realtor

How you protect yourself when buying in a Seller’s Market

by John Rice

We all know the market is hot. Who hasn’t heard about houses selling for over the asking price, buyers waiving the chance to inspect a home. Lots of crazy things happening these day. People feel lucky just to get a house. Any house!

How can a buyer protect themselves these day?

Know the value of the house before you make an offer. The market is moving so fast right now that I don’t think many buyers or their realtors are looking at recent sales in the area to see what that hot new listing is worth. You can’t rely on the Zestimate. You can’t think that it must be worth it if it appraised. Appraisers are not buyers. The criteria they use to justify value is different that what a buyer uses. They don’t care about fancy finishes. They don’t appraise a view. To them it is all about numbers like square footage and room count. They have a 1-5 ranking for condition. Almost all houses you see are either a 3 or a 4. Buyers care about trendy finishes like how wide the planks are in the wood flooring, if the counter top is quartz or granite, what the tile in the shower is like. The tile in the shower could be carerra marble or green ceramic tile and the appraiser is going to value it the same.

Know the neighborhood. Let’s face it. When you buy a house, you are also buying the neighborhood. That means the part of town it is in, the amenities that are close, the school district, the parks, how close it is to a grocery store….all impact the value. Right now with such demand, there is not a lot of pricing difference between the most desirable neighborhood in any price range and the second most desirable neighborhood. There will be though in a cooler market. Picture this. There is a time in the future where houses stay on the market for more than a day. There are 3 houses for sale in the most desirable neighborhood and 3 for sale in the second most desirable neighborhood. There are 4 buyers. I think you know how this goes. There will need to be a pricing difference between both neighborhoods to make anybody pick the second most desirable neighborhood. That is how all markets work. If the store brand Mac & Cheese was the same price as the Kraft Mac & Cheese, nobody would buy the store brand with it’s grainy fake cheese and unattractive packaging.

Keep calm and think about your exit plan. You will one day want to sell the home you just fought so hard to purchase. Unless you are the luckiest person in the world, odds are you won’t have it as good as the seller did when you were the buyer. I cannot tell you how many people called me to sell their homes in the Great Recession who told me they paid full price in multiple offers for the house that nobody wanted when they needed to sell. If a house is totally average, has an average floor plan, has an average lot and is in an average neighborhood, don’t pay above average money for it. Personally, I think the only house I would yield to the will of the seller would be one that had something special that will also make it rise to the top of any buyer’s list in any market.

That is how you protect yourself in these crazy time.

How do you know when you’ve found the right house?

by John Rice

Sometimes people ask me how they will know when they have found the right house. On the logical side, I usually tell them that if they can 90% of everything they want in a house, that is probably the one. On the emotional side, I tell them you just know it when you see it.

I always have been more of the logical buyer when purchasing my own properties. I mean, I do this for a living. Seeing houses is an everyday thing to me. Being a realtor, my job is to help people make a decision. I am also an investor so for both of those reasons I tend to view it more as a logical decision.

All of which made my recent purchase really special to me. I just bought the 5th house I’ve lived in that I owned. I loved my first house. The second, third and fourth ones were just logical decisions. The floor plans worked. The locations worked. The prices was reasonable. Check, check, check.

My 5th house is one that I didn’t even know I was looking for, and wouldn’t have looked where it was if I had been looking. It literally slapped me in the face.

A client who is a financial planner had referred one of his clients to me to sell their house. They called me and we set up a time for me to see it. All very routine. I pulled into their driveway. Knocked on their door. Introduced myself. Sat down in their sunroom and began to talk to them. I was thinking “Man, this is really peaceful sitting here….oh, look, there is no house right across the street and that view out the back is incredible.”

Then they showed me the two garages. I told the seller that I would love to have garage space like that since I had a lot of cars.

Then they showed me the house. I think I remember telling them that it is hard to find a rural property where the house isn’t either tiny or a McMansion.

Then I went home and told my wife about it. We were not in a position that day to move but she seemed interested. About a week later, a family member who we needed to stay close to was now going to move in with other family. All the sudden we were in a spot to be able to move. Next thing I know I am telling the seller that I want my wife to see it. She saw their chicken coup and was sold before even seeing the house.

I’m embarrassed to say this, but I think I paid too much for it and I don’t care. The sellers thought it was worth a little more than I did….and I think I probably have a little more experience knowing what a house is worth, lol. But, I did not care. My wife and I were in love with the place and it wasn’t worth it to us to risk losing it. Plus it was waaaaaaaaaaaaaaaaaaaaay under what I thought I would have to pay to get the features I wanted. Waaaaaaaaaaaaaaaaaaaaaay under budget.

So, in the end, I knew it was “The one” and on the logical side, it did have more than 90% of everything I wanted.

Want to know where the market is, TODAY?

by John Rice

I like to do these market updates every once in a while. When I do, I do them in real time. What do I mean by that? I meant that the info is right now. Most of the time when you are hearing about the real estate market, it is from sources that are a month or more behind, or it is from a national source that is giving you a dated snapshot of the market for the entire country. My data is taken from the MLS in the past 20 minutes and is specifically for the Bluegrass area.

I won’t geek out and break down all this data into price range, which town, or property type, but there were 24 existing home sales that went pending in the past 24 hours. Do you want to guess how many of them sold within 2 days of being listed? You would think it would be all of them based on what your realtor friends post online, or what you read in the news. But, of those 24 houses, only 4 of them sold in less than 2 days. There were 8 that sold between 2 and 10 days. 4 sold between 11 and 30 days. 4 sold between 31 and 60 days. And 4 sold between 61 and 90 days on the market.

Let’s look at the houses that closed in the past 24 hours. While pending sales give us a snapshot of what the market is doing right now, freshly closed sales give us a snapshot of where the market was a month ago since it usually takes 30 days or so to close.

How many of the closed sales do you think got full price, or over full price offers when these sales went pending last month? Again, you would assume all of them, right? Of the 23 closed sales posted today, only 8 of them sold for the full list price. 5 sold for over the asking price. One sold for $10k over the list price in a neighborhood where I have seen this happen frequently. That means 10 of the closed sales went for LESS than the full asking price.

I could go a lot of ways with this blog post, but I think I will take this chance to say that you really need an agent that knows when you need to offer the full price, when you need to go over the list price, and when you can make an offer for less than the list price. The market is so fast right now that I think a lot of buyer’s realtors are not looking at comparable sales in the neighborhood. They are just so focused on getting an offer in fast that they don’t really take the time to figure out what the house is really worth. To me, that is the most important bit of info we have to offer a client. I have had many listings in the past year where I had a ton of showings and didn’t get an offer on the first day on the market. Then the next day a realtor is frantically trying to reach me saying they are about to send a full price offer and are so glad the house is still available. Well, if I had 12 buyers look at the listing and didn’t get an offer, truth be told the house probably wasn’t worth the list price……but I am not going to tell the buyer’s realtor that, I just tell them where to send the offer.

That’s the data. I am by no means saying the market is slowing down. It is after all the middle of winter which is usually the slowest time of the year. I do think the market will stay strong for quite some time. I just wanted you all to know that not every house sells the first day on the market for full price or more. I want to help separate the perception of what the market is like compared to the reality.

What is being a realtor really about?

by John Rice

You’d think it would be about houses, but it is not.

You’d think it would be about the market, but it is not.

You’d think it would be about knowing what a house is worth, but it is not.

You would think it would be about marketing a property for sale, but it is not.

You would think it would be about showing houses to buyers, but it’s not that either.

All of these things are important, but they are not what being a realtor is really about.

It is about guiding people to make a good decision using all of the things above. I often describe my job, when asked, as “Talking people into making a good decision and talking them out of making a bad one.”

In the future, realtors might not even be needed for a buyer to view a house. People may end buying real estate like they do anything else online, or there will be an app to open the lockbox on the front door without a realtor. In the future one of two things will happen: Technology will make tools like Zillow’s Zestimate more accurate, or people will broadly accept them as being accurate. Either way, realtors won’t be needed to determine market value.

It all comes down to helping people make a good decision. There are tons of tiny decisions in buying or selling a house that can have huge consequences. Money can be lost. Time can be wasted. Stress can be compounded. Since most people only buy or sell a house a few times in their lives, often they don’t know the difference between a good decision and a better one. It is easy to make a good verses bad decision. Good verses better requires some knowledge and experience.

A realtor friend and I often chat about what we having going on. It makes us both better realtors I think. He had a situation where he had two offers on a listing. One was slightly better than the other, but the people with the slightly worse offer really wanted to live in that specific neighborhood. Do you go with more money and risk losing those buyers if the home inspection didn’t go well? Do you go with the slightly less offer where you know the buyer is less likely to walk away because they have to have that specific neighborhood? I told my friend to go with the higher offer. My thinking was that if the higher offer people walked away after the inspection, which is usually within 10 days, the other buyers who wanted that specific neighborhood will still be around. Best of both worlds.

Since the market is so hot right now, I am seeing lots of sellers saying a neighbor or a somebody they know is interested in buying their house before it gets listed. My advice to anybody today is to put the house on the market and try to get at least two offers. Today’s buyers are used to fighting to get a house. Get two or more buyers competing for a house and YOU as the seller will always come out the winner. Also, a buyer wanting your house because their parents or grown children live on the street will ALWAYS be there too. That buyer is not just looking for any house in your price range. Being close to mom, dad, grandma, grandpa or grandkids is what makes them want your house. They may or may not pay the most for it, but they are not out actively looking for any house in your price range all over town.

Another thing I am seeing more of is the opposite end of this where a buyer thanks me for my time and tells me they have bought a house from a friend. I had somebody this year with a friend who was selling their house by owner. My client bought it. The house had been on the market for quite a while. In today’s hot market, not selling fast is a sure sign that something is wrong. When buyers decide to wait for the next new listing and pass on your house, can you imagine how difficult it will be to sell the house in a cooler market? This is where the whole good verses better decision starts to have big consequences. People who make poor choices as a buyer typically don’t realize they made a poor choice until they go to sell the house. I saw plenty of that from Great Recession sellers who told me they went over the asking price in multiple offers when they bought the house that they were now selling for less that they owed on it.

So, being a realtor is really about using your experience and knowledge to help people make the best decisions possible. There is nothing that feels better than knowing your seller got the best deal possible, or that your buyer landed a house that will always be easy to sell when that time comes.

How COVID will affect what people want in a home

by John Rice

It won’t change a thing.

I don’t know about you, but all the news I have been reading is saying buyer’s wants have shifted due to quarantining. They say people are wanting a place to work from home, wanting bigger houses, wanting great outdoor spaces, and a less open floor plan.

I personally think that writers of such stories don’t know much about real estate and just have to write something because that is their job.

When have people not wanted a bigger house? When have they not wanted a better backyard? When have they not wanted a home office? Okay, the wanting a less open floor plan is something that has been emerging for the past few years but isn’t really possible in a smaller house. To do a less open floor plan you need a big enough house so it doesn’t feel like you have a bunch of super small rooms. People may covet these features a little more right now, but it definitely is not a new trend in housing.

I think the biggest effect COVID has had on what people want in a home is simple……..to just find one they like, pay at least the full list price, possibly waive inspections, and take advantage of incredibly low interest rates. Beyond that, the buyers of average priced homes are not all that picky.