Buying Advice

Got $300-500k to Spend on a House? Read This

by John Rice

Want to take advantage of the market?   Need to know what price range is suffering the most right now?  Well, if you are buying in the $300-500k range, now is a pretty darn good time to pull the trigger……may get even better in the months ahead.

Let me back up a bit and give you the history of how this time came to be.  During the last half of last year, it was easier to sell a $300k house in Lexington than it was a $125k house.  The tax credit to first time buyers lured the whole years worth of them into doing it in the first several months of 2010.  Meanwhile, rates were crazy low.  During that time, many buyers thought that they’d part with their old house and move on up to their pinnacle home.

Flash forward to this year.  The first time market is back and the range that is seeing the most action is the sub $200k again.  FYI, Lexington is mainly a $120-180k town that moves up to $200-250k if they stay here long enough.  That is the bulk of the Lexington market. 

Soooooo, what about the $300-500k houses?  It is a little tougher in that price range now than it was last fall.  Rates have fallen, but still aren’t as good as they were.  The economy is a big concern.  People are wondering if they can make do with less.   Only the best ones that are priced right will sell.  Number wise, I think the first half of this year will be close to the last half of last year for this price range.  The month isn’t over yet, but if you include the pending sales, we’re down about 10%………BUT WE JUST REACHED THE PEAK MONTHS OF ACTIVITY FOR THE WHOLE YEAR.  SPRING SHOULD PRODUCE MORE SALES THAN A LATE SUMMER/FALL/EARLY WINTER MARKET, RIGHT??

So, what is my advice if you are a buyer who can drop $300-500k in a house?  Unless rates start to go back up some, buy now or hold out until fall.  I think if we have a pretty dry summer for the seller’s in that price range, we’ll see prices drop a bit.  Short of some other catastrophic economic event, I think it will be temporary.  I really think the low rates of last year created this lull  just as the tax credits did last fall for entry-level houses…….just sayin.

Protect Yourself When Buying in a Lousy Market

by John Rice

Let’s face it.  The market sucks right now.  I think I may be the only agent to come out and say this, but it is the truth.  I’m not a sugar coater.  I am a realist rather than an optimist.  I optimistically hope that values aren’t going to dip in the near future, but since most loan officers I know have been twiddling their thumbs recently, the realist in me says it is a false hope.

So, what is a buyer in and around Lexington Ky going to do?  You’ve got to make some wise choices to protect yourself from the risk.  Not every neighborhood has taken a beating.  Some are safer than others.  Real estate is all about location, price, and condition.  If you keep those 3 things in mind, you’ll be okay.

Unless you are getting a house for below market value, here are some things to keep in mind for when it comes time to resale:

1)  Don’t buy a house with a steep driveway.  Most buyers rule it out before even getting to the front door.

2)  Don’t buy a house that backs up to anything other than similar houses or better.  The people in a million dollar house don’t want to sit on their deck and see a half million dollar house.  The half million dollar folk don’t want to sit on their deck and see the $250k house.  The $250k people…..well, I’m sure you get it.

3)  Don’t buy on a busy road.

4)  If it is in a neighborhood where the target buyer is going to have kids, get the best, most well-rounded district you can.  I know of several neighborhoods in Lexington whose values were much higher when people often had to settle for their second choice in a hot market.  Now that most people can get their first choice neighborhood, those areas took a beating.

5)  Stick with things that people won’t consider random.  Like an odd-shaped lot, a weird floor plan, etc.

6)  Too new of a neighborhood.  Often, a nice area will decline once the original people start moving out.  Happens ALL the time.  Another problem with a newer area is that often, people all move out around the same time.  There is a newer neighborhood out Richmond Road where it seems like half of the houses are currently for sale.  Another issue with newer areas built during the “Anything goes” mortgage days is that many sellers paid top top dollar for all their upgrades and now owe more than they are worth.  There is a neighborhood in SW Lexington where it seems most of the houses are short sales.  That is going to bring down the value pretty fast.

I could really go on and on with this list.  But since most of it has been covered in past posts, I’ll skip it.

Basically, when you’re looking at houses, pretend you have 10 friends with you.  If 8 or more of them couldn’t find too much bad to say about the place, then you have a property that should be easy to sell and hold its value better than most.  It’s about supply and demand, so make sure you buy a house that will be in demand……I’ve only had one client who has sold their house for less than they paid for it since the market turned like potato salad that’s been left out too long. 

These are the things I do when it is my own money!

How to Handle a Low Offer When All You Want to Say is “REALLY??”

by John Rice

I’m siting on my couch last night, watching Monk and trying to relax.  See, my phone chirps, buzzes and rings from the time I wake up until about 9-9:30 at night.  That last couple hours of my day is my chill time.  So, when I got a call at 10:30 from another Realtor, I was a little surprised.

Turns out this agent had an offer she wanted to send me and needed my fax number.  It was right on the email I had sent her earlier, but nobody ever seems to think to look at that I guess.  She then called me just after midnight…..I was in bed.

I was pretty excited to get an offer for a house that hadn’t been on the market but about 2 weeks, especially since she was up so late working on it.  My excitement turned to shock when I got the offer.  It was for nearly $40k less than the asking price…….and this isn’t a $600k listing, so it was really low.  I mean LOOOOOOOOOOOOOOW!

As an agent, when this happens you really want to scream at the other agent and ask them why they are wasting everybody’s time, especially their own, with  a buyer who thinks there is a chance he can buy a move-in ready house for less than foreclosure money, but, you bite your tongue, put on the biggest fake smile you can muster, and thank them.

A lot of people are writing low offers these days, but it seems like about 1 in 20 are in what I call the “Crazy Loooooow” category.  What do you do with one like that?  You treat it just like you would any offer you need to counter.  The sellers instinct is to flat out reject the offer, but you never know  if the buyer is just testing the waters or they are crazy.  I tell people let’s give them a little bit of our time to see if they are realistic or not.  Sometimes they work out and sometimes they don’t.  I sold a listing last week where the buyer started out loow, but not loooooooow.  We got that one worked out with within a few counter-offers.

Now, about this offer strategy.  It is really counter productive for the buyer.  I’ve blogged about that before, but the bottom line is that the seller is always expecting the buyer to come back, and back, and back.  That means the seller never really shows the buyer their bottom dollar since they always want a little reserve budgeted into their counter-offer.

I should know later today if this buyer is legit or if he is a dreamer.  It is like musical chairs:  I don’t know if we’ll be out or if we will win, but you have to keep moving until the music stops.

How to Negotiate (And How NOT to Negotiate)

by John Rice

I just came out of one of the most frustrating negotiations I have ever encountered.  An agent brought me an offer on one of my listings that not only was contingent on the sale of the buyer’s property, but also had a pre-closing occupancy agreement.  Long story short, this all meant that the buyer wanted to move in before the closing AND there was a slight chance that something could go wrong with the sale of her house….meaning we could have a real mess on our hands unless everything worked out just perfectly.

Naturally, my clients and I were concerned most about what could go wrong and how it would work out if  did.  That is where some negotiation skills on the part of the other agent could have made us more likely to go along with it.  If you’ve read many of my posts, you know my dad is a lawyer.  He is the best negotiator I have ever seen.  Many people (like the other agent) think negotiating is about strong-arming the other party to do what you want, or wearing them down like a used car sales person.  My dad taught me that negotiating is really about removing obstacles so the other party can say yes to you.

If I was this agent, I think I would have first put myself in the shoes of the other party and asked myself what are their obstacles going to be?  Like anybody, the sellers were nervous about what could go wrong, more than they were drawn to what could go right.  If I were the other agent, I would have given me a pre-approval letter from the buyer.  Heck, I might have even given me the pre-approval letter from the buyer’s buyer that the whole offer hinged upon.  I might have given me a copy of the contract on the other house to show me what type of financing that buyer was doing and how much of a down payment they had.  I might have told me that I would keep tabs on the financing of that buyer and offered to call that loan officer for an update before the buyer for my listing moved in…..just anything to show me and my client that this was more than just a half-baked plan full of nothing but good intentions and wishful thinking.

I didn’t get any of that.  All I got was repetitive comments that deals like this happen all the time (which they don’t), and that the buyer made a full price offer.  The full price offer didn’t really carry much weight since we’d only get that price IF the deal closed, and absolutely nothing if it did.  Just shows the agent didn’t think about removing our obstacles in order to get us to agree to what she wanted.

We tried to work with this deal, but ultimately the agent wouldn’t agree to do much that would answer the “What if” and “How” questions. This agent made it about winning and we all came out losers.

How Can a House Not Sell at $325k with a Recent Appraisal for $410k??

by John Rice

Being a Realtor and all, I am always in the mood to move.  Not so much so with my wife.  We went out Saturday to see a house that I really liked, and suspected that she would too.  Guess I know her pretty well because now she is kind of in the mood to move too.

That had me coming home, pulling some comps, and trying to see what I thought the place was really worth.  This is where it gets kind of interesting.  See, it is owned by a relocation company.  The prior seller got transferred, and the “Relo” company bought it from them.  The Relo company had two appraisals done, one came in at $390k and the other at $410k.  So they met in the middle and gave the very lucky seller $400k for the house.  Problem is, it never was a $400k house.  The price has been reduced and reduced, and is now at $325k.  How do I know it wasn’t a $400k house?  I have had 3 clients this year who have looked in that neighborhood and I have been in just about everything for sale out there.  This one is no match for those.

I guess this is really about me running the comps and the contrast of market value to appraised value.  Appraised value is purely science.  They cut and paste values mainly for features and size.  Market Value is about what somebody will pay for it.  It is based on decisions a buyer makes about things they like/dislike about the house.  This house has the garage in the basement.  To an appraiser, it has the same 2 car garage as any other house, and he deducts a value per square footage since there is less space in the rest of basement.  To most buyers, they don’t want a basement in the garage.  This house also has no pantry and has the washer and dryer in a closet in the kitchen.  Both of those are deal killers for a lot of buyers, but don’t even get mentioned on an appraisal.  Starting to see how market value differs from appraised value?  I don’t mean to knock appraisers, but I would love to have asked these two what they would have paid for this house…..especially the guy that pegged it at $410k.   Maybe I should buy it and sell it to him!

Okay….I’m running the comps.  There are a lot of similar sized houses that have sold for much more than this one.  Not really good since those were updated.  I find two that are similar in size and still look like the set from “Knot’s Landing” inside.  A house that hasn’t been updated doesn’t need to be comped to one that has.   The less adjustments you have to make when looking at comps the more realistic a number you’ll end up with.

Now I am into the gut-feeling part of the comps.  My house only has hardwood in the dining room and foyer.  One of the comps had hardwood throughout the main level.  What I usually do is deduct the cost of making it equal from the sold comp.  Then there is that kitchen with no pantry and a washer/dryer closet!  I need to figure out what I think most people would want knocked off for those items.  I am thinking in this price range, that is a pretty big thing to try to look past.   If two houses were side by side and identical except for laundry/pantry facilities, how much less would you want to pay for the one that didn’t have a laundry room?  I’m thinking $4-5k in this price range.  Then there is the difference of kitchen layout.  The color of the cabinets.  It just really goes on and on with these little things that really do make a difference in value to a buyer. 

There you have it.  Now you know a little more about how a realtor goes about comping a house he might make an offer on.  The good thing about me is that I do the exact same thing for my people when we get ready to write an offer.  I always giggle a little inside when people ask me what I think the house they want to buy is worth.  I really wish I could just spit out a number for them, but I always tell them to let me look at the comps.   I did it for myself too!