lexington kentucky blog

Are Investors ruining the market?

by John Rice

Are real estate investors who buy single family homes ruining the market for other buyers and driving up rent?

Unpopular opinion, but I say no.

Sure, many of these investors might make terrible landlords. None of us like the robocalls we get asking to sell our houses to them…..but they are not ruining the market and driving up rent. I am by no means defending them or their actions. I am just saying that they are not the root of the problem.

I spent a couple weeks in Florida recently where I read an article saying how large scale investors were ruining the market. They were outbidding other buyers. They were reducing the number of homes available for owner-occupant buyers. They were raising the rent and making housing unaffordable.

This type of logic drives me crazy. Let me pick apart a few things here:

For every house for sale, that means there is both a Buyer and a Seller. If one Buyer is outbidding another, that means there are not enough houses for sale. This is a Supply and Demand issue. Also, the never mentioned seller who is about to become a buyer is happy with the terms they got.

Are they reducing the number of homes for sale? Yes, but isn’t the same true for anybody who buys an available home? Again, the issue is the imbalance between Supply and Demand.

Are they raising rent and making housing unaffordable? This one always amazes me. We have all just survived a crazy period of inflation where the cost of everything went up. Somehow most people single out housing, as if that shouldn’t have also been affected by inflation. Like we are shocked and appalled that housing costs, whether renting or buying, went crazy at the same time when everything else did too?

What this article seems to forget is the tenants. Where would they be if all the sudden there were no properties to rent? It isn’t like investors are buying these houses and keeping them empty. There is just as much demand for single family rental homes as there are for people wanting to buy them and live in them. If rent exceeds market demand, houses will sit vacant and investors will have to lower the rent to get a tenant. Again, Supply and Demand.

Are you seeing a theme here? Supply and Demand. There is a short supply of houses for sale for investors and owner-occupants. There is a short supply of houses for rent for those who cannot afford to buy or choose not to. Having more demand than supply is the problem here.

Some say that the issue is sellers just aren’t selling these days. Okay, true. But let’s think this through. We have far more people wanting to buy AND to rent houses. If all the sudden everybody decided to move, we would still have more people than houses because everybody living in their current house would also need another house. What’s that? Supply and Demand.

Building more homes is the only real solution to this. It is what the writers of the article I read should be encouraging if they honestly feel like everyone should be able to afford to buy or rent a home. The demand is there. The supply is the issue. Until there is a better balance, prices for buyers and tenants will not change.

Well Played Sir, Well Played….Sort of

by John Rice

After nearly 19 years in this business, you sure learn to read the signs. Watching what people do (or don’t do) can often tell you a different story than the one they are telling you with their lips.

I had a buyer interested in a property. We made a formal offer. It was verbally countered. Verbal counters happen. They can be a way of making the negotiations move along faster. They can also be used to “Not” formally counter. See, if a Seller formally counters an offer, they can’t accept another offer without withdrawing their counter. Sometimes a verbal counter is made to keep the other parties options open.

My Buyer decided not to budge from their original offer. I assumed the deal was dead.

A couple of hours later the Seller’s realtor texted saying the Seller maaaaay accept my Buyer’s offer amount if we could close in 3 days. I immediately told the other realtor exactly what my Buyer would do in response. We could not close in 3 days but could within 10 days.

Then I hear nothing.

This is when I start getting suspicious because normally, when a Seller and Buyer agree on a price, everybody usually get really motivated to make a deal work out.

Then I ask again for a reply.

I still get radio silence.

Then out of the blue, exactly what I suspected was happening came to light. There was another offer. The other realtor said another offer had been made which was better than the one my Buyer had made.

So here is what really happened:

  1. By verbally countering our offer, this agent kept our offer alive and could legitimately tell the other Buyer’s realtor that there was another offer on the table. This used our offer as leverage to get the best terms for the Seller from the other Buyer.
  2. By not replying to us in a timely fashion, it hedged the Seller’s bets because if the other offer didn’t work out, they had us as a backup plan.

Was there anything wrong in doing this? Yes and no.

I am not at all upset about the other agent trying to get the best results for his client. I do the same for mine. Kudos to him for this part of his actions.

The only thing I am salty about is that he made a counter and then ghosted me for almost two full days. I think he should have told me in a reasonable amount of time that there was another offer, or that his Seller was either accepting/rejecting/countering the revised terms I had proposed.

Why do new listings get so much attention?

by John Rice

I have a listing that got lots of showings the first few days on the market. It is now only getting 1-2 showings a week.

I have a new buyer who I have shown everything that is currently on the market. They haven’t liked any of them enough to pull the trigger. We are now just looking at 1-2 houses a week.

Notice a similarity? Both are not getting a lot of activity. Why? The seller has exhausted all the buyers currently in the market. They are waiting for new buyers to enter the market. The buyer has exhausted everything currently on the market. They are waiting for new listings to hit the market. This is how it has always worked, but all the waiting is because there is still a significant shortage of listings.

When there is a new listing that drops on the market, every buyer in that price range will come out to see it. For buyers, it is tough because they are one of those people coming to see the listing as soon as it hits the market. They need to quickly decide if they want the house or not. There is often not a lot of time to sit on the fence when it is a new listing. For sellers, this is your best chance to get multiple offers. It can be easy for a seller to assume they will always get that much traffic. I have had sellers turn down an offer during this period because they think they can get a better one later. They think they will endlessly get 4-5 showings every day. Then it dries up after about day 3 or 4 on the market.

The market is constantly moving. It’s like the sun. You can’t see it move. You just look up in the sky and realize it isn’t in the same place it was the last time you looked. There are new listings and new buyer entering the market every day. (I do realize the sun doesn’t actually move, the earth does. Think of this analogy more as how we refer to the sun setting or rising.)

I’ll pick choice #2

by John Rice

I’m sort of in the market for a car to replace one I’ve got. Truth be told, I’m always “Sort of” in the market for a car. I am always wanting to get a new one or get rid of one I have.

I test drove a car a few weeks ago in Cincinnati.

It was one of the worst experiences ever. It was extremely clear that the sales person had no interest in anything beyond getting me to do exactly whatever he wanted. Wouldn’t answer any of my questions. Just wanted to get whatever information out of me that would serve his purposes. He would say one thing and contradict himself minutes later. I left feeling more like a victim. (I’ve worked with a few sales people often enough that I have become friends with them. I really wish one of them had the car I am looking for. Two of them are still in the business and one of them is a teacher now. These guys were great to work with and made car shopping fun!)

This experience got me thinking about how I operate compared to the sales person at that dealership in Northern Cincinnati. I work for my clients. I am their advocate. I have a fiduciary duty to look out for their best interests. I should know enough about houses, neighborhoods, construction, market conditions, values of homes and pretty much anything that could help a client of mine make a wise, informed decision for one of the largest purchases they will ever make……even if this means doing so doesn’t serve my own best interest. I don’t want my clients to buy any house. I want them to buy the right house for them.

I showed a house early this morning to some first time buyers. Having lived in Lexington since 1986 and being a realtor since 2005, I was able to give them a lot of information they needed.

I’ve sold several houses in this neighborhood so I was able to tell them what my clients liked and disliked about it. Having listed several there, I was also able to tell them what feedback prospective buyers have given after showings.

There is an elementary school just down the road from this house. I was able to tell them exactly how far the pick up line will be from the house we were in. I have been on this street many times when school is dismissing.

I was able to tell them about a large annual event that a church up the street has and how it would impact the neighborhood one week a year.

The house we saw was one that is being flipped. I always look for signs of hidden issues. This house had cracking in the brick veneer. I didn’t see any signs of damage or repairs on the inside of the house so my hunch is that a home inspector would consider it on the moderate end of normal. While I am no home inspector, I’ve owned about 20 houses and of course, have been on hundreds of home inspections. The last thing I want to happen is for my people to buy a house, then have it fall apart after a home inspection (The sale fall apart, lol, not the house!) It is heartbreaking and expensive for them when that happens. I try to help them out by doing as much of an amateur home inspection as I can.

I wish that sales person I endured would realize that you have two choices when working in commissioned sales:

  1. Be selfish. Get what you want. Take, take, take. Make it all about you. Get your check.
  2. Put others first. Find out what others want. Give, give, give. Make it all about them. Then get your check.

By picking choice #2, you still make the same living, only you go to bed at night with a deep satisfaction from knowing you really helped somebody.

What’s 2024 Going to be Like?

by John Rice

I do these type of posts every year. Not to brag, but I am usually spot on. Why is that? I think it is because I don’t concern myself with short term knee jerk reactions to market fluxuation like the media does. I don’t view “Demand” like most people. I think there is always demand because everybody loves real estate and everybody ultimately wants to own their home. How many people are out there buying at this exact moment can vary, but there is always demand.

I think 2024 will be a better year for buyers and a still great year for sellers. We have all been on a roller coaster the past few years:

2020-We thought we were all going to catch COVID and die, or didn’t think it existed at all. We were too busy fighting over everything early on to bother with buying or selling houses….until later in the year when rates got so low.

2021-We partied like it was 1999. We chatted daily about how much our crypto went up. We got a better house, an airbnb or refinanced what we already had like crazy.

2022-We continued to party like it was 1999 but we knew the ball was about to drop. Just like inflation was eroding our purchasing power, we could no longer afford the cost to maintain our enthusiasm.

2023-Was like “Will there be a recession?”, “Are we IN a recession?” and “These rates are crazy high right now!” It felt like when somebody thinks they saw a shark and everybody jumps out of the water. Was there a shark? Who knows, but nobody wants to be the first one to get back in the water.

2024 is looking like the economy has stabilized, rates are going to drop to a level that is historically average, and all those people who are on the fence will come out….just like the opening scene of Bambi. Affordability will remain an issue. Prices will at least stay stable. We will read later in the year that rent prices are dropping but that data is skewed. All the new giant apartment complexes will be competing for the same tenants. Prices for apartments will go down for sure. The single family rental market will remain strong since there are not enough single family houses for anybody in any market.

Ultimately, I think this will be the most normal market we have seen since Covid.

And I welcome it. Bring on 2024!