keeping real estate simple

When I am not working, one thing I like to do is golf. Unfortunately, the time to do so is few and far between with work and family responsibilities. So it is extra nice when I am able to get out and hit that little white ball around a little bit. The other day, I was able to kick out of work early and hit the course with a friend. Not long into the round, he said to me, “You are in real estate, what is it with these home warranties every buyer is asking for the seller to provide? Are they a scam?”

He went on to explain that a co-worker of his had recently bought a house for the first time, and had one of these home warranties. Unfortunately, not long after moving into his house issues with appliances and HVAC started to come up. And from the sounds of it, this particular home warranty wasn’t worth the paper it was written on. The company he is covered with continue to deny coverage for one reason or another. Or when they do fix something, it is done incorrectly, etc. So he (and the co-worker) are understandably skeptical as to why they are a thing in real estate if they are as worthless as they seem to them. Why are they recommended, do the agents get kickbacks on them, or what?

First off, let me be clear that, at least in the state of Missouri, ANY kickbacks from such companies to Realtors is illegal. We get absolutely nothing for signing our buyers up for these coverages. Other states may have different takes on this sort of thing, so you should find out how your state handles it.

So let’s take a look at these home warranties, find out what they are, and whether or not they are something that is necessary in a real estate transaction.

There are many different companies that offer home warranties. Some are local service companies that offer the warranty AND do the work themselves, others are national companies that only offer the warranty and then outsource the actual work to a contracted servicer in your area. Neither is necessarily right or wrong, but my feeling is the companies that do the work tend to be a little easier to work with in my experience. Mostly because I believe that local companies tend to care about their community and the people in it, so will be more customer focused rather than money focused. National companies sometimes don’t see it the same way. But that is just my opinion.

To start, what is a home warranty exactly and what does it cover?

For help with the “what is it,” I will pull a definition from the company that my brokerage has partnered with to provide the warranties for our clients. This is straight from their website. Feel free to get more information at http://www.abmay.com.

What it is:

A home warranty contract, also called a service agreement, provides for the repair or replacement of a home’s mechanical systems and major built-in appliances in the event of a breakdown due to normal wear and tear during the agreement period.

What is it not:

A home warranty is not the same as homeowner’s insurance. In fact, warranties exclude coverage on any damage to the home or its contents.  Furthermore, they are not designed to cover pre-existing conditions or to remedy building code violations.

Primary Benefits:

The primary benefit of a home warranty is the protection afforded to the home owner on a home’s operating systems. Home Warranty Plus is protection beyond the sale.

In short, at least with the home warranty company I am most familiar with, the warranty is protection against issues to the property’s heating and cooling, plumbing, electrical or appliances. It might be different with the company you use, and there are limits and exclusions to be aware of as well. It is best to read your warranty and understand what is and is not covered before you purchase it.

Additionally, you have to understand that the warranty is only as good as the company that is offering it. Some companies will go out of their way to ensure the best customer service experience possible, and well, others do not strive to do that. Just google it and you can find lots of examples of both.

As with anything, do your research on the company before to purchase it or ask the seller to provide it.

If I am going to be honest, I think the disconnect between my friend and his co-worker with the situation he is in, is likely the fault of his Realtor for not setting the correct expectations (which is a huge part of our job.) I believe that in most cases the buyer of a property assumes that the home warranty is going to cover them for any and everything that comes up for little or no money. And then are disappointed when this isn’t the case.

The best way I have heard it explained is this way… the warranty is given to you by a third party that agrees to help cover equipment they didn’t make. From that perspective, it makes sense that this wouldn’t be a full 100% warranty on anything and everything. Right?

So, my job as a Realtor is to make sure that my buyers understand that the warranty they are getting is there to help them in the event that something goes wrong. It is just like health insurance, if your doctor does something like an x-ray for example, it’s usually not free, but you do get some help with the cost of it. Same here in that if your oven stops working, the cost to repair or replace will not be free, but it will be less than it would be if you didn’t have the coverage.

Just like with any other insurance, there is bad with the good. Insurance/warranty companies base their business model on NOT paying out any claims. Otherwise, they wouldn’t be in business. So exclusions and limitation abound in the contracts. Kind of the nasty little truth of the insurance world…

Personally speaking, I have had dealings with both types of home warranty companies I spoke about above. And my feelings on how each has handled my claims admittedly has made me a fan of one, not so much of the other. I have worked with warranty companies that made things super easy, and fixed or replaced an item for little cost to me. Conversely, I have had a company try everything they could to wiggle out of doing what their contract stated. So I have been there. It makes me appreciate the company’s that put the customer first and know that maybe a little less profit now, could mean greater profits over the long haul by making a customer for life.

That said, I do have to offer up that there are plenty of people out there who have maybe had the exact opposite experience as me and have a different opinion on the matter. Since I am not here to tell you which one is best, I will move on.

Back to the question my friend had about why buyers are asking sellers to provide this warranty.

Aside from the obvious reason of it is free if you can get the seller to pay for it, here are my thoughts on why a buyer should ask for it.

Contractually speaking, the only thing a seller is liable to do in the transaction is to disclose any and all material defects of the house (that are known) and to sell you the house as the contract states. Nothing more, nothing less. There are no guarantees listed anywhere in the contract in case something were to happen after the buyer moves in. So for the most part, the contract is very pro-seller in that regard. And we are talking about buying something that is years, decades or even centuries old in some cases; and for a lot of money. So the buyer assumes all of the risk. A real estate transaction certainly lives up to the saying, “Buyer Beware.”  There is no way for that buyer to know that the components inside the house that are used the most frequently, have been used correctly and been taken care of by the previous owner. And unfortunately, a home inspection isn’t always able to tell either. So the buyer does come into buying the house fairly blind as to what issues might be inside.

Given that, I do believe that it is only right that the seller offer the buyer a home warranty that would help in the event that something were to occur in that first year. It is a small price (usually around $500) for the seller to pay to convey to the buyer that they in a sense “stand behind the sale” even though they will have no further dealings with the property. It gives the buyer some warm and fuzzies that if something happens, they will have some coverage. Therefore, I usually advise my seller to pay for one as a show of good faith to the buyer. As well as I would ask for one for my buyers depending on what side of the table I am on.

However, don’t confuse that with thinking that it is a “must” in a transaction. Because I do not think that it should be. There are times in a transaction when offering or asking for one doesn’t make sense. And from the buyer’s perspective, I certainly would not advise them to walk away from a house they love simply because the seller is not willing to offer the warranty to them. If it is that important to have the warranty, you can buy it as well. It doesn’t have to be provided to you by the seller.

In conclusion, I would say that for the most part, a home warranty is worth the money as long as you are with a company that is going to stand behind their promises within that warranty. The best thing to do is before you ask for or purchase warranty, check out the company and read some reviews on how others feel their service is just like you would with anything else you buy. Even if it is “free” to you, doesn’t mean you don’t have some choice into which company you go with.

I am a pretty simple guy. I hate complicated. I don’t want to read a common core math answer about how you go about figuring out what happens when you have 100 things and take away 50. No thanks, I will just use the knowledge in my head (or on the calculator) to tell you it’s 50. Simple things are always better in my world. See ball, hit ball as they say in baseball.

Throw everything else out, keep it simple, and know how these 4 things affect the sale of your house and you will be miles ahead of other sellers.

#1 is Location. Stop me if you have heard this one before. “It is all about location, location, location.” Yep, I bet you have. And I am keenly aware of the fact that this is the one thing you absolutely cannot do anything about when it comes to your home. It is where it is. Ok, you could move it, technically. But that is messy and expensive. Not to mention likely not allowed in some areas. So let’s scratch that.

The location of your home is the biggest factor in its value to a buyer. From the bigger things such as area of the city or school district it is in, down to the neighborhood or placement of the lot on the street. Literally every location is different in some way.

While there is no way to change the location of your house, it is important to understand how impactful it is to a buyer and plan your sale accordingly. For instance, if it is something to highlight, in the case of it being a great neighborhood, schools, etc. then highlight it. But, it could be something to try to overcome like when your neighbor is a Wal-Mart or a cemetery for instance. You cannot just ignore it and hope it goes away. It won’t, and it will hurt your sale. Plan accordingly.

#2 is Condition. Now here is something we can determine, within reason of course. The condition of your property is something the buyer will notice as early the pictures online. And is even more noticeable when they pull up to the house. Notice how I said property not house this time. This is because your entire property needs to be looking good. It all doesn’t have to be perfect, but take some time to make sure it doesn’t look bad. For instance, you don’t have to repaint the entire outside of the house, but cleaning off the siding with a power washer can go a long way. The lawn and landscape doesn’t have to “wow” the buyer, but it needs to be in good shape so that it isn’t a deterrent. The carpet doesn’t have to be new, but it should be clean. Like professionally cleaned. That bit of money you spend could be the difference in a buyer making an offer, or passing on it to another house.

Now, do not confuse condition with features. This is not a time to be taking on expensive projects to try to “upgrade” your home for the buyer if it isn’t necessary. The house for sale up the street may have granite counters and yours doesn’t, but spending the money to have it done may not be the best choice. Especially if that money is taking away money that would be better served to fix or replace some things that are in bad condition. A buyer would rather see a house that is in overall good condition without granite counters than they would a house with them but is falling apart elsewhere.

The key is, know what is important and makes sure your money and efforts go there.

#3 is Price. Ah yes, the price. The single most important item on the list. While location, location, location is the most important aspect to a home sale, let’s call price the “trump card.” The one thing that can overcome any shortcomings in location, condition or marketing plan. Pricing the home is the single most important thing to get right. I cannot stress this enough.

No, you cannot just “price it a little high and then come down if needed.” That doesn’t work. Why? Because by the time you have figured out that the high price isn’t bringing in buyers, those buyers have already purchased a properly priced home. And the next crop of buyers will wonder what is wrong with the house since it isn’t selling and dropping in price. They wonder if a previous buyer found a big problem. Point is, time on the market drives buyers away.

Once you have missed that few week window of the house being a “new listing” it becomes increasingly harder to sell the house in general, much less in getting the price you were hoping for.

As tempting as it is to go for the most money you can possibly get, you have to consider the consequences if that doesn’t work. Wouldn’t it be better to price it right the first time, take a bit less money but sell it faster and for the amount you are asking? After all, you are selling the house to move somewhere else right? The goal is the move, not the profit.

#4 is Marketing Plan. While maybe not something you were thinking of when you thought about the possibilities for this list, it is nevertheless very important. A good marketing plan and its execution can be the difference between you getting what you want out of the sale of the house.

Anyone can put a sign in the yard, post it to the Multiple Listing Service, and then hope that the right buyer comes along. Unfortunately, all too often this is the extent of the plan for some For Sale By Owners and (sadly) some agents. The marketing plan is sometimes an afterthought with everything else going on. But it shouldn’t be.

A marketing plan is much like a recipe, if you have one and follow it, you will get the results you want. If you don’t have one, or have one but do not use it, who knows what will come of your work?

The marketing plan is the “who, what, when, where, why and how” of the sale of your home. It answers such questions as; Who are you marketing to? How are you going to market to them? Where will they see your marketing? Why will they be interested in your home? And so on. Marketing isn’t an accident. It isn’t just getting lucky either. It is a plan that is carried out to expose your home to not only the most people possible, but also the most probable buyers for your home.

As you can tell, you need to be careful that the marketing plan is not an afterthought in your sale.

So, there you have it. The 4 most important things when it comes to selling your house. They are not a secret, so don’t treat them like it when it comes time to sell your home. For the most part, they are common sense but often forgotten at the same time. As you go out into the market with your house, just be mindful of these 4 factors and your home selling experience will be so much smoother.

A contingent contract is something that is useful in both a seller’s and buyer’s market. So it is important to know what it is, how it works, and how to use it to your advantage.

In a nutshell, a contingent contract means that something has to happen before the transaction can be closed. For the contingent buyer, they have their own house to sell. And that must be done for their lender to give them the money for the other house. For the contingent seller, it means they have to find a house before they will sell their house. Think of it like dominoes, one has to fall before the next one can.

Basically, a contingency is there to protect one side of the contract.

There are several types of contingencies, as there can be a contingency written up for almost any situation. So we cannot possibly talk about every type that can come up. However, we will discuss the two main ones you will run into in real estate.

Buyer Contingency

For the buyer’s out there, the “contingent” houses are the hidden jewels of the market. Why do I say that? Because somebody has already deemed it to be a great house at a great price…because a buyer made an offer and are trying to buy the house. And, it is hidden because most buyers do not include them in their home searches because they are not a default option in the searches. The buyer has to take an extra step to include them and so they disappear from most buyers’ searches.

But they shouldn’t disappear from yours, especially if you are a buyer who doesn’t have a house to sell. Here is why. As a non-contingent buyer, your offer is already stronger than the current one the seller has in hand. And that is before any financial terms are discussed. Because you are not waiting on a house to sell, you are ready to go. If you can match the financial terms, you are in a great position to get the house.

Those contingency contracts have in them what is called a “kick-out” clause. And it does exactly what the name implies. The seller can “kick-out” the contingent offer for a non-contingent offer. So when your offer comes in, the contingent buyers will have 48 hours to drop their contingency and proceed with the contract, or they will lose the house to you. Thing is, most with a contingency cannot get financing without the sale of their house. So they are out of luck and you slide in as the new buyer. Pretty sweet.

But you may be thinking, “I will have a house to sell too, so this doesn’t apply to me.” Not true. It still could apply. You do NOT have to be non-contingent contract to knock out a contingent one. Say what?  Yep, it’s the truth. If you have a house to sell, but it is on the market and already has a contract, guess what? Yours is still a stronger offer than the other one assuming they do not have a contract. And the seller could invoke the kick-out clause in favor of you. So don’t give up just because you have a house to sell.

So, as a buyer, make sure you include these in your searches. Most real estate websites have a way to do this. If you cannot figure it out, ask your Realtor to set you up on a contingent search. It is a great way to find a house in a hot market.

Seller Contingency

This is basically the same thing as a buyer’s contingency, but in reverse. This is used in a market where houses are selling very fast and a potential seller doesn’t want to end up homeless, or having to move into a temporary residence if they cannot find a house in a certain period of time.

In most cases, you will need to at the very least have your home on the market in order to make a contingency offer on another house for the seller to accept it. So, for sellers it can be a catch-22. They don’t want to put their house on the market and have it sell too soon, but cannot seriously look at houses without theirs being on the market. The contingency allows both to happen.

While that contingency can give the seller the warm and fuzzies, it doesn’t come without its downfalls. For one, buyers will take this into consideration when deciding whether to make an offer or not. Some buyers don’t want to be tied up in a contract that may never come to fruition and miss out on another house because they are waiting on the seller to find a house. For all they know, you may be the pickiest buyer ever, and pass up several great homes looking for the perfect one that may never come along.

Also, some buyers may not feel like they would need to honor the contract they made with you if something else comes along and back out of the contract. Now your house has been on the market a while and you might have missed out on a bunch of other buyers. So be careful when considering this option as it might backfire on you.

Overall, the use of contingency contracts can be a sound decision for virtually any type of market cycle an area can see. There will always be a purpose for them. However, one needs to be sure they understand what they are getting themselves into when it comes to signing one. Consulting with a knowledgeable real estate professional will help you know when to use it, and when not to.

Ok, so I pulled the title from that great disclaimer at the end of ads for attorneys on tv and radio. I love it because of the irony. The FCC (I assume) says lawyers can advertise, but at the end of it you have to tell people to NOT call based on the ad. Funny how this disclaimer is nowhere to be found on the infomercials at 3am. But I digress…

Here we will talk about how to pick an agent.

We have covered before why you need to use a Realtor, so I will assume you have now decided it is time to take action and hire one.

As I have hopefully impressed upon you in other posts, buying or selling a home is not something to be taken lightly, and who you hire as an agent can and does have a big effect on the entire process. So it is important to choose the right one for you.

There are thousands of agents in the Kansas City area. Somewhere around 7,000, I believe. Some more active than others when it comes to selling real estate.  So how do you go about finding the right agent to help you buy, sell, or both?

If you google “how to choose a realtor” you will find numerous websites with everything from “tips for picking an agent” to “red flags when picking an agent.” Everyone has an opinion on how to go about doing it. The problem is, while some of the advice is good. Some of it makes me wonder what the author’s goal is. Because it doesn’t seem to be the type of advice a reader will want to take. So I have put together some things to consider when looking at hiring an agent.

Do they live and work in the area you are considering buying or selling in?

This may seem obvious, but you would be surprised how often I see people hiring agents from a completely different part of town to assist them. There are a few major problems with this. For a seller, selling their house is mostly about connections. So how can agent from another part of town sell a house when they have very few connections in that area? Also, a listing agent needs to know the neighborhood, and most importantly, where potential buyers to that neighborhood are living now.  It is hard from agent who predominately works in another part of town to know where to go to find potential buyers.

From a buyer’s perspective, especially in a hot market, if your agent isn’t available to go see a new listing right away, you could (and probably will miss it). That agent in another part of town from where you are looking is going to have less availability to you than the one whose office is 5 minutes away. It may not seem all that important, but it is. Plus, many times an agent who works in that area also will know about new listings BEFORE they are even on the market in some cases. That can be a huge advantage for you. Why not use it?

Should I work with a family member?

Your cousin has been in real estate for several years, so you guess you have to use them, otherwise the family reunion will be super awkward. But consider this, what would be more awkward, explaining why you didn’t use them in the first place, or explaining why you had to fire them after things didn’t go as planned? Yeah…you know the answer.

Not that in all cases will working with a relative is a bad idea. It is just smart to consider all of your options and ask the honest question as to whether that relative is the best agent for you. And will working with them be an enjoyable experience? If the answer is yes, then go for it. If no, why put yourself through that just to appease family?

Here is a tip: you can work with another agent AND appease the family member. How? Just ask the agent you hire to pay your licensed relative a referral. Problem solved. You get the right agent assisting you, and the relative gets a little money for nothing. Everyone wins.

Experienced vs. Newer Agent –which is better?

On the face of it, most would think that when in doubt go with experience, because that is always better right? The answer: sometimes.

Experience can mean a lot of things. To most people, when they hear, “I have been in real estate for 20 years.” They think of it as this agent has been a top producer year in and year out and really knows the business. They remain current on the trends and know how to work in today’s market. However, that same statement could mean this agent has had their license for 20 years as a part time agent doing a couple deals a year. And they haven’t really done a great job keeping up with the current trends in the market place.

So which one are you talking to? Sometimes it can be hard to tell.

ALL agents basically have the same tools at their disposal. There are no patents, copyrights, etc. keeping any agent from being able to do anything another agent can do. But how (and IF) they use those tools is the separating factor between the good agent and the not so good.

It should seem pretty clear that the first experienced agent uses more of those tools in the tool belt than the part time agent does, right? Asking questions of the agent will help you know which one you are talking to. They should have a solid plan as to how they use their tools to sell your house. If they cannot really explain how something works, they probably are not using it (or using it well).

The same is true for a newer agent. When people find out an agent has been in the business for a couple years or less, their assumption is that they will be “learning on them.” And that the agent probably doesn’t know as much, or cannot serve them as well as an agent who has been in the business for several years. However, that is not always true. Sometimes the newer agents are more knowledgeable and better with newer trends. (If you have or are around the younger generations, think of how much better they are with technology than you are)

The newer agents are willing to work harder, think outside the box, and go to greater lengths sometimes because they are trying to get their business off to a good start. These agents haven’t established habits (usually bad) and are not bound by the “that doesn’t work” mantra that people get when they get set in their ways. So while they may not have much to show in the way of home selling experience, that might be a good thing.

Keep in mind that in most real estate companies (I know it is true in mine) these newer agents are never alone. Most have brokers and mentors working with them. These are seasoned professionals who have been through it all and are now assisting the new agents in learning how to do things. So in a sense you are getting two (or more) agents for the price of one.

So the answer to the experienced vs newer agent question is, it depends. You have to choose what is right for you and what you are wanting in an agent. The key is, don’t assume going in you know which is best before you have a chance to interview them.

Should commission rate be a consideration?

I wrote another blog about commission rates with real estate agents prior, which you can find on this site. So I won’t belabor the point. But when it comes down to it, the best answer to this question is the old saying, “you get what you pay for.”

This holds true in real estate just as it does in another areas of life. It doesn’t mean you have to spend the most money on everything to be happy with the product or results. But at the same time you have to live with the choices you make.

As you interview agents, you will find that there are some that stick to their commission rate, and there are some that are more than happy to cut their costs to get your business. The question is; does it make more sense to spend extra on a real estate agent if you can get the results you want for less money?

Real estate, commissions are a “success fee.” Meaning you only pay when the agent does exactly what you want them to do…sell your house. So who do you think will work harder to do so, the agent who would be getting their normal pay, or the one taking a pay cut? Just think of yourself and your job. If your boss gave you two projects to work on at the same time, one you get your normal hourly rate to perform, the other you get less. Which one will you work on first, and more diligently? I think you know the answer to that. And how does that affect the outcome?

Do you realize that the agent that cut their commission for you, probably has other listings paying them their normal commission? So now you are paying them less to do the same job. Guess who will be neglected!

And here is the kicker. You still have to pay them if the house sells. Even if that neglect lead to your house sitting on the market longer, costing you time and money. Perhaps causing you to miss out on the house you wanted to buy. So…was that lower commission actually saving anything?

Additionally, if you are paying your agent less, then they are probably going to have to offer the selling agent (the one with the buyer) less money too. Now you are asking the other agent to also accept less money for the same amount of work.

The lower commission also communicates a lot to the buyer’s agent, beyond just them not getting paid as much. They may be concerned with how much extra work they will have to do because the listing agent took a lower rate and isn’t as committed to it. The lower rate indicates you might not be easy to work with in negotiating all aspects of the deal, etc. And there are some that simply will not deal with all of that and skip over your listing.

Keeping in mind that the agents involved in the transaction have a direct impact on how smooth the process is for you. Sometimes better service comes at a price.

 Pick a Winner?

You have seen their face on billboards, their signs are in seemingly every yard and you have seen them cruising around town in the fancy sports car. Seems like the easy choice. They are obviously successful at real estate. And, you are probably right, they are likely very good at what they do. But, does that make them the right agent for you? That answer lies in what you want in the transaction.

Chances are; with this type of agent you are likely to be just a part of their big transaction machine. Nothing personal, just business. Get in, get out, collect the check and ask for referrals. You likely meet with the agent one time, and then from there on out you hear from an assistant. You are simply an address on a listing sheet.

For some people, that is just fine as they don’t need anything more as long as they get what they want in the end. They want to hand it all over to them, step back and let it all happen. If that is you, then go for it.

However, some people would prefer to have the process be more personal. They want to feel like the agent is working for them and not just for a check. They want to be able to call, text or email the agent and hear back from that particular person, not an assistant. Some people want to be more involved in the process of selling their house. Wants the agent to sit down with them throughout the process and go over things face to face.

For these people, they would find the “winner” agent wouldn’t meet their needs. They would be better off working with an agent who chooses to be less busy and has more time to work with them on a more personal level. Because in real estate, there is a choice as to how busy you let yourself become.

The key is to know which type of person you are, and what you want in an agent and hire one that fits that mold. You are the one hiring them, not the other way around. You should act accordingly.

In the end, probably the best advice about choosing an agent is to find out who your friends, coworkers, neighbors, etc. used and would recommend, since they are like-minded people to you, so you know that if they had a good experience, you are likely to as well. But don’t just take their word for it, interview a few of them. Then pick the one you feel the most comfortable with based on what you want in an agent. The entire house selling process will be much easier for you if you pick an agent that you have confidence in and relate to well.

Now, before I dive into this you need to understand that I am talking about the right here and now in my home market of Kansas City. As of today. Now. Not 6 months before, not 6 months after. But Right. Now. So read this with the knowledge that a few months from now my blog post might sound quite different than today.

What I mean by the title is not true, on its face value. Of course every facet of a real estate deal is a negotiation. And while price will be something that is negotiated, there is a certain segment of our inventory on the market right now that make you feel more like you are at an auction where a reserve has been set and you are in a bidding war. Because if the house is priced right, in a good neighborhood, and in good condition, the seller can reasonably expect there to be multiple offers in a short amount of time. In some cases resulting in offers higher than their asking price. The housing inventory is just that low, and buyers that plentiful.

Perhaps a better title would be, “The days of getting a “deal” are over.” Probably more accurate, but less attention drawing.

This presents a problem for some home buyers in that in many situations they will have to pay MORE than list price to get the house. And it is hard for buyers to wrap their heads around this idea. Unless you are around auctions frequently, this is not a normal occurrence in your life. You are used to paying what is on the price tag, maybe less with coupons and sales. So the concept of paying a seller more than their asking price can be a leap.

But, right now, in some cases it is a must if you want the house.

So how do we prepare ourselves for this before we head out on the hunt for a house?

First, you have to understand that the seller is only setting the price of their house based on what other comparable houses in their neighborhood are selling or have sold for. This is an educated guess, not an itemized list of all the features, their costs or values coming up with a price with pinpoint accuracy. That would be nearly impossible to do. There are over 60,000 moving parts in a house. Those parts are all of different grade of material, age, size, etc. Therefore, even similar houses can actually be quite different, leading to different valuations.  We are not car shopping here, where for the most part the same make/model of one car will more or less be the same as another. Minus a few factors.

The process of coming up with a good list price for a house goes like this. An agent and a seller will first decide on a range of prices that make up the current and past sales for that neighborhood. Then will narrow that down to similar houses to the subject property.  In some neighborhoods, that the range could be a several thousand dollar swing low and high. The easy thing would be to assume that they decide on the highest possible price they can. But sometimes, that is not the best strategy. For instance, if the range is $195,000-$205,000 for their house, a price of $199,000 might make the most sense for the seller because a popular price cutoff point for buyer searches is $200,000. Go with the higher price and you would be missing out on large pool of buyers who are likely to be interested in your house, but won’t see it in their searches.

So in this example, you can see that just because someone may need to offer $201,000, that doesn’t mean you are offering more than the house is worth. Because it might actually be worth that higher amount.

Some other factors could be at play as well. Perhaps the seller needs to sell their house fast, so they are asking for less to get a quick sale.  Maybe the real estate agent they hired didn’t go through the exercise above, doesn’t know the area, or is simply not very good at their job (which does happen) and the seller took their price recommendation at face value and the valuation was wrong. Both of these examples could mean you are paying more than asking price, but still only buying the house for what it is truly worth.

So don’t be scared to pay over list price for a house you really want!

I have heard the saying before that pricing real estate can be more of an art than it is a science. I think this is very true. Science likes to deal in the absolutes. 1 part Hydrogen and 2 parts Oxygen will always make water, every time. It will never make gasoline.  However in art, there are rarely absolutes. The same piece of art can be conceptual or abstract and give the view two different experiences.

Much like art, rarely does a house give two buyers the same reaction. And that reaction alone can make a house more or less valuable to that person.

So why does this matter? Because it shows that pricing a home is not easy, and it is never uniform to a neighborhood, floor plan or bedroom/bath combination. It is more like trying to hit a moving target than it is plugging numbers into a spreadsheet and getting a definitive answer. So when it comes down to finding the house you can see yourself in for years to come, don’t handcuff yourself by thinking the list price is a hard and fast number for the value of that house. That is a great way to miss out on houses in this market.

Now, this is not to say that there are not fail safes along the way to help make sure you don’t overpay for a house. First of all, you should have a qualified buyer’s agent on your side to help you determine the value of the home. You will have the same information the seller has, so if both agents do their jobs, the information should tell the same story. This will help you know if a higher offer is worth it. If the information doesn’t make you comfortable that the value is there, then you don’t make a higher offer. But be prepared to miss out on the home, because there might be a buyer willing to go higher. That is all part of the game.

Secondly, there is the appraisal. The lender (if you are financing the deal) will send out a neutral third party to do a thorough evaluation of the property to determine what they think the property is worth. A lender will not loan more money than the house is worth. Likewise, if you are paying cash, ordering an appraisal yourself is a good idea. This will serve as another opinion on the house to help you feel good about its value.

In conclusion, I hope that this helps to prepare you for what lies ahead in your home search. The more knowledge you have about the process and what is going on right now in the market will help take a lot of stress out of the situation and make it much more enjoyable for you. After all, that is what buying a home should be, enjoyable.

In today’s information overload society, is having too much information hindering buyers more than it is actually helping them make a home purchase decision?

According to National Association of Realtors data, homebuyers who use the internet to aid in their search are seeing more than twice as many homes and taking twice as long to make a decision than those whose search did not include the internet.

Now, the first question I do have to ask is, “who isn’t using the internet these days?” But I think what they mean here is there are people out there who really rely on their agent to find homes and information, and not do any of that work themselves. Therefore are only seeing filtered information. They are only using the internet sparingly in their search.

So the short answer to the headline question I believe is, “yes.”

I do think that in some ways, having too much information out there makes it harder for buyers to sift through it all and trim it down to the essential things they are wanting in a home.  Being hyper-aware of every single detail of every single home on the market can be confusing (and exhausting). Causing a buyer to delay action and possibly missing out on houses that would have been good fits for them.

For example, imagine for lunch you want to go for a burger. The place you go to has a small menu, you can have a hamburger or cheeseburger, with a few toppings like lettuce, tomato, mayo, ketchup and mustard. And then a couple options for sides like fries or onion rings.  It is easy to pick what you want and you will be satisfied with your decision as long as the food tastes good. Now imagine instead of going to the place with a limited menu, you go to a place that has numerous options across the board. Now your meat can be hamburger, turkey, bison, chicken with toppings such as bacon, pineapple, BBQ sauce, buffalo wing sauce (mild, medium, hot), onion strings, jalapenos, and 15 types of cheeses. Now the decision is much more difficult because you get bogged down in all of the choices. Too many options can take your attention away from the choice you wanted all along, because you are busy trying to see it all. A simplistic example, but I think the point remains that sometimes not having so many choices is a good thing.

I have personally seen this bear out when working with buyers. Those that have been less reliant on doing their own research online, and allowed me to streamline their search by staying within their needs and trying to get as many “wants” as possible, we have looked at fewer houses, and a decision was made faster and the buyer always feels good about their decision.

On the flip side, those buyers I have worked with that conducted their own search in conjunction with mine, a funny thing happens. When we first meet, most have a pretty good feel for what they are looking for and have their base requirements of needs. And we are quickly able to identify several options for sale that meet those needs. However once their own search starts, they don’t just look at the houses that fit the criteria, but they also look at houses that may lack the essential criteria, but have a “want” feature the others do not have. And now they are trying to weigh if that want is greater than a need. As you can see, now the buyer is focused on wrong things and their list of houses gets bigger and bigger unnecessarily. Which obviously makes the decision that much more difficult.

Does this mean that buyers shouldn’t do their own research and just leave it up to their agent? No, that probably isn’t a realistic expectation.

So as the proliferation of information continues to grow, how do Realtors and buyers make the home search more efficient and easier? I think a good start for Realtors is to make sure you have a sit down buyer consultation session as early in the process as you possibly can to develop a solid game plan as to how you are going to go about the search. This is a good time to set expectations about the search. After all, Realtors are the ones who do this every day. Buyers are likely to have not done it in years, if at all. There the risks of having too much exposure to houses that do not meet their criteria can cause more problems that can help can be addressed.

As a buyer, having a good understanding the difference between wants and needs. And that any house that doesn’t meet those core necessities should be eliminated from any search regardless of how attractive the wants in the house may be. This will go a long way in keeping the house list to the minimum of just those that will work for the buyers. But still allows them to feel a part of the search by letting them do their own thing as well.

The fact of the matter is I don’t think the availability of information is going to ever slow down or diminish in any way. So we just have to get better about how we use the information. To use it in a way that is advantageous, and not paralyzes us into indecision. It is something that can definitely be done if Realtors and buyers work together.

The Home Inspection reveals the doorbell doesn’t work… better ask for all new wiring, new furnace, water softener and a Jacuzzi tub.

While this is a joke, unfortunately there is a hint of truth to it in what agents have to deal with when working with buyers for a property and the home inspection is done.

In short, the home inspection is probably one of the most important steps in the transaction timeline for buying (and selling) a home. This is the buyers chance to have the house evaluated and detect any possible problems the house might have.

A few things as to what the home inspection is, and what it is not.

What it is.

It is an opportunity to have a neutral third party check the major components of the house for defects. Such as the roof, siding, foundation, wiring, and HVAC, to name a few. The inspector’s job in a nutshell is to look at the house in its current state, and tell you what would need to be fixed. This includes any and all things no matter how minor it may seem. Their job is to mention anything that isn’t perfect.

And in any house, even new ones, there will be imperfections. Buyers need to remember that.

The inspection is a chance for the buyer to get some of the important things fixed before they purchase it. I say a chance, because contractually, the seller is under no obligation to make any repairs. However, refusing to do so might jeopardize the transaction.

What it is not.

This is not a chance for the buyer to have every single imperfection of the house remedied or used in further negotiations. Unfortunately, this is how numerous buyers go about it.

While it is certainly in the buyer’s right to ask for repairs, or to renegotiate the purchase price to encompass repairs they will have to do, there needs to be a balance in how things are negotiated.

A good rule of thumb for buyers is this. When you are reading through the inspection report, make three columns on a sheet of paper. Label those columns as such:

1. Must have repairs.

-These are repairs that you cannot (or will not) do yourself, and must be done for you to purchase the house. These are the big items, like the roof, HVAC, electrical. These either need to be done, or the cost negotiated into the purchase price.

2. The things you ask to be done, but can do yourself if need be.

-Here are the smaller items that you would like to have done, and might ask the seller to do, but ultimately could let go and do yourself if the seller says no. Definitely not deal breakers. Things like adding caulk to a leaky window, filling in dirt around the foundation for water run-off, fixing a loose deck step fit in this category for most homebuyers.

3. The things that the inspector must mention, but you don’t worry about or can easily do yourself for little cost.

– Here is where the things go that you are not at all worried about because you can easily do them. Things like tightening loose doorknobs, paint touchups, or nail holes in the wall from hanging pictures.  While I agree that a seller should have probably done this prior to listing their house, things get missed.

The point of this exercise is to get you in a good frame of mind for when you go back to the seller to ask for repairs.  Especially if there are big items to be dealt with, such as the roof, HVAC, etc. Being able to forgo some small things to get the bigger thing certainly increases your chance of getting it. Because in the end, you want to make sure you get the important things.

In closing, it is important to remember that both the buyer and the seller need to enter into this inspection period with an open mind and with the intent to keep the deal together. Too many times we find that one party or the other digs their heels into the ground and make everything a bigger deal than it needs to be.

No house is perfect, or will ever be perfect in every way so there is no point in trying to make that happen.

“It’s December, time to sell the house!” Says no one ever.  But, they are wrong.

The month of December might be the busiest month of the year. With things like gift buying, decorating the house, parties with friends or coworkers, and visiting relatives taking up a lot of time. Who would want to sell their house during all of this? The answer is, anyone who wants to get top dollar, sell when buyers are the most serious, and when your house never looks better to name a few. December is a great time to list your house. And here is more on why.

1. Supply vs. Demand

As with real estate year round, supply vs. demand is the biggest factor in how fast and how much a house will sell for. As stated before, most people do not think this is a good time to have their house on the market. What does that mean? Yep, less COMPETITION in the marketplace. The houses that are on the market tend to sell faster and for more money. Because buyers are still buying!

2. Serious Buyers

Speaking of buyers…

The fact of the matter is; warmer weather brings more window shoppers. Between the Parade of Homes and numerous open house opportunities, this is a time when soon to be buyers get curious and start looking around to see what is out there. Note the word curious. Most of these buyers have no immediate plans to buy anything within the next several months. Is that the type of person you want touring your home? On the flip side, the buyers who are out looking in December, are serious. They are people who are planning to buy, quickly, because they are likely not just out looking around for the fun of it when it is freezing outside.

3. Not all buyers are bound by the school schedule

This one goes along with number three, but I separate it because it is worth noting. There are plenty of buyers out there who have to, or want to move now. Between buyers with work relocations, an addition to the family, or downsizing due to age. Not to mention those who simply do not have school age children. The number of prospective buyers who are not at all influenced by the school schedule is much greater than those who do. Missing out on these buyers could be the difference in a quick sale for more money, or your house languishing on the market.

*As an add-on to numbers 2 and 3: the internet has taken much of the seasonality out of the market. With more and more information at their fingertips, buyers know far more about the house they are going to view than in years past. Therefore, buyers narrow their options very early in the process and statistically look at fewer houses in person than before. So the days of needing good weather to go see numerous houses are over.

4. Your house will never be more staged than it is right now

Remember back at the beginning of this I mentioned you were taking time to decorate your house? All that time spent hanging the stockings over the fireplace, wreaths on the door, garland on the banister, and tree with presents in the corner, and so on. I ask you, when does your house ever look, feel or smell better? There is just something about it, right? Your house always looks great this time of year. Well, don’t you think that buyers would see and feel that too if they were looking at your house and it was all decorated? You are already going to do the work, make it pay off.

5. More personal attention from your Realtor (and lender, title worker, mover…)

Not that you would ever slip through the cracks and be accidentally ignored by your agent. But…

Chances are, with less houses on the market your agent will have less on their plate as well. Meaning your house is more the center of attention than it would be in busier times. Think of it like going to a restaurant when it is really busy. Your server doesn’t want you to have to wait for that refill, but they have many other tables to attend to as well. And you might just have to wait. However, if you are in before or after the crowd, I bet that refill comes before your current glass is even empty.

There are many examples of how your experience is greatly enhanced when you are the center of attention. And listing your house during the less peak times such as winter, you are all but guaranteeing to get that extra touch every agent wishes they could give to every client, but realistically cannot. Like being able to do more marketing and getting your house in front of more people. In ways such as hold more open houses, put together more advertising touches for their center of influence, invite other agents to the house to view it and give feedback. The list goes on and on. Keep in mind that this applies to your lender, title worker, mover and all others associated with this process. Less busy equals more attention on you!

December may not ever become the “hot” time to buy and sell in real estate, as old habits die hard. But as you can see there are many advantages to listing your house now while all of the other potential sellers wait for the spring. And there are likely more advantages I haven’t even thought of. So if you have one, just add it to the list for me.

So the next time you hear someone say, “We are thinking about selling our house, but will wait until the spring.” You can point out these reasons not to wait and perhaps help your friend sell their house faster and for more money and they will thank you for that.

When you are writing a contract offer on a house one of the decision you and your Realtor will need to make is what amount of earnest money you should offer to be held in escrow. What this means is you make a deposit with a third party (typically the title company) showing the seller that you are willing to put some skin in the game to show you are serious about the deal. This amount is typically $500 or $1,000 in the KC area. However, it can be of any amount. And doesn’t have to be money. It can be anything you and the seller agree on. It can be a necklace, a boat, a cow, you name it.

For simplicity purposes, from here on out I will speak of thing in terms of this deposit being money.

There are a few things you need to know about the earnest money deposit. The first is, the check will be deposited into an escrow account. Therefore you must have the money in your account. Secondly, if you follow through with the contract and purchase the house, that money is credited back to you at the closing table. Third, if you walk away from the deal for a reason not covered in the contract, you will forfeit the money to the seller.

Now the tricky part. There is another level to this most people do not know about. If the contract gets cancelled for any reason and never makes it to the closing table, both parties have to sign the release form to allow the money to be given to the other party. You read that right. Both parties. So what happens if one side chooses to not sign it? The answer is it sits in limbo in that escrow account until one of three things happens. One is that both parties come to an agreement and sign the form. Two is that one party takes the other to court and gets a ruling from the court to have the money released to them. And three, the money is not released and after a couple of years becomes possession of the state.

Now that we know what earnest money is, and how it works, let’s look at the reasons for it, and against it.

First, why you need to do it.

As I mentioned before, this is showing the seller you are serious about your offer and you are willing to put up some money to prove it. This says to the seller you are willing to give them that money if you do not go through with the contract. In a hot market, this could be the difference in getting your offer accepted, and getting put in the trash can. In some instances, it might be more important to the seller than the actual offer. I say that because what good is a higher price offer, if it isn’t serious?

Additionally, by accepting a contract, the seller essentially has to take the house off the market while you go through the contract timeline. Technically, it is still for sale and can allow backup offers. But houses in backup status are far less viewed than those that are active. So the earnest money gives them peace of mind that if the buyer walks away, they can be compensated for the time their house was not actively for sale.

So there are the reasons you need to offer an earnest money deposit. Now for why you maybe shouldn’t.

As a buyer, you are the only party that is taking any kind of financial risk with offering a contract on a house. Two of things you will be paying for are the home inspection and appraisal. Both of which are typically paid outside of closing by you out of pocket. Whether the deal consummates or not. Add on the earnest money, and you could be looking at a few thousand dollars you are paying out that can all be lost if the deal falls apart. And it doesn’t even have to be the buyers fault!

The question then becomes, should the buyers being putting themselves at more risk than absolutely necessary? Does the earnest money deposit matter that much? For years the real estate community has shown that it does feel that it is a necessary part of the deal. But it seems like this is one of those, “the way it has always been done” type of things.  And nobody wants to be the first one to stray from the herd.

As I encounter the use of earnest money, from both the buyer and seller side, I can’t help but to feel like the earnest money deposit is an overrated component to the deal. That the risk/reward on the buyer’s side isn’t very good. When you get right down to it, you might as well be gambling with that money. Because you are gambling that if something happens, that the seller will be understanding and not hold the money hostage by refusing to sign the release. Which does happen.

So what is the remedy? I wish I knew. Because I do think there needs to be some reform in this area. Perhaps contracts need to be written in a more specific way that allows the money to be released without signatures for specific situations. Or maybe use a third party moderator to determine the release or non-release of the money. Just so that the decision making is done on facts, not emotions.

Maybe there will come a day when there is some change, maybe not. But hopefully this will give you something to think about the next time you are buying or selling a home.

I recently read an article in the Kansas City Star about how the tiny house trend has come to the Midwest. I have seen shows on tv about people searching for these tiny houses and found them to be pretty fascinating. I do have a hard time wrapping my head around the concept of living in a house full time that is smaller than most new homes master bedrooms. Of course, being a family of four, with a dog makes these houses impractical for my situation. The image of the 5 of us locked up in a 300-500 square foot box during a rainy day is the stuff nightmares are made of.

Having that said, I do understand the appeal of having it built on a trailer so you can travel and literally never leave home, and how it gets around most building codes since you are not affixed to the ground. Perhaps this is the new retirement trend instead of moving to Florida or Arizona. And can be more aesthetically pleasing than your standard RV.

But this article mentions how this trend is reaching down out of the retirees into the younger generation. I knew this to be true because I also found that a good number of the people on the tv shows were younger. This is where it gets interesting to me.

What is drawing this younger crowd to these tiny houses? Given that most young people are more tied down to jobs, schools, etc. So the traveling aspect is largely taken away. So what is left that is luring them?

I ask because it is an interesting dichotomy to what we have seen in the real estate market in the past several years. What we have found is that the average age of the first time home buyer is going up, as is the price of that first home. So what is happening is that the younger generation is waiting a little bit longer to buy, and when they do, they have more money to so. But that doesn’t mean they are buying the same “starter” homes the generations before started with, and putting more money down. No, they are skipping that segment of housing and going right to housing typical of that of an established family. Therefore leaving a void in that “starter” home market.

So what will it be, will younger generations continue to purchase bigger, higher priced homes first, or will tiny homes become the new “starter” home?

I think the answer will come in the form of seeing just how viable these homes are over the long haul with multiple generations of people. Then what happens to those houses when those younger people start having a family and need more space? Will there be a resale market for these homes? If there is not, then the trend will certainly die off.

Regardless, I do think it is a fascinating decision that people are willing to leave the space and conveniences of the traditional home for these tiny houses. I look forward to watching this trend and see where it goes over the next few years.

So what about you, could live in a tiny house? If you could, would you and why?