Does location matter any more?

I guess a lot of people think being a realtor is about opening doors and cashing checks. I guess there are a lot of realtors who think the same so that is probably the source of the perception.

You don’t need me to help you pick a pretty house. You don’t need me to be there to tell you what you like or dislike about a house. You don’t need me to find houses for you. You don’t need me to walk into the only room with a chandelier and announce it is the dining room. You don’t really even need me at all…….unless you view spending the most money you have ever spent as an investment that you know you will sell someday and want to maximize the return. Oh, I guess you also need me to make sure you don’t pay too much since you won’t really know if you overpaid until you go to sell it.

So here is a quick lesson on how I go about helping people pick a neighborhood. We have all heard that real estate is about location. It is, but I don’t think people really know what that means. I normally break down neighborhoods into 4 categories:

The “A” Neighborhood-These neighborhoods are the ones people know and love for a variety of reasons. Some might be close to something desirable, some might have a lot of charm, some might have lower crime. Almost all “A” neighborhoods have a good performing school district. These are the ones that people know by name. These are also the ones that will always be easy to sell in even a bad market.

The “B” Neighbhorhood-Is like the “A” but may not be as well rounded. It’s popular, but often viewed as an alternative to another “A” neighborhood that is close by.

The “C” Neighborhood-This is one that no buyer has ever mentioned as somewhere they would love to live. It is just average in everyway. Nothing really is wrong with it. Nothing is really great about it either. It is just a neighborhood full of houses.

The “D” Neighborhood-These are like the opposite of the “A” neighborhood. These are neighborhoods where 16 years worth of buyers have told me they DON’T want to live. It is often because of high crime in or around the neighborhood or due to a combination of poorly performing schools. Let’s face it, if buyer’s are telling their realtors they don’t want to live in specific neighborhoods, there’s your sign that it isn’t the best investment.

Why does this make any difference if you’ve found a pretty house you like in your budget? Shouldn’t you be happy just to have found a house in this crazy market? Isn’t finding a house in a less than popular neighborhood better than not finding a house at all? The answer to all of this is that it doesn’t matter at all when you buy the house. It matters a lot when you decide it is time to move on and you want to sell it.

Right now, let’s say there are 100 buyers in the market. There are 20 houses in each of my categories for sale. That means there are 80 houses for 100 buyers. Oh no! That means all 80 sell for at least full price in multiple offers the first day on the market.

But markets change. I am no doomsday person. I don’t think the market is going to crash. It will however, over time, swing back and forth between being a buyer’s market and a seller’s market.

This is what it looks like in a buyer’s market: There are 80 buyers in the market. There are 100 houses for sale, 25 in each of my 4 categories. How do you think this pans out? The “A” neighborhood houses sell first, then the “B” neighborhood houses, then the…….well, you get it. When there are more houses for sale than there are buyers, buyers get pickier. Buyers can’t be picky in today’s seller’s market but they will be able to again. I am sure of that.

My first house was in a “D” neighborhood. I was in my mid 20s and didn’t know anything. Like a lot of first time buyers, I was focused on just finding a house I liked. As I improved my house, I would look out my window and realize that I had no control over my whole neighborhood. Many of the houses around me were owned by investors. There was some crime. I loved the house but not the neighborhood. I sold it for about what I had in it, which meant I didn’t have a lot of equity to carry over to the next house. That is another reason to always pick a winning neighborhood. You will use the equity you’ve built in your old house as your down payment on your next house. You want to maximize that.

So do yourself a favor and always pick the best neighborhood in your price range.

Why I knew this house would come back on the market

I showed a house a couple of weeks ago.  It was a great house in a desirable location.  The price was sort of low for the neighborhood due to it being a bit outdated and having some expensive deferred maintenance items.

I told my people I thought it would need a new roof soon, that the disclosure said the HVAC units were original and we could clearly see the wood rotting on the windows.  I also told them that I didn’t think it was that good of a deal.  By the time you got all that addressed, you would have in it what a better one on the street was worth.  That’s just not worth it unless the property has some unique feature such as a fantastic lot or the perfect floor plan.

I gave all this feedback to the listing agent to help him out.  Within an hour or so, I saw that the house had sold.

I remember thinking to myself “I bet it will come back on the market after the home inspection.”  Sure enough, it came back on the market.

It is easy for most buyers to fall in love with a house only to be heartbroken by the end of the home inspection.   Most buyers don’t know how long a roof lasts, how long HVAC units usually last, how much windows will cost.  A lot of realtors out there don’t think about this either.

I can see the buyer for this house walking in for the home inspection, excited to again see what they were expecting to be their new home.  They have a big smile on their face.  The inspector begins reviewing the report.  The big smile is now a grin.  The inspector keeps going.  The grin turns into a blank expression.  The inspector gets to the end of the report and the buyers now have a frown.

Then the buyer has their agent write a huge repair list that the seller refuses to do.

It all ends with the buyer looking for a much better house and the seller hoping to find another buyer.

I try to prevent this outcome for my clients.  It wastes time, money and even more so, is emotionally draining for the buyer.

How do houses go up in value?

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”

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

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.