Buying Advice

How NOT to Spend a Homeless Week with Your Stuff in Storage AND Lose Money

by John Rice

Want to know what really causes most nightmares and drama in a real estate deal these days?  Sure, negotiating a contract can be rough.  Getting past the inspection can be a chore too…..but both parties usually seem to work through it or part ways.   What REALLY gets people worked up is when you can’t close on time, and that is usually due to the loan officer.

I had a closing yesterday.  All the parties were told we were closing at the end of last week, then the following Monday, then Wednesday, then finally, it happened Thursday.  The buyer had packed everything up and moved out of their apartment.  They had to pay to store their possessions.  They also couldn’t register their kids in Fayette County Public Schools until they had an address here.  Their kids didn’t go to school this week.  My clients, the sellers, moved out of their house a week early. I was even a little freaked since I didn’t know if something was wrong and they were just trying to buy time.  To make matters worse, the seller agreed to pay $3500 in the buyer’s closing costs, but the loan officer only used about $2900 of it.  My clients were happy though since the remaining money ended up in their pocket.

Now, I know most loan officers are caught in the middle.  They have to collect all the docs and info from the buyer and then present it in a way that looks pretty to the underwriters.  They often don’t have any real control over how long it takes the buyer to get them the docs any more than they have control over when an underwriter will get around to dealing with it.   But what they should be able to do is see a problem coming, have a back up plan, get an idea of how long it will take, and solve the problem.

Some of them are a bad combination of greedy and lazy.  I recently had a doctor client who was getting a special physician’s loan from an out-of-state company.  We were having the seller pay the closing costs.  I called the loan officer, who told me to ask for 3% of the loan amount.  I kind of made her mad  because I told her that wasn’t gonna fly with me.  She needed to sit down and calculate exactly what it was going to be…..especially since I knew the closing costs and pre-paid items would NOT have exceeded the almost $15k that the 3% would have been.  See, if we asked for 3%, she would have used it all.  She also didn’t want to give my client a Good Faith Estimate (GFE) until we agreed to that percentage since they now aren’t allowed to make big changes from the estimate.  Had we rolled with her plan, she would have had a big budget to work with.  She either would have built all that money into her fees or any excess would have ended up in the seller’s pocket.  I forgot the exact amount, but she ended up “Waiving” her origination fee….think it was $5-6k that my client saved.

I know a lot of people think the only difference between loan officers is what they charge.  Not true.  Sometimes the main difference is between one that gets the job done on time and with no drama versus one that pretty much ruins your life for several days right at the exact time you don’t want to deal with one more problem. 

Not trying to turn my blog into a commercial here, but I always ask my clients to entertain the idea of talking to a loan officer who has impressed me a lot.  Sometimes they do.  Sometimes they don’t.  Dude’s name is Kris Vanzant with Stockton Mortgage.  I met him a couple years ago when my old loan officer got out of the biz.  I gave him a shot and now after 20+ loans, I still think he is the best in town.  I used him myself when I refi’d my house.  I didn’t ask for any special deal nor did he offer me one.  I can’t be having people think I recommend him because I get something in return.  All I usually get is the same box of chocolate that he probably gives every other realtor at Christmas time.    He really knows how to solve problems and stick to a timeline.  On a few occasions, he’s done some complicated deals for my clients.  He always seems to have multiple back up plans and can quote lending guide lines that I bet most other Loan Officers don’t even know exist.  His brother, Jeff Vanzant, owns Clear Title and has done several closings for me.  Jeff first got on my radar when I started to notice that  he would always have the settlement statement correct and ready for review before the closing.  Most of the time, you either get it early and it is wrong, or you walk into the closing with nobody knowing what they owe, how much they are getting, if the termite inspection or home warranty actually made it onto the thing, etc.   A good closing is one where there are no errors to correct and no issues to resolve.  For Pete’s sake, all you’re really there to do is sign your name and either walk out with a check or keys to a house.  Now, I have to disclose that I have become friends with these guys.  That just happens when you work together so much.

So, my advice is to use a loan officer you know something about.  Ask your realtor, ask friends…..just don’t go with somebody you know nothing about, even if they entice you with a looooow price.  Remember the buyer for yesterday’s closing?  She lost about $600 in the closing cost fiasco, paid to store her stuff and lost vacation time from taking off work for all the days we didn’t close.   If you’re friends with her, I can tell ya, she isn’t going to recommend that person to anybody.

Whose Gonna Buy Your House When You’re Done With It??

by John Rice

You know, I think far too often realtors and the public operate out of “One size fits all” generalities.  Case in point is resale value.  If asked which is better, a house with a first floor master or one with all the bedrooms upstairs, most people and realtors would agree that the one with the first floor master has broader appeal, and broader appeal is what resale value is all about.  True…..But what if both houses are in a neighborhood that many people pick because of a good elementary school?  That means that the target buyer has young kids.  Very few parents I have shown houses to with young ones feel okay about being on a different level from them.  So, I think in this case, the one with all the bedrooms upstairs is a safer bet.  Conversely, that same house in a neighborhood whose most likely buyer is an empty nester will have less resale potential.  They will prefer the first floor master.

There is a house on my street that has 4 bedrooms and is about 2500 square feet.  Being in a good school district, who do you think will be attracted to that house?  Right….A family with kids.  But, this place has zero back yard.  The deck is about a foot from the property line.  So now this poor house will always need to  find a family that doesn’t care or a couple/single person who wants a big house.  A smaller house would have been better suited to that lot.  Probably would have taken up less space too.

There is another house in my neighborhood.  One of those with the garage in the basement.  The garage takes up half the basement and the driveway takes up a lot of the backyard.  Most people around here that want a basement, prefer a full one.  Also, nobody is ever excited about hauling groceries up from the basement…..And I won’t even get into what they are like in the winter.   Overall, this place has limited appeal.  There is one type of household that would totally find this set up attractive:  One with multiple generations living under one roof.  Aging parents can have their own living space in the basement and they could easily enter/exit from the garage door.  I think if I were to ever list a property like this one, I would try to emphasize the flexibility of this floorplan…..otherwise it will end up selling at a discount to the average buyer.

A few years ago I had a 3rd floor condo in a complex that was mainly retirees.  Did I mention there was no elevator?  That was a hard sale.  The typical resident didn’t want all the steps and it wasn’t the type of place to be on the radar of most people who weren’t retired.  We finally got it done though.

I had a townhouse listed a couple of years ago whose target buyer was downsizing.   The place sat right between a pharmacy and an elementary school that were on the same road.  Which one did I emphasize in the marketing remarks?  That it was close to a pharmacy.  I just knew that the person who would want to live there wouldn’t have a need for the school.

So, when you’re buying a place, always think about the whole picture:  Will the floor plan work for the most likely buyer?  Is the yard too big or too small for the most likely buyer?  Is that buyer going to even care about the school district?  I always find when you start asking yourself a bunch of questions, you can always make a better decision.

Lexington & The Low-Ball Offer: Working or Not?

by John Rice

I have been getting some crazy stupid low offers on my listings lately.  The kind that are so low that the house would probably sell for more than what was offered if it were a foreclosure.  Since everybody wants to feel out the sellers these days, you never know if the buyer is going to get real or if they are just going to waste half of your day.  I recently got an offer from an agent who told me his buyer had seen over 40 houses before making the low offer on my listing. We’ve given him our bottom dollar and they keep coming back with their final offer…….I haven’t been so annoyed at hearing the word “Final” since they canceled Who Wants to be a Millionaire.

So, since there is ice covering everything today and my plans to show houses were prevented, I thought what a great opportunity to look at the most recent sold listings in all of Lexington to really see if any of these crazy buyers are getting any true bargains.

I began with a search for all the sold listings since 10/1/10 in all of Lexington that had asking prices of $100-250k.  If anybody wants me to look over that amount, just let me know, but I picked that range since that is the bulk of the Lex market.  I also went back that far to give us enough of a sample and to be current enough to reflect the market.

There were 264 sales since that date.  I threw out the brand new houses since builders usually list the base price of a house and the sale price is typically more than that once upgrades are added.  I threw out the few auction properties too since that data doesn’t answer my question.  BTW, some of the auction prices were way lower than the asking price, but you must ask yourself if the asking price was fair, why did it take a room full of people with 10% cash to put down and willing to buy it “As-Is” just to get it sold?

I also took out a handful of the foreclosures.  Believe it or not, most of the foreclosed houses sell for closer to the asking price than a normal transaction.  Most that were in this pool I knew something about….such as a foreclosure in my neighborhood that was trashed and had standing water in the basement.  One of those rare ones where there is a disclaimer about mold that says you should wear a mask or hold your breath while inside.  It sold for $155k and had an asking price of $213,015.  It’s potential is about $280k, so I don’t really think $155k was much of a bargain.

So, that leaves us with 211 normal sales and the foreclosures/short sales that you could get FHA financing on…..In other words, ones that were not missing fixtures, cabinets, etc.  Remember, my goal is to see if the buyers out there are getting deals on a house that belongs to Average Joe, not a builder, bank, or Freddie Mac.

Most of those 211 sales sold for within 5% of the list price.  Many sold for just a few thousand less.  I found 52 that sold for more than 5% less than the asking price.  Almost all of those were in the 5-10% less than list price range.  When I got to those, I looked at the pictures and all to see what I thought the house was worth.  9 times out of 10 it was a case of too high of an asking price to begin with…..Like a house in a neighborhood full of $175k houses that was listed for $189,900.  That buyer didn’t get a bargain.  They paid a fair price for a house listed by an agent that didn’t know what it was worth to begin with.

I guess the part you are waiting for is how many of them sold for more than 10% less than the asking price?  9.  Yep.  9.  I took a look at these and figure it must have been a combination of a little bit of an ambitious asking price and a little bit of a motivated seller with equity.  Of these 9, several were older houses where I can see a little old lady having lived there for the past 40 years and having no mortgage.  Here are the best numbers……and remember these are the ones with the biggest difference in list-to-sale price, it doesn’t necessarily mean that they were worth the asking price: 

ASKING PRICE:             SELLING PRICE:

$175,900                         $119k

$177,500                         $131,600

$149,900                        $135k

$159k                              $140k

$172k                              $156k

$199,900                        $160k

$199,900                       $160k (This one was way over-priced to begin with!)

$199,900                       $180k

$235k                             $200

So there you have it.  Looks like 9 of 264 buyers got what appears to be a good deal on a house if you look at just the list-to-sale price.

Seller’s today know the initial offer on their house is going to be low, so go ahead and feel them out.  You’ll be able to get most of them to go as low as they can. But if you want to eventually buy a house, you’re probably still going to pay a fair price…….Sorry, but I’m just putting the REAL in Real Estate for you 😉

Resale Value…North LEXington…What?

by John Rice

When you think of resale value/potential, you are probably thinking about things like a preferred school district, the most desirable part of town, etc.  All of those are good things, but what if you don’t have any of that?  You know…..there is a lot of Lexington that doesn’t have a desirable school district, and heck, most people strongly favor the south end of town.  What about those houses on the north end of town?  What is their resale value like?

Well, it is as good as it is on the south end of Lex.  Yep.  Sure is.  The difference is that the prices have always been lower for that part of town, but hey, they seem to be holding their value as well as any other place in town.  In fact, since our market has been hit the hardest over $500k, you could argue that the buyer who spent $100k on a house in 2005 on the north end of town with a less desirable school district has actually come out better than the guy that dropped $1,000,000 on an awesome house in the most expensive zip code, 40502!

Just for fun, I ran some numbers for Area 1 and Area 4 in Lexington.  Area 1 is the NW part of town between Leestown Road and North Broadway.  Area 4 is SW Lexington from Nicholasville Road to Leestown Road.  Area 1’s hook is value.  Area 4 is probably the most desirable part of town for all the things most buyers want.  To be fair, I only looked at houses from $100k-$250k.  Area 4 has a lot of expensive neighborhoods, and I wanted to make the figures apples to apples.  I picked that price range because it represents most of the Lexington market.

So, from Thanksgiving 2008 to Thanksgiving 2009, Area 1 had 431 sales with an average price of $151,110 which got you a 1755 square foot house that took an average of 66 days to sell.  Area 4 had 739 sales averaging $156,643 for a 1745 square foot house that took 62 days to sell.

Here are the numbers for Thanksgiving 2009 to today:  Area 1 had 320 sales averaging $147,559…..1759 square feet….59 Dom.  Area 4 had 617 sales….$159,458….1760 square feet…..57 DOM.  (Okay…..sure you realized that the average price for Area 1 declined while it went up a little for Area 4.  I really haven’t seen this in individual houses….I really think it is because savvy builders built more houses in the $125-140k range for first time buyers looking to take advantage of the tax credit and brought the average down.  Area 4 doesn’t have much new construction….esecially in that price range.)

So….how does the north end of town stay that strong?  I really think it all has to do with value.  I have sold a ton of houses in and around Masterson Station.  All of my buyers saw that they could get a little more house for their money.  They have all been willing to drive to other parts of town for shopping/dining to get a bigger and better house.  This part of town also works well for folks working in Frankfort, those needing to be close to the interstate, and those who work at places like UPS and other businesses that are close by.  Because of the value hook, I think the north end will always need to stay a little less expensive than the south end of town, but there will aways be people who appreciate that value and will buy out there.

Dual Agency: The best way for a buyer to get duped

by John Rice

You know what I have been thinking about lately?  Dual Agency.  Yeah….kinda boring I know, but I recently had a client bring it up and it got me thinking about how most people don’t know what it is, yet alone the pitfalls of it.

Dual Agency is when the listing agent for a house for sale also represents the buyer.  It has nothing to do with being a spy or anything exciting like that.

The problem isn’t really with the concept of dual agency itself.  Sure, it is possible to fairly represent opposing parties.  The problem is whether or not the agent will do it.  Just for fun, I pulled the market share info on several top agents in town.  This is a report that tells you how much they sold.  It breaks it down into categories like what percentage of the list price the agent’s buyers paid, what percentage of the list price their own listings got, plus what percentage of the listing price was achieved when they were the dual agents.  Can you guess which category had the highest percentage of the list price.  Yep….The ones where the agents represented both the buyer and the seller.

Whenever I see a house that sold for much more than I thought it would, I check to see who the buyer’s agent was.  Much of the time it was the listing agent.  There is a house in my neighborhood where the agent WAS the seller, the listing agent and also represented the buyer.  Does it surprise you that no other house its size has sold for that much?

It seems to me that it is the buyer who ends up being the loser usually.  I mean, the asking price is already out there.  Can you picture this conversation:  The buyer asks the agent what the house is worth.  The agent says something close to the asking price.  The buyer believes their agent.  The buyer pays too much.   Now, some stupid agents will do this anyway, but getting both sides of the commission sure can be a temptation.

I’ve been in a dual agent situation a few times.  What I do to make it all fair is to totally pretend that I don’t know anything about the other party.  It can be tough.  I have often made a lot of extra work for myself.   Heck, one time I really made a lot of extra work for myself.  I had sold a property to a buyer who wanted to use me.  When negotiating the price, I had to act like I wasn’t the listing agent and recommend a strategy.  Then I had to turn around, present the offer to the seller and recommend a strategy for them.  The advice I gave each party was in their own best interests.  The crazy thing is that when we were doing the walk-thru, there had been a big storm and the basement had leaked.  Soooo, I had to say to my buyer that it would be best to not close until the problem is solved.  Why would I do THAT?  Because that is exactly what I would have done if  there was another agent representing the seller….which made it hard for me to deal with when I put on my listing agent cap and told the seller about it.  I told the seller the exact same thing that I would have told her if there had been another agent involved, which was that we have had the place on the market for a long time, and this guy was the only buyer in line for the place, and that it is her house, so there would still be water in the basement even if this buyer walked away.   She asked what I thought we should do, so I told her to offer an allowance to get the place water proofed.  We negotiated a figure and got it done.  Now, it would have been easier for me to just have recommended what I already knew each party would have agreed to, but each party deserves 100% representation, so they got it.

Dual agency is usually something to avoid, especially if you are a buyer.  However, if you must, you really need somebody who can pull it off with integrity to make it right for everybody.