Random Real Estate Thoughts

Is your home worth more or less today than tomorrow or yesterday?

by John Rice

Your house may be worth more yesterday than today…..and it may be worth more or less tomorrow than it will be the day after.  WHAT??  Am I crazy or what?

Nope.  Not crazy.  Not at all.  In all reality, the value of your crib fluctuates just like the value of stocks do.  I am sure you’ve seen the news or read in the paper how the Dow Jones goes up and down at least a little everyday.  Not that I have done any research on this, but I am pretty sure that there has not been one single day of trading that the value of all those stocks involved stayed the exact same all day long.

I don’t know why, but we all seem to think that the value of our house is some static number.  Now, the small value changes in real estate won’t fluctuate as often nor as wildly as stocks may.  That’s because the same share of stock will sell with much more frequency that one individual house will……but the house WILL see some value fluctuation….and it doesn’t matter if it is a good or bad market.

Let me establish some things that will explain why:  We’ve all heard that with anything, the value is only what somebody is willing to pay for it.  True.  But, with real estate,  that somebody usually does some research on their own or asks a professional to find out what the place is worth.  Whether they do it themself, or have a realtor or an appraiser do it, the research is getting done.  Regardless of who does it, what is happening is that they are looking in the PAST for recent sales to determine a current value.  An appraiser calls it an appraisal.  A realtor calls it a CMA.  Either way, all it is really about is using recent buyer behavior to predict current buyer behavior and come up with a probable value.

So that is how the past is relevant to the value of your house.  Most people just stop here….Probably because this is all they have seen happen when they were the buyer.  Let’s take a look at how the present and the future impact the value of your place.

Let’s say your house is on the market for $250k, and there are 50 houses for that same price in town the day you list it, and, according to recent sales, the house is worth every penny of it.  Then, suddenly, there are 100 houses for the same price available?  Or the number of listings remains the same, but the number of buyers goes down?  You know where I am going here….supply and demand.  You may need to change your asking price since the value of your house can change with every new listing that comes on the market.  As if that wasn’t enough to deal with, whenever one of those other current listings sells, it becomes a comp, which everybody uses to determine the value of your house. 

All of this is happening everyday.  There is no static value in real estate.

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.

Hey Dreamer……WAKE UP!!!!

by John Rice

Okay…..I am a little mad.  I have a great listing that we have priced very realistically.  We’ve had one “Buyer” that looked at the place 4 times before making an offer.  Why am I mad?  Because they offered around 85% of the already fair asking price.

See, to me, these peeps weren’t real buyers.  They were dreamers.  They aren’t living in reality.  For our area, the average list to sale percentage is 97%. I’ve sold 43 houses worth about ten million bucks in less than two years.  I spend a lot of time everyday studying comps, sale prices, stats, etc.   About the only time I see a house actually sell for that far off from its list price, it is usually because the asking price was too high to begin with.  The fact that they didn’t even come up any further in their offer shows me that they aren’t really going to buy a house.  A real buyer will pay a fair price for a house.

When I was a younger agent, I occasionally worked with people like this.  You’d meet them at an open house or they’d walk in the office.  What always fascinated me was that they never took my advice.  You could show them a dozen comps for identical houses that all sold last week and were all on the same block….heck, let’s also say they even sold for the same price.  Plenty of data to determine a fair market value.  They would always want to offer no more than about 80% of the asking price, often saying that it just wasn’t worth more than that “To them.”  It was like they have heard the true saying that something is only worth what somebody will pay for it…..but they failed to realize that they were not the only somebody out there.  I don’t know what ever happened to those people because I let them find another realtor who was willing to live in their dream world.  However, if I were a betting man, I would wager that they are still out there somewhere writing low offers and are scratching their heads wondering why they can’t seem to ever buy a house.  Or maybe they are those people who paid a fair price for a house that was listed for way too much.  I guess if you base your offer on a percentage of the list price rather than recent sales, you can feel like you got a bargain.

So, if you are a seller and this happens to you, keep your cool.  Put on that fake smile and dance with them until the song stops.  Sometimes these low ball offer people are just testing you, but most of the time they waste your time and make you mad.  If you ARE one of these people, listen to your agent.  Look at the comps…..and like I’ve often heard Gordon Ramsey say, “WAAAAAKE UUUUUP!”

What about the “Average House” in a slow market?

by John Rice

Know what I have been thinking a lot about lately?  The “Average House” that is on the market.  I get a lot of statistics thrown at me that I have to analyze, but there is nothing more depressing to me than the “Average house.”

See, there are a TON of houses on the market right now and not many buyers.  The last number I heard was that there are 13 buyers for every house available.  Do you know what that really means?  The other 12 houses per buyer aren’t going to sell.  What are those houses like?

They are the ones that don’t stand out in any way shape or form.  There is nothing special about them.  Average location.  Average condition.  Average price.  Not that there is really anything wrong with any of that, it is just that there are sooooo many of them on the market right now.  I hate to be the bad guy, but they probably aren’t going to sell.  Sure, there is a sign rusting away out front, and an MLS listing that is getting as much attention as I probably would on a dating website, but really, it might as well not even be for sale.

I’ve been in plenty of these houses with my buyers.  They normally just walk in, walk out, then tell me the house was okay with the enthusiasm they might have when picking out toilet paper at the grocery store.  Heck, I bought one of those houses….kind of.  Sure, I picked a good location, but everything else about my house was…..well, like everything else in every other houses in my price range.  There was really nothing great to say about it other than the fact that it was in a nice neighborhood.  The floor plan is one that is scattered over pretty much any neighborhood in town, the lot is nothing to write home about, and it wasn’t in move in condition.  In fact, it was what I call “Move-Out” condition, meaning the seller’s had moved out and left the nail holes, the indentions in the carpet where their furniture had been, their kid’s finger prints on the walls, etc.  Now, I have done a lot of updating, so I think my house would now stand out due to location and condition if I had to sell today……but without the work I have done, all I could do to sell it today would be to price it lower than other houses currently on the market.

I think the sellers who have it worst are those who are in newer neighborhoods where a buyer can even pick from multiple versions of the same house.  I’ve shown several houses back to back that were the exact same house, but with different finishes…..”Oh, this one has berber carpeting and the last one had plush.”  “Oh, this one has beige vinyl and the one around the corner has blue.”

I got a phone call from somebody last week about selling their house.  I was pleasantly surprised when I got there to see that it was in move in condition, would show well, and had new laminate flooring throughout.  In the price point the house is in, that is an attractive perk to any buyer.   It helps too that they are willing to price it competitively.    I have no doubt that when it hits the market, one of the first buyers to see it will want it because it is better than the “Average House.”

So, what are you to do if you find yourself in a house that doesn’t have anything any different that any other house available?   First, don’t feel bad.  In the hot market of yesterday, people routinely settled for their second or third choice house and felt lucky to get it.  Now those peeps are trying to sell in a market where most buyers get their first pick.  Here are your options…..there are only two (trust me, there is no third option here!)  You either make it attractive to a buyer by pricing it lower that the competition or make it better than the competition.  If you are in a neighborhood where vinyl is common, put down tile, if carpet is common, go hardwood or laminate.  Increase the size of the deck or patio.  Fence the yard.  Add stainless appliances.  Leave a nice washer and dryer.  It is all about one upping the other seller and stealing the next buyer away from them.

What you might see in a real estate fortune cookie

by John Rice

If I were to make fortune cookies with real estate advice in them, these would  be some of the best ones:

1)  “Don’t buy a 2 bedroom house.”  They are harder to sell, especially in today’s computer age when most every buyer enters “3” for the minimum bedroom count on searches.  A two bedroom listings is like playing Marco Polo alone.  You’re shouting Marco, but there is nobody listening to reply with Polo.

2)  “If you buy a house that has been on the market for a long time and is realistically prices, you will have the same thing happen to you when you go to sell.”  I find usually that means there is something odd about the house that most buyers don’t want, or else it would have sold sooner.

3)  “It is a good thing to be in multiple offers.”  My experience tells me that when this happens in a slow market, you either have a fantastic house or one that is priced below market.  When you go to sell you will either have a house that everybody wants or are buying it right, or maybe both!

4)  “If you have to use the word ‘Except’ when you describe your purchase, it is a bad one.”  Except is a code word meaning there is some major negative that will bite you on the bum if you need to sell in a slow market.  “We got a great house…..EXCEPT for the tiny yard…..EXCEPT for backing to a wharehouse…..EXCEPT for being on a busy road.”

5)  “Avoid a bad school district.”  Now there are exceptions here….like a condo complex that appeals mainly to empty nesters, but if you have a house whose target buyer will have kids….it is important to them even if it wasn’t to you.

6)  “A fixer upper isn’t always a bargain.”  I learned this one the hard way.  If you buy a house for 80% of the potential market value, but must spend the 20% savings to make it just as good as any other house on the street, all you have gained is experience that will help you if you ever decide to get into real estate.

7)  “Buying the least house in the best neighborhood doesn’t always make sense.”  This one runs contrary to what most people think.  But the reality is that the typical buyer for the nicer neighborhood is going to find your house plain or too small.  Your only real market will be to people who still believe that old generality about house buying.  I see it all the time where people will pick the better house in a nice neighborhood before they pick less of a house in a better neighborhood for the same price.

8)  “Don’t buy a house on a street you will have to spell every time you order pizza.”  Just kidding with this one…..but I only bring this up because just about every street I have lived on I had to spell for everybody.  As a kid, we lived on Castile Ct, which everybody thought was Castle.  Then we lived on Lincoln, which shocked me how many people don’t know there are 2 L’s in Lincoln.  Then I lived on Tanforan, which is some kind of race track somewhere.  We would get mail to Tanfran, Fanforan, Panfram, and just about any other 2-3 syllable combination of vowels and consonants you could make.  I thought I hit the jackpot when we lived on Kentucky St.  I thought, finally, I have an address that isn’t a problem.  But, the house number was seven, and I was always having to reassure everybody that yes, it was only a single digit.  When we talked to people out-of-town, they would always be like, “Hey, you live in Kentucky and also on Kentucky Street!”

So, follow these rules and you should be on a good start to not losing your shirt when you need to sell!