Vacant Showings

I went out yesterday and showed 5 properties to buyer clients. Nothing odd about that. Except that, for the first time in my recent memory, all the properties were vacant, and none were new construction.


The houses I showed yesterday were all in the $300-400,000 range. These are not homes where owners regularly pay cash, nor are they owned by folks for whom owning “an extra home” is not a problem. And so I have to wonder, “What is going on here.”Hmmm. My partner Jim Duncan has written about this phenomenon in the past, and I have certainly commented on it. But, frankly, I’m surprised that I’m still writing about it.

Currently, we have a very small inventory. Across the city and Albemarle County and all product types, there are only 903 properties for sale. Take out those that are “proposed” (meaning not yet started pre-sell new construction) and that number drops to 715 properties. And within that group, there are currently 206 homes that are listed as Vacant for showing instructions or 28.8%. This is certainly down from several years ago when the bubble burst, but not as much as I thought it would be.

There are several reasons for a home being left vacant. 1) The owner has taken a job in another town. 2) The owner purchased another home and has moved out. 3) House was originally a rental property and the owner has ceased renting pending a sale. Or 4) The owners have moved to a retirement facility or passed away. I’m sure there are other reasons that I’m not mentioning here, but these are the big causes.

In case 1, occasionally a new company will be paying expenses during the move, so the vacancy is less painful. But in all the other cases, this is a real expense eating away at cash flow and wealth. Even if you pay cash for a home there is still a cost of capital to the investment costs, plus taxes, utilities, maintenance, and heaven forbid repairs if something should go wrong such as a water leak. There is a reason many home insurance companies drop vacant homes from their rolls, or significantly increase the premium.

During the run-up to the bubble, when people thought houses were guaranteed to sell in 7 days, a vacant house was not necessarily a bad plan, but today, homes need to show their best. And vacant home rarely show as well as furnished homes. One of the homes I went to yesterday had filthy carpets, sticky countertops, and the only blinds that remained with the house were those that were broken. My client instantly knew the property had not been cared for. The price expectation went down a solid 10% upon seeing the condition. (If this is what I see, what do I not see?)

There is not doubt that there will always be some vacant homes on the market, but if you need to leave your home vacant: Maintain it like you live there. Keep it fresh and clean. Run water in all the sinks and tubs once a week to keep the gasses from come through the pipes. Furnish it as best you can. If it looks great when it is vacant, buyers will know you cared about the home when you lived there.

What Homeowners Could Learn From Developers

I remember sitting in one of my development classes and wondering what my professor was talking about with land holding costs and development projects. The scenario was this: A family owned development firm buys a 50 acre tract for $500,000 and holds it for 25 years, at which time the next generation of leadership in the family wishes to develop the land. The management looks at the outstanding low purchase price of $500,000 and moves forward due to a great return on the investment. However, the land is now valued at $6,500,000. The management is thrilled that they only have to show $500,000 in land costs, and the project is great.

However, the problem is that the family may have only put $500,000 into the land, but they have $6,500,000 in the land no matter how you look at it. They could sell the land and pursue another project for $6,500,000 if they wanted to, and it would have the same actual return on the investment. You can’t look at the purchase price to determine the quality of a project. You have to look at the Value of the Property at the start time for the project.

So, what does this have to do with our homeowner today? Easy. There are folks out there that keep saying, “If you don’t NEED to sell this year, don’t!” Well, why not? Prices have retreated from their highs of 2006. That doesn’t mean that if you hold out until the market stabilizes that you will be sitting on 2006 prices. It means that if you hold out, that your prices, when they stabilize will do so at their current levels, whatever that level may be.

Is this an EASY time to sell? Absolutely not. But that doesn’t mean that you are going to get a better deal in a year. Last year I had a client who had moved away and received an offer that was less than she had hoped for on her house in Charlottesville. It was a good offer, but still not what she had hoped for. I asked her if should would buy her house as a rental property at the price she was offered. She said, “No. Why would I?” Well, because if you didn’t sell it for that, you just bought it back.

It is easier to see this analogy in stocks and bonds and other liquid assets. If you buy a stock for 50 and it slides to 35, you should ask yourself, is this the safest investment moving forward, not the past. If you can find a better asset, you should go sell the stock and buy the better assets. Likewise with your home, even if you are not making as much as you would have hoped, or even if you have lost some money, if you can find a better use for your assets, you should move them.

Ed Note: As I read this post this morning, 8 hours after stopping working and heading to bed, I realized that this post (which remains in it’s original form above) ends not the way I would have liked. To clarify: with stocks, you may move them from one to another because of the soundness of the investment or the potential gain. But with housing, the asset is more than just a financial producer, it is the center of family life, it provides for a safe haven, perhaps a launch pad for a specific school district. It has many uses. My point was that if the asset no longer performs the way you need or would like (no master bedroom on the first floor as your knees begin to give – not in the right school district as your child reaches school age – not close to a new job – not enough bedrooms with a new child on the way) then those asset changes need to be put into perspective and weighed. But the idea that because the market is not liquid or active this year prohibits a move, I think is a mistake.

Raising Perceived Value

I had a professor in B-School who at the end of a class session would, as students began coming to the conclusion that he wanted all along, remark, “I love it when a good plan comes together.” Well, I feel that way today. On March 17, I posted a blog on tax assessments and relative value / perceived value. I argued that sellers should fight with the County / City to raise their assessed value when they go to sell their house as this will provide a higher baseline. County of Albemarle - GIS-Web - Property Information.jpg

Well, I have a reader who did just this. Perhaps they are not a reader, but I found a listing this morning where this has happened. Look to the right at this copy from their assessments, and I’ll go over what has happened.

So, here is a very nice home in Western Albemarle that was assessed in 2007 for $924,500. In 2008, that assessment dropped to $899,800. Along with the overall market decline in 2008, the 2009 resulting assessment dropped another $39,000 to $860,000.

Enter the owner who wishes to sell his home. I contacted the assessor to ask what “Appraiser’s Review” meant. According to the assessor, the notes in the computer stated that the “owner contacted the assessors office and stated that they believe that the property assessment did not reflect a high enough value.”

Wow. They keep records of why appraiser’s reviews take place. Even better for my purposes. The new assessment reverses two years of declining real estate prices. The new assessment was valid as of Feb 13, 2009 and was entered at $927,600.

On March 4, 2009, the house goes on the market for $1.125 mm. Now, that is still priced at a 21% premium to the tax assessment. Pretty aggressive. But if you go back the official County of Albemarle assessment, we are now 30.7% premium to tax assessment.

Personal thought: neither will fly. BUT… 20% over tax is certainly better than a 30% premium. And if other agents don’t really look through the history of the assessment, they may not even notice the change.

A note to the readers. In the City of Charlottesville, there are no history files available on assessment values for real estate. Only the current assessment is on line. You can contact the assessor’s office and they will give you the historical numbers, but their on-line information does not have the ability to display the history.

If any readers see additional homes like this, let me know, and I’m happy to look at the process.

An Agent Representing the Agent, aka Dual Agency

Originally Posted February 17, 2009

To understand how Dual Agency has come about, one needs to think just over a decade back two decades to the days where every real estate agent worked for the seller. There were numerous reports done that showed that most buyers thought their agents worked for them, but they were wrong. Every agent worked for sellers, either as the listing agent, or as a “Sub-Agent” to the seller. This also helps to explain why commission is typically paid by the seller to both the listing agent and to the selling agent. (Look for an future post on Divorcing Commissions) Read on to see why Dual Agency should be called Non-Representation

In these days, a buyer would find an agent to work with, and would then go house to house while the agent representing each seller, not their buyer. Technically speaking, it would have been unethical to suggest a lower price than asking, it would have been unethical to point out deficiencies in homes such as Quest Pipes, Asbestos tiles, Masonite siding, highways that might bisect the neighborhood and more. The reason is simple, the agent’s responsibility was to the seller, and getting the highest price possible.

Buyer’s representation was born of the need for buyers to have protection. Buyers required that their agents be open regarding pricing, home condition, and other factors that affect home values. Hence, buyer’s agents were born. A new breed of real estate agents, buyer’s agents represented the buyer, and worked for them to find the best financing terms, the best legal counsel, the best home, and to get the lowest price possible.

In the days of Seller agency only, it was routine that an agent could receive double commission by bringing a buyer to the contract and handling both sides. In all honesty, this was fine. Because, the buyer was never represented, and thus, no ‘additional’ disservice was being  performed. But, when buyer’s agency was born, it didn’t take long for agents to say that they could represent both parties. Herein lies the problem.

If you are a listing agent and you are selling a home with Masonite siding, you are required to list this in the MLS. However, you don’t add a disclaimer that says you have Masonite siding and all of the issues that are inherent in poor installation of that product.  Why? Because it is not in the best interest of the seller. Plain and simple, Masonite homes are harder to sell than Hardi-Plank because they can have problems. If I am a buyer’s agent, I should always point out that a home has Masonite and explain what this means to maintenance and resale values and resale time. I explain that many companies will not allow their employees to purchase homes sided with Masonite if they are part of a company funded transfer. Why would I point out things that might make my buyer pause before buying? Because it is in the best interest of the Buyer. I represent them, and only them.

In Dual Agency, the real estate salesperson tells both buyer and seller that they represent them. But they can’t. Instead, they land up representing neither. A Dual Agent cannot help both seller and buyer in determining a fair price for a home. They cannot assist in working through home inspection items. They cannot represent either client when one becomes unreasonable. If my client is unreasonable, I still go to the mat for their issue, even if I disagree… because I am hired to represent their every issue.

At Nest, we have in our Policy Manual that no agent can ever act as a Dual Agent. If I am representing a Seller and someone calls me to see that house. I will show it, and I will do my best to sell the positive features of that home to the prospective buyer. And if that buyer decides to purchase the property, they will have two options: to work with me as a “non-agent”, or to contact another Realtor and ask that they represent the Buyer. Regardless of which choice that buyer makes, he or she will make it as an informed buyer. Not all buyers require representation, but none will be denied.

Cookies and Cats

Originally Posted September 17, 2008

This week I have been out and about in Greene and Northern Albemarle showing some 20+ properties to a buyer from out of town. Relocating clients are always a challenge because they are trying to acclimate themselves to the area, as well as figure out the homes, and figure out pricing, and do all of this while stressing about a new job, new schools, etc… For these buyers, more than almost any other client, that first impression makes all the difference in new homes. In one day, we saw 12 homes. In three of these homes there were fresh baked yummies in the kitchen for us. The cookies were still warm. However, cookies aren’t always as good an ideas as they first seem.

Everyone knows you are supposed to bake a hot apple pie before a showing to get the smell all through the house. But nobody really does it. However, the slice and bake cookies were a really good thing… or so we thought…

About 5 minutes after we walked in, and after each of us had eaten a cookie or two, we were standing in the kitchen looking at the cabinets and appliances, when the cat, which we knew lived there based on the other smell in the house (not the cookies) hopped up on the counter and began rubbing his head against the plate of cookies. No one ate another cookie. We all wondered about cookies we had already eaten.
Here I am two days later. I don’t remember much about the house, the view, the floorplan, but I do remember that orange cat and the image of him massaging himself on the cookies.
The point here is simple. Some houses have beautiful fireplaces. Accentuate the fireplace. Some don’t have nice fireplaces and in such a case, you should not accentuate the faux electric flame. But most importantly, don’t bake cookies if you have pets roaming in the house.
But, to the cinnamon bun maker the next morning : Kudos.

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