Should You Pay More For THIS House?

[photopress:polly.jpg,thumb,alignright]When determining how to structure an offer on a property, one of the key considerations is, “How scarce a commodity is this home?” How scarce it is to you, depends on the parameters you have set, and why you like this particular home, which varies from person to person.

If the property is unique because it has the largest lot in the area, then the seller is correct in putting a premium on this feature of the home. But, if why you are buying it is NOT because it has a large lot, then maybe you should not be the one to pay the “justifiable premium”. A justifiable premium for the seller, is not necessarily a justifiable premium for the buyer.

Often the seller will dramatically highlight their “premium” feature, such as a large lot, when they should not. I remember showing a home, with the owner in the home, and they kept raving about how huge their lot was. I could tell that the buyer had totally tuned out and had no interest in the property, but we couldn’t leave because the owner was going on and on about the size of the lot. When we got outside the buyer said, “Not me! I’m not spending my life maintaining the biggest lot in town!” I asked if he would have been worried about that just by viewing the property, without the seller’s influence. He said no, but now that I have this picture in my head of spending all of my weekends mowing the grass and maintaining the landscaping, AND paying MORE for the house for the “privelege” of it sucking up all of my free time, I just can’t see myself in that home. Otherwise, I may have bought it, but let’s just get out of here.

So the seller may indeed “deserve” more money for his house than anyone else in town, because he has the largest lot. But that does not mean that every buyer should offer that premium, in fact some will discount it, for the very reason the seller is raising the price. The buyer may deduct for the extra maintenance of the larger lot, while at the same time the seller is adding a premium for the extra land.

The photo above is in reference to “our Polly” who had the best question in the month of August. Before responding to a counter offer from the seller she asked, “What is the likelihood that you could find us a similar home within the next 60 days?” I was knocked out by this fabulous question! If only two of those have sold in the last year, then the liklihood is slim to none. If 40 of them have sold in the last six months, then you can play hardball with the seller. Excellent question to ask while in the middle of negotiations.

I believe that real estate agents are either in marketing or…

  1. Google is doing a major update on their backlink calculator. One of the updated datacenters is showing over 1600 backlinks to RCG while the regular search is still only showing 733. This is great news! The more often Google re-indexes backlinks the better because we get so many more (recognized) backlinks than the typical agent website and I’ve noticed that each time Google updates these backlinks (they only do it every 3 to 6 months), we placed much better in organic search results shortly thereafter. Yum!
  2. Talking about organic search results, I let Greg know that I thought he was potentially hurting himself in Google by posting identical articles on both his regular blog and his ActiveRain blog (no longer available). Put very simply (and definitely an oversimplification), when Google sees two identical articles, they are forced to make a choice in determining which article is “good” and which one is “spam”. Assuming you don’t want either of your sites to be labeled “spam”, then don’t have identical content floating around in full. (When a spam site copies your articles in full, you’re just have to trust that Google will figure it all out!) If you’re going to put articles on more than one site, make sure that you change things up a bit, or better yet, summarize the article and link to your main site where the full article can be found. I would point out some of the other people besides Greg who are doing this same thing on ActiveRain, but it appears that word travels fast via email and most of the guilty have taken their ActiveRain blogs down (Joel being the only exception I’ve found at this point… and he really should not be doubling up his content at this point considering he’s still in the process of “teaching” google about his new domain.)
  3. However, all this makes me feel bad… Matt, I promise my intentions were good and I wasn’t looking to get people to drop their activerain blogs. I think you’ve got a great platform and others should definitely consider blogging on your site. I just wanted to warn people that they might be committing googlecide (a great phrase coined by Greg!) if they post identical content in both places! For everyone’s benefit, Matt Cutts gives a comprehensive explanation on how to get re-included in Google searches should your site ever be listed as spam, but I don’t think that should be necessary as the re-inclusion request is typically for sites that have actively tried to trick Google in ways much more devious than duplicate content.
  4. Steve Hurley let me know about his new blog for the Tacoma area (South Sound) and he asked for some advice on how to get more readers. My advice: start linking to other real estate blogs! There are a lot (a ton!) of real estate blogs with good content that will never get “discovered” because they live in their own bubble (yes, real estate has lots of bubbles!). I think a lot of real estate agents have a view that they are smart enough to be the one and only resource of real estate information. Even if that held water, very few agents are good enough to break out of the mold without some major help from other real estate bloggers. So, regardless of how good your stuff is, find someone else to link to in every post! Really, every post!
  5. Another way to drive traffic is to leave comments on other people’s blogs. The nice part about leaving a comment is that you’ll get a link back to your blog with each and every comment. However, that won’t generate traffic nearly as effectively as if other bloggers are linking to you within their posts. What is the most effective way to get the attention of other bloggers so that they will link to you? Link to them! Want more? Here are the three most important elements of real estate… blogging: Linkation, Linkation, Linkation.
  6. Greg: Ardell’s going to kill me for that title. I promise I wrote it before I became a believer in the church of Ardell! 🙂 I really wish I could give you a “on a related note” to this story, but I simply can’t blog about a meeting I had last week with the master of real estate marketing…
  7. I agree with Chris Pirillo that social bookmarking buttons have gotten out of hand. I’ve not added any to RCG because it seemed like it took up valuable real estate and I’m not sure it provided a valuable service to our readers. The only one I’ve considered adding is, but considering most users have a button installed on their browser (they tend to be a tech-savvy bunch), I’ve never bothered. Adding a button for a site like digg (let alone sites like reddit) seems pointless for a real estate blog since I’ve never seen one real estate article promoted by those communities. (In other words, why would I give them an ad (i.e. their logo) on every one of my posts if they are never going to send me traffic?)
  8. I want one… Sony is preparing to introduce a light-weight geocoder with software to make geocoding photos easy. Although I wish geocoding photos was easier than dragging along another device…
  9. Taken one step further (and two steps too far): Wouldn’t it be great if you could search for an item based on where you were when you were working on the file? As in, “I remember taking those notes while in San Francisco…” and then have a document filter based on where you were when you made those edits (obviously, this only makes sense if you’re working on a laptop or mobile device). The secret weapon in this idea would be taking advantage of the wifi positioning from Loki so that you don’t have to lug around another device…
  10. Everyone knows that Loki was the god of mischief, right? (Due to a simple twist of fate, I know a lot more about Nordic gods than I do bible stories, but I can’t go there because I’ll get to sidetracked…). Well, the mischievous people over at Trulia have blocked Move’s IP address so that I didn’t read what Greg liked so much about their post until I got home. (I know I could have proxied in, but I didn’t bother). Anyway, the article is hilarious and definitely shows the benefit of not taking yourself too seriously. Tell your kids: real estate is fun!!!

Renovations – Return on Investment

Over the years I have had many people ask me the question, “Should I renovate the house that I have, or should I move?”. We have all seen the numerous charts that show the return on investment of various renovations. I just checked a few of those charts and found the following results: Remodel your kitchen anywhere from 70% to 103% return, depending on who wrote the article. Add a bedroom, 80% vs. adding a master suite: 73%.

Every time I see these charts showing the percentage of return, I put them down thinking that none of them actually answer the question and none of them are the least bit accurate. One house might achieve a 200% return on investment, while another might return 25% with the exact same renovations.

The first consideration is the location of the house. Let’s take two identical houses. In one of them you can see cars going by at a steady pace and you are considering in your list of renovations new, triple pane, sound proof windows to block out the traffic noise. The other is an “interior lot” in a quiet neighborhood. Clearly the return on investment in renovating the house in the quiet location will be much greater than the return in the noisy traffic location, even if the two homes are identical both before and after the renovations.

The second consideration is the functional obsolescence of the style or “flow” of the house. I don’t like to disparage a certain style of home, so let’s let the builders do that for me. If you currently own a style of home that is no longer built. If no or very, very few homes are being built in the exact style of your current home anywhere in the country, then you likely live in a functionally obsolescent style that will be discounted below the value of other styles in your neighborhood. You can spend thousands and thousands of dollars renovating that home and return only $.25 on every dollar that you put into it. This would be particularly true if the style and flow are not in tune to the needs and desires of today’s home buyers and it is also in a noisy location.

The highest return will involve correcting a specific type of functional obsolescence. The charts may tell you that adding a bedroom may return 70% and adding a bathroom may return 85%. In truth, adding a 6th bedroom to a 5 bedroom house and a 4th bathroom to a 3 bath house, may return you next to nothing, especially if that extra bedroom and bath is in the underground basement. But adding a 3rd bedroom and a bath in the form of a master suite to a 2 bedroom, 1 bath rambler on a great lot in a great location, can easily return double your investment dollars.

Worth mentioning is the question, “Should I add a second story?”. Not if the footprint of the main level is too small. Again we are back to the issue of functional obsolescence. If the footprint of the home is 790 square feet, adding a second story would not irradicate the functional obsolescence of the small size of the main living areas. My opinion is that the main floor should be about 1,200 square feet for one to consider adding a second story, unless you can expand the square footage of the main level at the same time.

So back to the question. Should I stay (and renovate) or should I go (sell and buy a different house).

If your current house is not a style that you would build today, and if your lot is not located in a place where you would build a new house today, then you should sell it. Limit your investment dollars only to those things that will produce the highest return, like painting it inside and out and beefing up the curb appeal and making what you have better. My limit for this type of improvement is no more than 1% of the current value of the home. If you could sell it today for $450,000, then only put $4,500 into it and put all of that $4,500 into material and do the labor yourself. Same as getting a house ready for market, even if you are staying.

If you have a perfect location but an obsolete style, then you should consider building a new home on your existing lot. If you have a great house on a great lot that just needs to be updated, then by all means you should stay and renovate the house.

If you and your husband or wife don’t agree on what you should or shouldn’t do to your existing home, invite me to dinner and I’ll make you a list 🙂