Market Update

What is being a realtor really about?

by John Rice

You’d think it would be about houses, but it is not.

You’d think it would be about the market, but it is not.

You’d think it would be about knowing what a house is worth, but it is not.

You would think it would be about marketing a property for sale, but it is not.

You would think it would be about showing houses to buyers, but it’s not that either.

All of these things are important, but they are not what being a realtor is really about.

It is about guiding people to make a good decision using all of the things above. I often describe my job, when asked, as “Talking people into making a good decision and talking them out of making a bad one.”

In the future, realtors might not even be needed for a buyer to view a house. People may end buying real estate like they do anything else online, or there will be an app to open the lockbox on the front door without a realtor. In the future one of two things will happen: Technology will make tools like Zillow’s Zestimate more accurate, or people will broadly accept them as being accurate. Either way, realtors won’t be needed to determine market value.

It all comes down to helping people make a good decision. There are tons of tiny decisions in buying or selling a house that can have huge consequences. Money can be lost. Time can be wasted. Stress can be compounded. Since most people only buy or sell a house a few times in their lives, often they don’t know the difference between a good decision and a better one. It is easy to make a good verses bad decision. Good verses better requires some knowledge and experience.

A realtor friend and I often chat about what we having going on. It makes us both better realtors I think. He had a situation where he had two offers on a listing. One was slightly better than the other, but the people with the slightly worse offer really wanted to live in that specific neighborhood. Do you go with more money and risk losing those buyers if the home inspection didn’t go well? Do you go with the slightly less offer where you know the buyer is less likely to walk away because they have to have that specific neighborhood? I told my friend to go with the higher offer. My thinking was that if the higher offer people walked away after the inspection, which is usually within 10 days, the other buyers who wanted that specific neighborhood will still be around. Best of both worlds.

Since the market is so hot right now, I am seeing lots of sellers saying a neighbor or a somebody they know is interested in buying their house before it gets listed. My advice to anybody today is to put the house on the market and try to get at least two offers. Today’s buyers are used to fighting to get a house. Get two or more buyers competing for a house and YOU as the seller will always come out the winner. Also, a buyer wanting your house because their parents or grown children live on the street will ALWAYS be there too. That buyer is not just looking for any house in your price range. Being close to mom, dad, grandma, grandpa or grandkids is what makes them want your house. They may or may not pay the most for it, but they are not out actively looking for any house in your price range all over town.

Another thing I am seeing more of is the opposite end of this where a buyer thanks me for my time and tells me they have bought a house from a friend. I had somebody this year with a friend who was selling their house by owner. My client bought it. The house had been on the market for quite a while. In today’s hot market, not selling fast is a sure sign that something is wrong. When buyers decide to wait for the next new listing and pass on your house, can you imagine how difficult it will be to sell the house in a cooler market? This is where the whole good verses better decision starts to have big consequences. People who make poor choices as a buyer typically don’t realize they made a poor choice until they go to sell the house. I saw plenty of that from Great Recession sellers who told me they went over the asking price in multiple offers when they bought the house that they were now selling for less that they owed on it.

So, being a realtor is really about using your experience and knowledge to help people make the best decisions possible. There is nothing that feels better than knowing your seller got the best deal possible, or that your buyer landed a house that will always be easy to sell when that time comes.

Some numbers that don’t matter

by John Rice

After 15 years in this biz, I’m finally going to drop my opinion on some numbers that don’t matter as much as people think they do…..Let’s go.

Average days on market: This is a snap shot to tell you exactly what it says, the average. If you are a seller, you only care about the days on market of one house, your own. While the average days on market can give you a snapshot of the overall market, there are soooo many variables that it really means nothing. The average days on market is tainted by several things. Thing 1 is that it includes the loser houses that stayed on the market forever. Thing 2 is that it includes new build to suit homes which show either zero days on market or were placed on the market before ground was broken.

Average sale price for all of Lexington or the entire state: You will often see data published that will say what the average sale price is for a specific town, state or even nationwide. Again, it’s just an average and is not at all useful to anybody for any purpose other than people who are writing an article about the real estate market. If more expensive houses are selling, guess what, the average goes up. If more cheaper houses are selling, it goes down. All you care about is your own house, right?

Average appreciation: You’ll read stuff like “The average home value increased by _% this year. That does not mean it is equally applied to every house. Some houses and neighborhoods did better than that, some did worse.

The exact square footage of a house: Sometimes I will encounter a seller who thinks his house is bigger than the PVA or an appraiser says it is. Often that difference is less than 100 square feet. Buyers tend to search within square footage ranges like 1500-2000, 2000-3000, over 3000 square feet, etc. If you have 2050 verses 2150 square feet it is not going to make any difference to a buyer. Which leads me into the next item.

Cost per square foot: This is again an average thing mostly used by people writing articles about the real estate market. The average person reads it and thinks it must be important. If it really mattered, then a very plain 2000 square foot home with ancient HVAC units and a roof that leaks would be worth exactly the same as a 2000 square foot, totally updated home that looks like something out of a magazine and has brand a new roof and HVAC units.

What the PVA says the house is worth: The tax assessor drives by every house every few years in their Toyota Prius, snaps a picture of the outside and places a value on the house for tax purposes. The value is just a number used to determine your tax bill. It is not the market value. They don’t go inside so they have no idea what it is like. Often, it can take years for a house to be reassessed. I bought a house in 2002 for $118,200 that I now rent out. The tax assessment was the purchase price until a neighbor sold in 2004. It then went to $135k. It stayed at $135k until 2018. During that 14 years, the market crashed, stabilized and took off again. The same house is now assessed at $153,300 and appraised earlier this year for $225k. (I hope nobody from the PVA follows my blog….shhhhhhh!)

The Zestimate: Is almost never correct. It’s a computer that takes in a lot of data without any wisdom about what makes a house worth more or less than other ones in the neighborhood. It’s sort of like the ultimate use of averaging data. Like the PVA, it can’t take into consideration things buyers factor into picking a house like colors, cleanliness, floor plan, shape of lot, slope of driveway, amount of natural light, number of trees, or a good or bad view. About the only time I have seen it be fairly accurate is in a newer subdivision where most of the houses are similar. The less variation in condition or updatedness, the easier it is to figure out a value because the value range is less broad. The more variation, the more you need an experienced realtor.

There you go. It feels so good to get this off my chest. I hope it helps you better understand the real estate market and how it impacts what is likely your biggest investment.

How do houses go up in value?

by John Rice

Ever wonder HOW prices rise for houses?

Before I got into real estate, I didn’t really think about it. You’d read stuff like the average price went up something like 4.6% last year…I assumed it was like a rising tide and affected every house the same way at the same time.

But it doesn’t work like that. It works more like traffic taking off after a stop light. The first car goes, then the second car see the first car moving and goes, then the third car sees the second car moving and goes, and so on. As much as I wished they would all move at the exact same time, they don’t. And that is exactly how prices go up in real estate.

There are lots of factors impacting value: Supply/demand, location, price range, condition, etc. No surprise here, but when prices are going up, the neighborhoods that are the most desirable and have the least supply go up first. Once there is enough of a price gap between those neighborhoods and the next best neighborhood, the prices of the second best neighborhood start to rise as buyers see a bargain and move in that direction. Then when the prices are up on the second best neighborhood, that does two things: It makes the prices go up on the first choice neighborhood since it is better, and it also drives bargain shoppers to the third best neighborhood. This process ends up going through ALL the neighborhoods in town as long as the market remains hot.

I sold two houses in one particular neighborhood several years ago to some friends wanting to rent them out. I was telling my friends that I thought the prices in the neighborhood were about to go up since there was a big gap between what an identical house was selling for in other neighborhoods. Since I tend to Geek out on this type of stuff, I don’t think they were as into it as I was…..but now their houses are each worth $35-45k more in just a few short years.

So, next time you are stuck in traffic, forgive me if it makes you think of real estate.

LEXpert Perspective: Today’s Market

by John Rice

It’s been an interesting spring market. I won’t get into why it has since the reason is all over the news and on all of our minds.

The market goes on though.

Both buyer and seller activity has greatly decreased. However, there are still more buyers than sellers so the supply-demand thing means any decent house that is priced in the realm of reality is going to sell very quickly. There has been some speculation that there will be more listings on later this year as sellers put their houses on the market after waiting this out. Yes, that will happen, but there will be just as many buyers out too so it won’t get any easier to get a house. Bottom line is if you are ready to sell, then do it. If you are ready to buy, get out there. Waiting is not going to change much.

One good thing I am seeing lately is more and more houses under $200k. Last year there just weren’t too many houses hitting the market under that price. I scroll through the new listings every morning. They are sorted from lowest price to highest price. Seemed like last year after the first few houses it quickly got over $200k. This year it seems I am seeing many more under that affordable threshold. I think this probably has to do with the low interest rates. A lot of those buyers with $150-200k houses are stepping up to the $250-350k range. If you’ve been reading my blog for long, you have heard me say that first time buyers are what greases the gears on the real estate market. They are usually the only people who don’t need to sell a house before buying one. There have been plenty of them out there the past couple of years, but there haven’t been enough houses for them. That is why a house that was $140k a few years back is now a $180k house. If you are going to be looking in the sub $200k range, NOW is the time to get out there. Don’t worry about the sky falling. Just do it. I’ve had several people who were always worried about buying at what is perceived as the top of the market. All of the houses they thought were too much back then are all worth much more now.

Reading the tea leaves when your house isn’t selling

by John Rice

House not selling? Wondering how to interpret what is going on? Here are a few of my thoughts on some common situations. The following assumes your house is being presented well online with plenty of good pictures and marketing remarks that describe it with more than trendy generic AI generated verbiage.

The house that gets lots of showings but no offers

Assuming that you don’t have some negative that wasn’t obvious like backing to a highway, apartments, or having an Eiffel Tower looking electrical thing in your yard, this situation simply means that the house doesn’t live up to what buyers expected. The good news with this one is that buyers think the price for what they thought the house would be is okay or else they wouldn’t come at all. The solution here is to either lower the price or improve the house so that it meets the expectations buyers have. Whichever is easiest.

I once had a condo that got tons of showings. I kept encouraging the seller to paint. Once we did, it sold. I recently had another listing that was getting tons of showings. It was a nice place, but just felt like a 15 year old house that needed a fresh vibe. The seller did some painting and replaced the flooring in all the bathrooms. As soon as it was done, it sold. Both of these places looked great online, and just needed to match what buyers thought they were getting. Both were improved for far less than the price reduction we would have needed, so both sellers actually came out better by going that route.

The house that gets no showings

This one is easy, but hard for sellers to accept. The price is too high. If a house is presented well on the MLS, and still nobody comes to see it, all you can do is lower the price. Real estate is all about price, location, and condition. You can’t change the location, but the other two you have some control over.

Also something to think about is this: If you have a $400k house and you’re asking $475k for it, buyers are comparing it to other houses that are really worth the asking price. The buyers who are going to spend what your house is really worth aren’t even going to see it since the list price is over their budget.

The house that gets the same bad feedback over and over

This is the least fun thing that can happen to a seller. I mean, they get kicked out of their house for showing after showing with no offers AND get to hear what people hate about their house.

Several years ago I had this really cool older house that had been mostly remodeled. It had the smallest living room I have ever seen……must have been the smallest anybody had ever seen since that is all I kept hearing after the showings. I’d ask for feedback and the buyer’s realtor would go on and on about how beautiful the place was, how unexpected it was to have walk-in closets in such an old house….then they would say their client wasn’t going to buy it since the living room was so small.

We tried putting in smaller scale furniture, but that didn’t help. After that, all we could do was drop the price. A price reduction opens the house up to a larger pool of buyers as well as enticing them to overlook a shortcoming if they are getting a better deal. We got that one sold too.

If you have a situation that doesn’t fit into these scenarios, give me a shout and I’ll let you know what to do.