The worst house to buy

Want to know the house to stay away from?

It’s the one that has had the same owner for many decades and has never had anything major done to it the entire time.

How do I know this?  I own two of them.

I sometimes stumble across a deal that I can fix up and rent out.  The ones that I have spent the most on are the ones that fit this profile.

Most of the time, there isn’t much you can save.  I usually end up replacing windows, the roof, the furnace, air conditioner, water heater and all the appliances.  Often the kitchen and bathrooms are worn out enough that I end up having to start all over, even though I prefer to keep as much of the original character as I can.

A lot of these houses were built in the 50s and 60s.  Houses from that era are arguably the best built houses ever……I can tell by how hard it is to do any demo work.  Most have bathrooms with lots of ceramic tile.  The kind that goes half way up all the walls.  Only once have I ever been able to keep the tile.  Most of the time there is a really bad section and it can’t be saved, or the vanity needs replaced, but the tile is all around it.  To replace the vanity you end up having to take off the tile and it forces a pretty big renovation.

It’s all worked out pretty well for me, but I was just thinking about how these type of houses are the ones that I am always over budget because they are like that “If you give a mouse a cookie” book where you do one thing that leads to another action, then something else, and so on.

These type of houses appear to be a real bargain to most buyers.  They are usually in pretty cool older areas with big trees.  They have character.  If they are decorated right, they look nice too.  It is only when you do a home inspection that you realize that while nothing is catastrophically wrong with the house, almost EVERYTHING needs some attention, and that attention costs a lot of money.

Why rising rates won’t stop the market

Rates just hit 5%.  They haven’t been that high in many years.

It sounds like the sky is falling but it is not.

Many first time buyers are freaked out over this since they got used to lower rates.

When I bought my first house, I bragged to my friends that I was getting a 6.5% rate.  I locked as soon as they fell from 6.625%.  Most of my friends who had owned their houses for a few years had rates over 7%.

Several years later, I refinanced my third house when rates dropped to 5%.  I could not believe at that time how low that rate seemed.  I currently have a 3.375% rate on that house.

I’ve watched rates go up and down.  The market change from a seller’s market to a buyer’s market to a seller’s market.  If there is one thing I have learned is that the market keeps going.  There are always first time buyers.  There are always people getting transferred, married, divorced, retiring, and running out of space.  Those things will always happen.  The market is really about life and all the stages and events of it.

Something else I have noticed is that the market tends to pause when there is a big change, whether that change is interest rates, rising prices, dropping prices, etc.  It’s like we say “Now isn’t a good time to do this because it is different that it was.”  Then life happens, we get used to the “New” normal and we buy and/or sell.

We are in one of those times now.  Mortgage applications are down slightly, sales are down slightly.  We are entering what is believed to become a balanced market, meaning the number of buyers will be about the same as the number of sellers.  This won’t last too long because like I said, people will get used to 5%.  It will become the new normal.  The market will go on just as life goes on.

What to do when you have to sell your old house first

I’ve got several clients right now that need to sell their old house before they can buy a new one.  It’s not a fun spot to be in during a seller’s market.

You would think when almost all houses sell quickly that a seller would happily accept an offer from somebody who needs to sell their old house first.  But, odds are the seller is getting multiple offers, so why wouldn’t they pick the one without a contingency to sell?

Time to clarify a few things:  A contingency to sell is when you haven’t sold your old house yet and nobody has any idea when you can actually close on the new house.  A contingency to close means your old house has in fact sold, and assuming the buyer of your old house makes it to the finish line, so will you.

When you make an offer contingent on selling your old house, it is pretty standard for a seller to counter back with what is called a kickout clause.  That means that the seller will accept your offer, but they will keep their house on the market and hope to catch a buyer without a contingency.  If they do, then you’ll have a limited amount of time to remove the contingency and buy the house without having to sell your old one, or you agree to walk away and let the seller and their new buyer enter into a sale together.  If it is impossible for you to remove the contingency and buy the house, then you will lose the house to the new buyer.

For this reason, I am telling my buyers who need to sell their old house first to not even look at a house until it has been on the market for a while.  Let’s say you are the first buyer to see a house and you make an offer contingent on selling your old house.  The seller accepts it with a kickout clause.  You are feeling good.  Then the next day, the seller gets an offer without a contingency.  You lose it.  If you think about it……whether you buy it the first day on the market or the 10th day on the market, the end result is the same:  IF another buyer comes around and wants it, you will get kicked out.  IF no buyer comes along, then it will still be there when you make an offer after every other buyer has had a chance to see it.  There really is no urgency to write a contingency offer due to this reason, and waiting a bit prevents a lot of heartache for you.

So what’s the strategy then?

If you can, the best solution to preventing this problem is to sell your old house first.  You will then be able to make an offer without a contingency.  You stand a better chance of getting the house you want.  This will also keep your from having to potentially sell your house for a little less than it is worth to ensure it sells immediately and you don’t loose your new house.  The downside of this is that you are moving twice.

You can pay a premium for the new house.  Sometimes if a seller is getting a few thousand more than the next offer, they might choose not to kick you out.  The downside of this route is that you are paying a premium for the luxury of not having to move twice.  Moving twice costs you more and is more of a hassle, so maybe it is worth it to you.

Either way is painful really.  There is no easy button to push when you have to sell your old house to buy a new one.  Not in such a seller’s market.

 

Yard signs are dinosaurs

I often don’t even bother to put a for sale sign in a yard any more.

I just don’t see the need.

I’ve been doing this for a long time and I have never sold my client’s house to somebody who called from a sign in the yard.

I was one of the first agents to put “Call or text” on my signs when texting became the primary way of communicating.

You know what kind of calls I got?

“How much is that house?”

“How big is that house?”

“How many bedrooms does it have?”

I would answer the questions and it became very clear that it was not what the buyer was wanting.  THAT is why they did not see it online.

When you drive by a house that is listed for $300k and your budget is only $250k, that is the reason it did not come up in any of your online searches.

When you drive by a house that is 3 bedrooms and you want a 5 bedroom house, that is the reason it did not come up in any of your online searches.

Same thing for the school district, where the laundry room is, how big the lot is, etc.

Everybody is online all the time looking at houses.  There is search criteria that gets entered and they see every house available that meets that criteria.  There is no such filter when calling/texting on a sign in a yard while driving by.

So, I think the yard sign serves no purpose other than making it so other realtors don’t have to look for the house number.

What are buyers doing instead of driving around neighborhoods hoping to see a for sale sign?  They are on their GPS enabled phones.  They tap an icon to let an app know where they are and it shows every house for sale around them.  No need for a yard sign.  They have all the listing info at their finger tips, including my phone number.

 

 

The house I almost sold

It is like April of 2005.  I am sitting in a class to teach me how to be a realtor.  It’s all been common sense stuff so far.  I’m the only one who isn’t taking notes and who is wearing shorts.  I am also the only person in that class who is still a realtor.

The day I have been waiting for finally comes.  It’s the day they teach us how to do CMAs, which means Comparable Market Analysis, which means what a house is worth compared to what has sold in it’s neighborhood.

Figuring out value has always been fun for me.  I like the numbers.  I like the fortune telling aspect too.  I love it when I am right, which happens almost all the time.  The only time I don’t like it is when a seller thinks their house is worth more than I tell them.  Usually what happens there is that some other agent gets the listing and I watch them reduce it until it sells for what I had already told the seller.  It’s a hollow victory.

Back to that day.  A line I will always remember was said by the broker of that agency.  He said “If the comparable sale is superior, you subtract value.  If the comparable sale is inferior, you add value.”  Most of the people struggled with this since it is worded counter-intuitively.  Sort of like asking somebody “Is red NOT your favorite color” verses asking “Is red your favorite color.”

By the end of that day, everybody finally understood that if the house you are about to list is better than the comparable sale house, then you need to add value to what the comparable sale house sold for to know what your listing is gonna be worth.  There are assigned values for differences such as square footage, number of bathrooms, etc.  Some of it is subjective too, and that is where experience comes in handy.

And all of this leads me to the real topic of this blog post.  I almost sold a house last weekend.  I looked at the comparable sales in the area for my clients.  All the similar houses had sold for about $170-172k.  The list price on the house they wanted to buy was $172k.  Why did I suggest the value was about $165-168k then?  All of the comparable sale properties had flat and usable backyards.  The backyard for this house was flat for about 3 feet and then sloped steeply uphill.  It needed to be worth LESS than the other similar sized and equally finished houses in the neighborhood.

The seller got a higher offer than the one we submitted.  Good for him.  Bad for the buyer.  I am finding in this fast moving market that agents don’t seem to be doing as much leg work as they used to do.  I suspect that the buyer’s agent just looked quickly and saw that similar sized houses sold for $170-172k and thought it was okay to pay that much.  Looking at all the pictures would have helped.  The buyer is probably happy to have gotten the house, but if they need to sell in a Buyer’s Market, they will realize that buyers who have choices prefer not to have a sloped backyard.

Those same buyers of mine ended up with a move in ready house that has a perfectly flat and private backyard.  It will sell well in any market.