Winning in multiple offers

Two of the three houses I sold last weekend had multiple offers.

I’ve always said that what often wins a house in these situations has nothing to do with price.  It is even more true in today’s market where almost every house sells for full price or slightly above.  I know when I get multiple offers on my listings, it is amazing to see several different buyers all offer roughly the same amount, especially when it is over the list price.

The first one I sold was a for sale by owner townhouse.  I knew the seller probably didn’t know what to do once he got an offer, and probably didn’t know how to determine which buyer was the best.  So, I told him that I would handle everything for him and keep him in the loop on the progress of the sale.  I also pointed out that my buyer had 20% down and was doing a conventional loan. I told him all the things that could go wrong with any sale, and that short of a cash buyer, my well qualified buyer would be the best one to pick.

And he did.

The other one was a hot new listing near Hamburg in the most competitive price range in Lexington.  There were 9 showings the first day on the market.  My buyers needed to roll their closing costs into the offer, so I was a little worried.  I knew the only chance I had of getting this place for my buyers was to find out how to make it easy on the sellers to say yes to us.  I asked the listing agent if the sellers knew where they were moving yet.  If they did not have a house yet, my people could have rented back to them after the closing because they had several months left on a lease.  The sellers have a contract on a house in a surrounding town.  I got their closing date.  I remembered that they had two small kids based on the way two bedrooms were decorated.  No seller who is going to be a buyer likes the idea of moving out of their old house, closing it, closing their new house, and moving in….all in one day.  Especially with kids.

We wrote a strong offer.  I put our closing date the same day that the sellers are closing their new home.  We also offered to let them have their old house for 48 hours after the closing just to make that process easier.

Later that day, the listing agent called me.  She said both offers were practically the same.  So much so that her sellers jokingly asked her if she had told both buyer’s agents what to offer.  They couldn’t decide which offer to pick, so they asked their agent what to do.   She advised them to accept our offer because she thought I was so nice to work with and for my concern in making the process easy for her sellers.  Well, I am a nice guy, but my goal was to get this house for my buyers more than it was to make it nice for the sellers.  That is just what we had to do to make our offer the most attractive.

So, both of my buyers got the house they wanted in multiple offers.  Like I’ve said before, it isn’t always about price.

When will there be more houses for sale?

The simplest answer to this is when sellers feel like moving…..so I guess it boils down to what will it take for that to happen?

Many people who have been in their houses for more than 5 years either got a super low interest rate or refinanced to get one.  It is hard to give up something like a 3.5% rate and buy your next house at the top of the market and do a 5% mortgage.  Right now, all that free equity from appreciation isn’t enough to make somebody want to give that up.

But, eventually there will be a tipping point.

Let’s say you bought a house 5 years ago for $200k.  You put down 5% and got a 3.5% rate for 30 years.  The principal and interest part of your loan is about $900 a month.  Flash forward to today.  The house is probably worth $240k.    You owe about $173k on it and have about $67k in equity.

You decide you want to buy a $300k house.  You finance about $235k after you get the equity out of your last house.  You get a 5% rate.  The principal and interest part of your loan is now $1200 a month.

Maybe you don’t want to spend $300 more each month?

What will it take to make you list your old house?

Maybe another $40k equity in your old house?  Assuming rates stay about the same and the price of the $300k house you want appreciates less than the $240k house you have, this $40k is what it will take to keep your payment about the same each month.  It will take about 3 years for that to happen between appreciation and what you are paying down each month in principal.

We all bemoan higher interest rates, but lets keep in mind that the reason we don’t like higher rates is because they make the mortgage payments higher.  People have a certain amount they can/will spend each month on housing.  People will always try to stuff as much house into that payment as they can.  I think the day sellers can move up to a nicer house and not pay that much more will be when we see more for sale signs in yards.

Bluegrass market update & fun with a calculator

I’ve always been a number person.  When I was a kid, my dad gave me a calculator.  I would make pretend budgets, figure out things like compound interest, and do things like type 77345 and flip the calculator upside down to see that I spelled ShELL.

So I guess I am not surprised that I get excited when my local real estate board publishes the statistical info once a month.

It is also nice to see if my own experience is echoing what is happening in the whole market.  It usually is.

For example, I hardly show any houses any more because there is so little for sale.  I used to be out 3-4 nights a week and ALL weekend just showing houses.  Now I may show 4-5 a week and have the same amount of buyer clients……on a busy week.  There just aren’t enough houses to show people, and buyers are making fast decisions because they don’t want to lose a good house while waiting for a great one.

In Fayette Co, sales from Jan 18- April 18 are down 11% from the same period in 2017.  Listing are down 9%.  You’d think a decrease in sales would be bad, but since listings are down by a similar number, it is still a super tight market, especially in the sub $200k range.

All the Bluegrass counties have a big decrease in listings.  Most have an equally big decrease in sales too.  Makes sense.  If there are fewer houses to buy, there will be fewer houses sold.  Unless you are in Scott, Madison or Jessamine Counties.  Those places are the only ones where sales have increased from this same time last year while listings have decreased.  I know, I know.  How can that be?  This is just my gut, but I think those counties had more on the market last year that just sat and didn’t sell.

I also feel like I am spending more time in surrounding counties than I have in a long time.  When I first got into this business, there were a lot of people moving to Jessamine Co in search of a cheaper house.  But then gas prices went crazy and nobody in Fayette County wanted to leave.  Now gas is fairly cheap and people have returned to moving outside of Fayette Co again.  Jessamine County has the tightest market under $180k.  There is literally next to nothing for sale there.

Just this past March, we had a net loss of 61 households in Fayette County.  Scott and Jessamine Counties were the only ones that saw much of a gain in new households.  Yep, Fayette County folks are back at it.

I still play with my calculator a lot.  Only now I’m using it to determine what a house is worth before listing it or making an offer.  Maybe with all this extra time I have from not showing houses every night, I can figure out some new words my calculator will spell?

Do this if you never want your house to sell

I showed a pretty nice house last night that is going to be very hard for the listing agent to sell.

It was one of the lower prices for a huge house on a gorgeous lot in a very desirable neighborhood.

You’d think that would be enough in any market, yet alone one starved for listings.

This is what it was like seeing the house.  You walk up to a freshly painted facade with recently mowed grass and fresh mulch.  You are feeling good about it.  You go inside.  The foyer is nice.  It is a little strange that you can’t see any rooms from the foyer, but not the end of the world.

You go towards the left and see the dining room.  Wall paper from the 90s.  You go into the kitchen next.  Red wall paper from the 90s.  You go into a really nice sunroom.  What do you see?  Murals painted on the walls.  You go back through all those rooms and then you enter the great room, which was super nice.  Then you see a bedroom.  Ok.  Then you see a bathroom that not only has wall paper, but wall paper boarders on the ceilings and top of the walls, as if they were making crown molding.  The shower curtain is heavy, like the dress Scarlett made in Gone with the Wind.  Then you enter the living room which is set up as an office and has way too much furniture in it.

Heading upstairs, you notice that all the bedrooms are painted a different color.  The basement is pretty normal.

The sellers furniture was nice, but they probably bought all of it when the house was new in the early 90s.  I am not bashing anybody’s stuff because my own house is probably the most boringly decorated house in the whole world, but I am not trying to sell it.  I would need to stage my own house if I were selling because my stuff would make my house feel as dated as this one did.  All of my furniture is stuff my parents gave me and that my wife and I put together from a box.  I’m just not into decorating……maybe that is why I can always see the house past the decor.

It sort of made me sad because I could picture the house vacant and with a coat of fresh paint.  It was nice.  Sure, the house would have still been a little outdated since it was about 25 years old, but it wasn’t terrible at all and typical for the neighborhood.

There was a stack of realtor cards on the table in the foyer.  That means all those people in addition to my buyers said “No” to this house.

What sellers never realize is that a buyer will walk through their entire house in about 20 minutes.  Having too much furniture in a room may suit the sellers needs, but it makes the rooms feel smaller to the buyer.  It is also hard to see the room past the furniture.  I always say that when you live in a house, the room exists to show off your decor.  When you are selling, the decor should show off the room.  Also, colors make a big difference.  A seller may be in one room of their house for a while and then go to another.  The buyer, when walking through the entire house, gets sensory overload if every room is drastically different.  A uniform color can also help when the house has a choppy floor plan too.

I am sure all the feedback on this listing has been that it needs too much work.  If this were my house, I would remove as much furniture as I could stand.  I would put a fresh coat of neutral paint everywhere.  People ask me all the time what is the biggest bang for the buck.  I always say fresh paint.  Nothing makes as big of an impact as fresh paint.

With all the wall paper gone, most of the dated furniture out, and a coat of fresh paint, the house would feel so much better.  The 25 year old finishes were neutral enough that buyers would find them acceptable in the absence of the 25 year old furniture and wall paper.

When I go to sell my current house, I am taking my own advice since my place is very similar to this one.

Where are you going to find anything better for that price?

I remember the day.

I was in a two week class for new agents.  One of those days the topic was CMAs.  That stands for Comparative Market Analysis.  It was how to figure out what a house is worth based on recent sales of similar houses.

Long story short, you start with the subject house.  If a comparable recent sale was better than the subject house, you deducted money from that sale price.  If the comparable recent sale was inferior, you added money to the sale price.  In the end, you had a bunch of debits and credits for the differences that you either subtracted or added to the sale price of the recent sales….. and then you know what the subject house is worth in comparison to the recent sales.

Very logical.  This is how it has been done for years.  This is how appraisers do it too.

In that class, one of the other newbie realtors asked how it was done before CMAs became the standard.  The teacher said that you just guessed a value.

I sort of feel like we are back to the guessing days now.

I’ve seen recently remodeled houses sell for up to 50% more than what the second highest sale price was in the neighborhood.  Granted, a remodeled house SHOULD sell for more than the average house, but not by 50%.

I sold a house for $160k.  The comps pointed to it being worth about $143k.  We got several offers between $137k and $143k…..then we got one for $160k.  That is $17k MORE than the second highest offer.  Those buyers were desperate.  They had lost several bidding wars and were not going to lose again.

There’s definitely been a shift in how we calculate value, and it appears that it has less to do with logically analyzing recent sales and more to do with it being a tight market.  Something I hear buyers and agents say a lot these days is “Where are you going to find anything better for that price?”  So, value is now determined by availability, just like the lobster prices at a restaurant.  A good day on the water might end up with lower lobster prices.  The very next day the fishermen aren’t as lucky and you pay more for the exact same dinner.  That is sort of scary to me because what happens when the market slows a little and there are more houses for sale?