how to pick a realtor

The wrong way to make housing more affordable

by John Rice

I keep seeing a bit of enthusiasm in the media regarding the market softening to the point that real estate prices will drop.

With the logic of a 5 year old, sure, it makes sense that lower prices make things more affordable. There are however more variables that go into a mortgage payment. There is the price you pay, your interest rate and the length of your loan. There is another variable independent of real estate and that is wages. I read this morning that wages are going up as workers are demanding more income to combat inflation. I predicted this. Inflation came first and hurt all of us. I knew that in time, wages would have to go up as well. I used to have a lawn care business when I was younger. I remember a customer who built their house brand new in the 1960s. They told me their payment was something like $160 a month and some months it was hard to make ends meet. We laugh at that payment today, but keep in mind that it was probably still about 30% or more of their income.

Let’s say that we all wake up tomorrow and real estate prices have dropped 20%. Yay affordability!! It won’t make a bit of difference. Why? Having lived through the Great Recession, I can tell you that Buyers will not view this as an opportunity. They will be afraid to buy. The self claimed shrewd Buyers will try to time the market and wait for prices to go down more. Those Buyers usually end up waiting so long that prices have started to rebound before they feel comfortable to pull the trigger.

Let’s also take into consideration what softening real estate prices will do to those who already own a home, which ultimately affects everybody. For most middle class folk, their home is their greatest asset. If they feel good about the value of their home and their job security, they will go out and spend their money. They take vacations. They go to Lowe’s and Home Depot. They buy furniture. They spend on landscaping. It’s good for the whole economy. They stop all that when the value of their home goes down. How do I know? I saw it from 2007-2011.

What is the solution? Build more houses. We have been in a housing shortage since the Great Recession ended. Yes, people right now are not moving since they got super low rates that don’t exist anymore. That is keeping prices high in these times of higher rates. But think back. When rates were super low and everybody was eager to buy houses, we still didn’t have enough houses available.

And if you think affordability and low inventory are bad now, just wait until rates drop down to around 6% or hopefully less. That will create a bit of a frenzy. There will be even more bidding wars and prices will continue to go up, making housing less affordable.

Should you buy that updated house?

by John Rice

It is soooo easy right now to sell a pretty house. Always has been but when there is so little for sale, it is especially easy.

You know the formula: White shaker cabinets, quartz tops, lots of trim, paint as much black as you can, etc.

I get it. Those houses are so pretty. The problem is that a house that’s only attraction is its pretty new finishes might not be a good enough reason to buy it.

I blogged a few weeks ago about a former Airbnb house I showed that sold for way over list price and got a crazy amount of offers. I pointed out to my buyer several things showing it wasn’t all that great of a house. The driveway was sort of steep and in bad shape. The old wood windows needed reglazed. It wasn’t really that great of a house, it was just pretty and most of what made it attractive was the furniture that didn’t stay with the house.

It is great if you get a pretty house but that isn’t enough of a reason to buy it.

At its core, whatever house you buy needs to have more than trendy finishes going for it. Why? Because one day those fancy finishes will either be out of style or worn out and you’ll be left with a house that doesn’t even have one great feature anymore.

Here is how to pick a house:

  1. Most important thing is a good location. I know that phrase that is thrown around a lot, but a good location can mean any reason that spot is desirable. It can be because it is close to something, far away from something, be in a desirable school district, be close to highway access, or just anything that makes it more desirable than somewhere else.
  2. If a house passes that test, then examine the lot. You want the lot to be equal to the others in the neighborhood or be better. Flatter is usually more desirable. Less slope on the driveway is usually better.
  3. Then think about the floor plan. It needs to be functional and fit in with the neighborhood. If you have a closed off floor plan in a neighborhood where most are open concept, then it might be harder to sell in a softer market. If something is odd about the floor plan to you, it will be odd to future buyers as well.

Where do those fancy finishes come into consideration? At the very end. It is always easier to put fancy finishes in any house than it is to change the location, lot or floor plan. If you have an outdated house in a good location with a good lot and a good floor plan, you still have a house that will always be desirable.

Airbnbust?

by John Rice

One of the most valuable lessons I learned from my dad is how cycles work.

I remember one of the first times I ever thought about such things was when we lived in a starter home neighborhood in Frankfort. I remember him telling me that the houses in our neighborhood would eventually get run down because everybody who buys such an entry level home only plans to stay there for a few years. You don’t do a room addition, kitchen renovation or anything when you’re thinking so short term. Forty years later, the neighborhood is pretty run down. Houses only got fixed up when the values got so low that an investor could buy them cheap enough to make a profit.

Another thing I learned about cycles is to expect them. There will be good times. There will be bad times. Most people view the good times as the norm and are shocked when bad times come.

We are there now with the short term rental market.

Over the past few years, I’ve had several clients ask me about getting into the STR (Short term rental) market. I have always been cautiously optimistic. I tell them sure, you can make some money, but have a backup plan because one day, the market will be saturated and/or demand will not be as strong. We had several things line up perfectly all at once to create the buzz for short term rentals. We had many people wanting to travel after the pandemic, we had a robust economy, and we had people eager to try using an Airbnb. I knew that would not last forever, especially with so many so eager to buy a house and use it for short term rentals.

The downside of the cycle is happening now. I am on a facebook group for real estate investors. Just about everybody is saying their bookings are waaaaaaay down compared to last year. We have several things that have lined up but none of them are good: Everybody travelled a lot after the pandemic and demand is down, we have a not-so-robust economy, and people are a little more cautious of short term rentals (Excessive fees, terrible hosts, pretty houses in scary areas, etc.)

In time, demand will pick up. Those who were merely Airbnb hobbyists will get out of the market leaving only those who view it as a serious business. This is part of a cycle too.

So what’s my advice to anybody wanting to buy real estate for STRs? Have a backup plan. Make sure the numbers also work as a long term rentals. Be ready to pivot when needed. Buy a property that is a good investment. Don’t buy a terrible house in a slummy neighborhood where the only desirable feature would be your trendy decor. Have an exit plan because one day you will be as excited to sell your property as you were the day you bought it.

The single most important thing when selling your house (or anything really)

by John Rice

I did it again.

I bought another car. For people who know me, this is par for the course. I am always falling in and out of love with cars and trading them like crazy.

If you’re wondering how me getting a new car is related to real estate, it is because of pricing.

The car I bought was not expensive. It is just a little Japanese sports car that is fun to drive. A new version came out during COVID and they have been in short supply ever since. You never see one on a lot. Most are sold before they arrive. Dealers are taking deposits on them and telling people they will call when the car arrives.

I went to a Volkswagon car show with my oldest son and his girlfriend last weekend. We had lunch on the way home. They asked about the deposit I had on another one of these cars at a local dealership. I replied that I was told it should arrive later this month. He then went on a mission of finding me one that was immediately available. He found one about 250 miles away in Indiana.

He called to confirm that it was in fact in stock. It was. I remember thinking to myself “Why is this car in stock, collecting dust on a dealer’s lot when every other one is pre-sold???”

Ahhhhhh……the price!

This dealer wanted $9000 over the MSRP price.

I told the salesperson that I was definitely interested in the car but there was no way I was taking it at $9000 over MSRP. He started telling me what a hot car it was and how many calls they get on it. I am totally sure all that is true. I’m a realtor, so I know how markets for things for sale work. This is a super hot car in high demand, but the reason it hasn’t sold is that it was overpriced.

Here are some truths about any market:

  1. You cannot sell something for more than it is worth.
  2. The whole market determines the value, not just the seller.
  3. A buyer is defined as ready, willing and able. (At $9k over list for a very affordable car, that price pushed the total cost well over budget for the target buyers, thus knocking out the “Able” part of those three requirements.)

Like real estate, you cannot sell the most gorgeous $500k house in a highly sought after neighborhood for $750k. If you try, it will sit on the market and you will reduce the price until those ready, willing and able buyers think it is worth it.

But isn’t the market still hot? Yes, it is. Prices are still going up in our area. That means you still, like always, have to price a house for something a buyer will pay. A hot market doesn’t mean you can sell it for more than it is worth. It just means it will sell quickly and many buyers will want it and be eager to pay top dollar….not more than top dollar. If you ever see a house that is sitting on the market and wonder why it hasn’t sold, literally 100% of the time it is due to price. It may have some odd feature or be in bad shape, but it will definitely sell when the asking price is in line with what Buyer’s think it is worth.

So what happened with the car? They came down to $6k over MSRP and I drove up and got it yesterday. I suspect had they priced it at that from the beginning, it would have immediately sold.

Always make this your first priority when picking a house

by John Rice

Let’s face it, most houses in any price range are all pretty similar. It is rare in Lexington to get something unique in the sense of a feature or design that is different from anything else. We have old houses that mostly have the same character from the time period they were built. We have new houses with their open floor plans. We have updated houses. We have outdated houses. We mostly have houses with average lots. We also have houses with less than average lots. Basically you can pick what part of town you want, what age house you want, whether you have to have it updated or not and just like that, you’ll find about every house that makes your list is pretty darn similar to every other house on your list.

While this isn’t necessarily a bad think, it can make your house harder to sell whenever the market softens……which right now appears will never happen.

Tastes change. Things go out of style. The 90s saw a bread drawer in the corner of every kitchen plus a built in desk. Cherry cabinets were the rage. It won’t be all too long before white shaker cabinets and shiplap will become negatives to buyers rather than something that makes them want the house.

What should you do to make your house be among the best when you go to sell it? The best thing to do is pick a good lot. Why? It never goes out of style and never needs updating.

I recently sold a townhouse in a nice complex on the edge of downtown. The location is great and always will be. The thing is that about half the units are totally identical to each other. The one I sold was an end unit. That means you only share a wall with one neighbor. It also gives you windows on the other side. This unit backed to the houses in a historic neighborhood. You looked out your rear windows and saw trees and grass with the neighboring houses far away. The other units all backed to each other. This unit was on the edge of the complex. It had some greenspace across the street out front. All the others faced other units. There was plenty of guest parking and since it was on the edge of the complex, it is the least likely to be used. This was the best lot in the entire complex.

I told my buyers to picture it is 2008 all over again. They decide to sell when there are 15 other identical units for sale at the same time. Which unit is that one buyer in the market going to pick? Their unit, because the lot will never go out of style and never need updating.