Supply and Demand

Reading the real estate market in real time

by John Rice

One day this summer, I looked out across my backyard.  I do that every day.  All the time.  I love my backyard.

This time I noticed one of the pine trees in the corner had a bunch of brown needles on it.

I immediately reached out to my buddy Phil who knows just about everything there is to know about every plant there is.

He told me that usually once you see the needles turn brown, the tree is already dead.

I knew he knew what he was talking about, but just to be sure, I waited to cut it down until every needle had turned brown, fallen to the ground, and the branches snapped as crisply as the first Saltine cracker in the box.

That experience reminds me of the real estate market.  You never know exactly where the market is at the moment.  You just see the signs after the change occurred.

I got into real estate during the spring of 2005.  My first listing was in May.  I was so excited.  Houses had been selling for top dollar immediately.  I wanted to be a part of that.  The house took several months to sell.  I remember thinking, even as a newbie, that the house was priced right, had a good location, and statistically should have sold already.

Nobody knew it at that time, but the market was slowing down and was about to become the worst market in recent history.

After weathering that storm, I got to witness another change.  Early in 2013.  It felt like that first decent day in spring.  The one where you notice the sun stays up a little longer, you didn’t feel as cold as the day before.  Like that scene in Bambie where all the animals come out for the first time.

I was working with a really cool buyer named John.  He traded cars as often as I do.  He wanted the south end of town in an affordable price range.  We made a few offers on houses and lost them.  The offers we made were spot on within the recent comparable sales.  After the 3rd time, I told him that I felt like the market was improving, so all the sale prices for the recent comparable sales were going to be lower than what the value would be now.  We would have to made an adjustment.  Sure enough, as the ones we had made offers on closed, the prices were about 2% higher than the comps I had been using.  Meanwhile,  we had a backup offer on a foreclosure that he ended up getting.  He put very little money in that house and less than 6 months later we sold it for $41k more than he had paid for it.  By the time he sold it, everybody knew the market had changed.  The market had changed so much that even after the house sold, people were walking up and looking in the windows while he was home.  I told him to pull my for sale sign out of the yard and keep it in the garage until we closed.

So, where are we right now?  After such a hot hot hot market earlier this year, the market is really slow.  I don’t think it is in trouble or anything.  I just suspect that everybody who was going to buy this year did so in the first 10 months.  It has been a frustrating year for buyers.  I think a lot of them have given up on buying this year and are waiting until spring.  Sellers aren’t too happy right now either.  They have watched all their neighbors get multiple offers the first day on the market, but now they aren’t seeing the same thing happen with their house.

So, right now is a great time to get out and buy a house if you can find one you like.  We still don’t have a lot of choices, but you’re going to have more of a chance to negotiate and probably be the only offer the seller has on the table.  Historically, buyers come out of hibernation late spring and sellers start putting their houses on the market about a month later.  So you’ve only got about 8 weeks to enjoy this slow period.

The more of these changes I live through, the easier it becomes to notice them more quickly.

And now the same holds true for the trees in my backyard.

 

Selling “By Owner”

by John Rice

It’s a hot market.  Many people want to go the For Sale by Owner route.  I have no hard feelings towards them.  It is their house after all!  They can do with it whatever they want.  My only real problem with this whole For Sale By Owner process is that the buyers who look at these properties and the sellers BOTH want to save the commission that would be paid to a Realtor.

Okay, the seller is thinking, hey, I can save as much as 6% if I do this myself  The buyer is thinking, hey, I can make a low offer on this FSBO house since they don’t have to pay a Realtor!  That is where the fun begins.  Both parties are viewing the savings as THEIRS!!!!!!!

And let me stick this little bit of trivia in now.  Usually the seller thinks their house is worth more than it is.  Often, they interview several agents who all tell them their house is worth about the same amount.  The seller of course disagrees and puts their house on the market for way more money because you know, they think their house has some magical aura that adds value.  I often call FSBO sellers for my buyers.  Their interest usually ends the moment I tell them the seller’s list price.

Usually the buyer writes an offer than insults the seller.  The seller then says something like, “But I need to get this much out of my house so I can buy my next house on the terms that I want!”  The Buyer then tries to justify their offer by saying something like, “Well, we just can’t pay any more for your house since we are going to have to repaint your baby’s room and replace that ugly carpet in your family room.”  By this time both parties have gotten away from the fact that the goal is to change who owns the house, not to win a battle.  While I did exaggerate things a bit, this type of thing is what keeps agents in the business.  I think this is more the norm than a pleasant FSBO experience.

I have always said that the day people can negotiate without taking things personally, when they can see how the other party thinks, when sellers realize that their house may not be the best one in town, and when buyers realize they don’t have to put the seller in a chokehold, that it will be the end of the road for realtors.   I use to worry about this, but now I know that day will never come.

The hardest houses to sell

by John Rice

I’ve been at this for a long time.  I’ve sold a lot of houses.  In a good market.  In a bad market.  In Lexington.  Outside of Lexington.  In neighborhoods.  In the country.

Want to know the houses that are the absolute hardest to sell?

The ones that are partially updated.

Why?

You would think that a buyer would view a house that has some parts really nice to be a big bonus.  They don’t.  The nice part of the house just makes the rest of the house look worse to a buyer.  Too much contrast between the nice and the average bits of the house.

Who comes to see these houses?

  1.  The buyer who sees the nice new stuff in the pictures.  They get excited but almost always say that the rest of the house needs too much work.
  2. The buyer who see the part of the house that needs updated.  They get excited because they want to renovate the rest of the house, but not give any credit for the work that has been done……meaning they want it for free.
  3.  All the other buyers who come mainly because it meets some or all of their search criteria.  They don’t buy it because they say it needs too much work.

What you have to do with a house like this is try to make the non-updated bits look as good as possible.  You want to minimize that contrast.  You don’t want the buyer to walk in one room and be unhappy, then walk in the next and fall in love, then walk in the next and be unhappy.  The goal is to make them at least feel neutral, then love, then neutral as they walk through the house.  Less contrast is good.

You also have to really emphasis the other features of the house, hoping that the right buyer will see all the other pluses and feel like they can live with the house like it is or take on the updating.  If the house is the best bargain in the neighborhood, walking distance to trendy places, has a park nearby, a desirable school district, is the most square footage for the money…..whatever the house excels at, and all houses have something unique, that is what you want to emphasize.  Anybody looking for one or more of those unique features is usually the one who buys the house.  Why?  Because they don’t have as many choices

Why isn’t that house selling? I thought it was a HOT market?

by John Rice

You’d think in a time where there are not a lot of houses on the market, buyers would be less picky.

Not the case at all.

Back when the market and economy were bad, few people were updating or renovating their homes.  I mean, why would they when they didn’t know if they were going to remain gainfully employed as they watched the value of their home decrease?

Flash forward a few years and people are feeling great about the economy, home values have gone up, all is swell.  After all those years of watching HGTV, it’s time to pull out some cash on a refi or HELOC and spend spend spend.

Not so long ago, most of the houses for sale were just very ho-hum.

Now it seems like most of the houses I show have been updated or extensively renovated…..cooler, lighter colors, lots of white cabinets.  Marble and quartz have replaced granite.

So where does that leave the house that needs paint, flooring, has too much travertine or has that Tuscan vibe that was so popular earlier this century?  It leaves them sitting on the market, collecting dust each and every day as they get overlooked online.  The ones in more desirable neighborhoods do better because a good location can make a buyer more forgiving.

You’d think in a time where there are not a lot of houses on the market, buyers would be less picky.

Not the case at all.

Got $500k or more? It’s your market

by John Rice

Once a month the local MLS sends out the sales statistics.  Being into numbers, it is always fun to drop a K-Cup in the Keurig and check it out.

I guess the biggest news is that when you compare Fayette Co sales in September 2016 to September 2017, the number of new listings was down 16% and the number of sales were down 13%.   Hard to sell houses when fewer are for sale.

This whole year has been a frenzy.  Agents and buyers are struggling to find houses.  Everybody is talking about what a hot market it is…..but I think the word we use should be tight.  It’s a tight market.

The hot market was last year.  There were more sales in 2016.

January 2017 beat January 2016.  390 sales compared to 318.

Every other month in 2016 saw 40-90 more sales each month.

The fine line between a seller’s market and a buyer’s market has always been which side of 6 months of inventory we are on.  Less than 6 months is a seller’s market.  More than 6 months is a buyer’s market.  In Lexington, it is a seller’s market up to $500k.   It is REALLY a seller’s market under $250k.   Got $500k or more?  It is very much a buyer’s market.  That is why prices on houses in this price range have been pretty flat for several years.  It’s a great time to move into this price range, especially if you are selling something cheaper.

I just finished that cup of coffee, so I guess my closing remarks will be that it is an interesting time to be in real estate.