Lexington Ky Real Estate: How to NOT pay too much for a house!

by John Rice

I just had a listing of mine sell for $20,000 more than I expected it would.  Was I that off?  The house was in my neighborhood.  I keep up with all the activity out here.  I’ve also been in enough houses out here to know how it compared.  Plus, the comps all testified that my number was much more realistic that the price at which it sold.

What gives?  Well, the bottom line is that the buyer had an agent that must not have done much research.  I see this ALL the time.  I had a listing in Nicholasville this spring where the buyer’s agent called me before they left the house with a verbal offer.  Now, how in the world could she have had time to look at the comps and assess the value of the house?  She obviously didn’t.  My seller was priced on the high side there too, and these people were basing their negotiations off the list price.  That is never a good idea.  FYI, I had an appraiser that was using that house as a comp even call me a few months later asking if the seller had paid any closing costs and if it was an “Arms Length Transaction”…..all of which is real estate speak for asking why did this house sell for so much more than any others on the street.  My answer was “Lazy Realtor.” 

Back when the market was hot and I was a newbie, the house across the street from my old place was for sale.  I was friends with these folks.  They would have used me to list the place, but they had just paid top dollar 2 years earlier and didn’t have the equity for a commission.  The price they asked was waaaaaay over the top for Gainesway.  Well, along comes a nice couple with a tight timeline and a lazy realtor.  The seller got his price.  The price was so high that the appraiser had to use comps from across town to justify the price.  Before long the buyers realized they had paid too much.  Seems they had a tight timeline and had just started looking at higher priced houses.  They saw this one, liked it, and just assumed the value was there.  It obviously wasn’t.

Another story for you.  I met a really great couple who moved down here from a more expensive market.  They ended up with an agent who let them buy the highest priced house on their street…..and got them to pay the full asking price?  To them, everything seemed like a bargain, and they trusted that the person who had a fiduciary duty to protect their interests actually would do so.  Another FYI, I had a buyer for a house recently where the seller had also used this agent when they bought it and paid top top top dollar for the house……and the full asking price.  This agent doesn’t even have an excuse since both of these sold long after the market cooled.

Okay, back to my recent listing.  The buyer was from out-of-town.  The agent didn’t do much work in Lexington.  They had been looking at more expensive houses, and had just lowered their price range.   It was a cash deal, so we weren’t going to have an appraiser bring us all crashing back down to reality.

So, what can you do to prevent this from happening to you?  First, get an agent that knows what they are doing and actually cares about what happens to you after their check has cleared the bank.  To me, here is a good test, ask them what the house is worth.  If they spit out a number immediately, or say anything that indicates they are working from the listing price rather than recent sales in the area, fire them.  My standard response is always “Let me look at the comps and get back to you.”  Any of my current and past clients that are reading this are probably chuckling right now, having heard that so much.   Have your agent do a CMA (Comparative Market Analysis) on any house before you make an offer.  It is a mini appraisal basically.  That is the standard by which we establish value.  Ask to see the comps.  Also, your agent should know if the sale price had any seller concessions built into it.  A house that sells for $200k and the seller paid $6k in the buyers closing costs really had a net sale price of $194k.  If you don’t know that going into the offer, you can overpay even if the agent did a CMA.

Another time that I see people pay too much is when you change your price range or are in a hurry.  Anytime you go up or down in your price range, look at several listings so you can see what is typical for that range so you can pick the best one.  If you can’t, ask your realtor if the house is typical for the price range/neighborhood.  If you are in a hurry, have your agent do some homework for you.  When I have out-of-town people, I try to get a feel for what part of town they would like, then I’ll preview some houses with my Flip video camera so they can be narrowing the field before they even get here.  When it all works perfectly, and it often does, they have less to deal with while they are in town and can focus on only their best options.

I sure hope this helps somebody because it makes me sick to see people in today’s market pay too much for a house.  

NEXT BLOG?  HOW TO PREVENT DRAMA IN YOUR NEXT REAL ESTATE DEAL.

Lexington Ky Real Estate: Slow Market Misconceptions

by John Rice

Aren’t we in a slow real estate market?  Isn’t this a buyer’s market?  Isn’t the ball in my court?   These are the kind of questions going through all buyers minds these days as they look for houses.  The answers are yes, it is slower than in the past, it is in general a buyer’s market, and the ball is in your court……unless you want one of the best houses on the market.  That little twist changes a lot of things.  See, I have been in more multiple offer situations this year than ever before…….two just this week!  Why?  I guess because I have been working with people with good taste and who listen to my advice on neighborhoods (or so I think!)

Here is a little story on one of them:  We find a nice house that was way over-priced in a great neighborhood.  I do a CMA and determine the value.  My folks don’t want to make an offer because the asking price was sooo much more than the actual value…..like almost $50k more.  A week or so later I get a call from the listing agent telling me that the price is going to be dropped by almost $40k.  We write an offer.  Well, it appears we weren’t the only ones who wanted the house and thought it was over-priced, because along came somebody else.  (If you are a seller, this just goes to show that buyers know what your house is worth and usually don’t like to throw out a realistic offer when you are waaaay over the top.)  The fun thing about this house is that there have only been 43 houses in this price range sell in all of Lexington since Jan. 1 of this year.  There are 103 active listings on the market right now.   You would think that NO house in this price range would have multiple offers, but it just goes to show that everybody always wants the best one they can get.  That is why there are “Waits” at nice restaurants and you never see Mercedes-Benz offer 0% financing.  

So, if you are a seller, my advice is to price your house realistically and do things to really make it show well.  FYI:  I have a client right now that has seen dozens of houses and wants me to blog about what a turn off a dirty house is to buyers……and that fresh paint makes a house look so much better.  So there, you have had a real buyer in today’s market tell you what little things you can do to try to get a contract on your house.

My advice to a buyer depends on what kind of buyer you are.  If you’re the type that doesn’t have to have the most updated and move in ready house on the market, then you have a little more leverage since there aren’t many of you out there like that!  If you are the type who wants the WOW! Factor, then you’ll need to act fast since every other like-minded buyer is going to want the same house. 

Coming Next week:  Ever see a house sell for waaaay more than anybody thinks it is worth?  I got a good story about one!

Real Estate Catch Phrases….EXPOSED!

by John Rice

Ever hear folks say things that just make total sense when they say them…..but then you get to looking at it beyond face value and realize that it doesn’t always apply 100% of the time?  Back when I was a kid, people around here would put bags of sand in their trunks for the winter.  The logic was that it would add weight to the back of your car and help with traction in the snow.  That is very true…..if you have a rear wheel drive car.  I remember in the 80’s when front wheel drive was starting to become common.  In the late fall you’d hear people with front wheel drive cars say it was time to get their sand bags.

Same thing happens with real estate.  We’ve all heard some of the following thoughts that in general are true, but don’t really apply to all situations all of the time.

1)  Location Location Location:  While generally true, I’d like to see this one replaced with “Location, Price, Condition.”  Why?  I’ve seen too too many houses in a prime location sit on the market because the price and/or condition weren’t right.  You just can’t price your house in a prime spot equal to others in your neighborhood if it isn’t an equal house.

2)  You can get a good deal with a For Sale By Owner:  I hope I am not offending anybody here, but in all the FSBO houses I have ever seen, all of them have been grossly over priced.  Let’s face it, people go the FSBO route because they want to save themselves some money.  For somebody who thinks they can pocket the commission savings, it is easy for them to think a buyer should also pay what they feel their house is worth…….But it is the buyer who always gets to determine the value of a house.  You’d think seeing houses in some parts of the country go for 30% of their previous value would testify to that fact.   That is why sellers usually end up listing with a realtor.  The day sellers figure this out is the day you’ll start seeing a lot of realtors lined up to give plasma.

3)  Go Neutral:  I must admit, I generally tell people to paint bold rooms beige, and when they remodel, go neutral.  The reason is that if 10 people come to your house when it is for sale, 10 people won’t be offended.  However, 10 people probably won’t fall in love with it either.  If you have something with some character and 10 people come in, 9 won’t like it at all, but that 1 that does will probably buy your house and give you top dollar.  I have cherry floors and slate in the bathrooms.  I polled my Facebook friends to see how they reacted to slate.  About half loooooved it and half didn’t.  Same thing with my friends.  Some see it and want to touch it and keep looking at it.  Then some give me a look like they are trying hard to not ask why I picked slate!

4)  It’s better to have the cheapest house in an expensive neighborhood than get a nicer house in a cheaper neighborhood:  This one can bite you on the bum.  The problem is that the buyers who will be looking in the nicer area will probably expect more than the house has to offer.  Also, buyers who will be looking in that price range may elect to get more house and skimp on the location.  Going this route is best for somebody that plans on improving the house to the standard of the neighborhood since it gives them a better chance to recoup their money.

5)  You’ll get your money back out of an improvement when you sell:  I don’t hear this as much since the market slowed.  Even when the market was super dooper hot, you never got 100% of what you spent back, and you certainly don’t today.  Another thing to remember is anything you do to your house has a life span.  The more of its useful life span you pass on to the buyer, the more you get back.  A good example?  Carpet.  It only really adds value if it is new.  Imagine if you saw a house for sale and it said “New Carpet in 2005!!!!  Not gonna get your blood boiling is it?

6)  You need wiggle room in your pricing so buyers can think they got a good deal:  I just blogged about this one, so I won’t spend much time here.  Think about this though…..Do you think pricing your house without wiggle room will get you more showings than the sellers who have their house overpriced?  Buyers are online looking at houses they want to see in person.  A realistic price makes your house stand out in comparison to the others and they come out to see it.  You need showings to get an offer.  I have never had a buyer tell me to make an offer on a house they haven’t been in. 

That’s it for today and my “Deep Real Estate thoughts by John Rice.”

Do you need wiggle room?

by John Rice

This is one of the questions I get asked a lot when I list a house.  Just listed 3 in the past week, so that is why it is on my mind so much.  I think I probably always freak out my sellers when I tell them that they don’t need to price their house way over what we anticipate it will sell for.

I guess the biggest fear, and I can understand it, is that people will assume that there is wiggle room, and that they are going to have to sell for less…..and that just isn’t the case.

Sure, there may be people who come along and offer waaaay less than you are asking.  But you know what?  I don’t consider them to be real buyers.  When I was a new Realtor, I had some people that would just go from listing to listing making crazy offers.  Eventually I would see the writing on the wall and I’d let them keep perpetuating their hobby without me.   I doubt any of them ended up actually buying a house.  Why price your house based on nuts like that out there?  Doesn’t it make more sense to price it where it will be attractive to the people who may actually buy your house?

Check this out.  Back in about 1997 I had a lawn care business.  I had grown it to the point where I needed a dedicated truck.  I saw an ad in the paper for a 1993 Ford F-150 with 48,000 miles on it.  The price was $5980.  I knew that was a good price.  Took it for a test drive.  Wanted it.  Sat in the little cubicle with the sales man and made him an offer.  He blew his chance to remind me that was a fantastic price.  What he did was make it a battle.  Dude told me that they “Couldn’t sell that truck for one nickel less than that price!!”  I was floored.  Don’t you always haggle when buying a car?  I left to see what else was available since I couldn’t go back there without feeling like I had lost to that guy.  After looking at more trucks, I realized THAT truck was by far the best one and was at the best price anywhere in town that day.  I just didn’t know what to do.  Soooo, I called the wisest man I know…..my Dad.  I told him that the truck was the best deal and that I wanted it, but just couldn’t go back there.  Being the wise person that he is, he told me to go back and offer them a nickel less.  Yep.  Offer $5979.95.  I did and I got the best truck at the best price that was available that day anywhere in Lexington.

Guess what?  Real buyers will recognize the value of your house.  They are looking at every house in their price range just like I did with that truck.  Sure, we are accustomed to wiggle room, but people don’t mind paying near or full asking price if the house is worth it.  I have done this with several of my listings will great success.  I had one where they came back twice with lower offers.  We just politely said “No thank you.  Take a look at the comps.  We’ve priced this house for what it is worth.”  They, like me with the truck, knew it was the best available house at the best price.  Here’s the difference though, I didn’t get an attitude with the other agent like my salesman did with the nickel issue.  We ended up selling the house for 99.2% of the asking price.  We came down just a little so the buyer would feel like they won…..but in reality, we all won that day!

Granite doesn’t make people buy a house full of negatives

by John Rice

Man, I sure have been talking to people about listing their houses a lot this week.  I’ve never had so many people all at once call me to come critique their house.  Gave me the idea to blog about my thoughts though…..Especially since so many sellers think it is better to add a positive rather than subtract a negative.

When somebody wants me to check out their house and make suggestions, I always wonder what is going on in their heads as I give my two cents.  I don’t go in and tell them to tear the whole thing down and rebuilt it in whatever the current style is.  I’m not one who thinks that putting granite on the counter tops is a shoe in for getting it sold.  So, what do I do?  First, I think about what a buyer would expect who is looking at other houses similar in age, condition, and price.  If you read no further than this, take this thought with you:  All you are wanting to do to your house is make it a little better than the second best one on the market.  Yep.  That is all.  Anything more than that is wasting money.  Like I always say, as long as there is a market, the best one will always sell first.

I also often get asked what improvements can be done that give the most return.  I think a lot of folks are hoping I will say new flooring, new counter tops, stuff like that.  I only say to do those if they are common for your neighborhood.  Let’s say it cost $5000 to put down granite, and you can jack your price up by $5000.  Was it worth it?  Not only have you taken the time to get the job done, you are also paying the realtors another 5-6% of that amount since the sale price is now higher.  So what is the highest return on your investment when getting your house ready to sell?  Paint.  Nobody ever gets excited when I tell them that, but it is true, especially if you can do the work yourself.  Fresh paint always make any house feel better.

Another thing to remember is that a bland house with no negatives is a whole lot better than a WOW house with a few negatives.  Why is that?  Most people freak out over negatives.  I would take a ” Builder Basic” listing with nothing to hate versus a WOW house with something wild like a crazy floor plan, backing to a busy road, only one bathroom, or anything that people don’t want.  I have had two old house listings that both had fabulous features.  One of them had a reaaaaally narrow staircase to what had been the attic.  It had a new kitchen, great deck, and 2 great bathrooms.  Another listing had the smallest living room I have ever seen, but had the whole upstairs brand new.  I mean take the roof off and rebuild new.  It had a walk-in closet and master bath like a new high end house, which was totally superior than any other house in the neighborhood.  Both of them took a while to sell.  I would call the agents that showed them for feedback and they would go on and on about how much the buyer loved such and such and what a nice job the sellers had done with this or that.  I was always tempted to interrupt them and remind them that the house was for sale.  But I let them finish and they always started their last sentence with the work “But”.  It was like this: “Buuuuuuuut that living room was too small.”  Or “Buuuuuuut they just couldn’t handle those stairs.”

What are you to do if you are getting ready to sell?  After you have decluttered and all, deal with the negatives before adding any positives.  Get rid of anything worn, stained, or so outdated that it is tacky.  Deal with everything that needs fixed.  Then, see what is common for your neighborhood.  If everybody has old cabinets, you can keep them.  If everybody has updated their faucet fixtures, you had better too.  Once you know what is typical, take a look at what you have to work with.  I mean something you have that other houses don’t.  The Friends/Clients that I talked to today have a huge covered and screened deck.  I am guessing that this feature is something that will separate their house from the others.  Whatever your unique item is, do stuff that brings attention to it.  Like for that covered deck, I would paint it, stage it, maybe put some potted plants out there.  If you really wanted to go wild, mount a flat screen out there.  Ever watched HGTV?  All those design peeps always get giddy when they see a TV on a patio/deck…..And ALWAYS start with addressing the biggest negatives first.  Most people only have a limited amount of time and money to spend.  You don’t want to run out before you are done.  FYI, just about every seller ends up so exhausted that they never get it all done.