Don’t know if you’ve noticed, but there are more and more houses being extensively renovated in medium priced neighborhoods that sell for waaaaaay more than anything else in the same neighborhood.
I think this is happening because of two things. One is that there just aren’t a lot of houses for sale. That will eventually change. The other is because we’ve just about run out of room to build new houses. That means the only choice for most people will be an existing home. People love new stuff in a house, so it only makes sense that an older home in a closer-in location that has been totally renovated is appealing. This won’t change.
The thing to watch out for is that you are not the first or even the second person in the neighborhood to drop $100,000 or more than what the same non-renovated house might be worth. Why? What if the house you buy ends up being the only on that gets that type of renovation? You’ll have the most expensive house in the neighborhood in a big way. What happens when those trendy finishes get a few years of wear and tear and start to go out of style? Well, you will have a house that is worth no more than any other house in the neighborhood that needs updating. None of these are good things.
Before you pull the trigger on one of these whole house renovations, look around and make sure there is a trend of this happening in the neighborhood.
I sold a house last weekend. A real nail biter.
It was an attractive house with a popular floor plan in a desirable neighborhood and in the most popular price range. All of that means that there were showings back to back all day. I knew there would be multiple offers and it might go over the asking price.
We found out the next day that we were one of the 3 best offers they received. We had to give our highest and best offer by 5:PM. We did. We got the house!
I guess all of my sales are personal since just about 100% of my work is people I know or people sent to me by people I know. This one was very personal. The buyers are a very young couple. Married recently. Just starting their adult lives together. The wife is somebody I have known since she was a little kid. Her family lived across the street from me at my last house. Our family became friends with her family. Her older brother and my boys were always together, especially in the summers. They all went to the same school and we would take turns carpooling.
My favorite memory of her is when she was maybe 10 years old. I would see her riding her bike down her driveway and on the street. I would always look around to make sure no car was coming and that there were no strangers around. A couple of times the chain would come off of her bike and I would fix it. Once or twice I would notice there wasn’t a lot of air in her tires and would go get my tire pump.
I’ve always liked helping people. It just feels good.
It wasn’t until after we got the news that they “Won” the house that I realized I was doing the same thing for her as an adult that I used to do when she was a little kid. Instead of riding her bike out of her garage to start her day, she was buying a house and starting whatever she has planned for the rest of her life. Instead of looking for on coming cars, I was making sure she got the house but didn’t pay too much and recommending a home inspector that I trust.
I have worked with several buyers that I have known since they were kids. It is always mind blowing to remember them as kids and see them now as adults. It is nice to see them doing well and making good decisions. It also reminds me that I am much older too.
I’m glad we found them an awesome house, but I’ve got to confess I was really having a great time seeing her and her husband as well as her family while were house hunting.
I had an interesting thing happen this past weekend. I showed a For Sale by Owner listing in an area where few houses are listed with a realtor. It’s a popular area and about the cheapest route to get in a super desirable elementary school district.
My buyer did some of my job for me. They found pictures of the FSBO listings on zillow. I try not to use zillow for a main source of information because their data is often incorrect and they do not list if the seller paid any of the Buyer’s closing costs or if there were any other concessions…..but pictures are helpful to see the differences in the houses.
There were four houses that were all roughly the same size…..so close that we don’t even need to make any adjustments in value for 3 of them. All sold within a few months last summer. The range was $280-$330k. Everything is sounding pretty normal so far, but this is where it gets odd.
I’ll describe each house and let you pick the sale price:
- Sale #1 was 2400 square feet. It backs to a city park. It is all original and even has a green kitchen counter top which doesn’t look that nice with original cabinets that have been painted white. Did it sell for $302k, $280k, $330k or $310k?
- Sale #2 was 2300 square feet. It recently had $45k in updates including new white shaker style cabinets, trendy lighting, subway tile in the kitchen and around the fireplace. Did it sell for $280k, $330k, $310k or $302k?
- Sale #3 was a 2300 square foot house with different types of laminate flooring. It looks like the only newer thing in this place other than maybe the furnace filter was granite counters in the kitchen and bath. This one has an odd shaped lot. It is sort of a triangle so your backyard comes to a point. Did it sell for $330k, $280k, $302k or $310k?
- Sale #4 was just over 2000 square feet so it was a little smaller than the others. It might be worth $12-15k less just due to square footage differences. The kitchen was just remodeled and was equally as impressive as the one in Sale #2. This one had new flooring too. Did it sell for $330k, $310k, $302k or $280k?
Okay, you ready for this?
Sale #1 sold for $330k. It was equal to Sale #3, which sold for $302k. That means somebody paid $28k for the nicer lot. That is nearly a 10% premium. That is higher than anywhere else in town. This was a great deal for the seller and a bad deal for the buyer.
Sale #2 sold for $280k. Yes, the one with $45k in recent updates sold for the least. Bad deal for the seller and great deal for the buyer!!
Sale #3 sold for $302k. This was the house that had more flooring types than Home Depot offers and the worst lot out of all of them. This one was listed with a realtor. This was a fair deal for both the buyer and seller.
Sale #4 sold for $310k. A good deal for the buyer.
So, what is my point in all this? That these people needed the help of a realtor. As a buyer’s agent, I would have advised my client not to pay $28k more than an equal house just to get a better lot. I would have told the seller of #2 that their price was waaaaay too low. I would have told both the buyer and seller of #3 that they got a fair deal. I would have told the seller of #4 to ask for more.
What is the type of house that is the riskiest to buy?
(I’ll pause to give you a minute to think.)
I bet you didn’t come up with a brand new house as an answer, did you?
Now, new homes are built every day all around the country. Most of the time everything goes well. Probably like 98% of the time, but there are some risks involved that I always like to check out before a client decides to build a house. So, why is new construction risky?
- You don’t know what the neighborhood is going to look like until it is done. Ever drive down Wilson-Downing and see that one street with about 12 houses that are much bigger than the rest of Belleau Woods? Those were the first houses in what was going to be a neighborhood similar to Hartland. Until interest rates shot through the roof in the early 80s and the only thing that was selling were small homes. The people who bought their new houses on that street didn’t get what they expected.
- You don’t know what the value is going to be after you build. A brand new sale is a unique sale. It is never going to be brand new again. It will be a “Used” house for each subsequent sale. That is why when I have a client who builds, I like to look at the sales of other “Used” homes in the neighborhood so I can tell them what to expect.
- You don’t know what the builder is like. Building is like most industries where 99% of them are good honest hard working people. The rest are the ones that bring their whole industry down. Many many years ago, there was a custom builder who was flying first class to see every UK basketball game, using his customer’s money to live large instead of you know, building their house. He got arrested because he was telling banks that houses were nearly done so he could get more drawls from the construction loan. There were a few houses that were still vacant lots. This is why I like to check out my client’s builder to see if I think he is going to take their money and run. Usually a long track record of building homes and a good reputation goes a long way with me. I get nervous when the builder has only been around for a short time.
These are just a few things that pop in my mind when a client says they want to build. Like I said, most of the time you never have these issues, but I think it is always a good idea for you to have your own realtor involved.
I can’t count how many houses I have been in over the past 15 years. Old, new, affordable, expensive and just about every neighborhood in the Bluegrass. Seen it.
One of my favorite things to do is watch how buyers react to several things, one of the biggest is the floor plan.
I think we don’t discuss the floor plan of houses often enough. Sure, we think about whether it is open or traditional but there is more to it than that. We usually just focus on the square footage. For example, I will often have buyers get excited about a small house because it has a basement. They will be excited because it is 2400 square feet. Having shown several of these over the years, I like to remind buyers that yes, 2400 square feet is a lot of space, but that house is really a small starter home sitting on a finished basement. 1200 up and 1200 down. The upstairs will always live like a starter home. I tell them this because just about every buyer I’ve known has lost their enthusiasm once they see a house like this.
Floor plans can greatly affect the value in older neighborhoods like Chevy Chase or Kenwick. I have seen far too many houses that sold for far less than similar sized houses that were finished equally. When I go to list an older house, the first thing I do is assess the floor plan. If it has lots of tiny rooms and much of the square footage is wasted in hallways, then I know it will sell for the lower end of the range for the neighborhood. A lot of older houses must have been designed by builders or the first owner on a napkin. You sometimes see some pretty odd things. You also see some odd things done during remodels. My parents house in Kenwick was built as a one bathroom house like pretty much all houses in the 1930s. Somebody at some point thought adding a half bath in an upstairs hall closet was a good idea. Since I lived upstairs, I can say that it was a good idea but it was very tight and very odd. This was before you could go to IKEA and buy those super small sinks. I just remember sucking in my gut to get past the sink.
Even in newer houses there are a few things that buyers seem to not like. I’ve shown some newer small ranch houses that have the living space on the back of the house. You have to walk down a hall and literally find the living room, which doesn’t make a good first impression. I have never sold one of these because a buyer just can’t get past that first impression, similar to split foyer houses where you have to decide immediately whether you are going up or down. Buyers don’t like anxiety as soon as they open the door. Also, a lot of the diagonal walls and plant shelves of the 1990s haven’t aged well. They usually make a room feel small, furniture placement odd and make people feel like they are in an interactive M.C. Escher display.
Another big negative is with houses that have a finished basement. Most people want to use this space for kids to play or for large gatherings of people. Lots of small rooms is a big negative. A lot of times, these basements got finished to suit the needs of the owner, which may not be the same needs as the next potential owner. When I have a client who will be finishing a basement, I ALWAYS tell them to have one big open room and to not make a maze of walls. Just like those ranches with the hallway leading from the front of the house to the back, buyers want to walk down into the basement and see that big open room immediately. They don’t want to get to the bottom of the stairs, turn and walk down a hall that leads to another hall or a small room that you must go through before getting to the main room. It is best to mimic the upstairs floor plan, only make it more open. You can put a spare bedroom under the dining room and a bathroom under the kitchen usually. Be sure to leave a little space for storage too.