neighborhood

How do houses go up in value?

by John Rice

Ever wonder HOW prices rise for houses?

Before I got into real estate, I didn’t really think about it. You’d read stuff like the average price went up something like 4.6% last year…I assumed it was like a rising tide and affected every house the same way at the same time.

But it doesn’t work like that. It works more like traffic taking off after a stop light. The first car goes, then the second car see the first car moving and goes, then the third car sees the second car moving and goes, and so on. As much as I wished they would all move at the exact same time, they don’t. And that is exactly how prices go up in real estate.

There are lots of factors impacting value: Supply/demand, location, price range, condition, etc. No surprise here, but when prices are going up, the neighborhoods that are the most desirable and have the least supply go up first. Once there is enough of a price gap between those neighborhoods and the next best neighborhood, the prices of the second best neighborhood start to rise as buyers see a bargain and move in that direction. Then when the prices are up on the second best neighborhood, that does two things: It makes the prices go up on the first choice neighborhood since it is better, and it also drives bargain shoppers to the third best neighborhood. This process ends up going through ALL the neighborhoods in town as long as the market remains hot.

I sold two houses in one particular neighborhood several years ago to some friends wanting to rent them out. I was telling my friends that I thought the prices in the neighborhood were about to go up since there was a big gap between what an identical house was selling for in other neighborhoods. Since I tend to Geek out on this type of stuff, I don’t think they were as into it as I was…..but now their houses are each worth $35-45k more in just a few short years.

So, next time you are stuck in traffic, forgive me if it makes you think of real estate.

“You should have bought my house”

by John Rice

I just sold a house to a past client that reminded me of something that happened almost 20 years ago.

The house this client bought was a good solid house. The current owner built the house and took good care of it. It really just needs some updating, fresh paint and new flooring. The seller sold the house for less than they could have gotten had they done these improvements. They passed on the savings they had to the buyer who was happy to get a good deal on a good house and use the savings to update to his own taste. This really worked out well for both of them.

There was a little gap between what the seller wanted and what the buyer wanted to pay. Not a huge gap. I told the buyer that I knew he would end up renovating any house he bought. He enjoys working on houses and has improved every house he has owned. I told him the story of two houses right across the street from each other that were essentially the same house.

Back in the early 2000s, there were two houses for sale on the same street. Both were split levels of similar size and floor plan. One was pretty nice and was $150k…..which would be like $250k today. The house across the street was $118k and needed everything.

I bought the $118k house because that was all I could afford at the time, but I secretly wished I could have bought the one across the street for $150k because I liked the yard better.

I bought my house for $118k and over the course of several years, ripped out all the old, tired, worn out finishes and replaced them with new materials.

The house across the street that sold for $150k closed shortly after I closed my house. I met the new owners. Great people. Over the course of the next couple years, I saw them rip out and haul off everything that made that house worth $32k more than my house. They ripped up perfectly good carpet because they wanted hardwood. Understandable. They didn’t like the looks of the kitchen counter top even though it was in excellent shape. This continued for quite a while.

One day I was talking to the husband and I finally said what had been on my mind for quite some time. I said “You should have bought my house instead. You have thrown away everything that made your house worth $32k more than my house.” He paused for a second and had a deep thought look on his face. Then he said he had never thought of it that way. He saw materials he didn’t like and was excited about fixing up his house. I saw $32k going in a dumpster.

He probably walked in to my house when both were for sale and was turned off by everything being worn out. That is understandable too. But if you know you are going to renovate a house to your taste, it is better to start with one where you are paying less and ripping out worn out materials.

I can’t wait to see what this buyer does with his new house. And I would have never guessed something I learned that long ago would still be benefiting my clients today!

Always think about selling in a Buyer’s Market

by John Rice

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.

What is this going to do to the value of my house?

by John Rice
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.

5 crazy realtor experiences

by John Rice

Since real estate is slowing down a bit due to, well, you know why, I thought I would tell you about some of my adventures in real estate.

 

WHY I HAD TO WASH MY CAR WHEN I DROPPED OFF THIS CLIENT

I was working with this couple many years ago.  I would meet them at my office and then we would go see houses.  The strangest thing to me was that both of them would always ride in the backseat together.  So there I am up front all alone.  Front passenger seat empty like I am a chauffeur.  One day I picked them up.  The wife wasn’t feeling too good.  We left my office.  As I was coming to the first stop light, I hear the back door open.  She puked.  Since I had not come to a stop yet, the wind blew her uh, discharge, down the side of my car.  They decided to hold off on buying a house after that.  I found out later that they bought with another realtor, probably because she was too embarrassed to see me again.  So I lost a sale and had to wash somebody else’s puke off my car.  Nice.

TALKING THROUGH THE WALLS

My client told me they were going to be a little late.  I had consumed several cups of coffee that morning and really had to use the restroom.  I saw an opportunity since my client would be late.  I went inside the house, right at the time of the appointment.  As I was using the restroom, I hear a voice asking if somebody is in the house.  LOL, it was the seller.  He had not left yet.  He was in the bathroom on the other side of the wall.  He got done and left.  I never saw him.  Heck, I didn’t WANT to see him.  Minutes later my client showed up.

WEARING DIFFERENT SHOES

For a while, I had two of the same pair of sandals.  One was leather and the other was suede.  I kept them both in the hall closet at my house.  On my way to show a house to a client, I put my feet in the closet and put a shoe on each foot.  It wasn’t until I got to the house that I realized that I had on one leather one and one suede sandal.  I no longer buy different types of sandals.

THE TOOTING SHOES

Probably back in about 2009ish, I had a really comfortable pair of sandals that I loved.  The only thing I didn’t love about them is that every once in a while, at what always seemed like the most inopportune time, I would take a step and they would make a tooting (okay, farting) sound.  I think it was the sound of my heel coming off of the sole of the sandal as I walked.  I never knew what to do when this happened.  The first several times I would try to make it do it again, as if somehow that would proof that I didn’t…..you know.  It would never do it twice in a row.  It didn’t take too many of those embarrassing moments before I decided to throw them away and get a new pair.

NO THANKS ON THE COFFEE

When I was a newer agent, I had this great idea to go after for sale by owner listings.  I dropped off hundreds of fliers and only got one response.  I went to the house to meet the lady.  Her dog almost bit me.  She offered me some coffee.  I told her I loved coffee.  It was the most terrible, sour tasting coffee I have ever had.  I think she kept using old grounds to make new coffee.  Well, she of course decided to let me list her house.  When I came back for her to sign the documents (this was before we did it electronically), her dog almost bit me again.  As soon as we sat down, she says “I remembered you said you loved coffee, so I made you a pot.”  To this day she probably wonders how she saw me drink it but emptied a full cup when I left.  It was because I was just putting my lips on the rim of the cup.  We finally sold her house.  I could dedicate an entire post just to that sale.

Honorable mentions are all the times I have gone to closings or shown houses with my zipper down.  I think I once had a T-Shirt on inside out.

I have others of course, but I hope this takes your mind off of the state of the world and puts a smile on your face.