Buying Advice

What a Difference a Box Makes

by John Rice

Alright.  Here is how most negotiations go between a buyer and a seller.  Buyer makes an offer.  There is usually at least one round of countering, then the seller thinks “Oh, I better not go to my lowest number since I don’t know how hard they’ll hit me with repairs after the home inspection.”

Assuming a deal is struck, we wait for the home inspection.  Most of the time the repair list is stuff like a window that needs caulk, or a deck that doesn’t have metal joist hangers,  maybe a double tapped breaker, and my personal favorite:  The furnace needs checked out by a licensed HVAC technician.  That one always cracks me up because the buyer’s home inspector suggested another inspection, which they ask for on a repair list……so, the buyer is asking the seller to do an inspection, which the contract says is the buyer’s responsibility to do.  To make matters even more comical, most agents write it just like I said, meaning the seller can agree to have it inspected, but the buyer has no recourse if there is a problem because the buyer’s agent DIDN’T ask the seller to fix any problems, merely have it inspected.  I’ve always been tempted to give a buyer’s agent a receipt from the HVAC company that says “THIS FURNACE SUCKS AND NEEDED REPLACED YEARS AGO!” then remind the agent that all the buyer and seller agreed to was having an inspection.  I’ve always played nice though, since you have to dance with the buyer and their agent until the music stops at the closing.

Sorry for the tangent there.  Back to my topic.  So, the seller has budgeted some money in the counter offer for any repairs.  That means that the buyer is really paying for the repairs.  If the seller would have come down another $1000, but didn’t, the buyer is paying $1000 more for the house than they could have and are paying for the repairs within the higher contract price.

Which leads me to my point.  Sellers usually over-estimate the cost of repairs.  I just had a deal where we needed plumbing, electrical and window work.  Doesn’t that sound expensive?  All in all, it was less than $300.  Hardly worth getting worked up over.

Here is what I like to do when my buyer’s will let me.  On our contracts, we have 3 options for dealing with inspections.  If you check box 1, you are saying I’m taking this house period, see you at the closing!  Box 3 is what most people do.  That is the one where you have the house inspected, write a repair list and end up fighting over caulking a threshold or a leaking faucet.  A smart seller will know that a buyer isn’t going to walk away over such small things.  A smart buyer knows a seller isn’t going to walk away over such small things.  Depending on the temperament of either party or their agents, you can quickly turn a real estate transaction into a Real Housewives of New Jersey cat fight.  A seller always feels like they are practically giving their house away and now the buyer wants to pistol whip them with repairs.  A buyer always feels like they have paid too much and the seller is being unreasonable not to do these little repairs.  And, because feelings are involved, people don’t always act rationally……SO what about Box 2??

Box 2 is my favorite.  It gives the buyer a chance to have the house inspected.  The buyer can walk away from the deal if there is something that freaks them out too bad.  There is no repair list to fight over.  You just tell the seller whether you are in or out.  What I like about this for the buyer is that they are protected by a home inspection and can walk away.  They also usually can get the best price possible because the seller hasn’t padded their price (Remember  sellers always budget too much!)  I tell my buyers that any repairs you have the seller do, you really have no control over.  Wouldn’t it be better to have the repairs done yourself and have control over the quality of the repair.  Keep in mind that any repair is just something a seller has to get off their checklist in between packing up their stuff to move.

So, think about Box 2 if your buying.  If the house is a hot mess, walk away.  If all it needs is a few minor repairs, pay to have them done after you close rather than paying the seller too much to do it for you…..Plus, if you are in multiple offers, you might be at an advantage since other offerors will likely check Box 3.

 

Helping Buyers Moving to LEXington……LEXpert Style

by John Rice

Sold another house last weekend.  It sure isn’t like it is on HGTV, where I show them 3 houses, ask what they want to offer, then fill in the blanks on the contact.  I don’t know how other realtors do it, but this story shows how the LEXpert does it:

These folks were from out of town.  I do a lot of work for out of towners, so I became their primary source of info about Lexington.  All buyers seem to appreciate my perspective from being in Lexington for so long.

Before these peeps have even come to Lexington, we’re communicating about houses that are for sale, I’m giving them my thoughts on the neighborhoods and all the positives and negatives.  At this point, it is about narrowing down what they want in a house, schools and which part of town they’ll prefer.  Like most out of town clients, they came to Lexington for a weekend to see in person everything we have been talking about.  I drove them past the schools, through neighborhoods and the shopping/dining areas around town.   We also checked out a few houses just to show them what they can get for the money here.  (It’s always fun for me to meet my clients for the first time.  I usually have no idea what they look like, so I just wonder around a hotel lobby until somebody looks at me like they know me, then I say “Are you_______?”)

These clients, like most, had a house to sell and a job to start here.  As we got closer to this date, I have to give them almost all of my attention.  See, my goal is that when my buyers come to pick a house, I have done all my legwork and they know enough to make a good decision while here.  I can’t tell you how many sellers I have represented with stories about being rushed to pick a house while they were here for just one weekend.  I have had several sellers who didn’t know they bought in a poor performing school district……That’s why they’ve called me to sell.  I wish these sellers had found me before they bought rather than some Realtor that just opened doors for them and filled the blanks in the contract.

Something I did for these buyers and that I have done for many others is to preview the houses that interest them and make a video.  That gives them a chance to see the WHOLE house, not just the best pictures the listing agent has online.  I’ll give them my two cents during the video, describe the layout, show them how the house sits compared to the neighbors, etc.  I’ve saved buyers a lot of time by doing this since most of the time we can eliminate half the list before they even get here.  This is great for them because they can be thinking about the houses from back home.  I think that is what makes it less stressful for my folks.  The more I can make it like they are actually here in town, the better.  Can you imagine spending two days looking at something like 19 houses and trying to make a wise decision?  In this case, my people started out with 19 houses (see, not just a made up number!) and when they got here we only had to see 7 in person.  That is a lot less info to process in one weekend.

I like to try to see all the houses on Friday or Saturday, then come back before the weekend is over for a second showing of their short list.  You always see more negatives the second time you see a house.  I usually try to lay low on second showings.  This is where people are really trying to envision themselves living at the house.  Almost all buyers are very silent on second showings.  I usually take a closer look at the house in search of anything that I think could bite us in the rear during the home inspection.  The house that was these folks top choice had a lot of rotten wood around the windows.  I pointed that out, plus the fact that I thought the house was mainly a lot of lipstick and a new kitchen.  That house was going to need all new HVAC and windows before long.  It was cheaper and wiser to buy the less expensive house around the corner that was in better shape, had a better lot and just apply the same lipstick they liked from the other house!   These folks made their short list and picked the one that we all thought was the best for them…..which is good because 3 of the 7 we had seen got contracts that same weekend.  I think that means we know how to pick good ones 😉 

When we got to the point of making the offer, I’ve already checked the crime map, the sex offender registry, the PVA to see the lot size/shape.  Most importantly, I’ve spent the time to analyse the recently sold houses in the area to determine what the house is worth.  I think many realtors just look at square footage when they suggest a price.  I not only make adjustments for square footage, but also for the difference in the QUALITY of the square footage.  I also  looked to see if the recent sales had any seller paid concessions, the ages of the roof/windows/HVAC.   I think that is why I am usually so spot on with my opinion of value.  About the only time I am off is when a stupid buyer has a careless Realtor and ends up paying too much.

So, after all that, my folks are now back at home, just waiting to see how the home inspection goes here.  Assuming all is well, they’ll be in their new place in about a month.  I am so excited for them.  They made a wise decision and will be great Lexingtonians 🙂

Current Market Trends

by John Rice

It’s that time of year again.  When all the real estate Guru’s look back at 2011 and tell Realtors about “Current Market Trends.”  I never go to these seminars or classes.  See, if somebody has time to put together a Powerpoint presentation with a bunch of bar graphs and is looking backwards in time, then what they are telling you is called history, not current market conditions or trends.

I’m more interested in knowing what is happening right now.   All realtors should really, but I find that most of them can only recite what they have been told.  That’s why there are meetings and seminars for such things.  There are a few in town that seem to be able to analyse the market pretty well.  I like to talk to them because it gives me a broader perspective on the whole. 

So, if you want to know what happened last year, I have plenty of posts from 2011 you can read.  Want to know what is happening right now?  Our current market trends?

1)  This shouldn’t be news if you’ve read my blog recently, but every Monday I check to see how many houses got contracts and what closed.  Houses up to $150k are selling very good.  Then it slows down a lot the higher you go in price.  The closed deals show me what percentage of the asking price the seller is getting compared to their list price.  We’re still holding strong between 96% and 100%.  About the only time I see percentages less than that it is in higher priced houses or ones that the asking price was too high to begin with.  It does drop for surrounding counties.  The Lexington agents seem to want to price a house very close to what it is worth.

2)  Most of the foreclosures we are getting in Lexington seem to be cheaper houses these days.  I think that has really created two markets in town.  When foreclosures first started becoming a large part of our market, many buyers would look at normal sales and foreclosures.  I think we’ve run though most of the middle class and upscale foreclosures, so all that is left are the cheaper ones that investors rent or flip.  A lot of people were caught in a sinking ship when the economy changed back in 2008.  The 2009 and 2010 foreclosures were mostly those folks who were in the wrong place at the wrong time.   I think the foreclosures we are getting now are due to the easy lending practices of yesteryear more so than the economy.  I check the Master Commissioner site every week and it seems that most of the people on that site bought between 2004 and 2007.

3)  I am seeing more buyers staying at the lower end of their price range.  It use to be, and not too long ago, that every buyer would start looking at the bottom of their price range, then move up, up , up and then purchase at the top.  People seem to want to be more fiscally responsible these days.  I think that is a good thing, especially for those of you that own a nice, sensible home in Lexington priced between $100k and maybe $180k.  I’ve also had several buyers not want a lot of square footage.  People aren’t wanting to maintain, heat, cool and clean more house than they will use.  These are mostly the buyers in their 20’s and 30’s.  Use to be that was only something you heard from downsizing empty nesters.   This is bad news if you have a McMansion.

But here’s the truth about any market at any time……Houses that are priced realistically and show well sell.  Buyer’s always want the best house they can get for their money.  Good or bad, there will always be a market.  Location, condition and function play the biggest role in value.  Keep that in mind and you’ll always be able to make good real estate decisions.

Welcome to the “Post-Housing Slump Era” (Almost)

by John Rice

I’ve been saying that Lexington is in the “Post-housing slump era” for most of this year.  Yeah, prices have stabilized and buyer’s don’t seem afraid to buy like they did in the past, but I do see one segment of the market that still may have a rough time.  It’s the upscale neighborhoods that are more than 20 years old and aren’t in the absolute best school district in town.  The decline hasn’t stopped, so it shouldn’t be news to anybody except those who currently have their houses on the market and aren’t getting any showings.

I’m thinking of one of my favorite neighborhoods in all of Lexington in particular.  I’ve shown dozens of houses in this area over the past year or so priced from $325k to over $500k.  Most of them are still on the market.  Even after the values dropped significantly over the past few years, this area still is taking a hit.  What gives?

For starters, these houses are all big and most are very outdated.  When you go into a $150k house that is 20 years old, the main thing that looks terribly outdated is all the brass door knobs.  In that price range, there wasn’t a big budget to pimp it out with all that 1991 offered.  When the upscale house was built in that same year, the budget afforded pickled cabinets, gold faucets, and mauve toilets.  The ones from the 1980’s could be the set from Knot’s Landing!  Do you know what it costs to renovate 4000 square feet?    On top of that, most of these lots are big.  Few people these days (at least in Lexington Ky) want to mess with maintaining a big yard.  Everybody I have shown houses to in this area all walk away in awe of the house and neighborhood, but I can tell they are doing math in their head trying to figure out how much they’ll have to spend for updating and upkeeping…..needless to say, all my clients have picked different neighborhood!!

About the only older upscale neighborhoods where I am not seeing this are those in the Rosa Parks Elementary district.  Buyers there seem to be willing to overlook a lot just to get the schools.  I’ve shown a lot of houses in this part of town too, and see a lot of outdated houses.  Unless they are grossly overpriced, have a super steep driveway or are on a main road, they all sell quicker than the rest of the neighborhoods of similar age.

I’ve been watching a house in one of my favorite neighborhoods for about a year now.  It is the only house I have ever been in that double wowed me.  It needs everything but the kitchen updated……a new roof, all new HVAC, and windows too.  I think the current price is just under $400k.  I think it will have to get down to $360k before anybody is willing to take on all that work.

 

Dancing with the Stars? No, Dancing with Realtors (who have two left feet!)

by John Rice

Sometimes I feel like I’m the professional dancer on “Dancing with the Stars” who gets paired with somebody who just can’t dance.  No matter what you do, you’re in a tough spot since you are limited by your partners ability.  It is the same way when working with another realtor as you dance to the closing table together.

I recently had a deal where my buyers made a decent offer on a house.  To sweeten the pot, we decided to check the inspection paragraph that said we had so many days to do a home inspection and would either stay in the contract or give written notice that we wanted out of the contract depending on the inspection results.  We would not ask for any repairs at all.  I like to do this sometimes if the buyer is wanting to get the lowest price possible or if they want to have control of the quality of the repairs and can do them after we close.

I gave the offer to this agent, and told her we had checked what is commonly called “Box 2” for the home inspection.  At that point, the listing agent tells me that the seller will do any major repairs that need done.  (I found that odd……kind of like playing poker and announcing you only have a pair of twos right before the other player places their bet.)

Turns out the house needed a new furnace and the typical laundry list of minor stuff you see on just about any inspection report.  My clients decided not to take the house.  The sellers offered to first pay for half a new furnace, then a whole new one.  My people decided they still didn’t want the house. 

When I called the listing agent to tell her that we wouldn’t be taking the house, she told me she didn’t see how we could get out of the contract.   She said it with a tone like she was a hunter who had just trapped an animal.  Trying to be nice, since you never know when you’ll work with the same agent again, I asked what made her think that?  She told me that since the seller was willing to replace the furnace, we didn’t have a legitimate way to get out of the contract.    I reminded her that we checked “Box 2” for the inspection paragraph on the contract.  She agreed with that.  At this point, I am wondering why we are both using the same part of the contract to justify opposing positions.  Well, that is an easy question to answer.  She has never actually read “Box 2” of the contract.  She told me she thought “Box 2” meant that if the seller agreed to fix anything major, the buyer couldn’t walk away.  I was driving at the time (glad my car has Bluetooth), but I pretty much quoted her what “Box 2” said from memory while merging on the interstate……see, I’ve read the contract.

So, here I was trying to dance with somebody who didn’t even know she had feet.  I totally feel for her clients because how could they have known the terms that they agreed to if their own realtor didn’t??  FYI, that contract is the same one that all 2000+ realtors who are LBAR members use and has been for as long as I can remember, so it isn’t like she has an excuse for never having actually read it.  If you ever have a chance to interview agents, ask if they have read the contract.  If there is ever a problem in a real estate deal, any broker, mediator or judge are going to use the terms everybody agreed to when settling a dispute……so it is pretty important!