Advice as we dig out of a housing shortage

I’m starting to see an interesting thing happen.

We all know that due to the lack of new construction for many years, we have a shortage of houses for sale.

Many people have said the way to solve this is to build our way out of it.

I am starting to see this happen.

In Nicholasville between $200k and $250k, 17 of the 30 houses for sale are new.  In Lexington’s 40509 zip code, there are 104 houses for sale between $300k and $500k.  48 of them are new.  That’s an incredible amount of houses for sale in the Hamburg part of Lexington.  No wonder sales are slowing way down in that price range and I am seeing $10k price reductions left and right.

So what does this do to sales of existing houses?

Most people who buy a new house are only looking at new or newer houses.  If you live in an older existing neighborhood, you are probably in good shape.  Few buyers will seriously consider a 20+ year old house on a bigger lot with mature trees AND a brand new one on a smaller lot with trees shorter than they are.  If you have a house that is less than about 10 years old in this price range, well, you may have a hard time competing with brand new houses.

Any time I have a buyer wanting a newer house in an area with a lot of new construction around them, I always tell them that it might be hard to sell and/or might not appreciate that much until the last new house has sold.  The longer they plan to be there, the better.  If they tell me they may only be there for 2-3 years, I tell them it might be wise to pick another house.

If you are buying in an area with lots of new homes around you, try to pick one that has some unique feature or has a super good lot.  In a neighborhood where most homes aren’t too much different from each other, these small things are the difference between your house selling and always being a buyer’s second choice house.

Yard signs are dinosaurs

I often don’t even bother to put a for sale sign in a yard any more.

I just don’t see the need.

I’ve been doing this for a long time and I have never sold my client’s house to somebody who called from a sign in the yard.

I was one of the first agents to put “Call or text” on my signs when texting became the primary way of communicating.

You know what kind of calls I got?

“How much is that house?”

“How big is that house?”

“How many bedrooms does it have?”

I would answer the questions and it became very clear that it was not what the buyer was wanting.  THAT is why they did not see it online.

When you drive by a house that is listed for $300k and your budget is only $250k, that is the reason it did not come up in any of your online searches.

When you drive by a house that is 3 bedrooms and you want a 5 bedroom house, that is the reason it did not come up in any of your online searches.

Same thing for the school district, where the laundry room is, how big the lot is, etc.

Everybody is online all the time looking at houses.  There is search criteria that gets entered and they see every house available that meets that criteria.  There is no such filter when calling/texting on a sign in a yard while driving by.

So, I think the yard sign serves no purpose other than making it so other realtors don’t have to look for the house number.

What are buyers doing instead of driving around neighborhoods hoping to see a for sale sign?  They are on their GPS enabled phones.  They tap an icon to let an app know where they are and it shows every house for sale around them.  No need for a yard sign.  They have all the listing info at their finger tips, including my phone number.

 

 

The house I almost sold

It is like April of 2005.  I am sitting in a class to teach me how to be a realtor.  It’s all been common sense stuff so far.  I’m the only one who isn’t taking notes and who is wearing shorts.  I am also the only person in that class who is still a realtor.

The day I have been waiting for finally comes.  It’s the day they teach us how to do CMAs, which means Comparable Market Analysis, which means what a house is worth compared to what has sold in it’s neighborhood.

Figuring out value has always been fun for me.  I like the numbers.  I like the fortune telling aspect too.  I love it when I am right, which happens almost all the time.  The only time I don’t like it is when a seller thinks their house is worth more than I tell them.  Usually what happens there is that some other agent gets the listing and I watch them reduce it until it sells for what I had already told the seller.  It’s a hollow victory.

Back to that day.  A line I will always remember was said by the broker of that agency.  He said “If the comparable sale is superior, you subtract value.  If the comparable sale is inferior, you add value.”  Most of the people struggled with this since it is worded counter-intuitively.  Sort of like asking somebody “Is red NOT your favorite color” verses asking “Is red your favorite color.”

By the end of that day, everybody finally understood that if the house you are about to list is better than the comparable sale house, then you need to add value to what the comparable sale house sold for to know what your listing is gonna be worth.  There are assigned values for differences such as square footage, number of bathrooms, etc.  Some of it is subjective too, and that is where experience comes in handy.

And all of this leads me to the real topic of this blog post.  I almost sold a house last weekend.  I looked at the comparable sales in the area for my clients.  All the similar houses had sold for about $170-172k.  The list price on the house they wanted to buy was $172k.  Why did I suggest the value was about $165-168k then?  All of the comparable sale properties had flat and usable backyards.  The backyard for this house was flat for about 3 feet and then sloped steeply uphill.  It needed to be worth LESS than the other similar sized and equally finished houses in the neighborhood.

The seller got a higher offer than the one we submitted.  Good for him.  Bad for the buyer.  I am finding in this fast moving market that agents don’t seem to be doing as much leg work as they used to do.  I suspect that the buyer’s agent just looked quickly and saw that similar sized houses sold for $170-172k and thought it was okay to pay that much.  Looking at all the pictures would have helped.  The buyer is probably happy to have gotten the house, but if they need to sell in a Buyer’s Market, they will realize that buyers who have choices prefer not to have a sloped backyard.

Those same buyers of mine ended up with a move in ready house that has a perfectly flat and private backyard.  It will sell well in any market.

But it appraised for….

I sold a house a few days ago.  The listing agent told me that it appraised for $25k more than the list price.

Which begs the question:  Why didn’t it sell for that?

Because there is a big difference between market value and appraised value.

Market value is what the house is worth to a buyer.  Appraised value is a way to spend $375 and still not really know the market value.  The main purpose of an appraisal is to justify the purchase price to a lender.

Lots of things affect market value, such as floor plan, decor, features, view, lot size, odors, etc.

An appraiser doesn’t care about any of that.  I mean, they aren’t buying the place so it is all about comparing data to them.  Square footage, condition and what has sold in the area recently are what drives appraised value.  Appraised value is often more about the area the house is in than it is about the subject house.  I’ll also mention that in an appreciating market, appraisals are often incorrect because the data they use is recent history.  In other words, the current appraised value is based on the past.  Market value is always in real time.

Which leads me to this house that I sold.

The area around the house has homes that are 20 years old to brand new.  Values are all over the place.  The brand new houses that are the same size as the one I sold go for $50-75k more than what my client paid.  The same size house in the nicest section of the area is a lot more too.  By comparing my client’s new house to the more expensive and brand new houses, I can see how the appraisal was more than $25k higher than the actual sale price.

How did I help my client determine what the house was worth?  I excluded the more expensive houses up the road.  I excluded the brand new homes since that is a unique sale-they are only new once.  I looked at similar sized houses. I looked at the finishes of each house.  Did they have hardwood?  What were the appliances like?  What was the backyard like?  I looked at all the pictures of every comparable recent sale.  Then I thought about it.  I made adjustments for size and condition just like an appraiser, but I also thought about it through the eyes of a buyer.  I then told her what I thought the house was worth and she made an offer.

 

I needed them to accept our counter offer…this is what I did

I love thinking.  It’s one of my favorite things about this job.

I put on a new listing a few days ago.  We pushed the pricing envelope a little.

We didn’t get any showings the first day, which is a good sign of how far we pushed it.

The second day we had several showings scheduled.

We got an offer from the first showing.  It was for less than the full amount.  Another sign we were pushing the asking price a bit.  It was still a really good offer though.

My sellers asked about countering for full price.  We really didn’t have much to lose by asking, so I said sure.  I had a few things running through my mind though.  I was thinking about how soft the market responded to this house at this price.  I was thinking about how the buyer’s agent is somebody I know.  She is a great agent.  She knows that in this market, you have to make your best offer right off the bat…and their offer was below the list price.  I was thinking to myself “What can I do to motivate these people to pay full price and not weaken our position to negotiate later?”  I was afraid they would stick with their original offer and wait and see if we even got another offer.  If we hadn’t gotten another offer, they would know that their offer was at least the best one we had or why would we be countering it?  I also know the buyer’s agent would have asked if we had multiple offers.  By saying no, it would be further proof that their offer was still the best and maybe the only one we would get.  The buyer’s may have said no to our counter.

So, the only thing I could do was create a situation where they had to respond to our full price counter offer BEFORE the remaining showings happened.  Once the last showing happened, we didn’t have anything to motivate them if we had not gotten another offer.

Then all the sudden, a thought popped in my mind.  I asked my sellers if I got the buyers to go full price, would they be willing to sign off on it immediately.  They said yes.

I then told the buyer’s agent that if her people would go full price, I would cancel the remaining showings and my people were holding their phones in their hands right now ready to electronically sign off on the deal.

A few minutes later, it was all done.  The sellers are happy.  The buyer gets a house in a tight market.  And I get to work with an agent I trust and respect.