I’m placing my neck squarely on the proverbial guillotine. As you read, the social media timberwolves are howling, preparing to eat me alive. Listen, every situation is unique. If you’ve read my past articles, you’ll easily understand that I’m a “multiple variable” kind of person.
This situation isn’t different. Population density, area growth, new construction rates, and much more play a pivotal role on the value and resale of your home. Speak with your real estate professional and deeply analyze your potential home purchase. Make sure this scenario doesn’t apply to you in your unique case.
Big Man On The Block
You wake up with your coffee fastened firmly to your sipping hand… Or you just directly connect it to your IV if you’re a caffeine fanatic like myself… And you pop open the laptop. You get your daily “Home for Sale” Alert, and THERE IT IS! The home of all homes. You reply to the email, “Hey Byron, let’s schedule a showing for this one ASAP.” You follow it up with a text.
I can tell you’re serious about it! I pull the Tax Record to confirm it isn’t in a flood plain. I pull the Property Condition Disclosure to make sure there’s never been a fire, or any major issue that would make this a money pit for you and your family. And then I run the Comparables (Comps, as we call it)… Uh oh…
Houston, we have a problem.
It’s the most unique, expensive property within a 5 mile radius.
We look at it, along with your family, and everyone is enamored by it. It’s perfect! What should a professional like myself do in this situation? Focus just on your love for the house and, “SELL IT BABY!?” Should I tell you terrible things about it, and make you lose that love that you have for it?
What Do We Do Here?
No. Here’s my job:
- Consider ALL of the variables.
- Go further back into the Sales History – looking for Comps.
- Show you what the current Owner paid for it, and when.
- Compare the current Asking Price with the Median Home Price growth or loss rate, and see if the price makes sense (especially if there aren’t comps).
- Analyze the population influx/deflux in the area (Job/Income Growth).
- School ratings, crime rates, and other demographic data.
- Share the average Days On Market (DOM) of other properties that most closely compare to this one, even if it’s incredibly unique for that local market.
- Analyze the improvements that the current Owner has made compared to when it was purchased.
- How is the overall build quality of this property?
- Share potential tax breaks (like Greenbelt) or burdens (like Special Assessments) that may apply and affect you financially.
- Re-visualize the property, such as subdividing it, if you need to sell quickly in the future and how that impacts your profit margin.
- Share the current Sales Price to List Price Ratio with you – what homes are selling for (%) compared to the asking price.
- Show you ways out of a bound contract if due diligence reveals too many red flags.
- Ensure that your contract contains necessary contingencies that protect you from over-paying for the property.
- Confirm that there are no municipal plans for installing a gas pipeline, TVA high powered electrical easement(s), etc. across the property.
Avoid Paying Over Market Value
Some buyers have the luxury of paying cash for properties like this. If that applies to you, great! But I still encourage my clients to pay at or below market value at every possible turn. Especially at higher price points. So how do we do that?
Appraisals are most common when a Buyer is financing. The lending institutions usually require it. I always encourage clients to make their offers with an Appraisal Contingency. If the property appraises for less than the contracted sales price, it gives you the ability to renegotiate the price with the Seller, or terminate the contract and get your Earnest Money Deposit returned.
Remember, an Appraisal is a professional “Opinion of Value.” One appraiser may value the property higher/lower than another. An appraisal can be disputed, and Sellers can request to order a second appraisal (usually at their expense) to either support or refute the value. You do not have to renegotiate, however! You can back out of the contract at this point (if it’s below sales price). But if the house is perfect, and you’ve been looking for homes for months on end, it may be worth the extra time under contract. Especially if you have a time constraint, such as a new job start date.
You can also AMEND the contract terms but keep specific verbiage. Such as, “Buyer and Seller agree that if second appraisal does not value at $XYZ, Buyer has the Right of Termination as referenced in the original contract…”
I’m here to think outside of the box, but inside the legalities of the contract.
In 2020 and 2021, America experienced a great migration. Homes were selling $50k, even $200k over asking price in some scenarios. Contingencies were being waived, and cash and conventional offers became the norm.
If you’re in a must-move situation, with multiple offers and a time constraint for example, you’ll have to weigh the pros and cons. Consider the following:
- Are there NO other homes that would make us happy, realistically?
- How much extra money will I need to put into the property after purchasing it?
- Can my Agent run a 12 month search, and show me how often homes similar to this have hit the market? Is this home truly that unique?
- How long are we expecting this market to remain aggressive? (Ebbs and Flows w/ Market Movement)
- How stable is my living/job situation?
- Is there anything in my life that could make this move short term versus long term?
I hope and pray that taking 15 minutes to answer questions like this provides you with clarity & peace. It will all work out! Don’t let it stress you out.
Long Term Play
“Byron, I’m going to live in this house the rest of my life!” Well… Most people DON’T live in their homes for more than 7 years. Did you know that? The average American moves 11.7 times in their lifetime. Things happen! Kids have grandkids, job opportunities arise, relationships get spoiled, moods change. I think it’s deeply rooted in us to be nomadic. That’s why humans have spread and populated the corners of the Earth!
Point being, I respect the enthusiasm of this being your forever home. But always be prepared, in case it isn’t.
Getting back to our visualization above… I’m your Agent – I’ve provided you with the data, we’ve considered these questions, and you’ve deliberated with your family. The final question:
Even with a potential difficult sale later down the road, IS IT WORTH IT?
You’ll know the answer. You’ll feel it in your gut!
Once you’ve bought the property, don’t do what most Americans do and fall off the market wagon. I always suggest continuing to watch the market. See what properties are selling for. See if prices are rising or falling. See if new developments or commercial buildings are being built nearby.
That’s also what you have me for!
Again, don’t let this stress you out. It’s a blessing that you’re able to make this purchase in the first place! You’ve worked hard and you deserve it. And I care about you! I hope you can sense that. I’ll do everything I can to help you make the best decision possible. But no matter what, it’s all going to be okay!
God bless all of you! And thank you for following this blog.