Is cash still King?

Many years ago when the market was terrible, a cash buyer had the upper hand when buying a house.  Lending was tightening up.  Appraisals were coming in for less than the purchase price.  Having a cash buyer made a seller feel like it was a sure thing.

Today having cash is not as impressive to most sellers.  Lenders are happy to loan money.  Few deals fall apart due to financing.  If cash makes a deal 100% solid, a preapproval letter make it 99% solid to most sellers.

Also, having cash is fairly common.  25% of my 2018 sales were for cash.  I am not making that up or rounding up or down.  I was hoping the percentage would come in at a more random sounding number, but 10 of my 40 sales last year were paid for with cash.  All were owner-occupant buyers.  None were investors.

I had a buyer write a cash offer last week on an awesome house.  There were 14 offers.  My buyer’s offer and 3 other offers were cash.

In 2019, when does having cash really matter?  If the house is such a fixer upper that it may not qualify for traditional financing, having cash is still King.  If the seller wants a fast closing, cash is still King because a loan will usually take 3-4 weeks.  A cash sale can close within days.  If a seller is worried about the appraisal, then cash is still King because there is no appraisal unless the buyer just wants one.  Short of these 3 situations, having cash doesn’t really tip the scales in your favor like it used to.

Did you get a good deal?

You bought the only house in the neighborhood that doesn’t back to green space?  Did you get a good deal?

You bought the only house in the neighborhood that doesn’t look like the others?  Did you get a good deal?

You bought the smallest home, the largest home, the one with the strange floor plan, the only 3 bedroom home in a neighborhood full of 4 bedroom homes, the one with a one car garage when every other house has a two car garage, the one with the really steep driveway, the only one that doesn’t have a flat backyard.

Did you get a good deal because you paid less than what the other houses in the neighborhood are worth?

Odds are you didn’t.

One of the toughest things to explain to buyers is the difference between actually getting a good deal and the perception of getting a good deal.  Often the odd ball house will appraise for more than it is worth because appraised value is different than market value.  Market value is what YOU or any buyer will pay for it.  Appraised value is what somebody who isn’t going to buy it thinks it is worth based on a formula of assigned values.

It is easy to think you got a good deal because your sale price was lower than the rest of the neighborhood, but value is so much more than price per square foot.  You often don’t discover you did not get a good deal until many years later when you want to sell.  It is only then when you can judge if you really bought it right.

When I buy a house, or am evaluating one for a client, I first determine what is the norm for the neighborhood.  You want a house to fit in.  You don’t want anything drastically different unless it is something like having more bathrooms than the norm, more garage space than the norm, a bigger or better lot than the norm.  Those are good differences because they are better than the norm.

While I am on this subject, I’ll add that having one big positive does not make up for one big negative.  If you have the biggest, nicest lot in the neighborhood but also have the steepest driveway, most buyer’s walk away thinking “If only the house didn’t have that steep driveway, it would be perfect!”

So when you are out house hunting, look around.  Learn the neighborhood.  Find out what the typical house is like.  Then compare it to the one you are interested in buying.   Or, make it easy on yourself and call somebody who knows that stuff already.

Mistakes first time buyers make

Being a first time buyer is tough.  I mean, you go into it with no experience and have to make one of the biggest decisions you’ve ever made!

When my wife and I were ready to buy our first house, we were clueless.  We had a tight budget like most first time buyers.  We would look at terrible houses.  One backed to a train track.  One was in a high crime area.  We finally found one in Winchester.  We had not thought about what happens once we find one we want.  We had no idea what to do with making an offer, the inspection process, or anything else.

We ended up with a pretty worn out house that the seller had only completed 80% of any renovations he had done.  The house did not have central air conditioning, the heat was a fireplace and a giant floor furnace in the dining room.  Usually those giant floor furnaces are in a central location so the heat can move around the house.  Our’s was in the far front corner.  It would get about 110 degrees in that room.  The next room was 90.  The next room was a very nice 70.  By the time you  got to the opposite rear room, it was 50 degrees unless you started a fire in that room.  Also, two of the floor joists were cut when this furnace was added to the house.  It was a really old house and probably didn’t have heat when it was built in about 1915.

We picked sort of a terrible location.  Turns out there was a shooting two doors down right after we signed a contract.  The seller assured me that the shooter only shoots at people he knows.  For some reason, that made me feel better and I made a mental note to never introduce myself to him to avoid being on the list of somebody he might shoot.

We moved in and we were happy living in our craptastic first home.

The house seemed huge at first.  Then we had two boys.  We began thinking about things like school districts and the boys playing outside alone.

We moved.

So, here are some common things that first time home buyers don’t think about……including one first time buyer who would become “THE LEXpert.”

  • Size-Most first timers are coming out of an apartment.  All houses seem big.  I see a lot of people buy a house barely bigger than their apartment.  It becomes too small once a kid comes along.  Try to buy something you can grow into a bit.
  • Location-Most first timers have to choose between a prettier house in a worse location and an ugly house in a better location.  They usually choose the prettier one.  Location never goes out of style, but trust me, one day we will be sick of having everything white and of shiplap.  When that day comes, you’ve got an outdated house in a bad location.
  • Condition-Most first times don’t know how long a furnace lasts, so when they hear that one is 27 years old, they don’t care.  They also don’t know the cost to replace one.  Same for roofs, windows, etc.  I usually tell all buyers that there are 3 biggies in a house, which are the roof, hvac units and windows.  I don’t usually see all 3 that have recently been replaced, but shooting for 2 of the 3 is good.  You don’t want a house that will have a $5000 expense coming up soon.
  • Price-First timers seem to fall into two categories:  The ones willing to pay the full asking price and the ones who will want to make an 80% of the list price offer.  I always tell all my buyers that the first thing we need to do is figure out what the house is worth.    Then we base an offer on the value of the house and not the asking price.
  • Maintenance-Houses are money pits.  Mother Nature is pretty much trying to ruin your house.  She will win the war, but you can win each battle.  You’ll have repairs for appliances, the furnace/air conditioner, your roof may spring a leak, the water heater may go out.  I’ve got a bunch of rental properties.  I usually spend an average of $2k a year for repairs and maintenance.

My goal with all my buyers, especially first timers, is to find a house in a safe location, that won’t need a ton of repairs in the near future, and that will be easy to sell when they want to move up.

Why a reality show about me would be boring

#7.  It is easier to prevent a problem than it is to solve one.

Years ago, I wrote a list of things I’ve learned over the years.  This was one of them and it has really helped my clients.

I recently wrote an offer on a corner lot house.  Any seasoned agent knows that there might be an issue with where a fence can be on a corner lot house.  I told my people that I suspected they could only fence from the rear corner of the house, which means that the space you can fence is smaller than a normal lot, and you have all this space outside the fence that you can’t really use.

They liked the house, so we called the city to see if it was okay.  The city gave a verbal “Ok” to fencing all the way to the sidewalk.  We wrote an offer.  I wrote that the offer was contingent on both the city and deed restrictions allowing a fence to be put up where my clients wanted it.

We got the deed restrictions.  They said that no fence is allowed closer to the road than the building set back line.  While that is better than my worst case scenario, it only bought my client about 11 feet more of yard.  They didn’t want the house.  All I had to do was tell the other agent and it was over.

Can you imagine what it would have been like if I hadn’t put those contingencies?  The buyer might have found out later and lost their earnest money for backing out of the contract.  Even worse, what if they had moved in, paid for a fence to be put where the city approved, and then get a letter from the HOA saying they had to remove the fence?

I just closed a deal where the buyer’s agent kept telling me that the buyer may change their lender.  This doesn’t happen often, especially when you are already past the closing date on the contract.  I told the other agent to let me know when we had a closing date and THEN I would have the seller schedule a mover.   There was no way I was going to let my seller move out and be paying for a vacant house while we waited on this buyer to decide which lender they wanted to use.

I just sold an old friend a house that has propane heat.  When we saw the house, it was very cold inside.  My buyer got the home inspection scheduled.  I texted the listing agent to make sure the utilities are on.  Sure enough, there is no propane in the tank.  That would have been a problem on inspection day if I had not asked.  We would have needed to extend the inspection timeline, paid to bring back the inspector to check it out, etc.  The other agent tells me they will have propane for the furnace by inspection day.

I guess a reality show about me would not be worth watching.  I try to think things through and prevent as many problems as I can.  It would be pretty boring to have a show with very little drama.  I doubt people would continue watching it after the commercials.

The real reason why sales are down

I’m seeing a lot of news articles with accurate data.  My issue is that I think most are drawing the wrong conclusions.

Most seem to want to make you think the sky is falling in real estate because sales are down.

You know who needs to care about the number of sales?  Appraisers, realtors, mortgage people.  Those of us who make money on each transaction.

As a buyer and/or seller, the number of sales isn’t really important to you.  What you care about is supply and demand-the ratio of buyers to sellers in the market.  If there are 3 buyers in the market and only 2 listings, then we have a seller’s market.

I am seeing a lot of articles stating that sales were down in November of 2018 versus November of 2017.  Of course they were.  It happens every election year.  The market pauses until we see which set of morons we will be stuck with.

The ones that really bug me are the ones that say the affordability crisis will hold the market back.  I think they have it backwards.

Sure, we have an affordability issue.  Many people can’t afford to buy a house with rising prices and interest rates.  All I know is that every house under $200k in this town seems to go very quickly, which allows that seller to buy up to their next house and that seller to buy up to their next house and so on.

Back when the market was terrible, I said that it was like a baseball game where the bases are loaded.  The seller on first base needed a buyer without a contingency to buy their house so they could buy the 2nd base seller’s house, who could buy the 3rd base seller’s house.  The first time buyer needed to hit a home run and push all those sales through.

Back then a buyer had a ton of choices for their next home.  The issue was selling their old one.

Today, no buyer really has a huge selection of houses.

For that reason, I think our current market is the opposite.  There are a ton of first time buyers eager to hit a home run and push all those deals through, but what is happening is that the person on 3rd base doesn’t like home plate and has decided to just stand there until they feel like running.

The buyers with the most selection are the people buying their pinnacle home.  The one they stay in forever until they begin to downsize.  These are mostly Gen Xers.  They are in their 3rd base home, which is probably a fairly large home in the $250-350k range.  They want to move up to the $400-600k range, where there are plenty of houses for sale.

Their only problem is that most are just tarted up versions of their current house.  These buyers aren’t getting a better house, a bigger house, or a bigger yard.  They are just getting prettier finishes.  They find the houses in this price range, well, boring.  And we have a TON of them for sale.

So what do these Gen X buyers do?  They wait for the right house to hit the market.  Since they already have a nice house, they are in no hurry.  Because they aren’t in a hurry, that means the people looking to buy their house are in the same position….all the way down to that first time buyer eager to bid their heart out on their first home.

And, that is where we are today.  Sellers wanting to sell but not finding anything they want to buy.