lexington

LEXpert’s letter to first time buyers

by John Rice

I’ve had a lot of first time buyer’s lately.  They are always so much fun to work with.  Most of them are coming from an apartment, so they get really excited over things like having a garage, or being able to let their dog out in a fenced backyard rather than having to take it on a walk.

I always try to tell them what we are doing before we do it, and explain things as they happen.

One of my new clients mentioned he was thinking about taking a class for first time buyers.  Then I realized I should probably do a quick explanation of the entire process up front, and then go into details as we reach each stage.

So, below is an email I sent him:

We will go out and view any houses that interest you. I’ll offer my thoughts on the good and bad points of each house. I will probably sound very critical of the houses. That is because I want you to know everything I have learned from my experience so that you will be able to make the wisest choice possible.Once you find one you like enough to make an offer on, I will see what has sold in the area and determine what the house is worth. We will want to know this so we can base an offer on the value of the house rather than the list price. The average “List to sale ratio” for this area is about 98% of the list price. If we find a really good house and it is priced right, it could very well go for the full asking price. I am hoping we will see fewer multiple offers in 2019 than we did last year.

To make an offer, you sign a contract and all the supporting documents. We can do that online using an electronic signature program all realtors use.

Often the buyer and seller counter back and forth at least one. The seller may want a little more money, or ask for a different closing date than we put on the offer. Once we all come to an agreement and everybody signs it, the offer becomes a contract.

Once we have a contract, I will get what is called earnest money, or good faith money. It will likely be $1000 but I can try for $500 if possible. This money gets deposited in my escrow account. It is your money. I am only holding it. The only way the seller can get this money is if you default on the terms of the contract. Think of it like a security deposit on an apartment. Should you not be able to get your loan, you would get this money back. I’ll go into the inspection later, but should we not be able to reach an agreement with the seller on a repair list, you would get your money back as long as we submitted the list within the allotted time frame.

You will have a specified time frame to do a home inspection. I usually write 15 days from the time of the last signature on the contract. I have a couple of good inspectors I can recommend, but you are free to use anybody. A good home inspector will probably charge $350-425. You pay them the day of the inspection. At the end of the inspection, we both meet the inspector to review their findings and so you can ask any questions.

A typical house will have 15-20 minor to medium sized issues after a home inspection. An older house will have more. The best house I have ever had inspected only had 3 problems. Keep in mind that the inspector is comparing your house to a perfect house.

From there, we write a repair list. The list is for things that were not disclosed to you. We can’t technically ask for anything cosmetic, or something that was not code when the house was built. A common example of this is GFCI outlets. Those are the ones in bathrooms and kitchens that have the test/reset button. They are usually absent in an older house because the house was built before they became required by code.

Assuming we reach an agreement, we move forward with the sale. The seller does the repairs. We have a chance at what is called a “Final Walk Thru” to see receipts and the work they did. Sometimes we can’t access where a repair was made, so having a receipt or statement is good.

At some point, the appraiser will come out to make sure the value of the house is okay. We don’t need to be there for that.

You have the option to do a termite inspection. I think it is always a good idea. Those are usually about $45. I have somebody I use, but you are free to use anybody you want. We don’t have to attend that inspection. They only take about 20 minutes. You typically pay for this at the closing. The way our contracts are written, the seller has to pay for a termite treatment if any are found. If there is any damage from termites, the seller has to pay up to 1% of the sale price automatically. If there is more damage than that, we would negotiate. If we cannot reach an agreement, either party could walk away from the sale. You would get your earnest money back. Houses often have termites. I occasionally see a little termite damage. I have never had a deal fall apart due to termite damage.

While all this is happening, your lender is asking you for all sorts of documents. Much of what they want will seem silly. I once had a lender ask about a $1000 check I received many years prior to that. It is just part of the process. Also, be sure to get them anything they need as quickly as possible because we can’t close until your loan is done.

The typical time period from contract acceptance to closing is 30-45 days. We will write a target closing date on the offer. Most of the time you do end up closing on that exact date. I’ll probably make it a Friday so that way you will have the weekend to move in.

Most of the time you get to move into the house right after the closing. We call that “Possession with deed.” Sometimes a seller will ask if they can stay in the house for a few days after the closing. I never like that, but sometimes if there are multiple offers, it is done to prevent you from losing the house.

I hope this helps. I love working with first time buyers. I’m here for you, so don’t hesitate to call/text/email with anything you need.

 

Why a reality show about me would be boring

by John Rice

#7.  It is easier to prevent a problem than it is to solve one.

Years ago, I wrote a list of things I’ve learned over the years.  This was one of them and it has really helped my clients.

I recently wrote an offer on a corner lot house.  Any seasoned agent knows that there might be an issue with where a fence can be on a corner lot house.  I told my people that I suspected they could only fence from the rear corner of the house, which means that the space you can fence is smaller than a normal lot, and you have all this space outside the fence that you can’t really use.

They liked the house, so we called the city to see if it was okay.  The city gave a verbal “Ok” to fencing all the way to the sidewalk.  We wrote an offer.  I wrote that the offer was contingent on both the city and deed restrictions allowing a fence to be put up where my clients wanted it.

We got the deed restrictions.  They said that no fence is allowed closer to the road than the building set back line.  While that is better than my worst case scenario, it only bought my client about 11 feet more of yard.  They didn’t want the house.  All I had to do was tell the other agent and it was over.

Can you imagine what it would have been like if I hadn’t put those contingencies?  The buyer might have found out later and lost their earnest money for backing out of the contract.  Even worse, what if they had moved in, paid for a fence to be put where the city approved, and then get a letter from the HOA saying they had to remove the fence?

I just closed a deal where the buyer’s agent kept telling me that the buyer may change their lender.  This doesn’t happen often, especially when you are already past the closing date on the contract.  I told the other agent to let me know when we had a closing date and THEN I would have the seller schedule a mover.   There was no way I was going to let my seller move out and be paying for a vacant house while we waited on this buyer to decide which lender they wanted to use.

I just sold an old friend a house that has propane heat.  When we saw the house, it was very cold inside.  My buyer got the home inspection scheduled.  I texted the listing agent to make sure the utilities are on.  Sure enough, there is no propane in the tank.  That would have been a problem on inspection day if I had not asked.  We would have needed to extend the inspection timeline, paid to bring back the inspector to check it out, etc.  The other agent tells me they will have propane for the furnace by inspection day.

I guess a reality show about me would not be worth watching.  I try to think things through and prevent as many problems as I can.  It would be pretty boring to have a show with very little drama.  I doubt people would continue watching it after the commercials.

The real reason why sales are down

by John Rice

I’m seeing a lot of news articles with accurate data.  My issue is that I think most are drawing the wrong conclusions.

Most seem to want to make you think the sky is falling in real estate because sales are down.

You know who needs to care about the number of sales?  Appraisers, realtors, mortgage people.  Those of us who make money on each transaction.

As a buyer and/or seller, the number of sales isn’t really important to you.  What you care about is supply and demand-the ratio of buyers to sellers in the market.  If there are 3 buyers in the market and only 2 listings, then we have a seller’s market.

I am seeing a lot of articles stating that sales were down in November of 2018 versus November of 2017.  Of course they were.  It happens every election year.  The market pauses until we see which set of morons we will be stuck with.

The ones that really bug me are the ones that say the affordability crisis will hold the market back.  I think they have it backwards.

Sure, we have an affordability issue.  Many people can’t afford to buy a house with rising prices and interest rates.  All I know is that every house under $200k in this town seems to go very quickly, which allows that seller to buy up to their next house and that seller to buy up to their next house and so on.

Back when the market was terrible, I said that it was like a baseball game where the bases are loaded.  The seller on first base needed a buyer without a contingency to buy their house so they could buy the 2nd base seller’s house, who could buy the 3rd base seller’s house.  The first time buyer needed to hit a home run and push all those sales through.

Back then a buyer had a ton of choices for their next home.  The issue was selling their old one.

Today, no buyer really has a huge selection of houses.

For that reason, I think our current market is the opposite.  There are a ton of first time buyers eager to hit a home run and push all those deals through, but what is happening is that the person on 3rd base doesn’t like home plate and has decided to just stand there until they feel like running.

The buyers with the most selection are the people buying their pinnacle home.  The one they stay in forever until they begin to downsize.  These are mostly Gen Xers.  They are in their 3rd base home, which is probably a fairly large home in the $250-350k range.  They want to move up to the $400-600k range, where there are plenty of houses for sale.

Their only problem is that most are just tarted up versions of their current house.  These buyers aren’t getting a better house, a bigger house, or a bigger yard.  They are just getting prettier finishes.  They find the houses in this price range, well, boring.  And we have a TON of them for sale.

So what do these Gen X buyers do?  They wait for the right house to hit the market.  Since they already have a nice house, they are in no hurry.  Because they aren’t in a hurry, that means the people looking to buy their house are in the same position….all the way down to that first time buyer eager to bid their heart out on their first home.

And, that is where we are today.  Sellers wanting to sell but not finding anything they want to buy.

What makes a location good?

by John Rice

Ever wonder what all goes into making a good location?

It’s usually a combination of many things.  The more of these you have, the more appealing it is:

  1.  Proximity to amenities like shopping/entertainment/dining.
  2.  Easy access to work (Think New Circle, Interstate, airport, etc.)
  3.   Good school district.  Even for people who don’t have kids in school, this is important because realtors have convinced everybody it is good for “Resale Value.”
  4.  An absence of major negative things like road noise, smoke stacks, crime, or something smelly like a landfill.

Very few neighborhoods have all of these.  The ones that do have always sold quickly and for top dollar.  They appreciate the fastest in a hot market and depreciate the least in a bad market.

Want to know a few like this?

  1.  Chilesburg-It’s got the top rated schools in the area, two of which are within walking distance.  You can get to two interstate exits easily.  If you want to go to Hamburg, its an easy drive down Todds Road.  If you don’t want Hamburg, go out the Richmond Road side.
  2. Willow Bend-This area has really shot up in value this year.  It’s got some of the best schools on the south end of town, is close to Fayette Mall, Brannon Crossing and The Summit.  Shillito Park is close and it is right off of Man O War.
  3. Beaumont Enclave-This neighborhood has always been popular, mainly because it is the cheapest way to get into the Rosa Parks Elementary/Beaumont Middle/Dumbar High district.  It is a $200-300k neighborhood surrounded by $500k and up houses.  That helps too.  Besides one of the most desirable school districts in town, you have everything Beaumont has too offer, plus a city park and a library.  It is right between New Circle and Man O War, making it easy to get in or out.  It is also a short drive to the airport for traveling executives.

I normally encourage my buyers to pick a neighborhood with as many of these location features as possible since we don’t know what the market will be like when they need to sell.  The first rule in real estate is ALWAYS have an exit plan.

Why buy a house when you can rent?

by John Rice

Now that the market is becoming balanced, I am seeing a lot of articles predicting doom and gloom for real estate.  I get it, nobody wants to read an article that says “The real estate market is about to become boring because it will neither be a seller’s market nor a buyer’s market”.  They’ve got to go to an extreme to get and keep your attention.  I am seeing lots of articles telling people that their home is not an investment.  I’ve even seen some articles suggesting people continue to rent and get into the stock market instead of buying a home.

Which might be good advice if you were going to live in your car, or with your parents the rest of your life.  Sure, you might come out ahead over the long haul, but the reality is you will have to pay to live somewhere, may as well pay to live in your own house.

Why did I want to buy my first house as soon as I could save the down payment?

I used to mow lawns for a lot of elderly people.  I would always enjoy them telling me what they paid for their houses 30-40 years ago and what their mortgage payment was.  I had one little old lady who told me her mortgage was $163 a month and some months it was hard to pay it.

When it was new, her house might have rented for about the same amount.  Do you think rent prices have gone up since the mid 1960s?  Meanwhile, that little old lady paid $163 a month until the house was paid off. (Okay, I am sure her property taxes and insurance went up, but not by that much.)  And when she made her last $163 payment, do you know what she did the next month?  Nothing.  There were no more payments to make (Okay again, she would still have taxes and insurance to pay but both of those expenses would be FAR less than what the house would rent for at that time.)

Let’s take a look at what happens when this little old lady moves out of her house.  She pays a real estate commission and gets to keep the rest because there is no mortgage.

What if she had rented a house that whole time and moved?  She would have paid off the house for the landlord and had nothing to show for it.

I think owning your home is the best decision you can make.