first time buyer

Hey First Time Buyers-Here is how to pick a house

by John Rice

It wasn’t all that long ago that the typical buyer’s choice was between the one house on the market in their price range and no house at all.

We are now back to a much more normal market. Today’s buyer has the luxury of picking the best house among all that are on the market.

This post is mainly aimed at first time buyers, but holds true for any buyer really……its time for a refresher course on how to pick the right house and why!

To most of us, our home is our biggest asset. It’s how we build wealth. It’s where we live. It’s an expression of ourselves.

It can also be a noose around our necks if we need to sell in a tough market.

I got my real estate license in 2005. Many people who had used another realtor to buy their home would call me to sell it for them in the middle of the worst market in history. Back then I wondered why some of them chose the house they did. After seeing the frenzy of having no inventory for the past couple of years, I now see that their choice was the loser home they purchased or no home at all.

Back quickly to why the first time buyer needs to get it right. Most first time buyers are younger. Younger people tend to meet somebody and marry, start a family, climb the corporate ladder, accept a job somewhere else, etc. This means first time buyers typically don’t stay in their homes as long as they will for their subsequent homes. Also, the equity you have when you sell your first home will be used to buy your next home. You want to pick a house that will always be another buyer’s top choice because it will be easy to sell and will net you the most equity to apply towards your next home.

So let’s look at The LEXpert’s Guide to Picking a Home:

  1. NEVER compromise the lot. Things like a very steep driveway, the backyard with the Eiffel Tower looking electrical thing, a backyard that sharply slopes up or down hill, a house that backs to stuff like apartments/commercial/busy roads are big negatives. Try to find a fairly flat lot whose size seems normal or better than average for the neighborhood.
  2. NEVER compromise location. Within every price range, there are preferred choices for neighborhoods. Most of the time the preferences are for things like having shopping/dining/retail/parks close by, school district ratings, crime ratings. Try to pick one of the more desirable neighborhoods.
  3. NEVER buy the house that doesn’t somewhat conform to the other houses in the neighborhood. Buyer’s are usually looking at other houses in your neighborhood and know what is typical. If your house is lacking in something that is considered typical for your neighborhood, it can keep it from selling.

I could go on and on for days but I have found that these top 3 items will eliminate about half the houses on the market.

Why does it matter? Shouldn’t I just pick the house I like best? Because when a buyer has choices, they get pretty picky. If two identical houses are for sale for the same price and one has a steep driveway, which one are you picking? If two identical house are for sale for the same price and one backs up to the interstate, which one are you picking?

I know it is tough to do when your goal is finding a place you love, but think about that day when you need to sell it.

How the market is changing

by John Rice

This is hard to believe, but I am busier with buyers than I have been all year. Buyers are out there shopping. Many listings I have shown have another showing taking place as I arrive or one coming in as soon as I am locking the door on my way out. There is a lot of activity. I think buyers are excited to have choices now. They seem excited to get to see so many houses. I showed 6 houses yesterday to one buyer. Six months ago I would shown a buyer one house. If they didn’t buy it, we would wait patiently until the next one came on the market.

Buyers seem to be pushing back a little on price. Only a few I have shown have gotten multiple offers. Also, out of maybe 14 or so houses I have shown in the past 3 days to 3 different buyers, only two of them have sold before I could show them to my clients. Six months ago, that number would have been much higher.

It’s going to be a weird rest of the year I think. It has changed so fast. We will have sellers who aren’t living in reality and think they get to call the shots. There will be realtors who also are stuck in the old market and not realize they need to hone their negotiating skills. There will be buyer’s who think it’s a Black Friday sale and want to offer 80% of the list price. This is when having a good realtor who knows what is going on in real time really helps!

What’s the rest of 2022 going to be like?

by John Rice

Not fun, that’s for sure.

After working in bad, good and in between markets over the past 17 years, we are entering a period where buyers and sellers are not going to be happy. Buyers won’t like that they missed out on the super low interest rates. Sellers won’t like that they missed out on the absolute hottest real estate market in all of history.

Here are some predictions:

  1. Pricing a house will become difficult. Typically you look back over the past 6 months of sales of similar houses to determine value. Well, we can’t really justify using comparable sales from when the market was so hot that about any house went for way over the list price and had 5-15 offers.
  2. Price reductions. Let me tell you something. A price reduction does not mean the market is bad. It just means the price wasn’t right from the get go. Sellers will be in denial and will want to keep pricing their houses as if buyer’s can still get a 3% interest rate. Trust me, having been in this business during the absolute work market ever, I can attest to the fact that when priced right, any house will sell quickly in any market.
  3. Home inspectors will have to start waking up and working again after practically being unemployed for the past two years.
  4. Realtors will have a whole lot more free time since the number of sales are slowing. This does not mean the market is bad. What determines a good or bad market is not the number of transactions but the balance between sellers in the market and buyers in the market. Just about everybody other than clickbait Youtubers agree that the market is cooling into a slight seller’s market. If there are 2 sellers out there and 2 buyers out there, that is a good, balanced market. Realtors are the only people that care about the number of transactions out there. Why? Because we get paid for transactions.

Want to know what I expect for 2023?

Assuming rates don’t go crazy and the general economy doesn’t collapse, I think when buyer’s emerge next spring they will have acclimated to inflation, acclimated to paying around 6% interest and they will resume buying houses.

What’s a first time buyer to do today?

by John Rice

You’ve probably read all the articles saying how much more per month the average house payment is today with the increase in interest rates. I have too.

While I don’t dispute their findings, I don’t really find them helpful. Yes, had somebody bought the same house sooner, they could have had a cheaper mortgage payment. Those rates don’t exist anymore. Why not tell first time buyers what they should do rather than making them focus on the wrong thing.

Let me tell you the biggest way these higher rates are costing you. If you are sitting on the sidelines, holding out for a year or so before re-entering the market, you’re paying a steep price in a lot of ways:

  1. You are not building equity.
  2. You are not getting the tax deductions homeowners get.
  3. You are not making money from the rising value of your home.
  4. You are deferring the date when you will have whatever home you own paid off.

All of that seems to me to be much more costly than paying a few hundred extra bucks a month to own a home. If you don’t have the extra money that today’s mortgage would be, I suggest buying a cheaper house. Buy what you can afford. Owning any home is a better investment than renting.

I have always said the best time to buy a house was yesterday and that the second best time is today. That is because homeownership is the best way to create wealth for the average person. It’s more than just owning where you live. It is about investing in yourself. You do that by leveraging time. The sooner you start, the sooner the benefits begin and the quicker they compound.

“If you were me, would you (fill in the blank)?”

by John Rice

I get asked what I would do if I was in my client’s situation an awful lot. So much so that I thought maybe I’d write a little about the most common times this is asked.

  1. “Would you buy a house right now if you were me?“ My answer is always yes. Not because I want to make a sale, but because I am old enough to know that the sooner you buy a house, the sooner you start building equity. You are leveraging time when you buy real estate. Rates go up and down. Prices generally increase consistently over time. You can always refinance later if rates drop. One thing you can never do is go back in time to get a lower price or a lower interest rate…..NOW is always the best time to buy.
  2. “Would you still buy this house knowing what we now know after the home inspection?” My general thought is that no house is perfect. I’ve read probably 600 or more home inspection reports. Most houses seem to have 90% of the same issues as other houses of a similar age. I am rarely shocked at anything a home inspector finds since I’ve seen it all before. I personally think there are only a few times to walk away from a house after the home inspection: When the sum of it’s major immediate needs are just too much for you to handle financially or if there is something found such as structural damage that can make the house harder to sell when you want to part with it. I would not worry about the usual 20-30 minor items that any inspector will surely find on any house.
  3. “I’m only going to be in town for 3 years, would you rent of buy if you were me?” For 3 years or more, I would buy. You should be able to net enough from the sale to cover selling it and your own closing costs. I would look for a house that will not need anything major like a roof or HVAC units replaced because that could wipe out any gain. For 2 years or less, I would definitely just rent.
  4. “Would you move to a town surrounding Lexington to save money if you were me?” I usually tell people to live in whatever town their lives are in. If you work in Lexington and your social life is in Lexington, then you need to stay in Lexington. My first house was in Winchester. My business and all my friends were in Lexington. I felt like I lived on I-64 since I spent most of my time driving between both places. You won’t really save any money doing this even if you buy a cheaper house. Trust me. What you spend extra on gas, tires, extra oil changes and depreciation on your car costs more than you’d save by living in a cheaper town.
  5. “I can’t find a house in my price range, would you buy a townhouse or condo if you were me?” The condo/townhouse market has generally been about 10% of the whole residential real estate market. That means that only 1 out of 10 buyers will consider purchasing your place when it is your turn to sell. I usually tell people to buy a condo or townhouse if that is really what they want. It needs to be mostly about your lifestyle. If you want a low maintenance lifestyle, then it is a good choice. I also suggest getting a condo or townhouse for buyers with a super low budget. If your choice is continue renting, buy a worn out house that needs everything in a sketchy part of town, or buy a decent condo/townhouse in a decent neighborhood…..then buy a condo or townhouse. I have sold several to first time buyers with super low budgets. It was a great way for them to start building equity verses waiting until they could afford more.