Which seller did better?

Two houses on the same street.  One is smaller and has been renovated.  The other is bigger and has had a few minor updates.

The smaller renovated one sells for more money that the larger one with mild updates is worth.

Which owner would you want to be?

You are probably thinking that the renovated house that sold for more would be the owner who comes out better than the other, but you’d be wrong.

That’s because the cost of a remodeled kitchen with a tiled backsplash and stainless appliances, remodeled bathrooms and new flooring greatly exceed the difference in values.

Back when the market was slow, it could have been harder to sell a house that hadn’t seen any big ticket updates like a new kitchen and/or baths.  That’s cause there were more houses for sale than there were buyers.  The problem is the opposite today.  There are more buyers than houses for sale, especially in the sub $200k range.

Sure, everybody loves a renovated house with all the trendy finishes.  Buyers will pay top dollar for that look, but for the person who wrote the check for the work, it is a little bit of a bummer because most of the time a seller is lucky to get half back in the increased value.  Great for the buyer.  Bad for the seller.

I had to tell a seller not too long ago that her house was worth about the same as she paid for it nearly 10 years ago.  On paper, you’d think that wasn’t possible.  She hasn’t done anything to the house other than enjoy living there.  Everything is nearly 10 years older now.  Sure, her house could potentially be worth another $15k, but she would have to spend over $20k to add that value.  She is actually coming out ahead by selling for about the same as she paid for verses getting a high sale price that lost money to achieve.

They don’t tell you all this stuff on HGTV.

The best bang for your buck on updates are paint, flooring and lighting.

Don’t do this to your house

I showed a house yesterday.  Nice place.  It was all original except the kitchen.

It wasn’t that old of a house, so it wasn’t what I would call outdated.  Since it wasn’t that old, nothing was worn out either.  I would call it neutrally nice-not bad and not great at the same time.

But that kitchen was super nice, and that was the problem with this house.

Yeah, you read that right.  The remodeled kitchen was a negative.

Why?

Because the people who are attracted to the house due to that super nice kitchen will be disappointed that the rest of the house isn’t as nice.  They leave thinking they would have to “Finish” the rest of the remodeling.

The people who won’t mind the rest of the house don’t care about that super nice kitchen and won’t want to pay for it through the higher list price.  They leave thinking the house is overpriced.

It would have been better for this seller to have spent less on the kitchen and updated all of the house evenly.

That has always been my advice after observing how buyers react to houses.  All of your house should be consistently nice if you want your updates to add value.  If they aren’t, then you are usually giving away that one space where you spent the most money.

When will there be more houses for sale?

The simplest answer to this is when sellers feel like moving…..so I guess it boils down to what will it take for that to happen?

Many people who have been in their houses for more than 5 years either got a super low interest rate or refinanced to get one.  It is hard to give up something like a 3.5% rate and buy your next house at the top of the market and do a 5% mortgage.  Right now, all that free equity from appreciation isn’t enough to make somebody want to give that up.

But, eventually there will be a tipping point.

Let’s say you bought a house 5 years ago for $200k.  You put down 5% and got a 3.5% rate for 30 years.  The principal and interest part of your loan is about $900 a month.  Flash forward to today.  The house is probably worth $240k.    You owe about $173k on it and have about $67k in equity.

You decide you want to buy a $300k house.  You finance about $235k after you get the equity out of your last house.  You get a 5% rate.  The principal and interest part of your loan is now $1200 a month.

Maybe you don’t want to spend $300 more each month?

What will it take to make you list your old house?

Maybe another $40k equity in your old house?  Assuming rates stay about the same and the price of the $300k house you want appreciates less than the $240k house you have, this $40k is what it will take to keep your payment about the same each month.  It will take about 3 years for that to happen between appreciation and what you are paying down each month in principal.

We all bemoan higher interest rates, but lets keep in mind that the reason we don’t like higher rates is because they make the mortgage payments higher.  People have a certain amount they can/will spend each month on housing.  People will always try to stuff as much house into that payment as they can.  I think the day sellers can move up to a nicer house and not pay that much more will be when we see more for sale signs in yards.

Do this if you never want your house to sell

I showed a pretty nice house last night that is going to be very hard for the listing agent to sell.

It was one of the lower prices for a huge house on a gorgeous lot in a very desirable neighborhood.

You’d think that would be enough in any market, yet alone one starved for listings.

This is what it was like seeing the house.  You walk up to a freshly painted facade with recently mowed grass and fresh mulch.  You are feeling good about it.  You go inside.  The foyer is nice.  It is a little strange that you can’t see any rooms from the foyer, but not the end of the world.

You go towards the left and see the dining room.  Wall paper from the 90s.  You go into the kitchen next.  Red wall paper from the 90s.  You go into a really nice sunroom.  What do you see?  Murals painted on the walls.  You go back through all those rooms and then you enter the great room, which was super nice.  Then you see a bedroom.  Ok.  Then you see a bathroom that not only has wall paper, but wall paper boarders on the ceilings and top of the walls, as if they were making crown molding.  The shower curtain is heavy, like the dress Scarlett made in Gone with the Wind.  Then you enter the living room which is set up as an office and has way too much furniture in it.

Heading upstairs, you notice that all the bedrooms are painted a different color.  The basement is pretty normal.

The sellers furniture was nice, but they probably bought all of it when the house was new in the early 90s.  I am not bashing anybody’s stuff because my own house is probably the most boringly decorated house in the whole world, but I am not trying to sell it.  I would need to stage my own house if I were selling because my stuff would make my house feel as dated as this one did.  All of my furniture is stuff my parents gave me and that my wife and I put together from a box.  I’m just not into decorating……maybe that is why I can always see the house past the decor.

It sort of made me sad because I could picture the house vacant and with a coat of fresh paint.  It was nice.  Sure, the house would have still been a little outdated since it was about 25 years old, but it wasn’t terrible at all and typical for the neighborhood.

There was a stack of realtor cards on the table in the foyer.  That means all those people in addition to my buyers said “No” to this house.

What sellers never realize is that a buyer will walk through their entire house in about 20 minutes.  Having too much furniture in a room may suit the sellers needs, but it makes the rooms feel smaller to the buyer.  It is also hard to see the room past the furniture.  I always say that when you live in a house, the room exists to show off your decor.  When you are selling, the decor should show off the room.  Also, colors make a big difference.  A seller may be in one room of their house for a while and then go to another.  The buyer, when walking through the entire house, gets sensory overload if every room is drastically different.  A uniform color can also help when the house has a choppy floor plan too.

I am sure all the feedback on this listing has been that it needs too much work.  If this were my house, I would remove as much furniture as I could stand.  I would put a fresh coat of neutral paint everywhere.  People ask me all the time what is the biggest bang for the buck.  I always say fresh paint.  Nothing makes as big of an impact as fresh paint.

With all the wall paper gone, most of the dated furniture out, and a coat of fresh paint, the house would feel so much better.  The 25 year old finishes were neutral enough that buyers would find them acceptable in the absence of the 25 year old furniture and wall paper.

When I go to sell my current house, I am taking my own advice since my place is very similar to this one.

The first house you buy is the most important one ever

First time buyers.  I’ve been working with a few of them lately.

Most first time buyers are thinking about finding a place they like.

I like to show them that their first house is so much more than that.

Every house you are ever going to own is impacted by that first one.

It is really the most important house you are ever going to purchase.

Why?

Because eventually you will sell that first house.  How well of an investment it turned out to be will impact how much money you have to put down on your next house.  It just keeps going until you are middle aged and in your forever home.  You know, the one you sell to help fund your retirement when you downsize to a cheaper home.

My dad called this compounding.  He was mainly referring to interest when he was teaching me this stuff in middle school, but it applies to real estate too.

It really reminds me more of bowling though.  To get a strike, you don’t knock down every pin with the ball.  You just hit one of them right and the pins begin to knock down the remaining pins.