Something I wish sellers understood

It happens a lot with sellers.

They have a house that isn’t getting much attention from buyers.  It could be due to price, an odd feature of the house, the time of year, competition from new construction, or anything really.  They get a lot of showings and all of the feedback is the same, resulting in no offers.

Then all of the sudden they start getting more and more showings.  Buyers seem more interested in the house than they have been, but still no offers.

The seller finds this time exciting.  They are thinking “Wow, with all these new showings and better feedback, surely my house is about to sell!!!!!

Sellers assume this will last forever but it is a temporary thing.  It lasts until other sellers with better houses put their homes on the market.

And here is the lesson to be learned:  The market changes every time a house sells and every time there is a new listing.  Once the best house in it’s price range sells, it makes every other house look just a little bit better.  That is why your house that hasn’t been that interesting to buyers is all the sudden on their radar.  Once a new listing hits the market, it has to fit into the hierarchy of all the houses available.   If you have one of the better houses for sale, then a house better than your house hits the market, it makes buyers less interested in your house.

When you find the market has it’s eye on your house and you still haven’t gotten any offers, the best thing to do is reduce the price while you have the attention.  If you wait, most likely what is going to happen is the market will move on to other houses and you will be right back where you were.

Is it time?

I’ve been saying for several years that people don’t have much of a reason to move.

Yeah, everybody knows they can sell their house fast but where would they go?  Everybody knows their house is worth a lot more than it was a few years ago but so is the house they’d want to buy.   And then there are the interest rates.  It is sort of hard to think about giving up your 3.25-3.75% rate and signing off on a new loan at 4.25-4.5%….even though I remember bragging about my 6.5% rate on my first house when all my friends were paying 7.25%.

Rates are back under 4% now.

I am thinking that we might start seeing more houses come on the market as people move on to bigger and better things.  If there is one thing I know about real estate in America, it is that we all love to move to a bigger and/or better home.  I mean, as soon as the economy picked up after the Great Recession, we flipped from a Buyer’s Market to a Seller’s Market overnight as people felt comfortable to buy the home they had been wanting for a while.

If that happens in the next few months, the headlines will read that it is a seller’s market fueled by the threat of a recession, but you and I will know the real reason.  It’s the rates.

Advice as we dig out of a housing shortage

I’m starting to see an interesting thing happen.

We all know that due to the lack of new construction for many years, we have a shortage of houses for sale.

Many people have said the way to solve this is to build our way out of it.

I am starting to see this happen.

In Nicholasville between $200k and $250k, 17 of the 30 houses for sale are new.  In Lexington’s 40509 zip code, there are 104 houses for sale between $300k and $500k.  48 of them are new.  That’s an incredible amount of houses for sale in the Hamburg part of Lexington.  No wonder sales are slowing way down in that price range and I am seeing $10k price reductions left and right.

So what does this do to sales of existing houses?

Most people who buy a new house are only looking at new or newer houses.  If you live in an older existing neighborhood, you are probably in good shape.  Few buyers will seriously consider a 20+ year old house on a bigger lot with mature trees AND a brand new one on a smaller lot with trees shorter than they are.  If you have a house that is less than about 10 years old in this price range, well, you may have a hard time competing with brand new houses.

Any time I have a buyer wanting a newer house in an area with a lot of new construction around them, I always tell them that it might be hard to sell and/or might not appreciate that much until the last new house has sold.  The longer they plan to be there, the better.  If they tell me they may only be there for 2-3 years, I tell them it might be wise to pick another house.

If you are buying in an area with lots of new homes around you, try to pick one that has some unique feature or has a super good lot.  In a neighborhood where most homes aren’t too much different from each other, these small things are the difference between your house selling and always being a buyer’s second choice house.

How to pick your first rental house

The first thing to know is that you want an exit plan.  You want to buy something that will be fairly easy to sell when that time comes.  That is why I usually suggest a single family home in a decent neighborhood.  When you sell it, your buyer pool will be owner-occupant buyers who will happily pay a full retail price.

The second thing to know is that you pick your tenants through them picking your house.  You have a crappy worn out rental, guess what type of tenant is going to be willing to live there?  You make your house one of the nicest ones in it’s price range and you will attract the best qualified tenants out there.  Also, if you have one of the best houses they could ever afford, why would they move?

Here are some things that I think make a house a good pick:

1.  A ranch house.  Who doesn’t like one?  They are suitable for buyers/tenants in all stages of life.  They are easier to paint by yourself since there is no staircase.  You can clean out gutters with a step ladder.  They are just easier to work on period.

2.  A house on a slab.  When the wax ring around the toilet fails and when water gets splashed out of the tub, there is no wood to rot.  Also there is no water to collect under the house and grow mold.

3.  A smaller house.  Fewer people can live in a smaller house.  That means less wear and tear.  While a 2 bedroom house has a little more limited market when you sell, tenants usually don’t care if a house is 2 or 3 bedrooms.

4.  A simple roof line with not much of a pitch.   The fewer ridges and valleys the better.  Not only are they cheaper to replace, there are fewer places to get a leak.

Here are some things I try to avoid:

  1.  Basements.  They all have the potential to leak.
  2.  Sheds.  They are just one more thing to maintain and tenants usually leave you stuff they don’t want when they move out.
  3. Huge yards.  When they get out of control, it takes a lot of time to bring them back.
  4. Big garages.  I’m talking more than a regular two car garage.  Usually tenants who are attracted to a huge garage have a lot of stuff to store or hobbies that need the space.  Either one means you might need a dumpster when they move out.
  5. Fireplaces.  Do you really want somebody starting a fire in your house?

Now a lot of this is based on paying retail.  If you get a great deal on a house with a huge lot or a basement, take it.  A good deal can make up for potential future headaches.

My ideal house would be a smaller ranch on a slab built after 1960.  It would be 2-3 bedroom and have 1-2 baths.  A normal sized, flatter yard for good drainage.  On the lower end, no garage is okay.  If the house is worth more than about $150k, I would want a garage more for resale than to make a tenant happy.

 

 

How the market really works

Let’s say there are 10 houses for sale and 10 buyers, which would be a balanced market.

What happens with the #1 house?  It gets multiple offers and sells immediately.

What happens to the #2 house?  It is now thrust in the #1 position and gets multiple offers and sells.

Why does all this happen?  Because everybody wants the nicest house they can get.

This process continues down the line UNLESS new listings come on the market.  You can have the #1 house sell and the #2 house still be the second best one IF a fantastic new listing hits the market and assumes the #1 spot.

What about that #10 house?  Unless there are far more buyers than sellers, the #10 house will sit there for a longtime.  Every buyer has seen it and decided to wait for a better house to hit the market.  Sometimes this #10 house can become something like a #2 or #3 house with a price reduction.  Price is everything in real estate.

I’ll put this into some real world things you may have seen.

A house you have been following has been on the market for a while.  Every other house in it’s price range sold the first day on the market.  You wonder why it hasn’t sold.  Then all the sudden it gets multiple offers.  That is because the houses that were better have sold and now it is the best available house in its price range.

A house you have been following has sat on the market all summer and fall.  It’s a house nobody wanted.  Much to your surprise, it sells in January.   This happened because there are far fewer new listing that time of year and now this house appears to be one of the best.   If this house doesn’t sell in the winter, it will sit on the market during the spring/summer/fall again because there will always be a new listing that is better.

The market is all relative to what else is available and it changes daily.  As a seller, you want to get your house to be one of the best ones available in it’s price range.