real estate

My advice to First Time Buyers

by John Rice

I was you once. I had no idea how any of this works. All I knew was that I was ready to buy a house and I had to borrow money to do it.

I had been saving a little. I was self employed running my lawn care business. I had a busy spring and had fallen behind on billing. I totaled up the invoices I had just sent out and to my surprise, I had suddenly had a 5% down payment for a very modest home.

I started working with the only realtor I knew at that time. I got preapproved with the bank that I had my checking account with. After seeing a lot of houses, we decided on one and bought it. There is of course more to that story, but this is really about what I learned as a first time buyer and now many years later a realtor that might help you.

I always think the first step is to find a realtor. A realtor can explain the whole process and prevent a lot of mistakes. When picking a realtor, you want somebody that sells enough houses in your price range to be able to tell you if a certain house is a good one to buy or not. Keep in mind that while it is great to love the house you buy, odds are you won’t be there forever. It is the first step on a path to getting in the house you ultimately want, can’t afford now and that you will be in long term. You want a house that will be easy to sell in any market. Always keep in mind that one day you will sell it because your needs have changed. You will love the next house that suits your needs better and this one can help you get it or ruin your chances. This means don’t use your neighbor’s babysitter who just quit her job at Subway and got her license. Don’t use your best friend who just got their license. Having some experience will benefit you more than you will ever understand. A lot of first time buyers assume they have to pay for their realtor and will try to go at it alone. The commission your realtor gets is offered from the Listing Realtor. The Listing Realtor has an agreement for the Seller to pay them a commission to sell their house. That Listing Agent has offered to split it with your realtor. That means having your own realtor is totally free to you. (Caveat-some realtors do charge what is called an ABC fee of $175-250. I do not do that since I think it is stupid and just a way of getting a little more money.)

The next step I would take if I were you is to find a good lender. A good lender is not necessarily the one with the rock bottom interest rate and closing cost. The best lender is one with a competitive rate that can smoothly and efficiently get you to the closing table with the least drama or delay. Pro Tip here…….this lender is typically NOT the bank with your car loan or your checking account. Your realtor probably knows a couple of good lenders.

Then I would start looking at houses. I’d look at a bunch of stuff in your price range all over town. This is a process. I can tell you that few buyers I have worked with ended up with exactly what they told me they wanted. I’ll have people say they want a specific neighborhood and fall in love with a house outside that neighborhood. I’ve had people tell me they wanted an old house end up buying a much newer one. They often apologize to me for the change of plans. I always tell them it is a process to get the right house. Changing plans just means you are more clearly discovering what you really want. The more houses you see, the more you know what you want. The worst thing about the crazy hot market of the last few years is that no buyer in any price range has had a chance to look at more than a handful of houses.

How do you know when you’ve found the right one? Most people leave a house they don’t like pretty fast…..NEXT! People that like a house stay at the house for a long time and keep walking around. Sometimes buyers stay for a while because they love certain features and not others. If you find yourself saying “If only this were different, it would be perfect,” then it probably isn’t the one. If you begin arranging your furniture in the house and are worried about losing the house as you leave it, then it is probably the one. When I say worry about losing it, I mean losing the house. The past few years the market has moved so fast that people have started worrying about losing the opportunity to make an offer. That is a fear of missing out. That has nothing to do with the house. That just means you like it enough to be anxious about losing it while you decide if you want it. If you are worried about losing the house and not just the opportunity, then you know. Also, you’ve been so focused on finding the right place that odds are you are sort of caught off guard when you do find the house. Don’t worry about that. It is common. Often a first time buyer needs to wrap their head around the fact that they are about to take the giant step they have been working towards. I try to give my first time buyers a little space. You need to get past the shock and be ready to sign the offer.

When you are ready to make an offer, please rely on your realtor for advice. I have seen so many buyers just tell their realtor what to put in the terms of the offer and then not get the house should there be multiple offers. In multiple offers, you really only get one change to win the house. Ask your realtor what they think you should do. If you can handle their advice, just do it. Your realtor has done this multiple times in the past month and this is your first time. It is their time to take care of you.

You’re feeling all good now. You’ve found the house. A contract has been signed. Your lender is asking you for a lot of documents. The next step is the home inspection. Not having been though a home inspection, you assume since the house looks good that it is good. As the home inspector you chose starts going over the inspection report, you begin to wonder if you have made the wrong choice. Most home inspection reports I have seen have 20-50 items that the inspector found. Most of these items will be things that are deferred maintenance or things that were not done in the textbook perfect way. This is where a realtor you trust can help you sort through what items are most likely going to be on any home inspection report and which items are specific to this house. I try to break down the items that are most immediate and those that will be the most expensive. Sometimes the house has one or more major items that are deal breakers. Sometimes the sum of all the immediate needs is too much. Most of the time though, 80% of whatever your inspector found at your house will be on the next home inspection report should you walk away from this house and buy another. Why? Because there is no perfect house.

Now we are getting close to the closing. Your realtor tells you that you have to do a “Final Walk Through” of the house right before the closing. All this means is you need to see the house prior to you owning it to make sure any home inspection repairs were done and that the house is in equal or better condition than it was the day you bought it. It can be a fun time too just to get inside the house.

The final step is the closing. Sometimes buyers get anxious about this. They just don’t know what to expect. A closing in my state usually takes about 30-45 minutes. Everybody sits at a table and signs a bunch of documents. You’ll have the most to sign since you’re getting a mortgage. It’s a fairly casual deal. Dress however you want since all anybody cares about is that you brought your Driver’s License and are able to sign your name. You are the star that day. Everybody at the table is there because YOU decided to buy a house.

Now the place is yours. Move in and enjoy building equity!

My realtor bucket list

by John Rice

Welcome to 2023. I’m not a big New Year’s resolution type of guy, but I got to thinking this morning about things I would like to experience at some point in my career, so here we go!

#1. I would like to have had somebody use me for 10 transactions over my entire career. I’ve had lots of people use me 3-4 times. I’ve only had one couple use me 6 times so I guess they are the most likely to cross this off the list. YOU KNOW WHO YOU ARE…….hahahaha!

#2. I would like to sell a house designed and built by Richard Isenhour. He was a local architect who built many modern houses in Lexington between the 1950s and 1980s. When I was a teenager, I always enjoyed driving past some of his houses. I didn’t know back then who designed and built them, all I knew was that they were cool. Many are in the Lakeshore Drive and Albany Road area. I do know somebody who currently lives in one of his later homes so I might be able to cross this one off the list.

#3. I would love to show a specific modern house on Warrenwood Wynd in Lexington. I discovered this home when I was a teenager who was just driving around looking at cool houses. It has been my favorite house in Lexington ever since.

#4. I would love to show a mid-century modern house off of Tates Creek Road that was previously owned by Kentucky Fried Chicken owner and former Kentucky Governor John Y Brown. Why? Not only is it a cool example of my favorite architectural style, it played a part in a book I was fascinated by called The Bluegrass Conspiracy. It’s actually a tragic tale of corruption and drug trafficing but it was especially fascinating to me because it happened right here in Lexington and involved my childhood karate instructor as well as the father of a girl I knew in high school.

#5. I would like to show a house in Kenwick that my family lived in when I was in high school. I am sure it might be disappointing to see the changes made, but I can tell from the outside that so much is still the same. My dad built the porch rails so solidly that they will probably support the entire house during an earthquake. He also had the garage built. I would love to see my old bedroom.

#6. When I eventually retire many many many years from now, I hope to have a big party where all my clients come see me one last time.

What happens when first time buyers can’t afford to buy?

by John Rice

I had lunch with a good friend who is also a realtor earlier this week. He started a discussion about statistics for our local area. That got me doing some digging on my own.

I saw something interesting. Sort of scary really.

Now, I am comparing October of 2021 to October of 2022 here. October of 2021 was a crazy time when about every house was selling immediately and often for well over the list price.

Want to guess which price range is seeing the biggest decline in both closed and pending sales since rates rapidly went up? The sub $200k price point. Want to know which price range saw the least decline? Over $500k.

Pretty much all the stats show the first time homebuyer price range hit the hardest. You would think during a period of high interest rates, the more expensive houses would struggle to sell, wouldn’t you? From what I have read about the last time we dealt with inflation in the early 1980s, it was very hard to sell an expensive house back then. That’s why you don’t see many big, nice houses that were built during that time but you see tons of smaller starter homes.

We need these first time buyers. They are the ones that push the rest of the market since they have nothing to sell before they can buy. Think of it like a baseball game where the bases are loaded. The person on 1st base can’t move to 2nd base until the batter swings and hits the ball. The person on 3rd and 4th base are also stuck there until that batter hits the ball. The first time homebuyer is who we rely on to hit a home run since every other buyer is also a seller who has to breakup with their old house in order to move to their next one.

Historically, it has always been easier to sell a more affordable home than to sell a more expensive one. Statistically, it is easier to sell a more expensive house today than a more affordable one.

Talk about luck

by John Rice

I don’t know about you, but I am sick and tired of the media scaring us with doom and gloom headlines about the real estate market. It’s time for some warm and fuzzy vibes to read, so here are a few of my favorite real estate stories spanning my 17 year career.

The oldest story happened back when the market wasn’t so good. I had a young couple who had used me to buy their first house in Masterson Station. Well, it was time to move up. They found an incredible house in Copperfield that had been on the market for a while. It was a relo sale, which is when the seller has been transferred and a relocation company is involved. When the house doesn’t sell by a certain time, the relocation company buys the house and they become the seller. We wrote an offer contingent on selling their old house. It was accepted. We then sell their old house. Everything is good. Until it isn’t.

The sale of their old house fell apart…..while they were on a cruise. Yep, I had to call and interrupt their vacation to tell them that not only are they not selling their old house, they are also going to now lose their new house. It was one of the toughest calls I’ve had to make.

They came home. We put their house back on the market. We sell it again after a little while. Guess what? The Copperfield house is still on the market. Only now the relocation company has lowered the price AND replaced some of the carpet. In the end, they got their house for less money than they were paying the first time and got some new carpet too.

Years later, after moving out of state and returning, this same couple told me what they wanted in their next home. They are really good at remodeling so a fixer upper would be a plus if one was available. They had narrowed it down to two neighborhoods. The husband told me he wanted a spot to park a camper or boat. About that same time, a seller in one of those two neighborhoods randomly called me to list their house. The seller was the original owner. The house was in good shape other than some deferred maintenance but was a bit dated. As I saw the house for the first time, I remember thinking it would be a good fit to my buyers. I KNEW it was their home when I saw the extra concrete going from the driveway to the backyard where the seller told me he used to park his camper!

A couple years after this, another client sent her brother to me to talk about buying a first home for he and his wife. As he was describing what they wanted in a house, I told him that I was about to list one just down the street from his sister and brother in law as soon as the seller’s new house was done. Sure enough, they bought it and started their family there. A couple of years later, they asked me to work with them to find an entry level investment property. I had a friend who had been talking about selling a townhouse I had sold him a few years earlier and sure enough, he was willing to part with it.

Some time later, another seller was referred to me by some clients and friends. I met with her at the house she had lived in most of her life since it was built by her parents. While I was waiting on this seller to do a few things to get the house ready, another client took me out for coffee and told me he was looking for a house. His big requirement was enough space to do his woodworking. I told him about the house I was getting ready to list since it had a huge detached garage that, if I remember right, already had enough electrical service for his heavy duty equipment. He bought it.

I used to think these people and many others I have worked with were just incredibly lucky to have exactly what they wanted drop in their laps. Now I realize I am the lucky one for getting to be the hands that drop it in their laps.

Now, isn’t this better than reading about higher interest rates? Don’t worry. They will come down. The real estate market will soldier on. How do I know? Because it always has and that is because everybody has a dream about what they want in their next house, just like these friends and clients of mine.

The #1 thing to do when picking a house

by John Rice

Don’t settle. There, I said it.

As the market becomes somewhat more balanced, buyers now have choices. A year ago, the choice was to buy any house available or not buy a house at all. Buyers said things like “I don’t really love it but I don’t want to loose it. How much over asking price should we go to get it?” Today’s buyer has the choice between several houses in their price range.

There was a lot of settling going on during the past year or two. I get it. You wanted to move and on Friday there were 15 new listings to be greeted by 75 buyers who were just like you.

During this time, I would always tell my clients what I thought of each house. Most of the time I would say something like “In a softer market, this house will be hard to sell. I would wait for a better one if I were you.” Most of them did.

Here are some big things to not settle on when picking a house:

  1. The location. As more houses come on the market, the houses in the preferred neighborhoods will not only sell faster, they will always hold their value better. It’s worth waiting for a preferred neighborhood, part of town, school district, etc because one day YOU will be the seller and you want to make that as profitable and easy on yourself as you can.
  2. The lot. It is easier to sell a terrible house on an amazing lot than it is to sell an amazing house on a terrible lot…..in a balanced market. In a true Buyer’s Market this is even a bigger deal. That amazing house on a terrible lot will one day be outdated and be a subpar house on a subpar lot. A good lot never goes out of style and never needs updating.
  3. Floor plan. If there is something odd about a house, chances are any buyer is going to notice it too. Don’t buy the “If Only” house. That is what I call a house where you really like it but there are one or more major flaws and you walk out the door saying “If only that 3rd bedroom was larger” or “If only that kitchen wasn’t so tiny.”