house not selling

What’s an old house worth?

by John Rice

I had to run the comparable sales data for a house in the area between Chevy Chase and UK. My buyer wanted to know what I thought a house I showed him was worth. Usually comps aren’t too hard. In a newer neighborhood, they can be really easy since sometimes you can even find three of the exact same floor plans to use.

Older houses are a little harder to comp. For example, the 3 best ones I had to pick from today were all in the same area, but were very different. A lot of realtors would have just divided the sale price by the square footage, maybe added/subtracted for differences such as the number of bathrooms or a garage. (Or even worse, just gone with what Zillow says is the value.) It is all a very logical process of averaging data to come up with an opinion of value. The only problem is that it doesn’t always work.

Back to my story….

The cheapest one was on the edge of the neighborhood near where the commercial section ends on South Ashland. That corner of the neighborhood has a very different vibe than the one I saw with my buyer.  The next one was right around the corner from the house I showed. You’d think that would have been a good one. But, it was much bigger, had been converted to student housing a long time ago, had a surplus of bedrooms, and was handicap accessible. That isn’t going to attract anybody from the same buyer pool as the one we saw. Sorry if this is starting to sound like the real estate version of “Goldilocks”, but the last one was just right.

The last place was similar in square footage, was more updated, had newer systems and would attract buyers from a much broader pool. It sold for less than the asking price of the one we saw.  I had to tell him that I thought the one we saw was over priced.

I also had to tell him that with old houses, you just never know. Somebody could see that place and totally fall in love with it, with the end result being they paid more than any other buyer would.

All this reminds me of 2 houses I had listed on Wabash a long time ago. Both of them were totally and tastefully updated. The first one I listed was everything anybody could want in an old house, with the exception of very rough and very steep steps that went to the converted attic space. It was really nice up there, but getting there was posing a problem. Time after time (not trying to sound like Cyndi Lauper here) the feedback would be that the house was very nice but those stairs were a deal breaker. We did sell it however.  I should add that we actually sold it for much higher than the neighbors and a realtor who lived a few blocks away ever though was possible. The comps didn’t really support the asking price. We kind of pushed the envelope and it worked. The buyer was transferring from California, had a tight time line and everything in Lexington looked like a bargain!

The next house I listed on that road was equally nice. They had remodeled the upstairs, bumped out the roofline of the back and added a killer master bathroom and a walk-in closet. Those are 2 things you don’t see often in an older house, especially for the price range we were in. That house posed a different problem for me. See, the downstairs rooms were sooooo small. If you just looked at the comps, you’d have thought the house was worth about $20,000 more than it was. We had to sell it a little under the comps to make up for the small rooms because this time, there was no California transferee to be found.

So, you really have to have a feel for how buyers will perceive the house as a whole to know where to add or subtract value. That is the art part of the deal. Even to the most unemotional buyer, they still have to like the house to buy it. On the comp sheets that all the realtors use, it has the scientific stuff  like values for square footage differences, bathroom count, a finished basement verses unfinished basement, the number of garage spaces, etc. The problem is that if we don’t throw a little art into the comps we’ll just get them wrong…………unless the house is one of those where 3 identical houses have recently sold!

What are escrows & WHY did my mortgage go up?

by John Rice

Welcome to homeownership.

If you are new to this, there is a day coming in your future that happens to everybody who owns their home.

You will be having a perfectly ordinary day. Your life will be going swell. You’ve been excited because the value of your home is going up according to the zestimate, which you frequently check.

Then you go to the mailbox or check your email. You’ve got something from your lender. It’s called an escrow analysis and has a bunch of numbers all over the place. It is almost as confusing as your cell phone bill and all those stupid docs you signed when you bought your house. You have no idea what it all means. All you know is that it says your mortgage payment is going up starting in a couple of months.

There goes that perfectly ordinary day you were having.

Can they do this to you? Yes they can. Here is why and how it all works:

In case you didn’t know, the escrow account is for money you give the mortgage company within your monthly payment to budget for the property taxes and homeowner’s insurance. When those annual bills come due, the mortgage company pays them on your behalf.

Here are the reasons why your mortgage payment may increase due to escrow accounts:

1. The assessed value of the house increased. This is when the PVA looks at houses that have sold around your house and thinks the value of your house has gone up. It’s a good news/bad news thing when this happens. It means your net-worth just went up but also means you’ve gotta pay more in taxes when they increase the assessed value. You will get a letter from the PVA when/if this happens. They have the right to do so annually and there is an appeal process.

2. The tax rate increased. The amount of taxes you pay is a simple math problem. It is your assessed value multiplied by the tax rate. If your assessed value did not change but the tax rate went up…..well, you’re paying more in taxes.

3. Your homeowners insurance went up. (This is happening all over due to the crazy storms we have had.)

4. There was a shortage of funds in the escrow accounts to pay the taxes and homeowner’s insurance. 

The mortgage company collects this money over the course of the year so they have enough in the escrow accounts to pay the property taxes and homeowners insurance on your behalf. If the projected expenses for next year exceed what you are currently paying into those accounts, they can raise the amount you pay into escrow every month to make sure they have enough to pay those bills when they come due. Should you have one year when there is an excess amount left over, the amount you pay for escrow accounts could go down, making your mortgage payment less.

5. And the last reason is sometimes it can be a combination of any of the above reasons.

I sure hope this helps make sense of something that is not at all fun to deal with!

This house stinks (Literally & Figuratively)

by John Rice

I showed a really loser house to some friends of mine today. It stank. Literally.

This place looked okay in the pictures. A little 2005ish but nice. It had a huge sunroom and was on an absolutely gorgeous 1.5 acre lot with a lovely view on 2 sides.

I got to this vacant house about 45 minutes before my people. I had plenty of time to work on getting my daily allotment of steps. As I was walking around the house for all that time, I concluded that the floor plan was especially terrible.

It had a nice kitchen and great room. The sunroom was really nice although it had a strong cat urine odor. There was a flex room with a closet with french doors right off the great room by the front door. It had two bedrooms and two baths downstairs. There was a staircase leading to a finished room over the garage. This room did not have a bathroom or a closet and had limited headroom.

SO BASICALLY THIS WAS A 2 BEDROOM HOUSE!

Sure, somebody could use that flex room on the front of the house as a bedroom since there was a closet, but who is going to do that? Sure you could use the room upstairs that didn’t have a closet or bathroom as a bedroom, but who wants to do that? The closest bathroom is downstairs on the opposite side of the house.

When my friends asked what I thought of the house, I told them it was a waste of a really nice lot. I told them that even if this floor plan could work for them, it isn’t going to work for 90% of the buyers when they would later attempt to sell it. They agreed it was a hard no for them. There really should have been either a true third bedroom downstairs or a closet and full bath upstairs.

While I am all about people finding a house they love, there is an investment side to buying a house. One day you will need to become the seller…….so start with a house that most people would want to buy.

Best advice when buying a home

by John Rice

It is amazing to me to think about the extreme markets I have seen.

I spent most of 2011 until COVID giving advice based on my experience of seeing how hard it was to sell ANY house during the Great Recession.

I think I will spend the next decade giving advice based on my experience of seeing how easy it was to sell ANY house right after COVID.

We are now back to a more normal market. Inventory is up a little, but seems really high compared to the days of only 3-4 houses being on the market in any price range.

I recently had an out of state buyer. It is always fun when somebody rolls into town with a mission of finding a house. I get to literally see almost any house worth considering, and all within a few days.

I sorted through about 90 houses in their price range. I narrowed it down to about the best 15 houses. Man, it sure was nice to be able to do this. I haven’t been able to do so in many years. Just not too long ago, there were not 90 houses for sale in all prices ranges in the whole Bluegrass area.

Many from this list were new listings. Most sold immediately. We ended up finding an ideal home that was clearly the nicest in it’s price range since there were multiple offers. After going over the list price, waiving inspections and paying cash, I am happy to say it closed last week.

The whole time I was out with these buyers, I was thinking about those other 75 or so houses for sale. I am sure none of them had back to back showings like practically every house I showed my clients. A couple of years ago, any of those houses would have gotten multiple offers the first day and possibly sold for over the list price…….but not today. Today they are nothing anybody wants. They all had some bigger negative like being on a busy road, in poor condition, a bad lot, etc.

Which takes me back to some timeless advice I have been giving for years: Buy a house that will be easy to sell in a bad market. Buyers in any market all want the best house available to them. I remember getting multiple offers on listings in 2009 when there were literally hundreds of houses available to those buyers who all wanted my listing. What house is that? One with a good floor plan. One with a good lot. One that is in a desirable location. One that fits into it’s neighborhood nicely. One that has no big negatives. One that has at least one unique feature that gives it a little pizzaz. How will you know this house when you see it? Take me along and I will let you know.

How I learned a great real estate lesson from a video game

by John Rice

Ever play Sim City? I must admit, I haven’t done it in like 30 years, but I always loved to watch what happened when you built a neighborhood beside an industrial zone, or watch a neighborhood grow when you added a commercial district beside it.

Sim City is a lot like real life in the way something outside a neighborhood can have an impact on what happens within a neighborhood. 

One day many many years ago, I was talking to a neighbor who bought her house brand new back in the early 70’s. We were talking about all the traffic on Pimlico Parkway. She told me that before they opened Man-O War, the only traffic on Pimlico Parkway was just people from the neighborhood. It was just the main drag through the neighborhood, like any other entrance and exit  in your neighborhood…..until something changed.

And I guess that is what is on my mind. How things are always the same, until something changes.

Another example of a road like this is Autumn Ridge Blvd. I remember when it was a new neighborhood. You took Autumn Ridge all the way back, turned on Pleasant Ridge just like you do today, only back then it ended before you got to Andover Forest…..and oh, there was also no Hamburg back then either.

Next thing you know, Hamburg is built and you can get to it straight through Autumn Ridge. It really worked out great for everybody….except those folks that lived on the cut through streets.  They saw a lot of traffic and watched as their houses became less desirable than the same house on a different street in the neighborhood.

So, here is my advice: Don’t buy a house on a road that ends at an undeveloped area.  SOMETHING will eventually be there….just like on Sim City, and odds are it will change the vibe of your neighborhood. Sometimes it changes it in a good way, but most of the time it means increased traffic, which usually means increased crime…..just like Sim City.

Here is some more advice: When you are considering a neighborhood that has roads like that, take a look at a satellite view of the neighborhood. You want to see what is on the other side of the vacant land to see what may eventually be connected to your neighborhood. Also, don’t rely on zoning. I hear people say things like, “Oh, that is zoned for single family, so we’ll be okay.”  Well, lets say that it stays zoned as such. That doesn’t mean that it will be a single family neighborhood similar to your neighborhood? But even more of a big deal is that there are zoning changes all the time.

And you know what usually happens when there is a big change in the neighborhood don’t you?  All your neighbors decide to move at the same time.  Never a good thing for resale value……and Game Over for you!