Random Real Estate Thoughts

The worst decision a buyer can make

by John Rice

How would you like to pay top dollar for a house nobody else has wanted while it sat on the market for over a year?  What’s that?  Not really the type of thing you want to do?  Well then, let me tell you how to prevent it.

Little story here….A house in my neighborhood had been sitting on the market for well over a year before eventually selling.  I had a house around the corner from it listed during that period…..only mine sold much sooner!  I ended up showing my listing to the same people who had called that listing agent to see that house.  I would ask people how mine compared.  They all told me that the other house had some funky floor plan they didn’t like.  I don’t mean just 2 or 3 people told me that.  Like 10 or so told me.   Let’s fast forward to when the buyer of that house goes to sell.  Think buyers will have the same opinion?

I noticed the other day that it finally closed.  I looked to see who sold it.  Guess who?  The listing agent was also the buyer’s agent.  That tells a whole lot.  That lets you know that the buyer was some unrepresented sucker who was just calling listing agents to see properties.  They didn’t have somebody working for them to say “WAIT!  This house has a funky floor plan and you are going to have a hard time selling it down the road and sure, it seems like a good price compared to similar sized houses, but it isn’t!!”

Now, I am for sure not making a judgement about this agent.  I don’t know what all happened.  All I know is that when I see a house sell that has been on the market forever, most of the time the listing agent ends up with the buyer too.  An agent has to walk a fine line when all the sudden there is a buyer for a house they thought they’d never sell…..and getting both halves of the commission makes it even harder.  I think most of the time the agent and the seller come out the best in these deals.

Basically folks, my message is if you are buying, don’t go at it alone, don’t trust the listing agent for advice, don’t rely on zillow.  Get yourself a realtor who has been in enough houses, is familiar enough with the market and can recognise the things that will bite you in the rear down the road.   The buyers of this house made a bad decision, and the sad thing is that they won’t know that until they need to move again.

29 words that SHOULD be on any Short Sale contract

by John Rice

You ready?  Here it is:  “Buyer may void contract at anytime prior to 3rd Party acceptance.  All parties agree to sign release to that effect with the earnest money being returned to the buyer.”

There, that wasn’t that hard at all.  Seems pretty simple doesn’t it.  Makes sense too! That right there solves the problem we have all heard so much about short sales.

By adding that clause to any short sale contract, it keeps the buyer in a position where they can keep looking for a house while they wait and wait and wait for an employee of the lender to deal with their offer.  I’ve heard of people who waited like 4 months before they even get a counter offer from the lender.  Some people (including myself) have had the short sale process take so long that the house ends up getting foreclosed before the lender works out the short sale.

The bottom line is that short sales are a miserable experience for the buyer.  Often, they don’t work out at all and the poor buyer has missed out needlessly on other houses they may have wanted. 

I hope I have just started something that will become standard practice to realtors across the country.  It’s the right thing to do for buyer-clients.  Listing agents might not like it much, but since the seller is already in pre-foreclosure and isn’t going to walk away from the sale with a penny, they will agree to it.  The listing agent knows that if they don’t get a contract from somebody, the house will be foreclosed and there won’t be any commission check, so play tough or be on the lender’s schedule.

When more isn’t worth more

by John Rice

“But nothing on 5 acres has sold for that!”

“But my listing is 1000 square foot bigger!”

Both of these were replies from other agents when they asked what I thought of their asking prices.  I hate to give feedback to agents.  Very few are appreciative when you tell them the truth.  When I get an agent that is argumentative, I like to save their listing in my cart and see how close I was to its eventual sale price.  I’m almost always pretty spot on. 

I am working with a client who wants at least an acre in a rural setting, but is willing to have more acres.  Like most people who want to live in the country just to have some space, the actual size of the lot doesn’t really matter.  If 1 acre gives the same degree of privacy and function as 5 acres, most of these buyers don’t care.  I mean, hello, it’s not like they are going to farm it.  Yet, an appraiser will add/subtract value for having more or less land when appraising a piece of property like this.   That’s why you often see a realtor brag that the asking price is less than a recent appraisal…..It’s cause the market cares more about the quality than they do the quantity.

I am working with another client who is wanting to buy an affordable house downtown.  We’ve been looking at houses on the north end of downtown, which takes somebody who loves old houses and the downtown vibe more than they hate the crime that will be around them.  Let’s face it, few people with families are willing to live in an area that looks like it could be on that show “COPS”.  I’m not trying to say this is right or wrong, only that the buyer pool for most of the cheaper houses downtown is going to be a single person or a couple.  To those buyers, square footage doesn’t really matter.  They care more about the character of the house and how close it is to the places they want to go.  If they can get all that in 1200 square feet, all the better cause it means less to heat and cool…..which is a big deal in hundred year old houses with no insulation in the walls!  Again, an appraiser is going to add or subtract for square footage differences, but again, the market doesn’t seem to care.

Most realtors approach determining value in a purely mathematical way.  We all have these sheets of paper with values for things like a square foot of space, a bathroom, a fireplace, etc.  We all cut and paste value when comparing similar houses to one we are about to list.  Most agents stop there.  I can’t tell you how many times I have been in a deal where the listing agent says something like “I can’t believe we didn’t get more for this house, all the comps were much higher?”  That always tells me an agent doesn’t know the market……which is really about what buyers like and don’t like.  See, we don’t have anything on that sheet of paper for subtracting value for things like a half bath in an awkward spot, a bad paint job, a steep driveway, being on the main drag through the neighborhood, or having the ugliest granite counter tops known to man.  We also don’t have anything on that sheet saying how much value to add for having awesome closets, a private lot, great landscaping, etc.  Those are all subjective things.  Things you only learn by spending a lot of time with buyers.  That is why I always say the best listing agent is one who also works with a lot of buyers.

WHY Would I Suggest a $50k House to Somebody That Can Afford $200k??

by John Rice

We’ve all been there.  You just got on a plane and the stewardess starts telling you where the emergency exits are and that your seat cushion doubles as a floatation device.  You’re thinking “BLAH BLAH BLAH lady, just give me my bag of honey roasted nuts!”  Although I don’t put on a skirt and have a demonstration for it, I like to bring up “The Exit Plan” with clients before they buy.

In the past, nobody really thought about the exit plan.  We all just assumed our house would keep appreciating and real estate was a bar of gold that you could live in.  I’ve seen so many sellers over the past few years whose house has become a noose.  I don’t want that to happen to my people.  It is always important to pick a house with decent resale potential, not pay too much for it, and to not over improve it.

Here’s a story about a recent deal:

My client is a young dude with his whole life/career ahead of him.  Pre-approved for $200k.  Likes the downtown scene and old houses.  We’ve looked at several that he liked.  I liked them too, but my concern was that this dude could get offered his dream job several states away in the not so distant future.  I didn’t want him to get stuck with a house that would be hard to sell.  We made an offer on one, but the seller wasn’t living in reality.  I got to thinking that I didn’t see too much difference between the houses at the top of his budget and those at the bottom.  So what do I do?  I take a guy that can buy up to $200k to look at a $50k house.  (Somewhere there is a realtor reading this right now that thinks I am  nuts for leaving so much commission on the table!)

Why would I do that?  For starters, I am older than this guy, and I know life has a way of changing on you……fast.  Plus I knoooooooow how expensive it can be to maintain any house, especially an old one.  I didn’t want him to ever be in a position where he couldn’t take that dream job, or not be able to save some cash for emergencies and all.  Bottom line, I was watching out for him.  We talked about all that, and fortunately he thought buying below his means was a good idea…..especially when there wasn’t that much difference between a $150k house downtown and a $50k house.

His mortgage is now going to be cheaper than most people’s car payment.  He got a house he likes, and likes even better the position he’s in.  If he needs to sell and  it takes a long time, making that payment isn’t going to put him in a bind.  Plus, it is on a street where there is a lot of redevelopment going on.  Lots of restaurants and bars just 3 blocks down his street.  If he stays long enough, there is a good chance that he’ll be able to make some money on it.

That’s why you always need an exit plan, cause one day, you will sell whatever house you are about to buy!

Playing “Bang for Your Buck” & it took longer than 30 minutes!

by John Rice

Ever watch that show on HGTV called Bang for Your Buck?  Let me let you in on a secret…..the winning house is ALWAYS going to be in a neighborhood that will best absorb the amount of money invested on whatever the improvement was.

I recently had a chance to play “Bang for Your Buck” with a client, only they were wanting to pick the house that had the best change to have been the winner.  They narrowed down their short list to about 8 houses.  I ran the comps, took what I knew about the neighborhoods and the market, and told them which ones would be the best bet to get back the $20-30k they want to spend on improvements.  Of the eight houses, most were at or near the top of the range for their neighborhood.  That never works for getting anything back on your improvement dollars.  If the range for the neighborhood is $150-200k, you can spend a million bucks on a house, but you aren’t going to get much more than $200k for it.  See, once you over-improve a house, you end up making buyers pick between the best house in an inferior neighborhood or an average house in a superior neighborhood…….and sometimes those people have a realtor like me who will tell them they can improve any house, but they can’t do a ding dang thing to change the whole neighborhood!

So, my folks picked a house in the lower end of a neighborhood that ranges from $200k up to well over $500k.  That should give them the room they need in the value range to get back most or all of the money they spend.  It is also in an area where it is the preferred neighborhood due to character and school district.  You’ve got to consider what other neighborhoods any future buyers may also consider.   We ruled out several good houses just because there were so many similar neighborhoods all in the same part of town.  In fact, we saw about 10 houses that were all pretty much the same floor plan within a quarter of a mile from each other.  You don’t want a future buyer to be playing “Where’s Waldo” with your house when it is time to sell!

 I also gave them some ideas for what would be the best things to do to the house.  Pretty much, what you want to do is offer a buyer just a little more than what they expect to see in your neighborhood.  Some people (and amateur Flippers) go over board.  I think I blogged about a Flipper who put granite and travertine all over a house in a neighborhood where 30-year-old laminate was typical.  That dude could have done just as well with a nice new laminate counter top and 89 cent tile.  Sure, who doesn’t like granite and travertine, but it was wasted money from an investment standpoint……especially since his higher material cost drove up his asking price and he couldn’t sell it.

Here are some things that never go out of style:

-Adding a fireplace

-Hardwood Flooring

-Crown Molding

-Plantation Shutters

-Adding a deck or patio or making the one you got larger

-Fencing a yard

-Landscaping

For things that a buyer will want to rip out in 10-20 years, (tile, counter tops, backspashes, carpet, light fixtures, cabinets, etc) you are only going to get a return on your investment as long as what you bought is not only still stylish, but in good condition.  For example, when your maple glazed kitchen cabinets are beat to heck a few years down the road, don’t expect a buyer to pay you back for them.  And in 15 years, they don’t add any value.

If you can’t tell, I really want my own reality show.