Real Estate Proverbs

You know, I’ve been doing this for a long time.  You start to see patterns after a while.  I guess that is called wisdom?

Here are some things I have learned that are typically true in real estate:

  1.  If somebody says they are going to make an offer, every hour afterwards that you don’t have it in hand reduces your chances of getting it at all.
  2. If you are a seller and decline a showing, few buyers ever reschedule a time.  They say they will come see it later, but never do.
  3. Usually the best offer you are going to get is the first offer.  The times it isn’t the best offer, it will be the worst.
  4. If you get 10 offers on your house, 8 will be practically the same, one will be crazy low, and one will be the best.
  5. If 20 buyers have seen your house and given the same feedback about the condition and list price, odds are the next 20 buyers will say the same thing.
  6. If you get a full price offer the first day, that means you priced it just right.  Don’t wonder if you should have asked more.  When a house is priced too low, almost always does it get more than one offer and both will usually be above the list price.
  7. If you feel like you got a good deal on a house, most likely it is because it was a house nobody else wanted.  You will have to give a good deal when it is your time to sell.
  8. Crazy realtors have the craziest clients.  You can often tell a lot about a buyer by who their realtor is.
  9. The more complicated the deal is, the more likely it is to fall apart.
  10. The longer the time between contract acceptance and the closing date, the more likely it is to fall apart and not close at all.

What’s the market like right now?

I had an appointment to show a house this evening after my client got off work.

The listing hit the market at 7:38 this morning.  By the time the buyer and I worked out a time, the house already had multiple offers on it.  By 1:PM, the house sold.

I’ve got an out of town client who has been driving down from Ohio whenever a really good house comes on the market.  We had an appointment to see a house the first day on the market.  When my people had just crossed the state line into Kentucky, I got word that there were multiple offers and the listing agent wanted to present all the offers at the exact same time as my appointment to show it.  My people turned around and went home.

I had another client make a contingency offer on a house they loved.  The seller accepted it with a 48 hour kickout clause.  A couple days later, the house had a non-contingent offer.  Fortunately my people were in a spot to remove their contingency and purchase the house without first having to sell their old one.  This house is in a small rural community, not exactly where you expect houses to sell fast.

Meanwhile, every night before I go to bed, I catch up on news from an app on my phone.  Many articles say the market is slowing down.  They usually quote some statistic about the declining number of sales.  The reason there is a declining number of sales is because it is so hard for a buyer to actually get a house these days.  Last week I blogged about a house that had 14 offers.  Only one person will get the house.  That means there are 13 buyers out there waiting on a house.  Does that sound like a slowing market?

Unless sellers get in the game this spring, we are shaping up for another crazy year.  When 14 people want a house and every house goes in multiple offers, we will see prices go up.

Is cash still King?

Many years ago when the market was terrible, a cash buyer had the upper hand when buying a house.  Lending was tightening up.  Appraisals were coming in for less than the purchase price.  Having a cash buyer made a seller feel like it was a sure thing.

Today having cash is not as impressive to most sellers.  Lenders are happy to loan money.  Few deals fall apart due to financing.  If cash makes a deal 100% solid, a preapproval letter make it 99% solid to most sellers.

Also, having cash is fairly common.  25% of my 2018 sales were for cash.  I am not making that up or rounding up or down.  I was hoping the percentage would come in at a more random sounding number, but 10 of my 40 sales last year were paid for with cash.  All were owner-occupant buyers.  None were investors.

I had a buyer write a cash offer last week on an awesome house.  There were 14 offers.  My buyer’s offer and 3 other offers were cash.

In 2019, when does having cash really matter?  If the house is such a fixer upper that it may not qualify for traditional financing, having cash is still King.  If the seller wants a fast closing, cash is still King because a loan will usually take 3-4 weeks.  A cash sale can close within days.  If a seller is worried about the appraisal, then cash is still King because there is no appraisal unless the buyer just wants one.  Short of these 3 situations, having cash doesn’t really tip the scales in your favor like it used to.

Did you get a good deal?

You bought the only house in the neighborhood that doesn’t back to green space?  Did you get a good deal?

You bought the only house in the neighborhood that doesn’t look like the others?  Did you get a good deal?

You bought the smallest home, the largest home, the one with the strange floor plan, the only 3 bedroom home in a neighborhood full of 4 bedroom homes, the one with a one car garage when every other house has a two car garage, the one with the really steep driveway, the only one that doesn’t have a flat backyard.

Did you get a good deal because you paid less than what the other houses in the neighborhood are worth?

Odds are you didn’t.

One of the toughest things to explain to buyers is the difference between actually getting a good deal and the perception of getting a good deal.  Often the odd ball house will appraise for more than it is worth because appraised value is different than market value.  Market value is what YOU or any buyer will pay for it.  Appraised value is what somebody who isn’t going to buy it thinks it is worth based on a formula of assigned values.

It is easy to think you got a good deal because your sale price was lower than the rest of the neighborhood, but value is so much more than price per square foot.  You often don’t discover you did not get a good deal until many years later when you want to sell.  It is only then when you can judge if you really bought it right.

When I buy a house, or am evaluating one for a client, I first determine what is the norm for the neighborhood.  You want a house to fit in.  You don’t want anything drastically different unless it is something like having more bathrooms than the norm, more garage space than the norm, a bigger or better lot than the norm.  Those are good differences because they are better than the norm.

While I am on this subject, I’ll add that having one big positive does not make up for one big negative.  If you have the biggest, nicest lot in the neighborhood but also have the steepest driveway, most buyer’s walk away thinking “If only the house didn’t have that steep driveway, it would be perfect!”

So when you are out house hunting, look around.  Learn the neighborhood.  Find out what the typical house is like.  Then compare it to the one you are interested in buying.   Or, make it easy on yourself and call somebody who knows that stuff already.

Mistakes first time buyers make

Being a first time buyer is tough.  I mean, you go into it with no experience and have to make one of the biggest decisions you’ve ever made!

When my wife and I were ready to buy our first house, we were clueless.  We had a tight budget like most first time buyers.  We would look at terrible houses.  One backed to a train track.  One was in a high crime area.  We finally found one in Winchester.  We had not thought about what happens once we find one we want.  We had no idea what to do with making an offer, the inspection process, or anything else.

We ended up with a pretty worn out house that the seller had only completed 80% of any renovations he had done.  The house did not have central air conditioning, the heat was a fireplace and a giant floor furnace in the dining room.  Usually those giant floor furnaces are in a central location so the heat can move around the house.  Our’s was in the far front corner.  It would get about 110 degrees in that room.  The next room was 90.  The next room was a very nice 70.  By the time you  got to the opposite rear room, it was 50 degrees unless you started a fire in that room.  Also, two of the floor joists were cut when this furnace was added to the house.  It was a really old house and probably didn’t have heat when it was built in about 1915.

We picked sort of a terrible location.  Turns out there was a shooting two doors down right after we signed a contract.  The seller assured me that the shooter only shoots at people he knows.  For some reason, that made me feel better and I made a mental note to never introduce myself to him to avoid being on the list of somebody he might shoot.

We moved in and we were happy living in our craptastic first home.

The house seemed huge at first.  Then we had two boys.  We began thinking about things like school districts and the boys playing outside alone.

We moved.

So, here are some common things that first time home buyers don’t think about……including one first time buyer who would become “THE LEXpert.”

  • Size-Most first timers are coming out of an apartment.  All houses seem big.  I see a lot of people buy a house barely bigger than their apartment.  It becomes too small once a kid comes along.  Try to buy something you can grow into a bit.
  • Location-Most first timers have to choose between a prettier house in a worse location and an ugly house in a better location.  They usually choose the prettier one.  Location never goes out of style, but trust me, one day we will be sick of having everything white and of shiplap.  When that day comes, you’ve got an outdated house in a bad location.
  • Condition-Most first times don’t know how long a furnace lasts, so when they hear that one is 27 years old, they don’t care.  They also don’t know the cost to replace one.  Same for roofs, windows, etc.  I usually tell all buyers that there are 3 biggies in a house, which are the roof, hvac units and windows.  I don’t usually see all 3 that have recently been replaced, but shooting for 2 of the 3 is good.  You don’t want a house that will have a $5000 expense coming up soon.
  • Price-First timers seem to fall into two categories:  The ones willing to pay the full asking price and the ones who will want to make an 80% of the list price offer.  I always tell all my buyers that the first thing we need to do is figure out what the house is worth.    Then we base an offer on the value of the house and not the asking price.
  • Maintenance-Houses are money pits.  Mother Nature is pretty much trying to ruin your house.  She will win the war, but you can win each battle.  You’ll have repairs for appliances, the furnace/air conditioner, your roof may spring a leak, the water heater may go out.  I’ve got a bunch of rental properties.  I usually spend an average of $2k a year for repairs and maintenance.

My goal with all my buyers, especially first timers, is to find a house in a safe location, that won’t need a ton of repairs in the near future, and that will be easy to sell when they want to move up.