Buying Advice

Did that house REALLY appreciate in Value?

by John Rice

 Wondering what the real estate market in Lexington Ky is like right now?  This house here is a prime example.  This place came on the market on 11/9/09 for $217,500.  It sat there, was reduced to $212,900, then $209,900, and finally sold on 8/20/10 for $209,500.  On top of that, the seller paid $3911 in the buyer’s closing costs, so the “Net” sale price was $205,589…….It just sold in 13 days for $219,000.  That is a gain of almost 7% in less than 2 years!

I was in this house before it sold in 2010 and have studied the pictures to see if the seller put any money in improvements.  I also looked at the disclosure to see if the roof or HVAC had been replaced since the sale.  Nada.  Same flooring, same cabinets, same counter tops.  About the only thing the seller did was landscaping.  The house was vacant when it sold last and was fully furnished for this sale.  I might say 1-2% of the appreciation could be due to those reasons.  But one thing we do know, taking almost a year before selling in 2010, the buyer didn’t get a bargain.  Houses that were bargains even back in the worst of the past several years still sold quickly.

Now that the market is improving, here is where we are:  The most sought after neighborhoods have already gone up in value.  The rest of the market is still pretty flat.  It is like a train starting…..first the locomotive moves and pulls the first car, then the locomotive AND the first call pull the second car, then the locomotive, first and second car pull the third, and so on until the whole thing is moving.

You are late to the party if you were wanting a deal in one of the most desirable neighborhoods in Lexington.  There is still time at the moment to grab a deal in other neighborhoods though.  I usually recommend the best neighborhoods for resale potential, but if you can get a good enough bargain, I think there is room to come out ahead as the market continues marching back to the future.

Lexington Home Prices: Is it 2005 again??

by John Rice

For almost a year now, I have been saying the worst of the market is behind us.  I based that mainly on the fact that it was about that time when buyer’s seemed to lose the fear to buy a house.  Now that all the news reports are in agreement with me, thought I’d talk about what is next.

Rewind for a minute here.  The past several years have been pretty easy for realtors to understand the market.  Prices were pretty flat except for a big decline in 2007 and after the tax credit for first time buyers expired.  If a house sold for $XXX,000 six months to a year prior, it was probably worth that still, but you went in lower just to test the seller.  Those days are gone, especially for the most desirable locations/neighborhoods.

Take for example, Andover Hills.  I own a house I use to live in over there, so I watch that neighborhood closely.  Houses that were selling for $220ish are now going for in the low to mid $240’s.  The first one that went for this kind of money, I thought was a fluke.  Then it happened again, again, and again.  Back a few years ago, you needed one that was totally updated to pull that kind of money out of a 4 bed/2.5 bath 2300-2500 square foot home without a basement.  Today, the ones that are all original (meaning 15 year old HVAC, original windows, old cabinets and counter tops) are getting that same money.  Why?  School district.  If you want a good elementary school in that part of town it is about your only choice.  This same thing is happening in other neighborhoods that have something special about them.  Ashland Park and Chevy Chase are other neighborhoods where prices have gone up.  I had a client wanting to buy in the $300-600k range and just about every house sold as soon as it hit the market.  Two years ago, houses were sitting on the market forever in those areas, even the nice ones.  My people felt lucky to get the one they bought!

So, what is around the corner?  I am shocked that it hasn’t happened yet, but surely all those people who tried to sell as the market was circling the drain will eventually put their houses back on the market.  They might just get what they wanted for their houses now.  I think as long as interest rates stay pretty low, we’ll see a good market and increasing prices.  At the moment, people are so thrilled with how much house they can afford, they aren’t all that concerned about getting it at a rock bottom price….They just want to get a signed contract on it before somebody else does.  Also, the price increases in the top tier neighborhoods will pull up the 2nd tier and so on.  There has to be enough of a difference in price to make a buyer go for their 2nd choice location though.  Don’t think we are quite there yet.

It is a whole new exciting ball game right now.  I like trying to keep up with it and see where it is going.

Options when you need to sell your old house before buying

by John Rice

So, you want to buy a house and the only thing standing in the way is unloading your old one.  You either can’t or don’t want to get a bridge loan, pull equity out of the old house to fund the downpayment for the new one, or have two mortgages until the old one sells……what are you to do?

You pretty much have two options:  Write an offer BEFORE you sell your old one or AFTER you have a contract on the old one.  You ought to be out looking while your old place is on the market so you can get a vibe for what you can expect for the money and to learn first hand about locations/neighborhoods. Here are some insights on going either route:

WRITING AN OFFER BEFORE YOU SELL YOUR OLD ONE

This is the route most people want to take.  I’ve found people don’t like the unsettle feel of not knowing where they will be living, so they want to focus on signing a contract for a new place before they sell their old one.  I can’t say that I blame them, but you rarely get the best deal and most decent realtors will counter back with a kickout clause.  A kickout clause is where you have an accepted contract, and as long as nobody else comes along before you sell your house, everything is swell.  But, should another buyer come along without such a contingency, you have a specified period to either remove your contingency to sell the old place or bow out of the deal.  Also, most any house that is appealing enough to you to want to buy is also going to appeal to other buyers.  Long story short, you feel like you’re buying a house but you really may not be.  Let’s think this through…….If no other buyer were to come along prior to selling your house, then it will still be available when your old house does sell.  If another buyer does come along, you’d have lost it anyway.  So, really all you achieve from writing a contingency contract is that you feel like you are buying a house.  (Now, sometimes this is a good plan IF you can really remove the contingency should another buyer appear.  In that case, this is a good way of tying up the new house until your old one sells.)

Then there is price.  The seller perception of a contingency offer is that you are giving them a wish list.  To them, they are hearing you say you want to buy their house one day, maybe if, eventually, you sell your house or win the lottery.  I have never seen a seller get really motivated to go to their lowest price when they aren’t even sure all this will even happen.  I think you can get your best deal by waiting until your house sells and then writing a contract on whatever house you want.  Nothing motivates a seller like knowing they are 30 days or so from getting to move.  If you do write a contingency offer, know that basically you are paying a “Convenience Fee” by going this route.  Who knows, maybe paying a little more for the house may be worth the perceived peace of mind to you.  Your call!

WRITING AN OFFER AFTER YOU SELL YOUR HOUSE

I think you are not only going to be in a better position to negotiate, but you can avoid the heartache of losing an awesome house by waiting until you have a contract on your old house.  To a seller, a contingency just to close on your old house is much much stronger than asking them to wait for a buyer to bite on your old crib.

When I have gone over all these options with clients, the big question they have is “What do we do if we sell our old house and we can’t find a new one?”  I always tell them there is a chance that there might not be a suitable house available when they do sell their old one.  I am a darn good realtor, but one thing I haven’t mastered is magic.  I can’t make an awesome house appear out of nowhere.  Unless you are just super specific about your next house, odds are you can find one in time, close both the same day, and only move once.    I’ve never had anybody going this route have to rent temporarily until they found their awesome new place, but it is a risk.  Moving twice isn’t fun, but a few rough months becomes a distant memory once you do move into your ideal new place if totally necessary.  (I did once have a client who intentionally sold their old house so they could jump on the right one when it came on the market.  They were looking in a big time popular area where even in the worst of the market, houses sold fast.  They rented for several months while we looked at EVERY house as soon as it came on the market.  Their plan worked and they are now living large….and writing a contingency contract would not have got this house because there were multiple offers the first few days it was on the market!)

So, like so much in life, there are obstacles to deal with, and there is often no “One size fits all” decision to make.  In some situations, writing a contingency offer makes more sense, but most of the time, waiting to get a contract on your old house is the best way to go.

“Hey John, what do you think about this house?”

by John Rice

I’m all the time getting questions from my clients about certain houses or neighborhoods……Like, “Hey John, what do you think about the house on such and such street.”  If you ever see me pulled over on the side of the road or standing in the isle at Wal-Mart, odds are I just got an email with a similar question.  I try to point out things my clients may not have thought about which could affect their enjoyment of the property and/or its resale potential.  Here are some replies that I cut and pasted.   Thought it might give you a vibe for what it is like working with me.  I’ve removed the names of streets/neighborhoods that were in question since I don’t want to get hate mail from residents in those areas 😉

Here we go:

“That is a nice area, and you do occasionally see some houses go for more, but they tend to back to the wooded area I told you about, or have a pool, or some really unique feature.  The problem with that area is that once you get up around $350k, you start competing with other neighborhoods is that part of town that are in Dunbar High School or Rosa Parks Elementary. (Beaumont, Palomar, Firebrook)”

“I think the absolute ceiling for that house is in the low $400’s.  I don’t see how anybody could buy it for near the asking price, make improvements, and not end up being upside down on it.”

“You know this one has a rear entry garage, which makes the front look pretty but also means your backyard is the driveway and it making fencing a nightmare……and people who want a fence won’t buy the house when you sell it.”

“I think ******** hasn’t sold because it is a $135k house.  The listing agent is just comping square footage without making any adjustments for windows, ages of systems, attractiveness, etc.  ******* is an area where you can get the same square footage in poor shape for as low as $110k or as much as $160k if it is fixed up nice.”

“This end of this street was an infill project.  It is surrounded by a neighborhood of less expensive older houses.  It is about 100 feet from that same railroad track that is near ************.  This particular house backs to some tiny rental houses.  The other side of ******* is preferred.  Also, these newer houses on ******* have always struggled to sell.  I think it is because most buyers wanting newer houses want to feel like they are in a newer area.  This area feels like somebody randomly decided to build some nice houses.”

“It had been listed with another agent and expired.  The people did some painting and carpet and put it on with another agent.  I showed it last summer.  It is a nice house.  It feels like an extremely outdated house that has had just enough updating to make you think it isn’t as outdated.  The deck is nice.  The backyard has power lines running across the back, right at eye level with the deck.  The basement is disappointing.  It feels like the basement of a church where a youth group would have a lock-in.  It too is over-priced if nobody has bought it in this popular neighborhood yet.  Nice ones that are priced realistically move fast.”

“Very nice area.  I am pretty sure that house has a siding material called “Exterior Insulation finishing System”, also known as EIFS. It is a material that caused many houses to rot since it can trap moisture.  I typically advise clients to steer clear of it since it can be hard to resale a property with it. If it is maintained correctly, there is little risk of having a problem. Few people maintain it that well and when people hear the word “EIFS”, they assume the worst.  Google it if you like. I am sure there a videos about it.”

What makes a location good?

by John Rice

We’ve all heard people say “Location, Location, Location”, and that location should be the top priority…..but what does it really mean?

In a nut shell, location has to do with a spot on the face of the earth that people want.  One person’s poor location is another person’s dream location……and the value goes up if more than one person considers it a good location too!

In Lexington, most long time Lexingtonians divide the town into north and south.  They consider the north a bad location and the south a good location.  Seems to me that anybody that has moved here since the early 1990’s divides the town into a few more categories:  North, South, Hamburg and Masterson/West.  Well, there is downtown too I guess, but it is still a niche market.  For really long-term Lexington folks, there is really only one spot they consider to be truly Lexington, which is inside New Circle Road.  To them, anything outside the circle is farm land that was pillaged to make room for me and you to ruin their fine town.

Just from my own experience, I see people who are drawn to each location for different reasons.  Some people like the Tates Creek area because it isn’t too far from anything.  Some people don’t want the Tates Creek area because nothing is extremely close.  Those folks tend to like Hamburg or closer to Fayette Mall.  Masterson Station is considered by many to not be a good location, but it sure works well for people who work on the west or north end of town and for those who need to be in Frankfort or Louisville.  Hamburg, which, btw, we use to call Andover back when Hamburg was only the farm, is hot with people who need to be by the interstate.  I could go on and on and on, but the bottom line is that different parts of town attract different people for different reasons.

Most people pick their location for access to work, quality of schools, the crime rate, proximity to shopping/dining/entertainment, and what the area looks like.  I rarely get an in-town buyer that doesn’t want at least several of those for their next house.  When you buy a place, try to get as many of those as you can.  The combination doesn’t really matter because I can tell you, houses sell all over town.  Take Hartland.  The school district isn’t all that, but it offers many of the other items.  There really isn’t much retail/dining/entertainment near Masterson, but I have several happy clients out there who really like it.  Parts of downtown don’t have any of that except good looks, and they sell too.  About the only places to avoid are neighborhoods that don’t have any of those desirable qualities….unless you plan on living there forever because nobody else will buy it.