Random Real Estate Thoughts

Costly Seller Missteps

by John Rice

Well.  I sold another house today.  My people had wanted to see another house yesterday, but the seller’s were putting in new carpet and didn’t think the house “Would show at it’s full potential.”  While I am sure it was no where near as nice as the one my people bought, what if they had seen it, and found something they liked about it?  Well, there are no ‘what if’s’ now.  We know that my people bought another house and that seller is probably enjoying their new carpet tonight.

That mentality never has really set right with me.  I mean, any agent knows that most of the time the buyer doesn’t ever come back to see the house.  A lot of the time it turns out just like this did. 

I enjoy playing with statistics.  Lets look at the chance the seller had of selling that house to us yesterday.  We were looking at 4 last night, so I guess there was a 25% chance that we would buy it.  Since we couldn’t see it, that gave the others  a 33.33% chance.  Since we didn’t get to see it, there was, you guessed it, a big fat ZERO percent chance that we’d buy it.  If it were your house, which is better?

I had another thing happen today that made me scratch my head.  I am previewing houses for a client.  I’ve been using my high-def camcorder to film the houses, then e-mail the movie to them.  I wanted to see one tomorrow in Georgetown.  The listing agent told me that the seller didn’t want to drive home in the middle of the day to put up her dog for ooooooonly an agent to preview it.  Hmmmmmmm, could this be a sign that we have a cranky seller?  It sure doesn’t leave a good taste in our mouths, especially since my buyer ASKED me to preview it. 

Sorry if this post comes across like I am whining a little.  I’m really not.  I guess the point of this all is that a seller really needs to show the house when somebody wants to see it.  It is in their best interest to do so, and that is always my advice to my sellers 🙂

When LOCATION isn’t enough

by John Rice

I had to take a different route to get to my kid’s school today since I had to park and go inside.  So I’m at a light at the end of a very prestigious street and I see this house that is for sale.  I’ve recently been in it, so that is how this all came about.

See, this house is on the corner of a street full of very old and grand homes.  It is one of those streets that has the huge old awesome houses where the rich people lived when it was new, and  still do.  This house is at the very end of that stretch of houses.  Beyond this house you start to have commercial zoning, smaller houses, and even some houses that have been chopped up into student housing.  It has location…..in theory.

This house has something else working against it too.  Like I said, the houses on this street are very grand.  The street has elaborately detailed houses of architectural significance…….This house looks like a giant farmhouse.  It has wood siding, simple architecture.  It really looks like something from a Norman Rockwell painting, just jumbo sized.  It doesn’t really fit in with its surroundings.

Then there is the fact that it has a tiny back yard, which is taken up by the 2 car garage that practically sits on the street.  When I parked there, my car hung out over the sidewalk.  And when you are in the backyard, you don’t feel like you are even in this nice neighborhood, you just feel like you are on a busy, loud corner.

Now that I’ve run though all that, let me tell you a little bit about the recent history of this house.  It sold for $400k in 2006.  Somebody spent a fortune on it, then tried to sell it less than a year later for $679,900….then $649,900…..then $599,900………then $437,000………then $380,000.  They even tried to auction it at one point with no success.  Now, you may be thinking that it was just a declining market, and that may have had some effect, but the real issue here is that the house just wasn’t right, despite having “Location, Location, Location.”  I am sure when they listed it for $679,900, that the comparable sales for that street supported that price……..again in theory.

So, I guess my real point here is that you really need to step back and take a look at what all is going on with a house before you make an offer.  Does it fit well with its surroundings?  Is it on the edge or in the middle of its defined neighborhood?  What negatives does it have?  All those things have market value.  See, when a realtor or an appraiser look at the comps, they don’t put a value on things that are more of a vibe issue  ( I do though!!)  If two houses were the exact same side by side and one had a really steep driveway, which one are you going to buy if they are priced the same?  What about one that has power lines running over the backyard?  Backs to apartments?  You’d pay less for an identical house with any of those negative features, and YOU are the market, even though on an appraisal they would be worth the same.   (Maybe I’ll blog about the difference between market value, appraised value, and tax assessment value sometime!)

If I had been the buyer’s agent for this house, I would have told him that even though this house seems to have location, it still has plenty of things that just aren’t right, and those things are going to make it worth much less that the comps.  I am sure he has learned all this now, but he has been foreclosed and the house is back on the market, this time for $285,000. 

If you ever buy a house with a big negative, you’ve really got to buy it right so you have some room to sell it right when that time comes.  The negatives may not bother you, but you need to know about them before you buy because one day you will need to sell.

Comps can be like the weatherman

by John Rice

I had to run the comps for a house in that area between Chevy Chase and UK.  My buyer wanted to know what I thought the place was worth.  Usually, comps aren’t too hard.  In a newer neighborhood, they can be really easy since sometimes you can even find three of the exact same floor plans to use.

Older houses are a little harder to comp.  For example, the 3 best ones I had to pick from today were all in the same area, but were very different.   A lot of realtors would have just divided the sale price by the square footage, then added/subtracted for number of bathrooms or a garage.  It is all a very logical process of averaging data to come up with a number.  The only problem is that it doesn’t always work.  It’s kind of like the weather man.  According to him it was suppose to be a certain temperature, rain, not rain, etc. 

Back to my story….

The cheapest one was on the edge of the neighborhood near where the commercial section ends on South Ashland.  That corner of the neighborhood has a very different vibe than the one I saw with my buyer.   The next one was right around the corner from the house.  You’d think that would have been a shoe in.  But, it was much bigger, had been converted to student housing a long time ago, had a surplus of bedrooms, and was handicap accessible.  That isn’t going to attract anybody from the same buyer pool as the one we saw either!  Sorry if this is starting to sound like the real estate version of “Goldilocks”, but the last one was just right.

The last place was similar in square footage, was more updated, had never systems and would attract buyers from a much broader pool.  It went for $5000 less than the asking price of the one we saw.  I had to tell him that I thought the one we saw was over priced.

I also had to tell him that with old houses, you just never know.  Somebody could see that place and totally fall in love with it, with the end result being they paid too much.  I try to come up with a price that I think 80-90% of the buyers would pay.

All this reminds me of 2 houses I had listed on Wabash a long time ago.  Both of them were totally and tastefully updated.  The first one I listed was everything anybody could want in an old house, with the exception of very rough and very steep steps that went up to the converted attic space.  It was really nice up there, but getting there was posing a problem.  Time after time (not trying to sound like Cyndi Lauper either) we would hear how nice the house was and if it weren’t for those stairs…….  Eventually we sold it.  I should add that we actually sold it for much higher than the neighbors and a realtor who lived a few blocks away ever though was possible.  See, the comps didn’t really support the asking price.  We kind of pushed the envelope and it worked.  We just needed that buyer who would fall in love with it……or who was transferring from California, had a tight time line and everything looked like a bargain!

The next house I listed on that road was equally nice.  They had remodelled the upstairs, bumped out the roofline of the back and added a killer master bathroom and a walk-in closet.  Those are 2 things you don’t see often in an older house, especially for the price range we were in.  That house posed even more of a problem to me.   See, the downstairs rooms were just too small.  It was a little too cozy.  If you just looked at the comps, you’d have thought the house was worth about $15,000 more than it was.  We had to sell it a little under the comps to make up for the small rooms because this time, the buyer who would fall in love with it didn’t show up in time before my folks had to move.  Neither did another California tranferee.

So, you really have to have a feel for how buyers will perceive the house as a whole to know where to add or subtract value.  That is the art part of the deal.  Even to the most unemotional buyer, they still have to like the house to buy it.  On the comps sheets all the realtors use, it has the scientific stuff  like values for square footage, a bathroom, a finished basement, the number of garages, etc.   The problem is that if we don’t throw a little art into the comps we’ll just get them wrong…………unless the house is one of those where 3 identical houses have sold in the past 6 months!

Tricks Sellers Play

by John Rice

I was out with a client this week looking at old houses in Chevy Chase, Fairway, Lakewood, Lansdowne,basically 40502.  One house in particular stuck out to me because it was a FRAUD!!!

What do I mean by that?  Simply that the seller had done everything possible to make the house attractive……….except making it a good house.  They had all the lights on, a fire going in the fireplace, they were simmering an orange in some type of cinnamon gue on the stove.  It was decorated with small scale furniture to make the small rooms look bigger. I can over look that stuff, but what got me miffed was that the whole house was nothing more than a beautiful faux finish. 

The ceiling in the bathroom looked like tin……but it was just wall paper.  The counter top had a neat design on it…………but it was painted plywood.  The flooring in the kitchen was left over parquet flooring from an 80’s remodel, but they had painted a light green and white diamond pattern over it.  All the vanities in the bathrooms were ancient, but were painted a trendy flat black.  There was panelling in the basement and a little in the kitchen that had just been painted.

None of this would bother me in a $100,000 house………….heck, not even in a $150,000 house.   In fact, I would probably give them credit for all their effort.  But this was a $350,000 house.  I just felt like somebody was trying to fool me!

My advice for this seller is to put in some granite and do some updates that aren’t in liquid form and can’t be poured out of a can.  Make your house honestly good!  Location is only one third of the known real estate principles.  Condition and price are part of it too!

My advice for buyers is to watch out for this kind of trickery.  Until you started to look closely at what this house really was, it looked stunningly beautiful.   But, none of that comes with the house.  The decor will be gone.  The new owner will then realize that the house was really just cheap updates inspired by those HGTV shows where they make over an entire room for $1000.

But it won’t be my clients that fall for this!!

Moving downtown trend doesn’t apply to Lexington

by John Rice

Since I get all kinds of newsletters and magazines about real estate, I’ve read a lot of predictions about buyers leaving the burbs and buying downtown.  Sorry, not in Lexington.  I guess the people that  build the condos in downtown Lex a few years ago must have been reading the same articles.  I predicted in 2006 that there wasn’t enough of a market to support all the new condos.  Back then, everybody was buying them to flip.  That wasn’t a real market.   Just goes to show that what may be happening in many other places doesn’t mean it applies here.

Why?  For starters, Lexington just isn’t big enough.  The people that are returning to downtown are in big cities and want to escape a long commute.  When you spend 3 hours a day just getting to and from work, it becomes a quality of life issue.  You can get from one end of Lex to the other in 35-40 minutes even in bad traffic.  A lot of  Lexingtonians have moved here from  rural areas in Kentucky or transferred here from a larger area.   They always tell me they are used to driving much more than we do here, so it is a non-issue to them. 

The next reason is Lexington doesn’t even have suburbs for people to leave!  We have suburban type neighborhoods, but it is all still Lexington.  The furthest developed point in Fayette County is still only 20-25 minutes from the core of downtown.   We just don’t have the sprawling suburbs that are miiiiiiles away from anything like a true city does.

The last reason is a pretty big one too.  There isn’t enough area downtown for all those people even if they did want to move there.  There just isn’t enough good existing housing downtown.  You pretty much have very small houses in areas people don’t want or very nice houses that are out of reach for the average buyer.  We do have some nice areas just outside downtown, but in reality, they were just as much a suburban type neighborhood when new  as what we have on the edge of town.  Plus, they aren’t the kind of  areas that the articles are about.  Places like Gardenside, Southland and Meadowthorpe are close to downtown and still affordable.  Spending more gets you into Ashland Park, Chevy Chase, Fairway and Kenwick.

I also don’t see the condo market getting off the ground anytime soon, even if we returned to a good economy and real estate market.  The thought is that the retiring baby boomers will want to be there and walk to everything and enjoy the low maintenance lifestyle.  My parents are boomers.  They and all their friends like the idea of it all.  Why just the idea?  Like other articles we have all read, this is the most active and affluent group of senior citizens ever?  Where do you keep your canoe, boat, bikes, motorcycles, extra cars when you have one parking space and 800 square feet?  At best, I can see really wealthy boomers having a downtown condo as a second home.

So, in a nutshell, this trend will only apply to cities with a big enough downtown and sprawling suburbs.  That just isn’t Lexington…..right now.  What do I predict?  For the short-term, more of the same.  Lexington has 3  types of buyers:  Those who want something closer in town and an older house, those who go for something further out to get a newer house with the features they want, and those that look at everything in their price range.  In the long-range, Lexington will eventually use all of its available land.  When that happens I think we’ll start to see a huge price difference between Lexington and the surrounding towns.  When the land becomes that valuable, we’ll see a lot of what are now cheap areas redeveloped.