It happens. More than you’d think.
I showed a house about a month ago to a client. There was a line to see it. It got multiple offers that same day.
My client didn’t like it. I didn’t like it.
Why? The floor plan sucked. It had a big two story foyer as soon as you walked in. The living/dining/kitchen area was open. All this sounds great, but the issue was that this was a 1733 square feet home that had no more usable space than a 1300 square foot home. The upstairs hall was wide. The hall from the front door to the living room was wide. The dining area was small but nobody could tell since it was vacant. All the rest of the rooms were equal to what you’d find in a 1300 square foot house.
It made a good first impression though. You walk in that foyer and see space. You walk down that wide hall and see the open living/dining/kitchen. You go upstairs and see that wide hall. The house felt bigger than it was just because when you are viewing a house, you are going through every room in about 15 minutes.
It sold for over $6k more than the list price.
It closed today. The new owners are probably moving in and glad it quit raining. Once they live there for a while, they will probably realize that much of their square footage isn’t usable. They will realize that what they have is a 1300 square foot home with 400 extra square feet of hallways and foyer.
Don’t know if you’ve noticed, but there are more and more houses being extensively renovated in medium priced neighborhoods that sell for waaaaaay more than anything else in the same neighborhood.
I think this is happening because of two things. One is that there just aren’t a lot of houses for sale. That will eventually change. The other is because we’ve just about run out of room to build new houses. That means the only choice for most people will be an existing home. People love new stuff in a house, so it only makes sense that an older home in a closer-in location that has been totally renovated is appealing. This won’t change.
The thing to watch out for is that you are not the first or even the second person in the neighborhood to drop $100,000 or more than what the same non-renovated house might be worth. Why? What if the house you buy ends up being the only on that gets that type of renovation? You’ll have the most expensive house in the neighborhood in a big way. What happens when those trendy finishes get a few years of wear and tear and start to go out of style? Well, you will have a house that is worth no more than any other house in the neighborhood that needs updating. None of these are good things.
Before you pull the trigger on one of these whole house renovations, look around and make sure there is a trend of this happening in the neighborhood.
I had an interesting thing happen this past weekend. I showed a For Sale by Owner listing in an area where few houses are listed with a realtor. It’s a popular area and about the cheapest route to get in a super desirable elementary school district.
My buyer did some of my job for me. They found pictures of the FSBO listings on zillow. I try not to use zillow for a main source of information because their data is often incorrect and they do not list if the seller paid any of the Buyer’s closing costs or if there were any other concessions…..but pictures are helpful to see the differences in the houses.
There were four houses that were all roughly the same size…..so close that we don’t even need to make any adjustments in value for 3 of them. All sold within a few months last summer. The range was $280-$330k. Everything is sounding pretty normal so far, but this is where it gets odd.
I’ll describe each house and let you pick the sale price:
- Sale #1 was 2400 square feet. It backs to a city park. It is all original and even has a green kitchen counter top which doesn’t look that nice with original cabinets that have been painted white. Did it sell for $302k, $280k, $330k or $310k?
- Sale #2 was 2300 square feet. It recently had $45k in updates including new white shaker style cabinets, trendy lighting, subway tile in the kitchen and around the fireplace. Did it sell for $280k, $330k, $310k or $302k?
- Sale #3 was a 2300 square foot house with different types of laminate flooring. It looks like the only newer thing in this place other than maybe the furnace filter was granite counters in the kitchen and bath. This one has an odd shaped lot. It is sort of a triangle so your backyard comes to a point. Did it sell for $330k, $280k, $302k or $310k?
- Sale #4 was just over 2000 square feet so it was a little smaller than the others. It might be worth $12-15k less just due to square footage differences. The kitchen was just remodeled and was equally as impressive as the one in Sale #2. This one had new flooring too. Did it sell for $330k, $310k, $302k or $280k?
Okay, you ready for this?
Sale #1 sold for $330k. It was equal to Sale #3, which sold for $302k. That means somebody paid $28k for the nicer lot. That is nearly a 10% premium. That is higher than anywhere else in town. This was a great deal for the seller and a bad deal for the buyer.
Sale #2 sold for $280k. Yes, the one with $45k in recent updates sold for the least. Bad deal for the seller and great deal for the buyer!!
Sale #3 sold for $302k. This was the house that had more flooring types than Home Depot offers and the worst lot out of all of them. This one was listed with a realtor. This was a fair deal for both the buyer and seller.
Sale #4 sold for $310k. A good deal for the buyer.
So, what is my point in all this? That these people needed the help of a realtor. As a buyer’s agent, I would have advised my client not to pay $28k more than an equal house just to get a better lot. I would have told the seller of #2 that their price was waaaaay too low. I would have told both the buyer and seller of #3 that they got a fair deal. I would have told the seller of #4 to ask for more.
I can’t count how many houses I have been in over the past 15 years. Old, new, affordable, expensive and just about every neighborhood in the Bluegrass. Seen it.
One of my favorite things to do is watch how buyers react to several things, one of the biggest is the floor plan.
I think we don’t discuss the floor plan of houses often enough. Sure, we think about whether it is open or traditional but there is more to it than that. We usually just focus on the square footage. For example, I will often have buyers get excited about a small house because it has a basement. They will be excited because it is 2400 square feet. Having shown several of these over the years, I like to remind buyers that yes, 2400 square feet is a lot of space, but that house is really a small starter home sitting on a finished basement. 1200 up and 1200 down. The upstairs will always live like a starter home. I tell them this because just about every buyer I’ve known has lost their enthusiasm once they see a house like this.
Floor plans can greatly affect the value in older neighborhoods like Chevy Chase or Kenwick. I have seen far too many houses that sold for far less than similar sized houses that were finished equally. When I go to list an older house, the first thing I do is assess the floor plan. If it has lots of tiny rooms and much of the square footage is wasted in hallways, then I know it will sell for the lower end of the range for the neighborhood. A lot of older houses must have been designed by builders or the first owner on a napkin. You sometimes see some pretty odd things. You also see some odd things done during remodels. My parents house in Kenwick was built as a one bathroom house like pretty much all houses in the 1930s. Somebody at some point thought adding a half bath in an upstairs hall closet was a good idea. Since I lived upstairs, I can say that it was a good idea but it was very tight and very odd. This was before you could go to IKEA and buy those super small sinks. I just remember sucking in my gut to get past the sink.
Even in newer houses there are a few things that buyers seem to not like. I’ve shown some newer small ranch houses that have the living space on the back of the house. You have to walk down a hall and literally find the living room, which doesn’t make a good first impression. I have never sold one of these because a buyer just can’t get past that first impression, similar to split foyer houses where you have to decide immediately whether you are going up or down. Buyers don’t like anxiety as soon as they open the door. Also, a lot of the diagonal walls and plant shelves of the 1990s haven’t aged well. They usually make a room feel small, furniture placement odd and make people feel like they are in an interactive M.C. Escher display.
Another big negative is with houses that have a finished basement. Most people want to use this space for kids to play or for large gatherings of people. Lots of small rooms is a big negative. A lot of times, these basements got finished to suit the needs of the owner, which may not be the same needs as the next potential owner. When I have a client who will be finishing a basement, I ALWAYS tell them to have one big open room and to not make a maze of walls. Just like those ranches with the hallway leading from the front of the house to the back, buyers want to walk down into the basement and see that big open room immediately. They don’t want to get to the bottom of the stairs, turn and walk down a hall that leads to another hall or a small room that you must go through before getting to the main room. It is best to mimic the upstairs floor plan, only make it more open. You can put a spare bedroom under the dining room and a bathroom under the kitchen usually. Be sure to leave a little space for storage too.
Yeah yeah yeah. We’ve all been told by real estate professionals for years that the single most important thing when picking a house is it’s location. I’m telling you right now that there is something even more critical than that.
Let me tell you a few things about location first. It’s subjective. People pick where they want to live for lots of reasons: Proximity to main roads, their job, schools, parks, low crime, etc. It’s always a compromise too. One buyer may be willing to be far from parks if their kid can be in a better rated school. Another buyer may be willing to put up with a higher crime rate if it is super close to their job…..so, one person’s great location may not be as great to other buyers. Also, locations are sort of price dependent. What is considered a good location for somebody with a $100k budget will definitely be a bad location for a $400k buyer.
What do ALL buyers have in common though when picking a house? They all want as good of a lot as they can get. In all 15 years of my career, I have never had somebody say they wanted a house that backed to a busy road, had a steep driveway, lacked privacy or had a backyard that was unusable due to a slope.
Why is the lot so important? For starters, it is often a buyers first impression. If a buyer tries to pull in the driveway and their car scrapes the pavement, bad sign. If they are out of breath before they get to the front door, bad sign. If they step out of their car and can hear New Circle Road or the Interstate that is behind the house, bad sign. Additionally, the lot affects just about anything you do with the property.
What should you look for in a lot?
- As flat as possible is the biggest thing around here. Lexington is pretty flat. The severely sloping lot is unusual here. Go to Richmond or parts of Scott County and it is more common. For what’s it is worth, nobody has ever told me they didn’t like a house I showed them because the lot was too flat.
- A nice view is always a plus. If you can’t get a good view, then no view at all is safe. We don’t have a lot of greenspace views and even fewer water views in Lexington. It is totally okay to just have a flat backyard that backs to other houses. I would avoid backing to anything than other houses, such as businesses, apartments or a road…..and ideally it backs to houses that are equal or higher in value than the one you’re viewing.
- Get a lot size and shape that is normal for the neighborhood. If you are looking at a house that has a tiny or oddly shaped lot unlike any other in the neighborhood, don’t buy it. The same doesn’t always apply for lots that are bigger. Most of the time the biggest lot in the neighborhood is the most desirable unless it is in a neighborhood where the most likely buyer will be a retiree or somebody downsizing to get away from a lot of maintenance.
- I would avoid a corner lot if possible. There are a few buyers who prefer a corner lot but most people view them as twice as much sidewalk to deal with. Plus, most neighborhoods only allow you to fence a corner lot from the rear edge of the house, meaning that you have much less space if you want to fence it in. (I’ve got a good friend who looooves his corner lot and will likely find out I said this…..sorry Peter!)
Want to know my absolute favorite thing about getting a good lot? It never needs updating and never goes out of style.