It used to be real estate was all about “Location, location, location.”
Today real estate seems to be more about “Finishes, finishes,finishes.”
This disturbs me. Why? Because one day there will be enough houses for sale that a buyer has a choice on location. Right now, with so few houses for sale, buyers are considering ANY house in their price range. When you only have one or two choices, you can’t afford to be picky.
Something else that disturbs me are all the houses that have been extensively renovated and are selling for twice what a similar non-renovated house is worth in the same neighborhood.
I am not sure why this is but I suspect it has to do with the speed of the market. Nobody has time to do a market analysis and see what the house is worth compared to other recent sales or see if it is overimproved for the neighborhood
This is what I tell my buyers:
- Location is still important. Any house can be updated but you can’t easily move a house to a better location.
- Only buy at the top of the neighborhood’s price range if there are several other homes equal in finishes and value. You do not want that $400k house that looks like the reveal at the end of an HGTV show and is surrounded by $200k houses. In a balanced market, or even worse in a buyer’s market, potential buyers will love your house but will not buy it. They will be in a $400k price range and expecting a $400k neighborhood. They won’t like the cheaper houses around it. Remember when you buy a house, you are also buying stock in the neighborhood.
- Don’t compromise on the lot. Right now nobody cares. Buyers are just excited about any house in their price range. You don’t want the house with the tiniest or oddly shaped lot in the neighborhood. Remember neighborhoods are about conformity……fitting in among the rest of the houses. It’s okay to have the biggest or best lot in the neighborhood of course, but if most of the lots in the neighborhood are flat, you don’t want one that isn’t. If most are large, you don’t want the smallest one. Avoid driveways that are pretty steep. It is better to have a lot where the backyard slopes downhill away the house verses sloping uphill.
Basically, the best thing to remember as you frantically are trying to decide how much over the asking price you want to go is that one day you will be selling the house. The market may not be as tight. You won’t know whether the house you picked was a good decision or a bad one until it is your time to sell it.
So, always go into a purchase being mindful of your exit plan.
I am always sad when I see a house sell that has been sitting on the market forever.
Sometimes a house will stay on the market for a long time because the initial listing price was too high, or the house didn’t show well. Both of those can happen to perfectly good homes. The reason those don’t sell is because of the seller, not the house. Often these houses sell once the list price gets reduced into the realm of reality, or the seller does some cosmetic repairs that make it easier for a buyer to want the house.
Any time I show a house like this, my client usually asks me why the house hasn’t sold yet. If I check the listing history and see that they started out asking a crazy high price and have reduced it, I tell them it is okay to buy it. If I look through old pictures or see fresh paint, new flooring, etc, I tell them it is okay to buy the house. Sometimes sellers just need to learn how the market works at the expense of their days on market.
Then there are those houses that don’t sell because of the property itself. Those are the ones that I advise my clients to not buy. These houses usually have some odd feature like a crazy floor plan, a poorly done addition, a neighbor whose yard is full of junk or has a dozen dog kennels in their backyard, the house backs to commercial or industrial zoned properties, etc. These houses eventually sell to somebody who doesn’t mind that particular negative. Whenever I show one of these houses, I like to tell my client that while they might not mind the negative feature that has kept the house from selling, it will be extremely difficult for them to sell it when it is their turn. The past 8 years have been a pretty strong Seller’s Market. If a house took a long time to sell in a hot market, can you imagine how long it would take in a Buyer’s Market?
I have lived through lots of markets. I have seen seller’s who paid too much in a hot market lose money when they needed to sell. I have seen people get their dream job and move out of town, only to have to make two mortgage payments until their old house sells. I have seen people who felt lucky to have gotten their house in multiple offers struggle to sell it in a Buyer’s Market.
I don’t want to see any of my clients go through any of this. In real estate, you often don’t see the consequences of a mistake until years later when you go to sell. Helping people avoid this mess is one of the greatest joys of my career.
I just had a client who is going to sell and buy with me ask me to forecast the market in the short term. Here is what I said:
I think that the market and prices will at least remain stable for the next 6-12 months. All of the unemployment is probably the biggest concern, but a lot of those that have been laid off are renters and not home owners so I am not expecting to see a lot of foreclosures.
Like any market, real estate is about supply and demand. As long as the ratio of buyers to sellers remains fairly equal, the market will always be strong even if the total number of sales is down. What we had already been seeing in the pre-coronavirus market is that people are staying longer in their houses. That is one reason the market has been so strong the past few years….there have just been fewer houses for sale. In Lexington, we have another issue that plays a big role, which is that we are running out of land to develop. Lexington cannot simply build new houses to meet the demand like other towns across the country. Even though the surrounding towns are seeing a construction boom, Lexington will always be the most desirable place to live in the Bluegrass.
There is a lot of refinancing going on. Usually people stay longer in their houses when they have recently refinanced. I saw this several years ago when rates had hit a record low at that time. If rates stay similar to where they are now, it won’t be too bad. If rates go up past 4%, people would have to pay a lot more for their mortgage than they do now. If a seller’s house has appreciated a lot and so has the house they want to buy, having more equity from the sale of their old house to carry into the new one doesn’t matter as much if their payment is still going to be a lot higher. Most people base their decision on the monthly mortgage payment.
I think there will be plenty of buyers in the market for quite a while. A lot of the older millennials have outgrown their starter homes and will be looking for a house like you have in Chilesburg. The Gen Z buyers are entering the market now and from what I have read, will be 27% of the population. These are people that will be buying based on a need, not just because they want to nicer house. One thing I learned from living through the worst real estate market in history is that first time buyers drive the market. It’s like a baseball game where the bases are loaded. Every player standing on a base has a house to sell before they can buy their next one. The first time buyer comes to bat, hits the ball and because they don’t have a house to sell, everybody on a base gets to move to the next one.
So, in Lexington, I think the limited supply due to people staying in their homes longer, the lack of new construction and the number of young buyer will keep our market strong.
Probably the single greatest threat to all of this would be if we saw crazy inflation and rates skyrocketed like they did in the 80s. If that happens, the houses over $400k would be much harder to sell. The cheaper houses should be safe because what will happen is that you will see first time buyers competing with all the buyers for smaller, affordable houses.
Not a lot so far.
Everything is a bit slower, but my listings are still getting shown and there seem to still be houses getting listed and selling every day.
Some of my buyers are laying low to see how this goes and for how long it lasts.
I’ve been reading a few articles that have said this could be like the Great Recession where real estate prices fell. It won’t be. Why? We still have a shortage of houses for sale. That will keep prices where they are. Think of it this way: If there are 1000 houses for sale and 1100 buyers, it is really the same as having 100 houses for sale and 110 buyers. Supply and demand are the same. As long as there are more buyers than sellers, prices will stay stable.
If you are a Buyer:
Don’t be afraid to buy. Take advantage of great interest rates. Negotiate the best price you can. As I have always recommended, buy a house that will be easy to sell in any market. That means a good location, a good floor plan, as flat of a yard as possible, average or better than average performing schools. Don’t buy the biggest or smallest house in the neighborhood. Don’t buy one that doesn’t fit in with the others such as having a one car garage when every other house in the neighborhood has a two car garage.
If you are a Seller:
I would put my house on the market as soon as possible. In uncertain times, taking action now to prepare for the worst is always good. I think I might put a new listing on the market on a Friday afternoon and only allow showings on the weekends. That way you get the most people in all at once and can then clean things like your door handles, counter tops, faucet handles, garage door opener button afterwards and feel good about being home again…..and take your toilet paper with you when you leave for showings, lol.
It happens. More than you’d think.
I showed a house about a month ago to a client. There was a line to see it. It got multiple offers that same day.
My client didn’t like it. I didn’t like it.
Why? The floor plan sucked. It had a big two story foyer as soon as you walked in. The living/dining/kitchen area was open. All this sounds great, but the issue was that this was a 1733 square feet home that had no more usable space than a 1300 square foot home. The upstairs hall was wide. The hall from the front door to the living room was wide. The dining area was small but nobody could tell since it was vacant. All the rest of the rooms were equal to what you’d find in a 1300 square foot house.
It made a good first impression though. You walk in that foyer and see space. You walk down that wide hall and see the open living/dining/kitchen. You go upstairs and see that wide hall. The house felt bigger than it was just because when you are viewing a house, you are going through every room in about 15 minutes.
It sold for over $6k more than the list price.
It closed today. The new owners are probably moving in and glad it quit raining. Once they live there for a while, they will probably realize that much of their square footage isn’t usable. They will realize that what they have is a 1300 square foot home with 400 extra square feet of hallways and foyer.