Why buyer’s don’t make offers on an over-priced house

by John Rice

 

Often, when talking about pricing a house with a seller, they say something like “Couldn’t we price it at this and won’t people just make an offer if they like the house?”  Makes a lot of sense when viewed through the seller’s mind, but doesn’t when you look at it through the buyer’s eyes.

Why?   Let’s say a buyer is pre-approved for $190k.  You have a house that is worth $170k, but are asking $190k because somebody will make an offer if they like it.  So, the buyer goes out and looks at every house that is priced at $190k, most of which are really worth about $190k.  To that buyer, your house seems like the worst house he has seen.  Why?  He is comparing it in HIS mind to the better houses that are worth $190k.  The buyer is either going to get a better location, a bigger house, or one in better condition……They are never going to like your house enough to make an offer.  On the flip side, the person who is going to spend $170k is never going to see your house because they aren’t looking that much over their price cap.  So, you have a situation where the people looking at your house aren’t going to buy it and the person who would buy it isn’t going to see it!

Here are some tips to keep this from happening:

1) If you must price on the high side, never go more than 5% over the comps.  Once you get up around 10% over people won’t even come to look at it.  Sometimes an over-priced house will get a lot of showing, which makes the seller think they are priced right.  You can still get a lot of showing on a slightly over-priced house, but no offers.  When you get showing and no negative feedback, it means you have a price issue.  See, agents are afraid to tell another agent that they priced the house wrong, so they say nice things about the house and hope to get off the phone with you.  I know because I often ask what agents thought of the price and they seem a little nervous to answer.  So, the advice is that if you have a fantastic $170k house, it needs to priced around that number.

2)  Avoid the temptation to have a high price and have your agent tell people you are motivated.  When I see a steep asking price and the agent says the seller is motivated, what comes to my mind is that they are motivated to get their price.  A truly motivated seller will price his house at or less that what it is worth.   The days of testing the market are a thing for the history books now.

3)  Realize how the market works.  You have so many buyers and so many houses.  The buyer gets to pick whichever house he/she wants……and they always pick the best one.  Even in this sloooooow market, I have been in more multiple offers than ever.  It is human nature to want the best.  The buyer is comparing all the houses available.  Make your house the best one by pricing it right.

Trust me on this….There is no magic in real estate.  Rarely do I ever see a house sell for more than it is worth.   Even if you do find a buyer who will pay too much, you are going to have to convince their realtor too.  If the buyer is going to have a mortgage, their lender is going to insist on an appraisal.  If the house doesn’t appraise, no loan, no sale.  So, the formula you need to get more for your house than it is worth is to find an ignorant cash buyer with an equally ignorant or careless realtor……and I have only had that happen once with one of my listings!

What you might see in a real estate fortune cookie

by John Rice

If I were to make fortune cookies with real estate advice in them, these would  be some of the best ones:

1)  “Don’t buy a 2 bedroom house.”  They are harder to sell, especially in today’s computer age when most every buyer enters “3” for the minimum bedroom count on searches.  A two bedroom listings is like playing Marco Polo alone.  You’re shouting Marco, but there is nobody listening to reply with Polo.

2)  “If you buy a house that has been on the market for a long time and is realistically prices, you will have the same thing happen to you when you go to sell.”  I find usually that means there is something odd about the house that most buyers don’t want, or else it would have sold sooner.

3)  “It is a good thing to be in multiple offers.”  My experience tells me that when this happens in a slow market, you either have a fantastic house or one that is priced below market.  When you go to sell you will either have a house that everybody wants or are buying it right, or maybe both!

4)  “If you have to use the word ‘Except’ when you describe your purchase, it is a bad one.”  Except is a code word meaning there is some major negative that will bite you on the bum if you need to sell in a slow market.  “We got a great house…..EXCEPT for the tiny yard…..EXCEPT for backing to a wharehouse…..EXCEPT for being on a busy road.”

5)  “Avoid a bad school district.”  Now there are exceptions here….like a condo complex that appeals mainly to empty nesters, but if you have a house whose target buyer will have kids….it is important to them even if it wasn’t to you.

6)  “A fixer upper isn’t always a bargain.”  I learned this one the hard way.  If you buy a house for 80% of the potential market value, but must spend the 20% savings to make it just as good as any other house on the street, all you have gained is experience that will help you if you ever decide to get into real estate.

7)  “Buying the least house in the best neighborhood doesn’t always make sense.”  This one runs contrary to what most people think.  But the reality is that the typical buyer for the nicer neighborhood is going to find your house plain or too small.  Your only real market will be to people who still believe that old generality about house buying.  I see it all the time where people will pick the better house in a nice neighborhood before they pick less of a house in a better neighborhood for the same price.

8)  “Don’t buy a house on a street you will have to spell every time you order pizza.”  Just kidding with this one…..but I only bring this up because just about every street I have lived on I had to spell for everybody.  As a kid, we lived on Castile Ct, which everybody thought was Castle.  Then we lived on Lincoln, which shocked me how many people don’t know there are 2 L’s in Lincoln.  Then I lived on Tanforan, which is some kind of race track somewhere.  We would get mail to Tanfran, Fanforan, Panfram, and just about any other 2-3 syllable combination of vowels and consonants you could make.  I thought I hit the jackpot when we lived on Kentucky St.  I thought, finally, I have an address that isn’t a problem.  But, the house number was seven, and I was always having to reassure everybody that yes, it was only a single digit.  When we talked to people out-of-town, they would always be like, “Hey, you live in Kentucky and also on Kentucky Street!”

So, follow these rules and you should be on a good start to not losing your shirt when you need to sell!

Neighborhood video tour of Fairway….by The LEXpert

by John Rice

What a nice day to be out in the convertible.  It was pretty windy, so I thought I was using my head when I got the idea to put the windows up…..only bad thing is that now you can see all I am doing inside the car from the reflection on the window.  I thought about refilming it, but I thought what the heck, maybe there is someone out there who wondered how I was able to drive, shift gears and film.  It can be tough being the producer, director, camera man, and star!

Anyway, I was in an old favorite today.  A neighborhood called Fairway.  It is located well inside New Circle Road very close to downtown.  The perimeters are Richmond Road, Henry Clay Blvd, the Idle Hour Country Club and Carolyn Drive.

The range of values for the 388  houses runs from as low as $200k, and I think there are a couple that might be near a million.  Most seem to be in the $275k to $600k range.  I have worked with 3 buyers this year and have been in almost all of them for sale in that range.

The schools are Ashland Elementary, Morton Middle and Henry Clay High.  All of those schools are really close to this neighborhood.

What I really like about Fairway is the vibe.  I think Fairway has a little more of a formal feel to it, especially the part closest to Richmond Road.  All of the streets are very straight and are perfectly lined with what’s left of the original Pin Oak trees.  You can tell when you see it that it was an upscale place when it was new and has aged well.

Like all areas…..there are some things that are less than perfect.  There is a train track that runs behind Carolyn Drive.  It doesn’t get much use, but it is there.  Also, Henry Clay Blvd can be a busy cut through street.  That isn’t that big of a deal since just about any neighborhood has a street like that.  I just want to make you aware of it.  Some of the houses on Henry Clay Blvd back to the second and third block of a neighborhood called Kenwick….which is drastically different from Fairway.  Then there is the old Julia R Ewan school building.  It is no longer used as a school and is for sale.  Some people are worried about what will happen with that property, but I am not.  It will eventually be something, but the neighborhood association has a strong enough voice to make sure that whatever happens won’t adversely effect the neighborhood.

Fairway is one of my favorite neighborhoods in town.  I think if you are on old house person wanting something in town, you should put it on your radar!

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.