Mortgage Interest is paid “in arrears”

For Home Buyers: This means the first payment is usually a month later than you expect it to be.

For Home Sellers: This means your mortgage “payoff” is going to be higher than you expect it to be.

This is one of the small issues that often surprises people when they are buyng and selling homes.  Often sellers will think the payoff is wrong, because it is higher than the principal balance on their most recent mortgage payment statement.  Often buyers will be worried about paying rent and a mortgage payment for the month after their close date, and are surprised that the first mortgage payment is a month later.

Basically all “mortgage interest is paid in arrears” means is that your March 1 payment, pays February’s interest on your loan.  Your April 1 payment pays your March interest.

For a buyer, if your closing is February 26th, your first mortgage payment is due on April 1st, and that will include all of the interest for the month of March. (February’s interest per day from closing to month end is paid AT closing)

For a seller, if your closing is Feburary 26th and your principal balance is $362,000 and your monthly payment is $2,800 including taxes and insurance, your payoff may be more like $363,500.

I was preparing some numbers for a client with a March close, and decided to post this for anyone having similar questions.

Are you making your client homeless?

I’ve been wanting to warn sellers and seller’s agents about this for the last 10 days or so.  Courtney’s new post is a great lead in to this added consideration for sellers and listing agents.


Having had the benefit of working in a market exactly like this one, back in NJ/PA in 1992 or so, I think this warning will be timely advice for many.

When an agent is called to sell a house, they touch on the subject of “Where are you going to go when this house sells?” But most often the antennae of the agent is focusing on whether you will also be buying a house with them, or if they can get a referral fee by referring you to an out of area agent (usually 25% of the commission.)

WARNING TO SELLERS: IT IS VERY HARD TO GET A MORTGAGE.  In the last market like this, many sellers assumed that since they had a HUGE downpayment, they didn’t have to worry about qualifying for a mortgage on the house that they were planning to buy.  NOT SO!

Having 50% down and little income could leave you homeless, as NWMLS does not permit “provisional” listings.  There’s no turning back.

Here’s how it usually “plays out”:

1) Seller doesn’t want to look at homes until their house has a contract. With houses sometimes sitting on market for well over 100 days, looking at what you will buy when your house sells is often put off until you have an actual buyer for the home.

2) Once the contract is signed around, the seller goes out and makes an offer on a house they are buying with 30% to 50% down.

3) Often the seller and the agent for the seller of the home they are buying are so impressed with the big downpayment, everyone all the way around assumes that someone with that large of a downpayment can get a mortgage.

REMEMBER:  The buyer of a home has a legal out phase lasting about 10 days, but the seller does not have a legal out phase if they can’t get a house to go TO.

Often you can’t just go to the buyer and say, “Sorry.  I can’t buy a house so you can’t have mine.”

So to listing agents, I know you want that listing, and your are primarily interested in getting the seller to sign that listing contract.  But be careful that you are not making your clients homeless. If they are people living on a fixed income, saying they are planning to buy, part loan, your ears should perk up.  Make sure they check with a lender as to getting that loan…before you sell their house out from under them.

We are often in the business of “GETTING PEOPLE FROM HERE TO THERE” moreso than simply “selling houses”.  Don’t leave your seller’s homeless, as you walk off to the bank to cash your commission check for “selling their house”.

Zillow your life – it's quite interesting

I grew up at 4950 Lancaster Avenue My parents purchased it for $7,000 in 1957 or so. They made nothing on it and it is now the hole that you see between the buildings. But they raised seven children there. I lived there from age 3 to age 20 or so when my Dad died. I say it owes them nothing for housing nine people there for 17 years. The entire neighborhood that still exists, only values out at $15,000 max. That’s only a 50% return over a fifty year timeframe. Yes, there are “wrong” places to buy property! Always has been and always will be…ALL property does not go UP! (or down) in equal proportions.

In 1973 when my Dad died, my Mom moved to 6626 Haddington Street I remember her picking up the phone and leaving messages on the answering machines of every real estate office in town. She said I have $8,000. If you have a house to sell for $8,000, call me. According to Zillow, that house has now increased by 470%. My Mom was always a little smarter than my Dad…but my Dad was a cool dude 🙂 I don’t remember exactly what my Mom sold it for in 1980, but I do remember that she got at least double what she paid, had a non-taxable gain AND carried a portion of the price as a mortgage to the purchaser, with a double digit interest rate. That house owes her nothing either.

I moved out by the time she sold that house in 1980. In fact my Mom followed me to Northeast Philly. I rented. She bought a house for $18,000 on Fairdale now valued by Zillow at about $55,000. She sold it for $46,000 or so. It is now worth three times what she paid for it, but she took most of the equity out when she left. I bought this house in Kipling Place in 82 for $45,000 and sold in in 84 or $65,000. Zillow values it at $74,000 now, so looks like I pulled most of the equity out of that one. Me and my Mom seem to be doing pretty good pulling equity out and getting in and out at the right times.

Gotta go and I want to see if these Zillow links last. I’ll pick up in 1985 in another post.

Microsoft vs. Google a real estate perspective

[photopress:mac.jpg,full,alignright]On a side note, nothing to do with the topic, isn’t that MAC advertising campaign fabulous! Doesn’t everyone want to run out and get a MAC when they see that commerical? Of course I can’t get the mls on it, or at least not easily, so I hate them. But that has got to be the best advertising campaign I’ve seen in a long time. Doesn’t everyone want to be that guy on the right? Heck, I’m a woman and even I want to be that guy on the right.

On to Microsoft vs. Google. So far my Google clients have been able to negotiate significantly higher savings in real estate transactions than my Microsoft clients. Of course I’m dealing with a very small portion of the Microsoft poplulation, even though I have more Microsoft clients than Google clients.

Microsoft has a contract that kicks back 35% of the real estate commission when a new employee is hired, even if they don’t buy a house for a year to 18 months after they are hired. Perhaps Microsoft doesn’t get all of that 35%, but the agent who has to pay it is still unable to negotiate with the buyer, nor are they as able, at 65%, to resolve issues in the transaction using commission dollars. This agreement that the agent pay 35% to Microsoft also limits the employee with regard to agent selection.

I recently had a call from a Microsoft employee’s wife who is being transferred. She was checking online and trying to pick an agent she felt comfortable with and happened upon me. I told her that she really needed to check with her husband and his employer, as I didn’t think she was totally free to pick an agent of her choice. I told her I might be willing to match the 35%, but she would likely need to try the assigned agent first, before suggesting she wanted someone other than the assigned agent.

Now these programs where an agent is assigned to an employee are, of course, beneficial. These programs have been around for a very, very long time. I myself did tons of relocations with Siemens and other companies around the Country, utilizing this very same program. The 35% of the commission paid by the agent to the relocation company, helps pay for a portion of the relocation benefits such as movers, temporary housing, and other benefits.

In my experiments over the past few months with negotiating buyer agent fees, and a few other out of the box negotiations, I have been able to transfer $20,000 of pure cash advantages plus an additional $10,000, into transactions, with Google clients. More importantly, I have been able to treat the Google clients in these negotiations, identically to the way that I treat seller clients…which is my goal.

If Google does hire 1,000 new people, as Dustin suggests they might, I hope that they will not lock the employees into a program that skims off the employee’s ability to negotiate and ties their hands with regard to agent selection. Relocating is a very stressful and emotional process. Feeling hogtied at the same time, only adds to the stress. While many are happy to have someone ready, willing and able to assist, this benefit should be optional at best and should allow the employee more freedom of choice and no restriction with regard to fee negotiations.

Not trying to change Microsoft here…just trying to encourage Google not to follow suit. Once released from the 18 month requirement, I have been able to assist Microsoft employees and negotiate fees, but the Google guys are still way ahead for some reason in total dollars. Not sure why that is, I’ll have to ponder it when I do my year end round up of “the experiment”.

Since we are entering the Age of Transparency in the real estate transaction, kind of like The Age of Aquarius in my day when everone was stripping off their clothes, I do think that it should not be a surprise to anyone that there is an exchange of monies between the agent and a third party. That goes for any “purchase of a person”, see Zapped, that does not disclose to the person that they have been bought and sold.

How to Value a House

[photopress:bullseye.jpg,thumb,alignright]While “market value” and “appraised value” are not always one in the same, calculating a home’s value is both a science and an art, whether the value is being ascertained by an appraiser or a real estate professional.

The purpose of the valuation can actually have some bearing on the value itself. If you have a client who is purchasing a property to remodel and flip it, the value for that client has to take into consideration the cost of the improvements and the eventual resale value. Consequently, one has to be involved in both knowing, and making recommendations with regard to, which improvements will produce the greatest return, before the client makes an offer on the property.

Just as a lender has to take into consideration many factors when recommending various loan programs, a real estate professional has to take into account many factors before determining a home’s fair market value. When you are representing a seller, you have to lean towards the high end of the value range. An appraiser would call this “highest and best use”. A real estate agent would call that “if purchased by a person of the best buyer profile. For example, someone purchasing a property to live in it, will pay more for a property than a builder who is going to tear it down or an investor who is going to remodel and flip it.

When you represent the buyer, you have to consider the home’s resale value and any money left on the table by the seller. A seller leaves money on the table by various means that are generally not reflected in the asking price itself. I use this test when valuing a property for the buyer: If they called me in a very short period of time to sell it because they decided to move back from where they came from, could I get them out whole, meaning purchase price plus the costs of purchase and sale. By being a “listing agent” in your mind when representing a buyer, an agent will perform a better valuation than if they are just considering how much the buyer wants or likes the property. Of course, the buyer can always choose to pay more than that value and say “I don’t plan to sell it as I plan to live here for a very long time”, but they will at least know how much they are overpaying for the privelege of getting the home. Very important when the buyer is trying to determine the cap on their escalation clause.

Let’s go to the science part of the valuation. Some houses have what are called “true comps”. This would be most true in a very large community of newer homes. I am not going to spend a lot of time on valuing property with “true comps” because here in the Seattle Area, there are very, very few houses that can be valued by those normal methods. In fact the only ones I have been able to value by normal methods have been newer townhomes. Proximity to the subject property is not always relevant, especially in Seattle vs. Eastside. The comps have to be ones built in the same “finish period” and have the same “buyer profile”. For instance, a property built in 1991 may have white cabinets, gray countertops, white appliances and 4″ white tile in the baths. Using that as a comp to a property built in 1995 with granite tile countertops vs. gray laminate and maple cabinets vs. white cabinets, will not produce a reliable end result. Nor would using a comp with granite slab counters, stainless appliances and hardwood floors.

For the most part, we are lucky to find one recent sale that is quite similar to the property we are valuing. I call that the home’s “significant other”. An appraiser will still use three solds, whether similar or not, to ascertain value. A real estate agent will pull the significant other from the solds and move to properties that are pending and STI and ACTIVE in determining what a buyer will pay or should pay or what a seller should set as an asking price.

A few recent examples. When I valued a property for a seller back in May, I had comps of $325,000, $327,000 and $337,000. I priced the townhome at $350,000 and it sold for $350,000. The upward momentum of the marketplace from May was a significant factor. For this particular townhome, best buyer profile was someone who was relocating to the area and the buyer was in fact relocated here for her new job.

When I recently valued a newer townhome at this time of year, I needed to be more “right on target” as we are in a sluggish month of August aka “agents take vacation time month” and running into September which generally has two weeks out of four that are hot. The buyer profile of this particular townhome was a single person who would take in roommates. It did sell quickly and at full price to a student taking in two roommates. The danger on this one was pricing against new construction. You have to be as high as you can without encroaching on the price at which a buyer can get a brand new townhome nearby. I could not use the comps at all when valuing that property, because the subject property was built in 2001 and the comps were 2003 and new. The interior finishes were not comparable and could not compete, so to get a fast full price was their best chance of not having to bargain down to a level below the highest achievable price.

Let’s flip to buyers and how I value a property for a buyer vs. a seller. I’ll have to make this another article as the Vicodin for the root canal is kicking in and I’m going to barf.

Why isn’t my house SOLD yet?

You have to be in the top three of your “price tier”. Being at the high end of your “price tier” is better than being at the bottom of your “price tier”.

Photos must all be good photos and must be ordered in “hook order”.

Stop looking at what is for sale and stop looking at the comps once your property is listed for sale. If you have a lot of showings and no offers, then it is something AT the property that is causing it not to sell and you are a “bounce point”. If you don’t have enough showings it is something in the mls that is causing it not to sell, unless you HAD a lot of showings at first and dwindled down to not enough.

That’s pretty much it, pretty simple to me, but let me explain some of the lingo up there.

A “price tier” is the increment of value pre-supposed by the public websites. Go to Redfin or Windermere or John L. Scott or CBBain sites, and look at property in your area similar to yours. The site forces you to put a range of value that the site itself predetermines. The lower the price, the more important this is. Let’s look at the $250,000 to $300,000 crowd. If you are $259,000 or $276,000 or $309,000, you are “off”. The site forces people to look at $250,000 to $275,000 and $275,000 to $300,000.

If you are priced at $259,000 you are missing the people stretching up. Let’s face it, almost every single buyer in this price range “stretches up!” as in “I want to spend $250,000, but will go as high as $275,000, but NOT a PENNY MORE! By pricing your property at $254,000, you miss the boat on the $225,000 to $250,000 crowd and don’t compare well enough for the $250,000 to $275,000 crowd. $254,000 is just past the point where someone stretching up will see you at all and your property is not comparing well to those in the group at higher prices. $309,000 is just a KILLER price…the first number being the ALL IMPORTANT one. The difference between $240,000 and $249,000 is nothing, but the difference between $299,000 and $301,000 is a KILLER!! (An aside to agents here. If you are at a listing appointment and the seller insists on pricing at $301,000 instead of $299,999 or $300,000 straight up, LEAVE, RUN! It means “I don’t really want to sell this place, I’m just appeasing my ___ and pretending to be selling it.”

I could write a chapter of a book on “price tiers” alone, so let’s move on to photo “hook order”. Photo #1 is all important as many sites (like last I looked) require the user to click another button to get past photo #1. If photo #1 doesn’t grab them, you are dead in the water, and they are scrolling down past you.

Unfortunately mls rules hinder the seller when it comes to photo #1. There are a few rules written with agents in mind that I do not agree with, and this is one of them. Why should the mls REQUIRE that this all important key photo be…??? Seller should have more freedom in that regard. According to mls rules, photo number one must be an “exterior” shot, preferably the front door area, so agents can more easily find the property. Lame rule in my opinion if the curb appeal is NOT the seller’s claim to fame. All mls services should change that rule yesterday, giving the seller the opportunity to put his best foot forward, regardless of what constitutes each seller’s best foot. In condo complexes it is a KILLER rule. Who the heck needs to see another shot of the outside of a big condo building. Ever wonder why you see 25 shots of the same photo on a new construction project? Looks pretty dumb from the user’s perspective…but….it’s a rule. If the interior is a slab granite knockout and the exterior is 1977…this rule KILLS a seller and the mls is wrong, wrong, and wrong again for making the seller put the 1977 exterior as photo #1 vs. the knockout new kitchen. Let’s all fight for that change…or Robbie, can you reconfigure the photo order on an mls feed???

Hook Order – think attention span. Once you get past photo #1 issues, the second photo must be your absolute best of the rest. Forget about the “virtual tour” concept where you have the buyer “walking in from the front door”. If your claim to fame is your fireplace and kitchen, get those into the #2 and #3 spots. Make a list of your selling points in order or priority. If #1 is new kitchen, #2 is fireplace, #3 is double sinks in master bath…show the photos in the order of the priority of your selling features. If your #1 claim to fame is a jacuzzi in a cheap condo, don’t be afraid to put that jacuzzi as photo #2. Every picture in sequence, is a hook, as buyers often say “no I don’t want to see that one” after seeing photo #1 and #2. Having your best selling features at photo #11 and photo #12??…think about it…common sense rules.

A small note about the number of total photos. Max allowed is 15. Always use max if possible. That DOES NOT mean I want to see the open toilet and the toilet paper. It means take your best features from varied angles. Don’t be afraid to be redundant with regard to your very best selling points, but mix them up. Put it at photo #2 and #3 and bring it back to emphasize the strong selling features at photo #11 and #12, but from a different perspective as in #2 is kitchen from kitchen and #11 is kitchen from dining area.

This is getting way too long and I have things to do, so let’s just brush over the last point. If I could crack open every agent’s brain and slide in a little microchip, it would say STOP LOOKING AT THE COMPS AFTER THE PROPERTY IS LISTED FOR SALE! You look at the comps to determine your opening price out the gate, that’s all, DONE, finito!! No showings…wrong price. Plenty of showings but everything is selling but yours…condition problems. DO NOT even MENTION the sold comps once you are out the gate…irrelevant data.

And if I had nickel for everytime I heard an agent say, “I don’t know what’s wrong? We’re the ‘best game in town’ given what is for sale.” Face it…they are going to the next town, because you are an overpriced dog, regardless of the fact you have no competition in YOUR complex. What else can they buy for THEIR MONEY is the order of the day! Of utmost importance with one level condos. Buyers come in waves. “Surfing the net” is not just a catch phrase.

In the low price range the buyers are currently renting and have nothing to sell. If they don’t like what they are seeing in their price range, because the cream has been skimmed off the top, they wait for the next wave of new inventory. Your wave has crashed and your board is floating out to sea.

Buyers pay attention to these rules, and go grab all of the stale ones who aren’t following the rules, by offering them eighty cents on the dollar. Go for the $309,000s, on market for over 60 days, with only two photos, photo #1 being the sign with the name of the condo complex on it 🙂 and search for the “pick of the litter”.

How to List a Homicide-challenged Home?

Between Galen scaring us with stories of AOL mischief, and both the WSJ and USA Today treating us to stories of crime-infested houses (you can’t just “repaint” over memories), I’m thinking there is something fishy in the air and I probably shouldn’t be writing any blog posts today.

However, I can’t help but wonder: What factors do you use in choosing your client when they are dead?

From the WSJ:

The red-brick mansion that just went up for sale in Greenwich, Conn., has about everything a buyer could want. Set on 2.1 lush acres on tree-lined Dairy Road, it has four bedrooms, four bathrooms, two fireplaces and a pool. Its $5.2 million asking price is, by Greenwich standards, appealing.

The home has another distinctive feature. The basement is where real-estate developer Andrew Kissel — who had been renting the home for $15,000 per month — was found bound, gagged and stabbed to death in April. “To say the broker will need all the luck he can get finding a buyer is an understatement,” says Greenwich broker Chris Fountain, who isn’t connected with the property’s sale.

From USA Today (via Zilow):

Almost 10 years after the body of 6-year-old JonBenét Ramsey was found in the basement of her Boulder, Colo., home, the Tudor-style house at 749 15th St. is on the market again.

“It’s stigmatized. It’s always been stigmatized,” says Joel Ripmaster, president of Colorado Landmark Realtors. Ripmaster has represented the last four owners of the property, all who purchased or sold the house at below-market value since JonBenét’s slaying in 1996.

Note: I went ahead and published this article today because it was brought to my attention that RCG does not do well in “real estate murder”-related search queries 😉

What makes a house a “tear down”

[photopress:tear_down.jpg,thumb,alignright] Here in Kirkland, a lot of people complain that the builders are tearing down homes and putting up “McMansions” in their place.

I can walk up and down the streets of Kirkland and “label” each and every house I pass. “Remodel project”, “tear down”, “fixer”, “builder’s dream come true”, will sell “as is”, etc… The number one reason a house becomes a tear down is due to years and years of deferred maintenance. Often these homes are owned by people who inherited them or who purchased them many, many years ago when they were dirt cheap. The increase in taxes over the years suck up any money the owners might have had to make improvements. They have just enough money to get by and the moss overtakes the roof, the wood rot overtakes the fascia boards and siding, the trees get bigger and bigger and crack the foundation, birds make nests in the rotted fascia boards. It’s like a used car that finds its way to the scrap heap, once the cost to repair exceeds the book value.

“Book Value” of a house equals the value of the lot. The value of the lot is based on it’s “highest and best use” and based on its “potential”. If the lot would have a view IF it were a two story house, than the highest and best use of that lot is to put a two story house on it. If that gives the lot a value of $650,000, then that is the value of the dirt. People have a tendency to value a property by what is on the lot and say, “Oh I wouldn’t pay more than $350,0000″ for that house!”. If the lot is worth $650,000, then the house can’t sell for $350,000, no matter how awful it is.

Take the house in the photo above. Would you spend $650,000 to LIVE IN IT? If you would pay $125,000 to live in it, and a builder will pay $650,000 to tear it down…well then I guess everyone has to agree that it is a “tear down”. But they don’t all agree that it is a tear down. People never all agree on anything, do they?

They don’t agree because they like having a little tiny house next to them that doesn’t block their view. They don’t agree because they don’t want the noise of the builders putting up a new home next door from morning until night, day after day, so they can never take a nap in the afternoon again until the new home is finished.

They might all agree that it should be torn down, but they want it to become a new park or playground…as long as no one every comes to play in it and make noise 🙂 They never ALL agree that it should be torn down and become a “McMansion”, especially if they live in the cute little bungalow next door.

Sales that “fall apart” on Home Inspection

[photopress:brokenmask.jpg,thumb,alignright]Tim’s Comment: “What many do not realize is the extent and frequency in which commissions are reduced via credits to the parties at closing. It is very common.’While Tim raised this subject as if these credits were commission negotiations, and sometimes they are, more often these credits are how agents help the buyer and seller accomplish their true objective. The true objective of a seller is to sell his house. The true objective of the buyer is to close on their new home.

Often during the home inspection negotiations, people get all upset. The buyer is really ticked that “the seller won’t fix…:and the seller is really ticked that “the buyer is being so petty as to want him to fix…” For many, many years, agents have used a portion of the commission to keep everything together and throw money at the problem that the buyer wants fixed and the seller won’t fix. With commissions being reduced, and so many agents paying referral fees and bottom feeder site fees and lead generation fees, there is less and less money available to keep these sales together, so more and more are falling apart.

It will be very interesting to see if the new business models that cut the commission down to the bare bones, have a higher rate of sales falling apart at inspection time, with not enough commission in play to fix what the buyer wants fixed and the seller won’t fix. The first time I saw an mls listing that required the buyer agent to submit the offer directly to the seller, one of the $500 mls only listings, the poor sellers were on their third round with two sales falling out of STI. They had even lost the house they were going to buy because of the failed efforts, and were on their third try at getting a buyer that would “stick” to the end. So my guess is the less money on the table to hold everything together, the more sales will fall apart.

When I negotiate with a buyer or seller, I make sure based on the type of property and price range, that I am not leaving the client so short, that the objective cannot ever be attained.

Where do the kids sleep?!?

[photopress:dig_deep.jpg,thumb,alignright]Whether you are a buyer or a seller, you really need to dig a little deeper when determining the value of a home. One thing I noticed when I first started practicing real estate in the Seattle area, is that almost no one digs deep enough when determining value based on “buyer profile”. This is an old fashioned concept, I guess, that I learned many, many years ago when I was the Certified Corporate Property Specialist (CCPS) for a large real estate company on the East Coast. That’s a fancy name for someone who must quickly sell the vacant inventory homes of relocated executives whose homes were “acquired” via a “buyout” corporate perk. The very first question I had to ask myself when I went to the property before putting it on market was, “Who is likely to buy this house?” I needed to know if I had an expanded or diminished buyer “pool”.

Remember, the market is shifting from a “baby boomer” market to a “Generation X” market, and we have to change our thinking and valuing with the trends that are affected by this shift. “We” meaning anyone interested in the “value” of property, whether that be buyers, sellers or real estate professionals.

Here’s a simple scenario. Four houses. Each 2,600 hundred square feet per mls. Let’s say everything is comparable in terms of neighborhood, lot size, view considerations (all have a view) and improvements. The ONLY difference being the placement of the square footage, each being 2,600 square feet not including the garage.

House #1 – 1,400 square feet on the main level and 1,200 square feet on the second floor. 2,600 above ground square feet with 4 bedrooms on the second floor and none on the first floor. View from all “main” rooms, (kitchen, living room, entertainment spaces and master bedroom).

House #2 – EXACTLY the same house as House #1, but with views out the front door, not visible from main rooms and views from all children’s bedrooms only, when inside the home. In other words on opposite side of the street so front door faces the view instead of the rear of the house facing the view.

House #3 – 2,000 square feet on the main level with 3 bedrooms on main level and 600 finished square feet in basement level with one bedroom in the basement. All views from main areas on main “entertaining” level.

House #4 – 1,300 square feet on the main level with only the master bedroom on the main level and 1,300 on the basement level with three “children’s bedrooms” down in the basement. Another variation would be two bedrooms up and two bedrooms down.

What really concerns me, is I see people getting info from the internet regarding total square footage, and doing comps based on this total square footage. “The house across the street sold for $800,000, so this one is worth X on a “price per square foot” basis. Even if it is the house next door, PLEASE stop valuing property based on price per square foot based on TOTAL square footage. Clearly you can see that those four houses, all 2,600 square feet, have considerable differences with regard to value.

When a pregnant woman and her two year old walk into house #4, they have to walk right back out. Do you really think she is going to love her master bedroom with view, if her newborn baby and two year old are sleeping “in the basement”? Now, personally I love my kids being “in the basement”, as mine are grown. But I wouldn’t pay as much for the house with a huge master suite on the second floor and all other bedrooms in the basement, as I would for one with more bedrooms “up”, even though that suits MY “buyer profile“.

Diminished buyer pool means that the average family buying a home cannot live with that floor plan, and that affects value, even if that floor plan suits YOUR needs. If the answer to the question, “Where do the kids sleep?!?” is down in the basement, on a separate floor from “Mommy”….hmmmmm.

Investors be very aware of this concept, as what you are thinking is a “bargain” in the neighborhood, and buying as a flip project, may be the ones with this “floor plan flow” problem. You sink a ton of money into granite counters, etc. only to find the low price was based on these types of differences in square footage placement, and you get nailed on resale of the improved flip house.

If a house is not selling and the price is reduced below the prices of the neighboring properties, make sure you know WHY that is happening. Likewise, if a real estate agent prices a house with 3 bedrooms on the main level and views from main rooms like house #3, based on the price “per square foot” of the house next door like house #4 with the kids in the basement…THAT house may be a TRUE bargain.