real estate listings

Real estate market-No monster under the bed

by John Rice

Quit reading everything about the housing market……well, maybe except for this post.

There is soooo much doom and gloom in the news out there regarding the market. It’s all written to grab your attention. It’s mostly accurate data just misinterpreted by people who are journalists and not actually in real estate. If you want to know how not to end a sentence in a prepositional phrase, ask a writer. You want to know about the real estate market, ask a realtor.

It drives me crazy how much the news impacts people’s decisions. There are so many people out there right now afraid to buy a house or afraid they should sell their house before the market crashes. I totally get that there is an investment side to homeownership. It is typically somebody’s largest asset and those who own their homes tend to have a higher net worth than those who rent.

But, there is another side and that is the fact that you have to pay to live somewhere. If you rent, somebody owns where you live. If you sell to beat any crash, you will still have to pay to live somewhere.

Since you’ve gotta pay to live somewhere and you’ve gotta have somewhere to live, I have always thought that the best time to buy a house is as soon as you can afford it and your life is stable enough where you expect to live there for at least several years. Possible fluctuating values and interest rates don’t matter as much when viewed against throwing money away in rent. If prices were to dip a little, the money you lose will likely be less than all the rent you would have paid over the same timeline. If rates go down, you can refinance your mortgage. If you currently own and home and are happy living there and it serves it purpose well, then stay put until it doesn’t.

The real estate market is just like any other market. It moves like the waves on a beach. It is always going back and forth. Sometimes the tide comes in, sometimes it goes out. It never stays the same for long and nobody should expect that. You can’t control the timing of the market but you CAN control your time in the market.

Don’t believe the Chicken Littles in the media

by John Rice

I love YouTubers. Always a good laugh. Always predicting the market is going to crash.

They get a little nugget of data, like that the number of people refinancing their mortgages has dropped and draw the craziest conclusions. Well, when rates were between 2 and 3%, everybody rushed out to refi. Even if the rates had not gone up, eventually everybody who would have refinanced would have done so. That statistic was bound to decrease on it’s own eventually.

My favorite ones are those that predict a major housing crisis. It is just not going to happen, especially in Lexington.

Why?

The number one reason is that Lexington is almost out of land. Lexington cannot grow any more. The surrounding communities will of course grow. Lexington will always be the most desirable town in the Bluegrass and prices will remain higher than anywhere else around us due to that. (FYI-we will see a whole lot more remodeling in the future than we see building in Lexington.)

What else do I see in the near future? A slowing market, mainly due to interest rates and nothing being for sale. Right now everybody is complaining that 5% interest rates are the worst thing to happen to the market. I disagree. While rates being low were nice, it is the low rates that spoiled all of us and are affecting the market right now. We currently act like rates in the 2-3% range were normal and 5% seems excessively high. However, I don’t see prices dropping though. That’s because all those sellers who refinanced their mortgages when rates were under 3% are not going to move until they have a need. We need sellers in the market. When sellers are scarce, that means more demand than supply. People will likely only move when they outgrow their home, lose a job, get transferred, their family grows, Grandma needs to move in, or a divorce. You’re not going to give up a 3% mortgage on a cheaper house to get a 5% mortgage on a more expensive house unless you really need to move.

So, in Lexington at least, we have little room to build more houses, sellers who are less likely to move just because they want a nicer home, and higher interest rates. All of which means less supply at a time when we have Gen Z trying to get their first home and millenials needing to move up.

I guess if I had a YouTube channel, it would be pretty boring because you don’t get much attention by saying prices will remain at least stable and the market will stay slightly tipped in the seller’s favor.

Appraised value verses Market value

by John Rice

Seems no matter what the market is, I’m explaining the difference between Appraised Value and Market Value.

Many people think whatever the appraiser says their house is worth, is what it is worth. The real value is whatever number a seller and a ready, willing and able buyer agree upon. Appraisers study past buyer/seller behavior and give an opinion of current value.

When the market was bad, I was always explaining how appraised value was usually MORE than market value. It was more like the house’s potential. In this crazy seller’s market, I am sometimes explaining how appraised value is LESS than the market value. A lot of the reason is because market value happens in real time. It is right now. Appraised value is saying what the value should be based on the past.

Just this week, a house I sold for $429k appraised for $417k. As I read over the appraisal report, it became clear to me why it did not appraise for the full sale price. Two of the three comparable sales were 6 months old. In an appreciating market, you must make a value adjustment for this. The appraiser gave the two houses 2 and 2.4% appreciation. We have seen much more appreciation in values than that since last October.

In response, I was able to obtain two other offers the listing realtor got. One was $421k and the other was $427,500. If you average those two offers plus the winning offer of $429k made by my buyer, that is an average of $425k.

The appraiser refused to adjust his opinion of value. This is how appraised value and market value differ. Market value is the 3 ready, willing and able buyers who desperately wanted to purchase this home all agreeing the value is between $421k and $429k. Appraised value, in the case of this home, is some stubborn dude with a big ego who isn’t actually in the market to buy anything cutting and pasting a lot of numbers on a sheet of paper and charging $425 for his outdated opinion.

Telling people what they need to hear

by John Rice

Back when I was so overweight, I dreaded going to the doctor. They would always tell me all the ways being overweight would affect my health. It’s not like I didn’t know that. I just didn’t want to accept it.

A lot of buyers are in the same situation today. The reality of what it takes to get a home seems overwhelming. It is easier to just hope somehow it will all work out and you’ll get a house somehow if you submit enough offers.

Reality checks are never fun. One day I accepted everything the doctors had always told me. Once I did that, I knew what I needed to do if I didn’t want to have health issues as I aged.

I sold a house over the weekend to a new client who had lost several houses previously with their last realtor. I didn’t really do anything special. I did my usual good job in trying to make our offer the most appealing to the seller. The hero of this story is the buyer. I was just like the doctors telling me the reality I didn’t want to here. He took in all the information and chose to do something about it.

Like all houses these days, it got several offers the first day on the market. It is normal to go over the list price these days so we did an escalation clause up to a certain amount. The buyer was a little anxious about going that high. I explained that odds are we would not need to go that high, but that he would have hated to have lost the house by just a little bit. He agreed.

Once the offer was sent and I told the Seller’s Realtor a few things, I got a question about not having an appraisal gap waiver. I knew this meant that our offer was one being seriously considered. If we were not the best or one of the best offers they had, why would he ask about it?

I told my buyer this good news. He didn’t really want to risk having to put out more cash should the house not appraise for the sale price. I told him that this is getting more and more common with every house I’ve sold. If we didn’t do it this time, odds are we would be in the same situation on the next house when prices and interest rates might be higher. He agreed.

A few hours later I got a text that he got the house!!!!!

The hero here is my client. All I did was tell him the reality of what would most likely happen just like all those doctors did for me. My client accepted the reality of today’s market. He realized he wasn’t going to magically escape some of these uncomfortable things and end up winning a house in multiple offers. Once he saw that, he knew what he had to do just as I saw what I had to do.

My Dad always said “Living in reality is never fun, but what other choice do you have?” to which I will now add “Plus living in reality with a house is better than not doing so and waiting for the next new listing to hit the market and do it all over again and again.”

My response to this always disappoints people

by John Rice

As a realtor, you wouldn’t be surprised that people are always asking me the best way to add value to their homes.

What might surprise you is my response.

There are no improvements or upgrades that get you more than a 100% return. All give pennies on the dollar. I know, you are thinking “Then how do people who flip houses make money?” They make money from buying the house below market value. You already own your house so spending money to sell it and getting back less than you spent is just wasting time. Usually you want to do the least you can do, and the best thing is to address the worst aspects of your home before selling it. If you have worn out carpet, replace it. If you have a rusting light fixture in a bathroom, replace it…..but what is the best bang for the buck in getting top dollar for your house when you are selling it?

The absolute best bang for your buck has always been and will always be a fresh coat of paint.

Fresh paint makes any room automatically feel better and cleaner. Fresh paint can be done in whatever the trendy color is at the moment, which gives your home an updated vibe. Fresh paint can be used to unify all the rooms in your house. Buyers will walk around every room in your home within their 30 minute viewing. Having the same color in all the rooms is soothing and calming. Buyers love that. In a vacant house, all you see in most rooms are 4 walls, a ceiling, a light fixture and the floor. Having 80% of all there is to see be new makes a huge impact.

So there you go! If you are getting ready to sell your home and want to know the wisest way to spend your money in preparation, hit the paint isle at the hardware store.