market had changed.  The market had changed so much that even after the house sold, people were walking up and looking in the windows while he was home.  I told him to pull my for sale sign out of the yard and keep it in the garage until we closed.

So, where are we right now?  After such a hot hot hot market earlier this year, the market is really slow.  I don’t think it is in trouble or anything.  I just suspect that everybody who was going to buy this year did so in the first 10 months.  It has been a frustrating year for buyers.  I think a lot of them have given up on buying this year and are waiting until spring.  Sellers aren’t too happy right now either.  They have watched all their neighbors get multiple offers the first day on the market, but now they aren’t seeing the same thing happen with their house.

So, right now is a great time to get out and buy a house if you can find one you like.  We still don’t have a lot of choices, but you’re going to have more of a chance to negotiate and probably be the only offer the seller has on the table.  Historically, buyers come out of hibernation late spring and sellers start putting their houses on the market about a month later.  So you’ve only got about 8 weeks to enjoy this slow period.

The more of these changes I live through, the easier it becomes to notice them more quickly.

And now the same holds true for the trees in my backyard.

 

What do you really want in a house?

I’ve lived in my house for just over 5 years.

My biggest complaints?  I don’t have taller ceilings and I don’t have a lot of natural light.

What do I like about it?  I’ve got lots of space.  We have some empty cabinets and are no where near running out of room to store stuff.  I’ve got more than average room to park cars.  I’ve got a big lot with a lot of trees.  I like that I sit sort of high on my street and have some open space I can see between and over my neighbor’s houses.

I also like that the master bedroom is upstairs.  I don’t like it when the master is on the main level and is right off of a living space.  I like to feel like I am tucked in far away from any possible noise or distraction when I go to bed.

I find myself always looking out the windows.  I love watching the wind move tree branches.  It is like the trees are dancing.  I’ve got several peekaboo views of a golf course and a pond.

I like that I am on a dead end street about as deep in my neighborhood as possible.  It is very peaceful except when the dogs behind me are barking.

The funny thing about all this is that none of my favorite things about this house were part of the criteria for the search.

Like a lot of buyers, I based my search on logical things:  Bedroom count, square footage, part of town and price range.

I got some bonus things that were not part of that criteria.  I compromised on some things too….like my 8 foot ceilings and lack of natural light due to all the amazing trees that block the sun.

Being a realtor for over 12 years, I know that often the logical criteria gets thrown out the window when a buyer sees a house that triggers something emotionally for them.

For me, I was willing to compromise as soon as I pulled up to the house and saw the landscaping and the wide front lawn.  We were willing to do some updating after we saw the fireplace on the covered patio and all the trees in the backyard.  (We are still willing to do updating….meaning it hasn’t happened yet, haha!)

Almost all my buyers end up buying a house that is slightly different from the logical criteria they tell me they want.  And that is okay.  It’s all about finding a place you love.  Sometimes you don’t know what features you will fall in love with until you see them.

A fun way to lose $100k

I had a client ask me about a gorgeously renovated house in South Lexington the other day.  It looked like something right out of HGTV.

What was the problem?

It was easily $100k more than anything in that neighborhood.  It was around $350k in a neighborhood of $180-225k houses.

It was too risky.

Now, it could be this was the first house to be totally renovated and many more will follow in this neighborhood.  Or it could forever remain the one house that doesn’t really fit in.  Only somebody with a crystal ball could tell.  For now, I think it is too risky to be that first person to pay waaaaay more than what any house in the neighborhood is worth.  If this isn’t the next “Up and coming” neighborhood, then the buyer for this house will find that in 10 years, nobody wants the 2017 trendy finishes they paid an extra $100k to have.  It will just be another outdated home in the neighborhood and no longer the best one……and will be worth about $180-225k adjusted to inflation.

How good advice can be not so good

The first new car I ever bought was a 1996 Geo Prizm.  This was before the internet.  Back then, Consumer Reports was not only the most respected source for advice, it was about the only one.

They had a service where you could purchase the invoice cost to the dealer for whatever car you wanted.  They suggested bargaining up from the invoice rather than down from the sticker, and even suggested an amount deemed a reasonable profit for the dealer.

It all made perfect sense.

I thought I was being the wisest consumer ever.

I went into whatever the Chevy-Geo dealer in Winchester was called back then.  They had a dark green Prizm that my wife wanted.  We later brought our first born son home from the hospital in that car.

I sat down, told the guy what I would pay based on their invoice cost.  He immediately accepted.  Of course, it was about 7:45 PM by the time we got there.  I have since learned that showing up at a time when everybody is wanting to go home is the perfect time to walk into a dealership.

We got the car.

I felt like a hero for getting the dealer to accept my terms.

Later I realized that most of the Geo Prizms had been sitting on the lot for a long time.  This was when full sized truck based SUVs were gaining popularity.  There was a waiting list to get a Suburban since they couldn’t build them fast enough.  Gas was cheap.  A small economy car was not a hot seller.

I received great general advice that turned out being not so great for my specific situation, which is why the dealer was eager to accept my offer.

I see that happen a lot in real estate.

I wish there was a 3rd party in the deal that was looking out for me.  Somebody who could have given advice for my specific situation.  Somebody who would have told me that what I was wanting to buy was a car the dealers were having a hard time selling.  That they were more motivated to sell than I was to buy.  I wish there was somebody who would have told me that buying a small economy car at a time when everybody was buying Suburbans and Tahoes meant that it would depreciate rapidly.

I love being such a person for my clients.