Stupid Seller Tricks and Chasing the Market

When you’re shopping around for a house, you tend to see a lot of homes. Some of them you tend to see over and over again. You might create a search on a Realty Website or if you’re working with an agent at that point, they might email you listings.  Sometimes if really feels like the same house that “just listed” has been on the market forever.

Because it has.

The other day I got an automatic email from Redfin telling me about a price reduction in one of the houses I’ve been following. It dropped from $444000K to $443,300K, not much of a price reduction. I decided to take a closer look.

The house is listed as MLS 08107033 (note: you may need to create a Redfin account to see all the history). Notice that it says (as of this posting) this property has been on the market for 113 days.

We saw it on June 24 when it had already been on the market for 86 days. And yeah for those doing the math in your head, it has been more than 27 days since June 24. We saw it when it was MLS 08031319 and it originally listed for $485K and has been chasing the market.

Realtors and Sellers use a couple of tricks, usually in concert, to make a stale property appear new.

• Lower the price by a slim amount, and
• Delist and then Relist the property

Lowering the price of a property by say $100-1000 causes it to appear fresh on some realty websites and also to reappear in someone’s saved searches.  This is true no matter how much you lower, or raise the price.

Delisting and then relists a property gets a fresh MLS number so it might not have all the previous history for the house attached. It’s a perfectly legal move though it is somewhat pointless in the Internet Age because a savvy buyer will find the history.

About the house:  A rehabber bought the place for $172K in January 2012. I’m not sure if he actually put in $300K of work into the place nor am I begrudging him making a profit. That’s his line of work and he’s entitled to make as much money as possible.

At first glance, this is an awesome-looking old house, pretty much the type I’d like to live in. I could even get over living on a busy street which this part of Ridgeland Avenue in Oak Park is. However, the bedrooms are small and we would probably have to sacrifice one to reconfigure a Master Bedroom/Master Bath setup, though that might allow for an upstairs laundry room.

Also, the front porch is noticeably slanted so that a=and the lack of master bedroom and separate bath leaves this property undesirable at this price point. The agent wasn’t the listing agent but she was nice enough to chat with us for a long time as no one else came by while we were there. She gave us some insight into Oak Park and I told her that if the builder is willing to come down closer to $400K, give us a call. No one has reached out to us of course.

In the case of owners trying to sell their homes, I’ve noticed a trend where it seems like the seller isn’t so much trying to make the insane profit of the boom years so much as they are trying to be able to walk away with their transaction costs covered AND a down payment for the next home.

In the case of the builders, I can only speculate that either the costs are higher than I realize, or they encountered some unforeseen circumstances that ate up their profits, or they are trying to cash in on naive or frustrated buyers who just want new and ready to move-in homes.

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Sellers experiencing painful Learning Curve

In the early days of the Real Estate Bust, many a seller placed their home on the market and watched it sit.  The Days On Market (DOM) would grow to triple digits.  They would try tricks like dropping the price a few hundred dollars and/or relisting to make it seem like it just came on the market.  Most buyers quickly caught onto this trick.

Every owner thinks that their house is special and worth more than the one next door, across the street or down the block. This healthy belief gets even sillier when it’s clear the houses were built by the same builder and have the same general floor plan, number of bedrooms/bathrooms and the only real difference is the exterior paint.

What’s really surprising is that even today owners thinks their place is worth X because the houses across the street sold for X +/- a few dollars last month. The seller fails to account or flat out ignores that the sold house had features his home lacks, like updated bathrooms and kitchens or central air conditioning. During the Boom you could get away with this because “prices could only go up” and “buy now or be priced out forever” mentality.

Yes your house did appraise once for half a million dollars.  Blackberry Stock was once worth $140/share yet today it’s barely worth $8.  The difference is RIMM might release a new widget that brings it back into the smart phone arena.  Your house is not going to jump back to the ridiculously inflated prices we saw during the boom.  Those crazy prices were a once in a generation experience.

Sellers who are new to the current Real Estate market go through a learning curve when they decide to sell their home. They think I paid $X and its 2, 3, 5 years later, it must be worth Y, especially since I changed out the light fixtures. It must be worth more.

If you bought in the last 5 years and didn’t do anything to the property – why do you think you will get more than what you paid?

It’s really a quite simple formula:

Z = Price_Sale – Amount_You_Owe_Bank – Transaction_Costs

You want Z to be a positive number and to be as large as possible. You cannot do much about Amount_you_owe_Bank other than pay it down as quickly as possible. Transaction_Costs are pretty set too.  And you don’t really know Price_Sale until you put your place out there and then it’s too late.

For many people Amount_You_Owe_Bank is higher than Price_Sale and they cannot afford to bring that much money to the table.

The reality is that a lot of people are out there chasing the market. Believe it or not, a lot of people don’t know this or even truly realize how bad the current market is. Yeah they see headlines but unless you are buying or selling a place, you treat it the same way a person who doesn’t like sports treats a headline about the Cubs or the Bears.

So when someone tries to sell today, they go through a few stages.

• Stage 1: My house/condo is worth so much more than everyone else’s on the block/in the building and I should get back every $1 I put into it;
• Stage 2: Okay I may not make any money, but perhaps I can have something for a Down Payment on the next house;
• Stage 3: Geez, at least let me sell for enough to break even;
• Stage 4: Yikes, I have to bring how much to the table?

During the early days of The Bust, the paradigm was price it at or just below the comps and you would be fine. Unfortunately, that paradigm soon switched to if you cannot afford to sell your place (at whatever price necessary) then don’t bother a realtor with putting your place on the market in the first place.

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Realtors – a Necessary Evil

After you’ve figured out how much home you can afford and where you want to live (and I’ll blog more about that later) the next thing to do is get an agent.

Technically, you don’t have to have an agent, but the Real Estate Cartel Industry has pretty much rigged the system to work better if you work with an agent, so get an agent. Get a really good agent.

When my friends heard we were house hunting, everyone either asked if I was working with an agent, or simply offered theirs like they were loaning me 50 Shades of Grey.

You can get away without having an agent for a little while but the pressure will get to you. At Open Houses if you say you are working with an agent, many listing realtors will ignore you from that point on. If you say you aren’t working with an agent, the showing agent will try to snag you.

In the post-boom era, a pre-qualified buyer, especially one who doesn’t need to sell a property in order to buy one is a Golden Goose and most realtors want to lay him.

They do this little stunt where you walk into an open house and they find out you aren’t working with an agent yet. They offer to send you some more listings similar to the house you’re looking at. Sounds innocent, right? I naively expected to get an email with some direct links to specific houses that were on the market. Instead you get the MLSConnect sign up.

Now you are signed up to get frequent emails about homes that are vaguely what you looking for. Depending on the agent, you might get search results that match the house you were looking at when you meet them. More times than not, they send you listings of every house that is on the market in a particular quadrant of the city at a similar price point. I’ll rip MLSConnect in a future post.

Meanwhile, it’s much easier to work with an agent than without one. Realtors are just trying to make a living like anyone else. Many are simply inept yet harmless. Some are downright sleazy. A few can actually be harmful. Realtors don’t make any money until a house is sold. (At all times, remember that the agent on both sides of the transaction is paid by the seller.)

You’re trying to find someone you can trust, so be vigilant. It’s one thing if they call a broken down crapshack a “fixer-upper with charm.” It’s another thing when they tell you they can sell your house for more money than any other agent out there.

House Hunting is a Marathon not a Sprint

Like how I tied this blog into the subject de jour of the last two weeks?  (Disclosure:  I’ve run 21 marathons, 12 of them in Chicago.)

While marathons and house buying might seem like apples and oranges, they do have some similarities.  A lot of training goes into running a successful marathon and a lot of planning and research is necessary for buying a house.  House hunting also takes a bit of time as you get your finances in order, come up with a down payment and figure out where you want to live.

The same can be said about botching either endeavor.  Sure you could just sign up and run a marathon.  You might do alright if you have good genetics and any kind of running base.  Most likely you would run a few miles and then decide to stop at Caribou in Lake View or check out the monkey house in Lincoln Park Zoo.  Similarly, you could just see a house you like with a For Sale sign on the lawn, knock on the door and ask how much.  You might get lucky and get your dream house though more likely you’d get a Money Pit Nightmare down the street from a crack house.

Figure out where you want to live

Gone are the days – if they ever truly existed – when you could buy a home and then sell it a few years later if some life changing event occurs.  Even in the pre-boom years, you typically had to own a home for 3-5 years just to break even on transactions costs (Transfer Tax, Title insurance, realtor fees, etc.).

Sure everyone knows that one guy who bought a property for cheap, painted it and replaced one broken window and then made a fortune when Starbucks opened down the block.  Not only doesn’t anyone like that guy but he’s lying.  Most of the time he didn’t make nearly as much money as he claims, or he’s downplaying how much he really put into the place.

Therefore you really have to figure out where you want to live for the next 7 to 10 years.  Or longer.  My wife and I are looking for our Forever House – the house we plan to live in until we are too old and feeble to take care of ourselves and our kids will force us to sell to pay for the retirement housing, or fight over on our deathbeds.

So here in Chicago the standard debate DINKS go through is City versus Suburbs.  I’ll summarize it for you.  Suburbs have good school systems.  City has walkability and certain amenities that you have to drive to in the burbs.   The irony is that you probably don’t fully utilize those amenities once you have babies, at least not until they are old enough to be left alone or with a sitter for a few hours.

We have opted for the city though we do waiver when we read about things like the Teacher’s Strike and the current state of CPS.  When I say city I’m not strictly referring to downtown or Lincoln Park with anything West of Ashland being considered Schaumburg.  There are tons of great neighborhoods with a 606 zip code that provide within the city limits but most ChicagoNow/Redeye  readers have never been to or wouldn’t admit it if they have.  These homes may be a bit far from the lake but the cost to size ratio usually offsets that giving you more house for your buck.

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The First Step in Buying a Home…depends on who you ask

Okay so me and the Mrs are house hunting. How do you get started? If you Google “steps for buying a home” you’ll get a lot of websites with different number of steps. Some break it down into 5 simple steps; others detail it into 11 – 25 steps complete with graphs and flowcharts. Many make it sound like you must go through the steps in the order they present and to do otherwise would throw the universe into anarchy.

As you might expect, the reality is somewhere in between. What these sites really do is take the two most basic steps and break them down into sub-steps.  While there are common milestones in most home sales, there’s no such thing as a “routine” real estate transaction especially these days.

As someone who is deviating from the normal “script” quite a bit, my intention for this blog is to walk through the steps we are going through and tell you what we are doing at each “milestone.”

For anyone buying a home, it essentially it does boil down to

• Figuring out how much home you can afford
• Figuring out where you want to live

These two concepts are more related than you might initially think. Your income & credit might get you a condo in the Gold Coast, or a townhouse in Lincoln Park or a Single Family Home (SFH) in Lake View. Or you might be surprised to learn none of these are options for you because you simply don’t earn enough or are like my wife and I, already own two properties.

Almost everyone I know is in this second boat. We all bought into the idea of a condo as a starter home and now in the post-boom bust, we are stuck with properties we cannot sell. So some of the top notch neighborhoods in Chicago are out of the question for us. To be honest, I really didn’t want to live in Lincoln Park anyway.

In order to know for certain, however, you have to get pre-approved.  You’ve probably seen those ads that promise “the lowest interest rate possible with our brokerage”. They imply that they can somehow give you a lower rate than anyone else.

House Hunting Lesson Numero Uno: A mortgage broker doesn’t give you a good rate — you give you a good rate. If you have good income, stellar credit and very little debt, you should qualify for the lowest rate possible. If you don’t, no broker in the world can help you….legally anyway.

That said, different brokers have access to different loan programs with different fees and requirements, so shop around as they say. You can visit as many lenders as you like and get several pre-approvals, but keep in mind that each one carries with it a new credit check, which will show up on future credit reports.  I have a few brokers under my belt because one handles construction loans (in case of fixer-upper) while another does streamlined FHA loans.  It’s important to keep your options open when it comes to loans and houses.

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Let’s share our House Hunting Stories

Welcome to Adventures in House Hunting.  My wife and I are in the process of seeking a larger, more family-friendly abode and I thought what better way to commemorate our anniversary (1 year today) than to start a blog chronicling that process.  While other blogs and articles can describe the steps to buying a home in a wholesome vanilla manner, my goal is to share the good, the bad and the ugly side of house hunting.

In years past, people bought a starter home and then upgraded once children arrived, usually by moving to the suburbs.  Given the current state of the real estate market and our age, a starter home isn’t really an option.  Therefore, we are looking for our Forever House — the house we are going to live in for either the rest of our lives or the next closest thing.

Like many people today, my wife and I each bought a condo before meeting one another and now have two properties that are too small to raise a family in and too underwater to sell in this market.  The term is Reluctant Landlord.  Unable to sell a property (usually a condo) the Reluctant Landlord attempts to rent out their place until the market rebounds enough to unload it without bringing money to the table.

My goal for this blog is to describe our actual interactions and real experiences with Realtors, loan officers and home owners while visiting open houses and viewing homes for sale.  There will be tales of overpriced homes, unrealistic sellers and desperate Realtors trying to sell a crapshack in a tight market.

While I’m doing that, I’d also love to hear your stories too. Did you get a great deal on home?  Get screwed at closing?  Deal with a whacky realtor or see a house that made you run away screaming?  Please share your stories as well.

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