The LEXpert

What makes a good time to buy? It’s not what you think

by John Rice

In my nearly 20 years of being in this business, I have rarely seen anybody think it was a great time to buy a home.

Most of our perception of when was a great time to buy is retrospective.

2008-2010 was a fantastic time to be a buyer. Rates were really low, inventory was up, prices were down. But know what? Every buyer was scared to death to buy back then. Why, because like any time though history, there were reasons that made it scary. There will ALWAYS be reasons that make any moment in the future seem like a scary time to buy: Wars, recessions, politics, interest rates, employment stats, the price of gas. There will never ever be a time when all of those variables align to make you fell like it is the perfect time to buy a home.

Now I’m not just saying this because I’m a realtor. To most realtors, it is always a good time to buy. Interest rates going down? BUY and save money. Interest rates going up? BUY before they go higher. Inventory is up? BUY while you have options. Low inventory? BUY just to get in the market.

Know what I say? Buy when the time is right for you. It doesn’t matter what the market is like. It doesn’t matter what the interest rates are. Buying will always get you ahead because you will be buiding equity with every payment. You are investing in your furture though real estate, all while having a place to live that you can control. How will you know when you’re ready:

  1. When you can afford the payment and to maintain a home.
  2. When you know you will likely be able to stay in the home for at least the next 4-5 years.
  3. When your life is settled enough that the house you can afford will meet your needs for the next 5 years.

If you are at the point when all 3 of those conditions are met, it’s time to start shopping. Like I have been saying for nearly two decades: Buy a house on a decent lot, with a good floor plan, in one of the best neighborhoods in your price range. These three things will make your house desirable in any market when it is your turn to be the seller.

Buying a home will always be risky. Just be smart about it and minimize those risks though planning and good decisions.

How my fall is shaping up

by John Rice

I’ve been doing a lot of blogging about the market lately. Good stuff, but since I know most of you who will be reading this, I’ve been thinking I better give you all an update on what I have been doing.

I’ve been having a great time the past few weeks.

Yeah, the market is really slow. It’s there. It’s healthy. It is just slow. Few people want to buy and even fewer want to sell. That is okay for sellers and buyers. It is realtors, home inspectors and loan officers who this current gridlocked market affects the most.

I am not complaining though. I have more than enough work to stay comfortably busy.

I have several listings in the pipeline. All of them from people I know. A few buyers too.

I will be listing an amazing ranch in Versailles in a great location, with a great lot, and on a cul-de-sac. It is one of those rare houses that really has no negatives. I am looking forward to selling this for some friends who are moving out of state.

I’ve got a house around Southland that should be on the market sometime this winter or early next spring. It’s an older house with a really good floor plan and several interesting features. I have worked with the sellers several times. It might be the last one unless they were to move back to Lexington after this one sells.

I’ve got a very affordable ranch on the northend that I will be selling for a friend who has used me several times. He is an investor who is parting with several of his properties. I look forward to working with him and his family for probably most of the next year since they will sell one house at a time.

I’ve been working with a large family who has used me a couple of times before. I have really enjoyed getting to spend time with them. We found an ideal home in their existing neighborhood that will serve them well. This house has fairly new HVAC units, replacement windows and a literally brand new roof. I don’t see that Trifecta often. I should be listing their old house here in the next week or so. Their situation was very much like the “Love it or list it” show on HGTV. They loved their neighborhood but their old house wasn’t working. They were entertaining a big addition and remodeling the existing house.

I’ve been working with the mother of a woman that I went to middle school with. I have worked with her once before. Both her and her daughter are so much fun to be around. Once we find the perfect place, I will be selling her old house which is simply adorable. It is on about 3 acres in rural Franklin County. If you had told 6th grade me that I would be a realtor and showing houses to a classmate’s mother 40 years later, I would never have believed it!

Other than committing to wearing long pants every day, it’s shaping up to be an enjoyable fall for me.

Last nail in the coffin for the Pandemic era market

by John Rice

All throughout real estate history, we have had value differences due to location. Similar houses in the best locations got top dollar and the less desirable locations were worth less.

Except for the COVID era market.

During the pandemic, supply was so short and demand was so strong that pretty much the same house would sell for the same price regardless of things like what part of town it was in, what school district it was in, and even what condition the house was in.

This was especially true for the more affordable houses. Back then, a small 3 bedroom, 1 bath house without a garage was going for about $200k regardless of whether it was in a Grade A, Grade B or Grade C location. That was because the market was so tight that people didn’t have a choice in location. Buyers were shopping all over town, looking at any house in their price range. There were so many buyers doing this that location didn’t seem to matter much. It was about getting a house, not getting a house where you want it to be.

We’re not wearing masks. Rates aren’t 3%. That crazy market is in the past now.

Now that we are starting to see some houses staying on the market for more than a few hours, it’s back to location being important. As this happens, I think we will see the Grade A neighborhood prices remain stable. The Grade B and Grade C locations that recently had been getting the Grade A money…..well, they aren’t any longer. That is one reason we are seeing so many price reductions now. It just shows that the market is returning to normal. It isn’t crashing.

Back during the pandemic, I would have people ask me what a house was worth. I would tell them I can easily determine what it is worth, but the value and the sale price were not related for that brief time. I would tell my Buyers to view the sale price as paying what the house was worth plus a “Convenience Fee” for winning the house in multiple offers. Now that we aren’t seeing multiple offers on every single new listing, we are back to a house’s value and its sale price being the same.

What to expect for the rest of 2023

by John Rice

In 2-3 months, you will be reading that sales have dropped significantly. The news media will have you believing the sky has fallen. They will compare the stats to the booming pandemic years and/or the best of times……as if that was normal. Headlines will read:

“Sales down 20% (compared to last month.)”

“Mortgage applications fell to lowest level (since 2022.)”

The reality will be that the market has just returned to normal, seasonal cycles.

I think sometimes we forget to look back far enough to see the bigger patterns. It probably doesn’t help that the media people are only following real estate long enough to write their article. It also doesn’t help that so many real estate agents haven’t been in the business long enough to see a balanced or even a bad market.

This is what a balanced market looks like: Some houses sell the first day on the market in multiple offers. Some houses don’t sell quickly and need one or more price reductions. March through August are peak sales months. After August the sales gradually slow down and start picking back up after the New Year.

So, for the rest of 2023, I think we will see fewer and fewer sales. Yes, the interest rates are high and that is what is returning us to a more balanced market. However, that is not the only reason we will see fewer sales. Part of it will be that we have returned to a more normal cycle of sales slowing down due to the time of year. I think prices will remain stable. We will see a whole lot of price reductions on listings that didn’t sell the first day on the market. This doesn’t mean that values are dropping. It just means the seller and/or their realtor were just too ambitious on the list price. We are returning to a market where buyers have some choices. When there are not 10 buyers fighting for ever single house, it means the loser houses that nobody wants will have to reduce the price to even attract one buyer.

Backup offers are a bad idea except for this 1 reason

by John Rice

Backup offers.

They seem appealing to buyers who missed a house they wanted.

However, they are 99% of the time, a bad thing to do.

Why?

  1. It ties you up. You have an accepted contract on a house contingent on the primary buyer’s contract falling apart. Should another house come on the market that you want to make an offer on, you have to rescind your offer IF you have verbiage in your contract that allows you to do so. If you don’t have that language in the contract, you are stuck. You are missing out on houses you could get right now in hopes that the sale of one you previously missed will fall apart. This is a recipe for never getting a house.
  2. You are really helping the seller more than yourself. Think about it from the seller’s perspective. You are putting them in a spot where they have two people wanting the house. If the primary buyer asks for repairs after a home inspection, the seller is just going to say “Look, I’ve got a backup contract. If you want this house you’ve gotta do what I want you to do. If not, walk away and I’ll just let the other buyer have it.”
  3. You are going to pay a premium. The seller has no reason to accept an offer less than the primary contract they already have. If you’re a seller with an accepted contract for $400k on your house, would you bother with an offer for $390k? This means you are most likely going to have to make an offer stronger than the offer they currently have with the primary buyer.

When is that one single time when it might make sense? If the house is 110% exactly what you want and you are not going to be happy with any other house. If that’s they case, make that backup offer. Pay too much for it. Give the seller all the power. Pray the sale with the primary buyer falls apart. Then wait and see what happens.

If the house is just a really nice one that you liked a lot, just keep looking. Another one always eventually comes on the market. Oh, and remember, the best way to not have to make a backup offer is to have been the strongest offer the seller got when it was on the market. Beat the other buyers when you have a chance. Be that primary buyer that another buyer hopes will not be able to close the deal.