I was out showing a house to a contractor for a buyer today. As they toured the house and sized it up for renovations, we spent a lot of time chatting about the market, strategies for prospering, and building wealth through real estate.
While I'm not enough of a typist to cover everything that we said, I would like to pass along a few of my impressions of the conversation. Keep in mind that I am the agent of the seller, and therefore not working "for" this buyer.
As a little background about the property, it is a nice entry level home in a suburb of Atlanta. It has a pretty good sized yard, and reasonable location. It has been partially remodeled, but some of the work is a little less than desirable. The kitchen was done a bit too cheaply, but the new windows are really nice. It is priced at about $190k in a subdivision that ranges from $160k to $235k.
The buyers wanted to talk about "completely" redoing the house. Replace all of the carpet with hardwoods, tear out the entire kitchen and start over, as well as re-do all three bathrooms. Finally, they want to remodel the lower level into a new master suite. The cost of the renovations looked to be around $40k. Frankly, I think it would end up closer to $60k by the time it was done. I also think it is too much to spend on the house. The house is currently worth about $200k, but the sellers need to get it sold, so it is priced competitively. After the renovations, I think it would only pick up about $25k to $30k in value.
Now, normally I wouldn't present too much of an objection to that proposition. After all, if one is going to buy the house and live in it for a good long time, then much of the value of the renovation is made up in increased livability. In this case, the buyers are looking to move up the property ladder, or use it as a rental property after they buy their next house. Since that is their situation, I think that spending closer to $10k on the house would be a better investment.
So, the tidbit is this: Don't over-improve a house unless you are willing to not be able to recapture the cost. Spending money (especially on kitchens and baths) can greatly improve the value of the property. However, building it past the norms of the neighborhood isn't such a great idea. Granite counters, limestone showers and commercial stainless appliances are cool. They add value to a home. However, they may be out of place in a mid-priced area if you are expecting to recoup the investment.
Saturday, July 21, 2007
How Did It Get This Far?
I had a new experience today. Not that I am new to real estate, but I just hadn't had the occasion to hang out for one of these. I attended an eviction. The clean-out crew, locksmith and Sheriff's Deputy we all scheduled to arrive at 1:00. I got there a few minutes early. My job was to take a look at the property, and put on a lockbox with the new key.
The rest of the players arrived, and the deputies entered and cleared the house. There was nobody inside, there were no guns, cash, drugs or other things that needed to be secured. We all walked into the house, and the clean-out crew began to take a few pictures. Very little remained, and most of what was left was piled in the garage. It was first staged to the driveway, then loaded into a trailer for disposal.
While the clean out crew took care of the contents of the house, and removed all of the trash from the yard, I had the opportunity to talk with the Sheriff's Deputies and the owner of the Foreclosure Services company. I already knew that the Atlanta area was near the top of the heap in foreclosures, but it hadn't really sunken in. The service guys are handling as many as 4 houses per day with each of their 4 crews. The Deputies are part of a department that just deals with evictions. This is what all of these other people do all day, every day. And it's getting worse. The Deputies are backlogged, as are the clean out guys. And they are looking at increases over the next few months.
While walking around the house, which was pretty well stripped, I could get clues about the people that lived here. One bedroom was pink, and had a "Little Princess" light switch cover. Another was dark green, but had a lot of small hangers in the closet. There was a small girls bike, and a little boy's bike. Obviously this was a family with a couple of young children. They drove a minivan, and the last seat was still in the garage. Aside from the trash all over the front and back yard, there were plants still in the trays from the store. The house, aside from the previously mentioned junk and a few spots that looked like moving damage, was in pretty good shape. The carpets needed to be replaced, and the house needed to be painted. The landscaping needed to be caught up with, and the outside trim needed to be repainted.
Outside, in the 95* heat of Atlanta, we talked about how a nice family could get to the situation where they would take what they could, and abandon their house. As a REALTOR, I know that there are options. Selling before foreclosure, even if it is a short sale is the last tool in the box, but it is an option. The banks don't want to own the property. Let me repeat that.
Despite what some people believe, the bank does NOT want to own the house. They don't want to foreclose. They don't want the scene that I was a part of this afternoon to be played out. They don't want to spend the money to bring in the cleaning crew, or the locksmith. They don't want to pay a lawyer to file the paperwork to bring the Sheriff's Deputies out there. They don't want their clients belongings to be loaded into a trailer to go to the dump. The Deputies don't want to stand around on a hot day and watch the work going on. They don't want to have to confront someone that has to be evicted. The bank doesn't want to sit on the house for months waiting to sell it at a loss. And, as a REALTOR, I'd rather have two people that are happy the house is changing hands.
If you are in trouble, don't bury your head in the sand. Ask for help. You might have the opportunity to avoid foreclosure. You might be surprised that the people at the bank really don't want to foreclose. But, they need your help, and they need to see a plan.
For Sale By Owner (FSBO) Math
As promised, I wanted to delve a little deeper into this subject.
The first thing we need to get out of the way is the "Myth of 6%". Since the VAST majority of sellers that are going unrepresented (FSBOs) offer to pay 3% to a buyer's agent, we can cut that number down to 3% (the remainder).
Let's start with an average house, perhaps something around $250k. That 3% is $7500. The next thing we need to do is go after the listing fees that one might pay with a limited service broker or other broker through one of the popular FSBO companies. The MLS fees for metro Atlanta are generally $499.95 and then .25% ($625 for our example). So, let's knock $1125 off of the "profit" for a savings of $6375. Add a virtual tour, and a little advertising (if you want it to sell, you need advertise), and you will probably need to spend between $1300 and $1500. That drops our savings to $5000 (I like round numbers). You should be able to fit a home stager in there for that, too.
Are you familiar with Fair Housing Laws, and the trouble you can get into with the wrong words in any of your ads? If not, you might need to consult with someone. And, then there are all of those pesky papers, like Seller's Disclosures and the like. You'd better budget a couple hundred dollars for consultations on rules, regs and laws about getting everything listed properly. And don't forget to get appraised. You might still have $4500 left from the budget. You might have a little less.
Now comes the fun part. You have to show the house, have open houses, and follow up with prospective buyers, or their agents. For the NE Atlanta market we are currently seeing about 100 days on market for homes that are priced close to the right range. Don't plan on any vacations for the next three to six months. If you leave town, you won't be available to show your home. And, you will need to be able to make yourself available any time a prospect is able to view your home.
So, you made it through all of that...
If you are lucky, here comes an offer. You need to decide what to do. It isn't a seller's market any more, so you will likely not see a full price offer unless you priced way too low. So, you need to prepare the counter and begin the negotiations. Many companies offer this service for around $3000 (those savings are looking pretty slim). Those companies generally offer the support from offer through closing, so we won't cover the hounding to make sure the buyer's mortgage is coming along, and that everything else is lining up for a proper close.
Almost finally, remember that sellers know that FSBOs are unrepresented. They "know" that you are saving 3%, so they price offers accordingly. Never mind that you have chewed up all but a few hundred dollars of the savings trying to get to this point. Buyers that target FSBO homes are looking for a bargain. So, the commission is something that both parties are trying to factor to their side.
And remember that much of the money that you put out in order to save a few hundred (or maybe a few thousand if you have a more expensive home) is spent regardless of whether your house sells. But, if your agent is working off of commission, if your house doesn't sell, you haven't spent that money. You might be out a little for paint or other suggested improvements, but you aren't out thousands of dollars for advertising and listing fees and consultations.
OK, last thing. What is your time worth? As an avid "Do-It-Yourselfer", I can identify with those that want to save money by doing things themselves. But, as I get busier, and my time becomes more valuable, I have started giving up some of those tasks, and spending "Me Time" on things that I enjoy. I still work on the Jeep, but the mini-van goes to the shop. I cut the grass, but tree pruning is hired out. I have an accountant to deal with the taxes of running a business. That let's me spend time with my family, and out in the garage playing with a welder... you know, the important stuff.
The first thing we need to get out of the way is the "Myth of 6%". Since the VAST majority of sellers that are going unrepresented (FSBOs) offer to pay 3% to a buyer's agent, we can cut that number down to 3% (the remainder).
Let's start with an average house, perhaps something around $250k. That 3% is $7500. The next thing we need to do is go after the listing fees that one might pay with a limited service broker or other broker through one of the popular FSBO companies. The MLS fees for metro Atlanta are generally $499.95 and then .25% ($625 for our example). So, let's knock $1125 off of the "profit" for a savings of $6375. Add a virtual tour, and a little advertising (if you want it to sell, you need advertise), and you will probably need to spend between $1300 and $1500. That drops our savings to $5000 (I like round numbers). You should be able to fit a home stager in there for that, too.
Are you familiar with Fair Housing Laws, and the trouble you can get into with the wrong words in any of your ads? If not, you might need to consult with someone. And, then there are all of those pesky papers, like Seller's Disclosures and the like. You'd better budget a couple hundred dollars for consultations on rules, regs and laws about getting everything listed properly. And don't forget to get appraised. You might still have $4500 left from the budget. You might have a little less.
Now comes the fun part. You have to show the house, have open houses, and follow up with prospective buyers, or their agents. For the NE Atlanta market we are currently seeing about 100 days on market for homes that are priced close to the right range. Don't plan on any vacations for the next three to six months. If you leave town, you won't be available to show your home. And, you will need to be able to make yourself available any time a prospect is able to view your home.
So, you made it through all of that...
If you are lucky, here comes an offer. You need to decide what to do. It isn't a seller's market any more, so you will likely not see a full price offer unless you priced way too low. So, you need to prepare the counter and begin the negotiations. Many companies offer this service for around $3000 (those savings are looking pretty slim). Those companies generally offer the support from offer through closing, so we won't cover the hounding to make sure the buyer's mortgage is coming along, and that everything else is lining up for a proper close.
Almost finally, remember that sellers know that FSBOs are unrepresented. They "know" that you are saving 3%, so they price offers accordingly. Never mind that you have chewed up all but a few hundred dollars of the savings trying to get to this point. Buyers that target FSBO homes are looking for a bargain. So, the commission is something that both parties are trying to factor to their side.
And remember that much of the money that you put out in order to save a few hundred (or maybe a few thousand if you have a more expensive home) is spent regardless of whether your house sells. But, if your agent is working off of commission, if your house doesn't sell, you haven't spent that money. You might be out a little for paint or other suggested improvements, but you aren't out thousands of dollars for advertising and listing fees and consultations.
OK, last thing. What is your time worth? As an avid "Do-It-Yourselfer", I can identify with those that want to save money by doing things themselves. But, as I get busier, and my time becomes more valuable, I have started giving up some of those tasks, and spending "Me Time" on things that I enjoy. I still work on the Jeep, but the mini-van goes to the shop. I cut the grass, but tree pruning is hired out. I have an accountant to deal with the taxes of running a business. That let's me spend time with my family, and out in the garage playing with a welder... you know, the important stuff.
For Sale By Owner (FSBO) Study in Wisconsin
As I watched TV recently, I noticed a commercial for a very popular "By Owner" company. There were a string of people giving testimonials about how much money they saved using this company's services.
Then, earlier today I saw that there was an article in the NY Times about how unrepresented sellers (FSBOs) in one city, Madison, WI, when studied between 1998 and 2004, sold their homes for about the same price as represented sellers.
Interesting. I already am familiar with data from the National Association of REALTORS that shows that the median price of MLS listed homes is 16% higher than non-listed, FSBO homes. I also know there are a couple of holes in the NAR data that are big enough to drive a truck through. The glaring issue that I have with the NAR findings is that there is no comparison of homes to see what similar homes might do. It would be a VERY difficult study, since real estate values can be quite finicky. Pegging whether something is selling above, at, or below market value is purely subjective. Finding two similar homes in the same area that sell at the same time is pretty elusive.
BTW, here is the link to the story.
It does require a free membership to view. Of the first things I noticed were that the agent represented homes sold more quickly. There was a 25% chance of selling in 60 days, vs. a 16% chance for FSBO homes. On the average, the FSBO homes took 125 days to sell, and the agent represented homes took 105 days. The next thing I picked up on was that they were always touting the 6% difference, but then mention that the vast majority of people selling themselves offered 3% to agents that bring a buyer. Finally, the FBSO reported prices were just that, prices reported by FSBOs, and there is no mention of concessions. The agent represented home's prices were based on data in the MLS. (We are required to report the final price of the house, as well as any concessions paid by the seller).
One other thing I did notice is that they adjusted prices based on: "timing, for house and lot size and characteristics, and for neighborhoods to make them comparable with sales by agents. They were also adjusted for what the researchers came to believe is an extra bit of shrewdness that FSBO sellers possess."
I noticed that this study has not been submitted to any peer reviewed journal.
I'll cover a little more in a future blog entry.
Then, earlier today I saw that there was an article in the NY Times about how unrepresented sellers (FSBOs) in one city, Madison, WI, when studied between 1998 and 2004, sold their homes for about the same price as represented sellers.
Interesting. I already am familiar with data from the National Association of REALTORS that shows that the median price of MLS listed homes is 16% higher than non-listed, FSBO homes. I also know there are a couple of holes in the NAR data that are big enough to drive a truck through. The glaring issue that I have with the NAR findings is that there is no comparison of homes to see what similar homes might do. It would be a VERY difficult study, since real estate values can be quite finicky. Pegging whether something is selling above, at, or below market value is purely subjective. Finding two similar homes in the same area that sell at the same time is pretty elusive.
BTW, here is the link to the story.
It does require a free membership to view. Of the first things I noticed were that the agent represented homes sold more quickly. There was a 25% chance of selling in 60 days, vs. a 16% chance for FSBO homes. On the average, the FSBO homes took 125 days to sell, and the agent represented homes took 105 days. The next thing I picked up on was that they were always touting the 6% difference, but then mention that the vast majority of people selling themselves offered 3% to agents that bring a buyer. Finally, the FBSO reported prices were just that, prices reported by FSBOs, and there is no mention of concessions. The agent represented home's prices were based on data in the MLS. (We are required to report the final price of the house, as well as any concessions paid by the seller).
One other thing I did notice is that they adjusted prices based on: "timing, for house and lot size and characteristics, and for neighborhoods to make them comparable with sales by agents. They were also adjusted for what the researchers came to believe is an extra bit of shrewdness that FSBO sellers possess."
I noticed that this study has not been submitted to any peer reviewed journal.
I'll cover a little more in a future blog entry.
House Stalking... and Garage stalking, too!
Not too long ago, I had a friend and client tell me that he and his wife were "stalking" a house.
Around the corner, in the same subdivision they were in was a house that they loved. In their case, they were friends with the owners, and joked that when their friends moved, they wanted the house. It got me thinking... always a dangerous act.
My wife and I have been stalking a house, too. We don't know the owners. We just admire it as we drive by. Every day. Several times. OK, the route to my son's daycare goes right by the house, so each time we go to take him or pick him up we drive right by. There is a beautiful front yard. We are talking about a golf course quality yard. I'd have to hire someone to keep me from killing it. There is also a full basement. My wife likes that. But, the draw is the "extra" garage. If I had to take a guess, I would say it is in the 3,000 square feet range. Of course there is a three car attached garage, but that would be for my wife's minivan, and some lawn stuff. The 3,000 sf garage would by my "man pit." I could spread my automotive projects all over the place. I would be in heaven.
But, it's too much. Well, it isn't for sale yet, either. But, if it was it would be too much. Maybe by the time the current owner tires of it, we'll be ready to get it... or we will have built a home to fit our needs. I'm not that patient.
So, who else has stalked a home? Did you get it?
Post script>> I have to admit that I posted this on another blog I wrote for a real estate specific site. Shortly after posting it up, I was contacted by a writer with the New York Times. He was writing a story on this very thing... I'll keep you posted of any cool news.
Welcome to the Garage with a Detached Home
Welcome to my world. Let me start by saying "welcome." Take off your jacket and stay a while. Post up questions, comments and impressions. I'll be happy to answer what I can.
I'm a real estate agent in the Atlanta, GA area. I tend to look at property a little differently that most of my peers, though. To start with, I tend to get caught up in the garage. As a car guy, I'm always looking at the toy storage area. A two car garage just isn't making it. One good project can load up two or three bays without too much fuss. I also like to see a lot of power outlets, and even 220v outlets.
Now, I'm not a one trick pony. I do pay attention to the rest of the house. As a former professional photographer, I am detail oriented, and I have a good eye for design. Just like most other agents, I look at the window treatments, counter top materials, and flooring. I look at the number and size of bedrooms. I know why a laundry room should be near the bedrooms, and what constitutes a proper work triangle in the kitchen.
Anyway, I plan on posting up comments about houses and garages I visit, as well as information about real estate in general, and the local market in particular. Feel free to ask questions, make comments, and just say "Hi." If you want to have me list your house and/or sell you a house, that's cool, too.
I'm a real estate agent in the Atlanta, GA area. I tend to look at property a little differently that most of my peers, though. To start with, I tend to get caught up in the garage. As a car guy, I'm always looking at the toy storage area. A two car garage just isn't making it. One good project can load up two or three bays without too much fuss. I also like to see a lot of power outlets, and even 220v outlets.
Now, I'm not a one trick pony. I do pay attention to the rest of the house. As a former professional photographer, I am detail oriented, and I have a good eye for design. Just like most other agents, I look at the window treatments, counter top materials, and flooring. I look at the number and size of bedrooms. I know why a laundry room should be near the bedrooms, and what constitutes a proper work triangle in the kitchen.
Anyway, I plan on posting up comments about houses and garages I visit, as well as information about real estate in general, and the local market in particular. Feel free to ask questions, make comments, and just say "Hi." If you want to have me list your house and/or sell you a house, that's cool, too.
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