Random Real Estate Thoughts

Cash for clunkers = Homebuyer tax credit

by John Rice

One buyer for every 13 houses for sale according to LBAR.  Many more listings than pending sales everyday…..and we aren’t even in the slow season yet.  What gives?

Just like Cash for Clunkers got a lot of new cars sold and then put that industry on life support afterwards, the tax credits that expired April 30th have done the same thing to the Lexington market.   I don’t mean to freak anybody out….or be all doom and gloom, but I think it is going to be a tough time to be a seller until at least next spring.   Cars are selling pretty well again for the new normal, and houses will too.  You just can’t expect to not have some type of backlash when just about any first time buyer who would have bought this year already did.  Like I have blogged about before, those first time buyers pretty much grease the gears of the whole market.  They will come back since people will always graduate, get married, get a new job, have a baby.

What do I see in the mean while?  A few lucky sellers and a lot of houses on the market going into the peak buying season of spring.    I am already starting to see more reduced prices than usual for this time of year.  Smart sellers start reducing their prices this time of year with the hopes that somebody will come along so they don’t have to sit on their house during the dead period of Thanksgiving to New Years Day.

If you are a seller and can do so, you should reduce your price to be as competitive as possible.  We are starting to see more comps from after the tax credit expired….they are different from those comps from before.  Most of the time you can go back 6 months to look at sold comps, but right now I think it is wise to try to find ones as recent as possible.  Even though the tax credit expired April 30th, there was still lots of time left to close those deals.    So it has only been about the last 8-12 weeks that we are seeing comps from the “New Normal.”

If you are a buyer, let me tell you a hard reality.  Just because it is your market doesn’t mean you are going to go in and steal somebody’s house.  I see the list-to-sale percentage every time I log on to lbar, and I am not seeing anybody get a heck of a lot knocked off the asking price.  The few I have seen that sold for 80-90% of the asking price were, in my opinion, overpriced to begin with.  Paying 80-90% of an inflated asking price is probably more like paying 95-97% of what it should have been.  You should be in the driver’s seat though for things like closing date, appliances, maybe some closing costs, a home warranty, plus come out smiling with your home inspection repair negotiations.

Don’t be all bummed out…..We’ll be loading the pipeline with a fresh batch of first timers to get things moving again soon!

Lexington Ky Realtor: Ain’t Nobody Really Happy These Days

by John Rice

Well…..I had a crazy, frustrating, comical, sad thing happen to me this week.  I got a verbal offer on one of my listings.  We finally worked out the blanks in the contract with the plan that the buyer would sign it the next morning since he was out of town.  I never like to do things this way, but I try to be as accommodating as possible in a market with too many listings and too few buyers.

If any agents are reading this, they probably already know where this is heading…….The signed offer never came.  I was nervous about it from the get go, but gave them the benefit of the doubt.  Not much else I could do since we didn’t have any other offers coming.  When I got an email from the buyer’s agent saying it would not be the morning, but evening, it was already starting to smell rotten.  Then evening turned into the next morning.  At that point the agent told me some stuff that made me think there was more going on than just the deal of buying a house.

And that got me thinking about all the drama that can happen in a real estate deal….I mean, after all, there are lots of TV shows about it!

To me, being a good agent means you have to be 1% appraiser, 1% home inspector, 1% lawyer, 1% architect, 1% loan officer and 95% counselor.  You need to know how to comfort people and help them work through their fears, anger, resentment, misconceptions, etc to get them to their own goal of getting a deal closed.

Here are some typical feelings people bring into their real estate deals:

1)  Just about every first time home buyer I have ever had seems to withdrawal for a couple of days right before they are ready to sign an offer.  When I was a new agent, this totally freaked me out and I was calling them all the time leaving messages for them.  Now I know it is going to happen and when they seem to have dropped off the face of the earth, I know they are about 48 hours from a decision.  It is a very big step for them, and one they need to be mentally prepared for before they can take it.

2)  Since the market has slowed, I am seeing all kinds of buyers moving here who have not only lost 20% or more of their equity in their last house, but also were mentally pistol whipped by a buyer who was drunk with power.  These people are very bitter not only about the loss, but mad as heck at the buyer who they had to play “Simon Says” with.  Naturally, they think it is their turn to get the bargain they had to give…..but the Lexington market just isn’t like that.  It takes a while for them to realize that our market didn’t take that big of a hit, and that typically houses sell for pretty near the asking price.  I guess most of that is just because the realtor culture here just does it that way.  Other places it is the norm to instantly knock 10% off the asking price.  You have to give these out of town buyers lots of statistical data and show them the comps.  They have to come to that realization themselves, it can’t be forced.

3)  There are the sellers of today.  Many were at the mercy of the seller when they bought in a hot market, and now they are still on the losing side of the deal.  It is like a double whammy to them to be a buyer in a seller’s market and a seller in a buyer’s market.

4)  Then you have the heartbreaking sellers.  These are the ones that have lost a job, are getting divorced, have lost a spouse, or are selling their parents home.

Basically, with the economy and the national housing market of the past few years, most real estate deals now involve a lot of fear, concern, stress, anger and just about any other bad vibe.

So, what was my advice to the agent who has the MIA buyer for my listing?  I told him to give them some room.   A dozen voice mails isn’t going to accomplish anything other than prolonging whatever it is they need to work through.   I know he wants to know what is going to happen right now, but if he pushes them, they will not only totally walk away from my listing but also from him as their agent.  If we give them some room to catch their breath, they may come around in a day or two and everything will be just fine….in the meanwhile, my seller and I hope somebody else will come along and buy his house…..maybe some body with less baggage.

Why that house DIDN’T sell for what it should have?

by John Rice

I frequently boast on Facebook when a buyer of mine gets a house for way under the appraised value……Although I really think it has more to do with a listing agent who didn’t know what the house was really worth than my ability to get a good deal for my peeps.  An appraisal is like the CMA that agents should do when they list a house.  Both are really more focused on the comparable houses, rather than the house being marketed.

And I guess that is what this is all about today:  Listing agents that don’t know what their listing will really sell for.

When I was a new agent, they trained us to do a CMA, or Comparative Market Analysis.  They give you a sheet of paper that has values for things like a half  bath verses a full.  What a square foot of space should be worth in each price range.  What a basement is worth.  Etc, etc, etc.  I remember all the new agents sitting there like the first day of algebra class, trying to work through the formula with no idea what any of it really meant, or having a clue as to the concept behind it all.  We were just following a formula, and in the end, we all had our value for the house and were really proud of ourselves.

I don’t think many agents have really gotten past doing it this way.  I say that because on several occasions, I have talked to agents who have told me how they did a CMA when they listed a house and are shocked that it didn’t or hasn’t sold for more.  According to the comps, the house is a bargain they alway say.

Well, that must not be true, because if it were a bargain, it would have sold.  I think that most agents don’t take a close look at the house and add/subtract value for things that aren’t on the CMA list we all use.  These things are features like a big house with a tiny backyard whose probable buyer is a family, the house that backs to an apartment building, the house with purple carpet, the house with an awkward floor plan, or just about any feature that knocks it out of being somebody’s first choice.

I recently sold a house in Beaumont Reserve that the listing agent told me how shocked she was that it didn’t sell for about $50k more than it did.  It was the same floor plan as others that sold for more.  The lot was typical.  The finishes were typical.  On the CMA sheet and appraisal, it was worth more.  Here is the deal, the house was painted off white, with off white carpet, and the seller’s furniture didn’t help any either!  See, to a buyer, the house seemed just too plain to sell for what other similar ones did.  My buyer painted it and spend some money on updating it.  It is now in line with what the other ones are selling for in that area.  That house was worth less in the “Real” market than what any apprisal or CMA showed because neither has a value for how a buyer feels about a property.

The “Real” Market is where the rubber meets the road.  An agent should be able to look at the comps, do the science part of the CMA, and then also be able to make adjustments for things that buyers will respond positively and negatively to.  Why?  Because they are things that matter to a buyer, and a house is only worth what a buyer will pay for it.

Old House VS New….Lots of Misperceptions

by John Rice

I often get asked by buyers if they should buy an old house or a new house.  My usual response is to say that it depends on what kind of problems they want to have.  I get crazy looks when I say that, but it is just my way of telling people that all houses will have problems.  Basically, it is your house verses Mother Nature and Father Time……and they usually win.

I have lived in both old and new/newer houses all my life.  When I was a kid, I went from a 1910ish four square to a 3-year-old ranch.  Next, my parents bought a house in Kenwick  from the 1930’s.  My first house was built around 1915.  My second was 1973.  My current house is 13 years old.  All of them had things to deal with.  The only way to escape house issues is to refuse to deal with them, and I see a lot of that on the market!

There seems to be this misperception that old houses were built better.  True, MOST were built with more care than today’s homes are.  I say most because my first house, the one built around 1915, was nowhere near as well-built as my parents Kenwick house from the 1930’s.  I thought it would be, but once I moved in, I started to realize it wasn’t.

Old House misperception #2 has to do with today.  Many people think that any old house is better than any new/newer house is today.  After living in a lot of old houses and showing a bunch to my clients, I can tell you that what it comes down to is maintenance.  Even the best built house from yesterday will be nothing but trouble today if somebody didn’t keep it up.  Remember, an older house has been in the ring with Father Time for more rounds than a newer house will have.

The new house misperception is that they won’t last as long as an old house.  I use to think that…..until my parents bought a 100+ year old farm-house in Clark County.  See, their house started out as a 2 room timber structure.  Then a porch was added on the back….which was later converted to be a kitchen.  Then a new porch was added to the side of the kitchen…..which later became the new kitchen and the old kitchen became a dining room.  Then somebody added a second story over the original structure, then came a second story over the original porch/current dining room.   So, my attitude now is that if my parents house can defy all building codes and even gravity a little, any new house should last just as long. 

Here are some of the common old house issues:  Inadequate electrical, plumbing, insulation, lack of maintenance,  and poorly done improvements to any of those prior items.

New/Newer house issues:   Rushed construction by unskilled/uncaring workers sums it all up the best.  I have a friend whose house was practically rebuilt after a fire.  It had no insulation on one side of the house.  On my own current house, poor mortar joints on a brick window sill allowed water to run down the inside of the brick veneer and rot some of the sill plate….I only found it out when I did the demo for the new slate floor.  If today’s workers would apply to their trade the same care they use to draw naked women in the potapotties, we would have the best built houses of all time!

Occasionally I do see both a really well-built newer home and a fantastic older home.  I represented a builder who did a great job of making decisions that the buyer wouldn’t even begin to appreciate for years to come.  He did a lot of little things way above minimum code.   I also just sold an older house that had been well maintained and had recently been overhauled by a good contractor.  That combination made it a pretty unique older home and a good pick…..I guess that buyer got the best of both worlds and none of the negatives!

Which do you like better:  Older houses or newer construction and how come??

Lexington Ky Real Estate: Sim City helped make me a better Realtor

by John Rice

Ever play Sim City?  I must admit, I haven’t done it in like 15 years, but I always loved to watch what happened when you built a neighborhood by an industrial zone, or watch a neighborhood grow when you added a commercial district beside it.

Sim City is a lot like real life in the way something outside a neighborhood can have an impact on what happens within a neighborhood. 

One day several years ago, I was talking to a neighbor who bought her house brand new back in the early 70’s.  We were talking about all the traffic on Pimlico Parkway.  She told me that before they opened Man-O War, the only traffic on Pimlico Parkway was just people from the neighborhood.  It was just the main drag through the neighborhood, like any other entrance and exit  in your neighborhood…..until something changed.

And I guess that is what is on my mind.  How things are always the same, until something changes.

Another example of a road like this is Autumn Ridge Blvd.  I remember when it was a new neighborhood.  You took Autumn Ridge all the way back, turned on Pleasant Ridge just like you do today, only back then it ended before you got to Andover Forest…..and oh, there was also no Hamburg back then either.

Next thing you know, Hamburg is built and you can get to it straight through Autumn Ridge.  It really worked out great for everybody….except those folks that lived on the cut through streets.  They saw a lot of traffic and watched as their houses became less valuable than the same house on a different street in the neighborhood.

So, here is my advice:  Don’t buy a house on a road that ends at an undeveloped area.  SOMETHING will eventually be there….just like on Sim City, and odds are it will change the vibe of your neighborhood.  Sometimes it changes it in a good way, but most of the time it means increased traffic, which usually means increased crime…..just like Sim City.

Here is some more advice:  When you are considering a neighborhood that has roads like that, take a look at a satellite view of the neighborhood.  You want to see what is on the other side of the vacant land to see what may eventually be connected to your neighborhood.  Also, don’t rely on zoning.  I hear people say things like, “Oh, that is zoned for single family, so we’ll be okay.”  Well, lets say that it stays zoned as such.  That doesn’t mean that it will be a single family neighborhood similar to your neighborhood?  But even more of a big deal is that there are zoning changes all the time.

And you know what usually happens when there is a big change in the neighborhood don’t you?  All your neighbors decide to move at the same time.   Never a good thing for resale value……and Game Over for you!