MY first house

by John Rice

Well, I’ve been working with a lot of first time buyers lately.  It all has me remembering when I was a first timer myself.

This was my first house.  Before we found it, my wife and I drove all over every neighborhood we thought we could afford.  This was back when rates had dropped ALLLLLL the way down to just over 7%, so you didn’t get as much house for your money back then.

This place was for sale by owner.  There was just a sign in the yard.  We called and were able to go right inside since they were home.  We fell in love with it immediately.  I was on an old house kick back then, so the mirrored double mantled fireplace with green subway tile did me in.  Looking back, it was really a dump.  I should have figured it out when all my friends tried to conceal their reaction when they came to see it…..but I was in love.

The house didn’t have central air, and only had a giant floor furnace to heat the whole house.  The room with the furnace would get like 110 degrees in the winter, then the room beside it would be 80, the next room 60, and by the time you got to the end of the house you didn’t even think there was any heat at all.  But we took care of that by using the Buck stove insert the house had.  Every morning before I left for work, I would stack about 8-10 pieces of wood by the back door for my wife to burn.  It would take about 2 hours for her to even get a good fire going.  In the evenings, it was so funny because we would have to time how long we would be gone.  A trip to Wal-Mart meant we threw on one log while we were gone to keep the fire going.  Dinner and a movie was a two log deal.

I have some crazy memories of this place.  The local driver’s education class at the high school would use my street as the training route.  On the weekends, before the big test, I’d look out my window to see every 16 year old using MY car to parallel park.  I never understood why there was something so sacred about parallel parking in front of my house when the only thing you need was at least one other car?  The fire department would use the alley behind my house to do their annual driving tests too.  They had to back up the alley, which mean you’d hear a diesel engine running and the “BEEP-BEEP-BEEP” of an ambulance backing up.  Then there was the train.  We knew there was a track very close, but we didn’t know there was a spot just up the track where they would connect the train cars together.  Don’t know if you’ve ever heard that, but it sounds like two 18 wheelers crashing into each other………every 15 minutes…….all day and night.

I’ve got a lot of good memories too.  We brought both of our boys home from the hospital to this house.  My parents had central heat put in so our first born wouldn’t feel like he was born during Little House on the Prairie times.  We painted the nursery and got new carpet.  Then the next little boy showed up to the party.  We had great birthday parties for them with great friends in the backyard.  I did a lot of landscaping, and thanks to the neighbors busted sewer line, the Sweet Bay Magnolia tree on the right grew really fast!

I’m having a good time with all my first time buyers.   It is cool to know that I had a little part of the memories they are about to create.

 

Appraised/Assessed/Market Value & Finding a Dunkin Donut

by John Rice

This is the time of year that I get a lot of questions about value.  Some buyers like to quote the PVA value since it is usually lower, and some sellers like to tell you what their house appraised for when they last refinanced.  Thought I’d touch base on WHY there is such a difference between taxable, appraised and market value.

Think I’ll get taxable, or PVA value out of the way first since it really has nothing to do with the actual value of the  property.  There are two ways the PVA comes up with the assessed value for any house.  The first is the sale price. Somebody pays $125k for a house, it is going to be assessed at that.  If enough time goes by, the PVA people will send somebody in a white Prius down your street to take a picture of the outside.  They then go back to the office, make a cup of coffee, and compare the basic info about your house to recent sales.  The big thing to remember here is that they don’t go inside the house.  I paid $118,900 for a house in 2002.  The typical house on that street was worth about $140k at the time.  My PVA value was $118,900 for years.  Then, we had a sale on the street in 2005 right next door.  My assessed value went up to $135k, which was the sale price of the one next door because they were  the same size.  At that time, I hadn’t put on the new roof or siding.  The inside was waaaaaaay superior to my neighbor’s house, but the PVA peeps had no way of knowing that.  They haven’t been out to reassess since then, so I’ve been paying taxes of a value of $135k ever since.  Since my $135k assessment, the value of the house rose and fell.  Market value is really like ordering lobster at a restaurant.  The price can change on a daily basis.  Every new sale or new listing has an effect on the value of any house.  Bottom line, PVA is only a value to base taxes on.  Nothing else.  It shouldn’t be used for anything but that.

The next is appraised value.  Whether for a refi or a purchase, the thing to keep in mind here is that the appraiser is really just trying to justify a number they already know.  This is kind of like reverse math.  You already know the answer, you’re just trying to come up with numbers that reach the conclusion you want.  Say the number you need for your refi to work is $250k, the appraiser is going to work to see if he/she can honestly say that your house maaaaaay be worth that amount.  They pull comps, do their cut and paste formula and try to come up with $250k.  Like all formulas, the numbers you stick in make a big difference.  Want a cheaper appraisal value?  Pick 3 cheaper houses.  Want a higher appraised value?  Start with the most expensive 3 sales for comparison.  It is similar for a purchase.  The appraiser already knows the contract price.  Remember my house that I bought for $118,900?  Even though the house was rougher than most of the street full of $140k houses, the appraisal came back at $118,900.  Why?  Because that was the number that the appraiser was hired to justify.  When I refinanced about a year later to start the renovations, it appraised for more than I could have sold it for because we were trying to justify a different number…….and there is nothing wrong with that because the purpose makes a difference.  Just keep in mind that an appraisal is really more about comparing your house to recent sales, so the focus is on the other houses.  Market Value is about just your house.

So how do you know what a house is really worth?  I think good realtors know.  Market Value is really all about the number a seller will sell for and what a buyer is willing to pay.  Realtors are best at figuring out market value since we are the ones that see how buyer’s respond to different things.  Where an appraisal is all science, figuring out market value is part science and part gut.  For example, there is nowhere on an appraisal to deduct value for a house that has a pet odor, but any decent realtor knows you are going to get less for that house.  Same with a steep driveway, wild paint, a lack of privacy in the backyard, etc.

So, what value matters most?  It all depends on what you are needing it for.  You want to know what your house could possibly sell for, get an appraisal.  You want to know what your house is worth, ask a realtor……saying that reminds me of one of my favorite lines from my all time favorite movie, Raising Arizona:  “You want to find an outlaw, hire an outlaw.  You want to find a Dunkin Donut, ask a cop.”

What a Difference a Box Makes

by John Rice

Alright.  Here is how most negotiations go between a buyer and a seller.  Buyer makes an offer.  There is usually at least one round of countering, then the seller thinks “Oh, I better not go to my lowest number since I don’t know how hard they’ll hit me with repairs after the home inspection.”

Assuming a deal is struck, we wait for the home inspection.  Most of the time the repair list is stuff like a window that needs caulk, or a deck that doesn’t have metal joist hangers,  maybe a double tapped breaker, and my personal favorite:  The furnace needs checked out by a licensed HVAC technician.  That one always cracks me up because the buyer’s home inspector suggested another inspection, which they ask for on a repair list……so, the buyer is asking the seller to do an inspection, which the contract says is the buyer’s responsibility to do.  To make matters even more comical, most agents write it just like I said, meaning the seller can agree to have it inspected, but the buyer has no recourse if there is a problem because the buyer’s agent DIDN’T ask the seller to fix any problems, merely have it inspected.  I’ve always been tempted to give a buyer’s agent a receipt from the HVAC company that says “THIS FURNACE SUCKS AND NEEDED REPLACED YEARS AGO!” then remind the agent that all the buyer and seller agreed to was having an inspection.  I’ve always played nice though, since you have to dance with the buyer and their agent until the music stops at the closing.

Sorry for the tangent there.  Back to my topic.  So, the seller has budgeted some money in the counter offer for any repairs.  That means that the buyer is really paying for the repairs.  If the seller would have come down another $1000, but didn’t, the buyer is paying $1000 more for the house than they could have and are paying for the repairs within the higher contract price.

Which leads me to my point.  Sellers usually over-estimate the cost of repairs.  I just had a deal where we needed plumbing, electrical and window work.  Doesn’t that sound expensive?  All in all, it was less than $300.  Hardly worth getting worked up over.

Here is what I like to do when my buyer’s will let me.  On our contracts, we have 3 options for dealing with inspections.  If you check box 1, you are saying I’m taking this house period, see you at the closing!  Box 3 is what most people do.  That is the one where you have the house inspected, write a repair list and end up fighting over caulking a threshold or a leaking faucet.  A smart seller will know that a buyer isn’t going to walk away over such small things.  A smart buyer knows a seller isn’t going to walk away over such small things.  Depending on the temperament of either party or their agents, you can quickly turn a real estate transaction into a Real Housewives of New Jersey cat fight.  A seller always feels like they are practically giving their house away and now the buyer wants to pistol whip them with repairs.  A buyer always feels like they have paid too much and the seller is being unreasonable not to do these little repairs.  And, because feelings are involved, people don’t always act rationally……SO what about Box 2??

Box 2 is my favorite.  It gives the buyer a chance to have the house inspected.  The buyer can walk away from the deal if there is something that freaks them out too bad.  There is no repair list to fight over.  You just tell the seller whether you are in or out.  What I like about this for the buyer is that they are protected by a home inspection and can walk away.  They also usually can get the best price possible because the seller hasn’t padded their price (Remember  sellers always budget too much!)  I tell my buyers that any repairs you have the seller do, you really have no control over.  Wouldn’t it be better to have the repairs done yourself and have control over the quality of the repair.  Keep in mind that any repair is just something a seller has to get off their checklist in between packing up their stuff to move.

So, think about Box 2 if your buying.  If the house is a hot mess, walk away.  If all it needs is a few minor repairs, pay to have them done after you close rather than paying the seller too much to do it for you…..Plus, if you are in multiple offers, you might be at an advantage since other offerors will likely check Box 3.

 

Lexington Ky Neighborhood Video Tour by the LEXpert: Cool North LEX streets

by John Rice

Okay.   I normally do these videos about well rounded neighborhoods that will be easy to sell when it is time for you to fire up your exit plan.  Not the case today.  Today’s video is about cool older places on the north end of Lexington.  The schools aren’t rated all that well.  There is not that good of shopping around, but hey, just like love,  sometimes you throw out all logic and go with your heart.

I would not hesitate to suggest these streets to any of my clients, or even live there myself.  These streets are kind of a niche market.  That doesn’t mean the values aren’t stable, it just means it might take you a bit longer to sell since they don’t have as broad of an appeal as say, a newer home on the south end of town.  If these streets were cars, they’d be more like a Subaru Outback, a Volkswagon Passat, or Mini Cooper rather than an Accord or Camry.

If you’re somebody that follows your heart more than your head when it comes to real estate, I think you’ll enjoy the video.  If you’re local and have never been on these streets, go check them out!

 

No showings? Showings, but no offers? Here’s why

by John Rice

Since I’ve got a bunch of listings now, I thought it would be a good time to do a post about what you can deduce from your showings.

Sooooooo…….

IF you aren’t getting any showings:  More than likely your price is too high.  It could also be your realtor, but as much as I hate to confess this, a house that is priced well seems to sell even if the agent is lame at presenting it online.  If all the data on the listing is correct (schools, size, neighborhood, zip code, etc) more than likely you aren’t getting showings because buyers and agents can tell just from what they see online that the price is too high.  Now, if you have a gazillion dollar house or something very unusual like a 3000 square foot tree house on 10 acres in the middle of downtown, you aren’t going to get many showings anyway since the buyers for those properties are few and far between.

IF you get showings, but no offers:  This is a little more tricky.  Let’s assume that the house is presented accurately online……meaning no creative tricks like hiding the fact that the house backs up to a McDonald’s drive-thru, or that there is a toilet in the middle of the dining room.  If there are no shenanigans, that means the buyers and agents feel that the house is probably priced realistically from what they see online, but the house doesn’t meet their expectations once they get there.  It’s usually something they didn’t expect like the floor plan or the condition of the house.  This is where you have to listen to the feedback.  I know this sucks to hear for a seller, but if 7 out of 10 buyers didn’t like the house due to pink carpet in the bedrooms or the like, you are going to have to address that or wait around for a pink carpet lover to show up…..and in all my experience, I have not met that buyer yet.  You need to change what you can to make it palatable for the buyers, even if you don’t understand it nor agree with it.  Yes, carpet is easy to change for the buyer, but few will do it, and it is just as easy for you.  Yes, you don’t know what color a buyer will want, but we know it ISN’T pink, so that’s a start.  If the feedback is something you can’t change, like a steep driveway, your only option is to reduce your price to the point where a buyer gets more excited about the price than they are disappointed in the slope.

Bottom line is that you want to make adjustments to make your house one of the best ones on the market.  A buyer will always pick the best house they can get, may as well be your’s.