real estate advice

How I have benefited from having the smartest Dad in the whole world.

by John Rice

It’s been a good week.

It all started when I had two buyers make offers on houses and they both got them. Both went over the list price of course as that is becoming far more common.

One of them was a house that had come back on the market after a sale fell apart. I called the listing realtor and asked why it fell apart. She told me that before the seller put the house on the market, he had a specific home inspector look over the house and repaired everything the inspector found. Well, the first buyer used a different home inspector and decided they didn’t want the house. The listing agent thought the buyer just cold feet and used the inspection as a way of getting out of the deal. That happens unfortunately.

I know nobody likes it when a house comes back on the market. The house often doesn’t have the same momentum the second time. I also know that sellers start getting nervous about selling their house even in this crazy hot market. It turns out that my buyer had told me who she was planning on using for the inspection and it was the same inspection company the seller had used. I saw this as an advantage. I knew it would be a huge deal to the seller and listing realtor if they knew we were planning on using the same company since there would be no surprises.

So, instead of writing an offer with an escalation clause, I called up the listing realtor and pretty much said “Hey, how about we give you so much above the last contract you had on the house AND we agree to use the same home inspection company your seller used before they listed it? Would that keep you from waiting to get more offers and just sell it to us right now?” Fortunately it was and my buyer got the house. She later told me she was prepared to go to a certain number if needed and that I saved her a lot of money. Close to $18k to be exact. Had it gone into multiple offers, odds are she would have paid much more than she did. I just knew what to do to make the seller accept our offer. My dad always said “Think like the other person’s perspective.” I knew the seller was anxious about the home inspection after the sale fell apart and having the same company he used do our inspection would make him feel like the house was really going to sell this time……thanks Dad and Happy Father’s Day!

What happens when we do see more houses for sale?

by John Rice

I read a lot of news about real estate. It is always a little funny to me to see what people who are not realtors have to say about the market. There are two things that I have read this week that have me rolling my eyes.

The first one is the headlines about how the number of sales have been declining. Gee, that’s just what happens when there are so few houses for sale. This does NOT mean that buyers are deciding not to buy a house. It means that they can’t get a house.

The other one is that it seems there is a projection that we should have more houses for sale later this year than we have in a long time. That would be great but let me tell you what it doesn’t mean. It doesn’t mean that prices are going to drop. They might stabilize prices a bit but when a hot new listing in Lexington can easily get 15 offers, we would need 15 times the listings for a balanced market. There is going to be more buyers than houses for a while.

A lot of the people who are fantasizing about what that market might look like are not old enough to have lived through the housing crash during The Great Recession. Back then we had more houses for sale than ever and do you know what? The best houses still sold fast and often in multiple offers. Do you know why? It is because everybody wants the best house in their price range. We could triple the number of houses for sale today and it wouldn’t change much. What would happen would be that the best houses sell fast and for top dollar while every other house languishes on the market. This flood of new inventory does not mean that every buyer will be able to get their ideal home.

How to price your house in this crazy market

by John Rice

Everybody knows that it is the craziest seller’s market ever.

Everybody knows houses are selling for over the list price.

What a seller does with this information is often all wrong. Sellers think they need to price their house as high as they can to get the most out of it. That is totally wrong today.

Today the list price is really just an opener, similar to an auction. Imagine if you went to an auction and the auctioneer began with the number that would be the same as the sale price at the end of the auction? How many bidders would you have? Maybe one? Maybe none? This is effectively what a seller does when they start too high.

I showed a house a few days ago that was listed for $185k, which is pretty high for what it was. There was a line of people waiting to get in to see it. This morning I got an email from the listing agent that they had “An” offer. A few days on the market and they get one offer from all those showings. Had they started at something more reasonable like $175k, they might have ended up at $185k or more. Why? Because buyers are used to going over the asking price these days. When you start at the number they would be willing to pay, they assume they would need to go over that to get the house and are not willing to do so. To a buyer, a list price of $185k means expect to pay $190-195k or more.

The best strategy today is to price the house in line with the most recent comps and create a multiple offer situation. The only way to take advantage of the buyer frenzy is to have two or more people trying to outbid each other for your house. Pricing it high and only having one buyer would be just like going to an auction where there is only one bidder in the room. This is why the success of an auction depends on having maximum exposure for a brief period and then setting a deadline for the sale.

Is it a good time to buy?

by John Rice

This is a question I get asked a lot these days. People are worried about a housing crash and they dread the process of finding a home. It is not a fun time to be a buyer for sure!

My response usually is “Today is a better time to be a buyer than tomorrow will be, but it isn’t as good as it was yesterday.” Prices are going up every day between the whole supply/demand thing and inflation. I don’t see an end in sight short of some major economic crisis that creates a lot of unemployment and/or skyrocketing interest rates. (And keep in mind that we DID just have a major unemployment situation in 2020 due to COVID.) Even if either happens, there will be more buyers than sellers since people will simply decide not to move from their current home, which will create an even more out of balance supply/demand situation.

All this is pretty wild compared to 6-7 years ago. Back in 2014 I bought a rental house that had been on the market for more than 6 months. I was the only buyer and I offered much less than the list price and the seller was happy to accept it. I just sold that house for more than twice what I paid for it. Granted I did paint it, put new carpet in the bedrooms and replaced 3-4 windows over all those years.

So, if you are on the fence about entering the market, I say go for it. Sure, you will pay top dollar. You will probably have to bend over backwards to get a seller to even consider your offer. You might lose a few houses along the way. But what is the alternative? Keep renting? With all this inflation we are seeing, your rent is soon going to go up. And it will always keep going up. Meanwhile, the principal and interest part of your mortgage payment will always stay the same. All that can change in your payment is the property taxes and insurance amounts you pay.

2 wrong ways and 1 right way to win in multiple offers

by John Rice

I recently got to experience a part of real estate that I don’t do often. I got to be a seller. In all of my life, I have only been a seller 4 times. I sold the first house we owned a long time ago. I sold two rentals in the past several years. And just this week I sold another rental property.

The first sale of this house fell apart and it came back on the market. Two of the offers I got were from people who had seen it when it was first on the market.

Wrong way #1

I got an offer from somebody who had lost in multiple offers the first time it was on the market. It was the exact same offer with just the dates changed. The buyer’s realtor seemed a little upset that I didn’t take it the first time and was a little snarky in letting me know that I should have accepted it then. Here is the thing. If I didn’t pick your offer the first time when I had other offers, why would I pick it again when I also had other offers. They should have changed some terms to make it more attractive to me. I even told the buyer’s realtor what I didn’t like about the offer.

Wrong way #2

I got a phone call from a realtor who had a couple of questions about it. This realtor asked if I did “Escalation clauses.” I wasn’t totally sure what he meant but I did tell him one of the offers I had in hand did have an escalation clause, so I guess I do them. He then told me how they were not fair to buyers and that he wouldn’t show my house to his buyer. Since I had two other offers in hand, I really didn’t care. He called me later that night and said his buyer wanted to offer $150k for the house that they hadn’t even seen yet. The list price was $130k. Both my offers were $130k and $130,500. If he had submitted an offer earlier, and done the escalation clause he was opposed to, his buyer might have gotten my house for something like $131,500 instead of $150k. He dropped the ball. Instead of riding his high horse about a perceived injustice in the market, he should have shown her my house and written an offer. But no, he lost his client the house and was willing to let her overpay for it.

Right way #1

I get a phone call from a very wise agent. She tells me how her people saw the house the first time it was on the market. They currently live on that side of town and want to stay. That tells me these buyers really want the area. She tells me that they are preapproved with a local lender. Always the best choice. I asked her who she usually recommends for a home inspector. One of the inspectors she mentions is one I personally use when I buy houses. I tell her that and the next thing I know, they have scheduled an inspection with the inspector. So, I am a seller and a realtor. What am I looking for when examining offers? The best terms I can get from a buyer that I feel will mostly likely get the deal done. This agent recognized my concerns and adjusted. In the end, her ability to think about what she could do to get the house for her buyer is what got it.

This is what you need a realtor for. Today’s market is like a traffic jam. You can have a realtor who sits there not moving and complains, a realtor who just stays stuck in the same lane, or one who figures out how to get around obstacles. I feel sorry for the buyers represented by the first two agents.