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Using price per square foot to figure home values: it might not tell you what you think it does 

Square foot pricing can be a shifty concept that doesn't always mean what you might think it does. You might be looking at a 1,500-square foot home that's listed for $150,000. The price per square foot would be $100. The home next door is 2,000 square feet, and it's listed at $185,000. The price per square foot of the larger home is $92.50.

Which is a better buy? That's actually a trick question because smaller square foot homes command higher per-square-foot costs. Larger square-foot homes command lower per square foot prices. It can be a little like comparing apples and oranges.

Average Price Per Square Foot

You can arrive at the "average" per-square-foot cost of a home by adding the square foot cost of each home that's sold in a given area then dividing that by the number of homes that sold.

For example, three homes sold on Broadway for $200,000 each. Property A was 1,000 square feet, while Properties B and C were 1,200 square feet. Two more homes sold a block away. Property D was $180,000 and 1,200 square feet, while Property E was $585,000 and 2,100 square feet.

There's a big discrepancy between homes that are 1,000 square feet and homes that are more than twice that size, and that's why averages are calculated.

  • Property A sold at $200 per square foot.
  • Property B sold at $167 per square foot.
  • Property C sold at $167 per square foot.
  • Property D sold at $150 per square foot.
  • Property E sold at $278 per square foot.

Therefore, the average per square foot cost is about $192—the total divided by the five properties.

Median Price Per Square Foot

The median price is the middle price point—half the homes sold above the median and half sold below the median. Median price is often used as a more accurate measure of value, although it's better than average pricing, especially when there are extremes.

It isn't a clear picture either, however. In the example above, the median price would be $167 compared to the average of $192. Half the homes sold for more than $167.

Why Average Price Is Important

Per square foot costs are used a great deal in new construction. The square foot cost to rebuild your home is often likely to be higher than the cost to buy if the home is older. This comparison can be based on averages because 2x4s, Sheetrock, and other construction materials cost the same per square foot from one house to the next.

It's All About Trends

It's not wise to base the purchase price of a home you're buying on either median or average per square foot costs because each home is unique. Instead, think of these numbers as indicative of overall trends. Prices per square foot can vary based on location, condition, improvements, updates, lot sizes, and whether it's a one-story or multi-level home, among other factors.

You can determine whether values are rising or falling if you compare the average price per square foot for the past 12 months, but much of that depends on the average size of the home.

Keep It in Perspective

The average price per square foot will show you a trend as long as all homes are similar in square footage, but an average won't help much at all if some homes are larger than others.

The answer to whether it's better to buy a home that's smaller at a higher per-square-foot cost, or a larger home at a lesser per-square-foot cost, depends on the typical average square footage of homes in that area. Many buyers want to buy a larger home, but it might not be the best financial choice if that larger home is a white elephant.

The Bottom Line

You can't take the average price per square foot and multiply it times the square footage of the home you're thinking about buying. It doesn't work that way. Appraisers don't rely on square foot costs. The pricing per square foot simply gives you average or median ranges. It doesn't accurately compute the value in most cases.

Article sourced from TheBalance.com

 


Our current opinion of the housing market. 

We have heard some people talk about the market slowing and then there is this meme that we saw on social media.
Oh boy... so we really need to talk about this. Here are 5 reasons we are not going to see a recession anytime soon ranking them from macro reasons to local reasons.
1.   Lending practices have changed since the last crash. Do we even remember what it was like before the recession and what it took to get a loan? Well lets review, you didn't have to prove how much money you made, it was on stated income. Meaning you could just walk in say you delivered pizzas but made a million bucks a year and they would just give you a loan for a house you couldn't really afford. All of that is gone and now lenders double and triple check your paychecks, taxes and verifying your employment.  
2.   There is no inventory. We have been in a sellers market for 6 years. Buyer and sellers markets are differentiated by a statistic known as 'months of inventory' a balanced market (meaning not buyers or sellers) is 6 months. Meaning based on the current number of buyers it would take 6 months to sell everything if nothing new came to market. Anything under 6 months is a sellers market anything over 6 months is a buyer market. Currently we are around 4.5 months of inventory nationally. This is a sellers market meaning there is increased demand from buyer and there aren't enough homes on the market. You can see both Redmond and Bends months of inventory down below in this newsletter.
3.    There are a lot of millennial's who still need to buy a house. A quick google search notes that there are 83 million US millennial's out there and only 33% have a home already. So 55 million millennial's are out there who are coming into the age of home ownership. Then consider how many homes are sold per year...last year 5.3 million homes were sold in the US. So there's at least ten years of increased pressure on the current 'low inventory'. The economic principle of supply and demand is about to get a demand gut check in the coming years. 
4.   The internet and work from home jobs. Face it more and more jobs are becoming work from home jobs. People can be employed all over the country but work from home. This is not a fact but it feels like at least half of the deals we have done this year are people who work from home. Oh and by the way Central Oregon has fiber-optic cable running though our high desert. So internet speeds are insane fast 'meaning work from homers' like it here. 
5.   Bend is Bend. Good grief is this an amazing place to live. If you are still reading this by now, we probably don't need to tell you why Bend is an amazing place to live, you get it. But if you look around at the above reasons; you work from home you have a solid job and your ready to buy a house, hmm let's move to Bend. From where we sit, I don't see how the market, here locally, can crash. Yes other major markets are slowing down but even they are only slowing down, not falling and certainly not crashing. 

As always we are here to help you buy and sell real estate but even more we see ourselves as coaches to guide you through the process of buying and selling. Give us a call our knowledge is free to you.

Lets recap "pricing your home" when getting ready to sell. 
The market is an open market, every home is different and unique therefore different homes speak to different buyers.  It is not like buying a gallon of milk where the price is the price.  There's supply and demand meaning negotiation in a buyers market, or worse yet in a sellers market (like we are currently in) there isn't much negotiation and if buyers don't like the price they simply move on. Essentially you must understand that if a home isn't priced right people will not even give it the time of day. 
In case you have not heard this before the best time to sell you house is within 30 days of it hitting the market. This is the goal of every listing that we take. That is when the property will have the most interest and when buyers are ready to move quickly. It is a statistical fact that the longer a house is listed the less you will eventually get for the property when is does sell. 
To price your house correctly you must understand that the house will be in competition with other homes listed at the same time. Every home is first based on comparable homes that have recently sold, yet the finishing touches on pricing involve looking at the competition. Not every comparable is created equally; some are in a better or worse location, some have better or worse backyards, and some have better or worse interior finishes. All of this is carefully taken into account by your favorite real estate team.  
Homeowners will always have an opinion of value and we as agents are tasked with trying to merge reality with expectations. What a homeowner wants for the property may not always line up with what the market is willing to bear.  However, with the help of a great agent (like us) who can adequately show the feedback of the market both before listing and during the campaign your house will sell for top dollar in no time. 
As always if you are thinking about buying or selling or both at the same time give us a call. We're here to help.
 


WHAT ALL AGENTS WANT YOU TO KNOW
Believe it or not there are real estate coaches out there, people who used to be in real estate and now their job is to help other younger agents learn how to be better at real estate. (which is good because there are some bad agents out there). One of the best theories that I have ever heard and one that is most generally agreed upon is the theory of the personal circle. If 50 of your closest friends and family can refer you just one deal  (home sale) a year then you would have more business than you would know what to do with. 
(so... hint hint)
Now we hear that friends and family refer us all the time by giving our card out but we never get the call. There are two reasons why, one there are a lot of agents out there and they probably already know five, two because most buyers or sellers do not interview more than one agent so they don't call more than one. Here's the secret to helping us help them. The next time you hear someone talking about real estate; first of all, please think of us and refer us, secondly and more important, ask if your favorite agents could call them. Them promptly call us and give us their number and info.  Whether they know it or not they need to hear what we have to say because not all agents are created equal.  
Thank you to all of our friends and family for all of the referrals you have sent to us over the years and for the many many more to come. We sincerely value and appreciate your support.


WHEN IS THE TIME TO START TALKING TO A REALTOR OR MORTGAGE LENDER?

If you are thinking about buying or selling real estate it's a good idea to consult your Real Estate agent and mortgage lender right away.  That is what we are here for. Getting you into the house and writing the contract is only a part of what we do.  We can give valuable insight into what needs to happen to a property to help it sell effectively. For a buyer its also important to notify the realtor of what they are looking for in a house even if it's months away. Realtors have a network of other realtors and we are notified of homes that have yet to hit the market. In fact around 15% of our deals happen before the property even hits the open market.  Lenders are also a great resource for information for planning well ahead of a purchase. A great lender will be able to help you get your finances in order to help you get the best rates and highest budget possible. An early meeting with a great lender and agent can help you save thousands of dollars when your ready to make that purchase or sale. 

 


The dirt on inspections

There is no dirt on inspections. Inspections are great. You see when you are buying a house it is important to know you’re not buying a lemon. Everybody hates buying lemons right. So you order an inspection after you have an accepted contract and before you close. This is a due diligence period. Whole home inspections usually cost around $400 but I would look at it as cheap insurance to make sure there isn't anything major wrong with the house. If there is you can easily get out of the purchase or negotiate a resolution to have the issue fixed.
But what if the house looks like the nicest cleanest most well maintained house you've ever seen? Surely you don't need to spend the extra cash right...In fact you ALWAYS want an inspection even with brand new construction.  In fact, often times there are issues with new construction that no one catches. For example; plumbers working on a house take off early on a Friday to go camping, forgets on Monday exactly where they left off and then when you go to flush the toilet months later the ‘waste’ goes under the house.  What's that smell?   Inspectors can literally look through walls with thermal imaging, they get into the dirty areas most people won’t go and most importantly they know what to look for.
So the bonus material here is how I as your real estate coach, approach inspections. If you’re thinking about selling I will push a pre-home inspection. This provides a huge advantage to selling your house. They inspect the house before you even list the house so that if they do find something you have the ability to determine how to fix it before there is a buyer on the line. This gives sellers leverage and peace of mind. There’s nothing worse than being excited to finally sell your house and then the sale falls through because there is a major problem with the house that you didn’t even know about.  For example: seller wants to sell house, gets offer, buyer does inspection and determines the roof needs to be repaired. Buyer threatens to walk if they don’t replace the whole roof.  However, if the seller did a pre-inspection they would have learned that the whole roof wasn’t bad, just the ridge cap (which is the line of shingles across the ridge of the house) So the sellers repaired the ridge cap for a few hundred dollars instead of having to replace the entire roof at a cost of a few thousand.  
Leverage.
It’s time to hire a professional who’s ahead of the game in real estate, instead of trying to keep up with it.


Buyer Process 

It's not anybodys fault, it's just that you don't buy a house every day. So whether your a first time homebuyer or it's been 8 years here's a quick and dirty lesson on the buyer process in real estate.
I’m first going to explain how it works for me, then we will get to you the buyer, second J.  There is only one way an agent makes a living, by helping people buy and sell real estate. It is 100% commission, and that is 100%. However, the way that agents get paid is really all from one side, the seller side.  Real Estate agents are 100% free for buyers. Now I still get paid for helping and working with buyers but the check actually comes from the sellers not the buyers.  So I’ve seen buyers want to shy away from agents because they think they have to pay them. The truth is that agents have knowledge and insight that is valuable that buyers should utilize yet don’t because they don’t exactly know how the process works.
So…now I will explain how the process works for sellers. Step #1 use an agent you know, like, and trust. (like me) again their knowledge and information is free to a seller and agents have a fiduciary responsibility to work on their clients (that’s you) best interest.  Meet with them at their office and ask them what the process is and ask them to hold your hand through it if needed. Some people want to know everything some don’t care at all. It’s a good idea to let your agent know how comfortable you are and what your experience level is. Step# 2 use a trusted loan officer and get pre-approved. This will let you and your agent know how much you can afford.  The lender will look at all of your financials, tax statements and credit to determine how much a bank will give you a loan for. Step#3 Go shopping. Your agent will be able to set you up on a search engine that will show you houses in your price range, location and with the amenities you have pre-determined.  Then you select the ones you would like to go and see and your off. Step# 4 the offer. Now it’s gets fun. Because you actually have your heart set on something and its going to hurt if you don’t get it. Stay realistic, and remember the agent is only there to hold your hand and not to tell you what to do. This is still your house hunt and you’re in control.  We’re going to go ahead and call this next one Step #5. Get the home inspected!  An inspection can reveal so much about a house that no one would have been able to tell by just walking through it.  However, a word of caution, no home inspection is perfect. There is no such thing as a perfect house. So when the list of repairs comes back, don’t panic.  A great agent will be able to work with you to determine which issues are deal breakers and which ones you just have to deal with. After your offer has been accepted and the inspection is done you begin waiting. The loan officer will ask for tons of paperwork the agent will be sending you paperwork and you will begin packing! This is both exciting and stressful. Step# 7 is the worst because it doesn’t have a name it is just a feeling of stress and excitement all in one. Step 7 doesn’t go away until you close. Step #8 is closing. Then I send you a gift as a way to say thank you for allowing me to help you and finally, I like to do an interview of how the buying process went and get a testimonial so I can show the world how easy it can be with a great agent working by your side.


Ten reasons why FSBO is not the way to go!

#10        It’s hard. 90% of FSBO’s eventually give up and decide to list with a Real Estate agent. Of the 10% that do sell their homes by owner 70% of them report having had significant difficulty.
#9           This is a major financial decision.  For 99% of all people this is the biggest financial decision they make. Just because you can do it yourself doesn’t always mean it’s the right choice. You wouldn’t defend yourself in court without an attorney, even though you could. Most people don’t even cut their own hair, but they could. Those are two extreme ends of the spectrum and yet for something as big as selling a home…some people think it’s a good idea to try it themselves.
#8           The “bring me a buyer and I will pay you a commission” line doesn’t work. FSBO’s think it will work because once they publish their house, Realtors come out of the woodwork to see the house. Unfortunately they are not calling because they have buyers, they are calling because they want to convince you to list with them.  Realtors who have buyers are typically ONLY showing them homes that are on the MLS. This is because that’s how the system is set up, they have a website that sends out emails to buyers about houses that fit their descriptions but it’s tied to the MLS, not to FSBO.com.
#7           You are too emotionally attached. It’s hard to admit, but in reality, everybody is too emotionally attached to their own home.  It’s your home, where you feel most safe, where you raise your family, where you cuddle up when you feel sick, where you laugh, cry and love.  Agents see thousands of houses, I’ll let it sink in… thousands, agents see so many houses they can actually objectively compare your house to others without the emotion to give you the most realistic expectations.
#6           Negotiating skills. Unfortunately you are not a home sales negotiating expert. You might be a craigslist negotiating expert or a used car negotiating expert but home buying and selling is different. It is a living breathing lifeform that’s always changing (even if you’ve sold homes in the past, every day is a new game) and if you are not in tune with it you will find yourself losing more battles than you even knew existed. It is not just the buyer who you are negotiating with, it is the buyer’s agent, the inspection company, the appraisal company, repair contractors, escrow officers, and lending institutions. Are you prepared to negotiate with all of them? Not only that but you must remain neutral, if you get too emotionally charged you might reply in a way that will lose you a sale.
#5          You put yourself at risk of being sued. Are you aware of the federal and state laws and disclosures that you must follow? There is a lot of paperwork involved in selling a house and one of the most important is the Seller’s Disclosure. This is where you have an obligation to disclose facts about the house that you are aware of that might determine the value or desirability of the house. The seller can be held liable for fraud, negligence or breach of contract if you do not follow the proper steps. Unless you are a real estate attorney, the odds are, a real estate agent knows more about all of this than you do, so it’s best to have representation. If you fail to disclose a hazard, nuisance, or defect and the buyer finds out about it after they have moved in, they could sue you. Now agents can make mistakes too, however they carry insurance against that sort of thing and it adds a layer of protection between the sellers and buyers.
 
#4           Exposure is critical (in fact this should probably be number 1). Websites like Zillow and Trulia are very misleading to potential sellers and here’s why. While its true, most buyers start their search on a website like Zillow the reality is that once they have decided to get serious about buying they almost all go to a real estate agent. Why go to an agent when you can find homes yourself you ask? Well an agent only gets paid by the seller, therefore a buyer’s agent is free to a buyer. So why would a buyer not use a professional agent who does this for a living? They are free, full of valuable knowledge and are looking out for their buyer’s best interest.  
What does this have to do with finding my house you say? Well when a buyer comes to an agent they give the agent parameters for what kind of house they want. Then the agent shows them those houses that match, however, the database that the agent is searching through is not Zillow or Trulia it’s the MLS. Agents don’t scour the internet for FSBO’s, they go to the MLS where they know they will be dealing with a professional agent on the other side. Therefore all the exposure that you thought you were getting by online sources is really a very, very small amount of exposure. Almost every for sale by owner I’ve have talked to have all said the same thing during our first conversation. “I’m really surprised that I’m not getting as much traffic as I thought” (besides agents trying to get a listing).  I know why, because you’re not playing the game the right way, you’re not exposed to the qualified buyers and you’re not professionally represented.
#3           Showings. You don’t know who they are. Safety should be your number one concern right? Well even if it’s not, have you thought about who might be coming through your home? Some stranger calls you, or better yet they just text you, they want to see the house. You agree and set a time. You’ve spoken to this complete stranger one time and now he’s walking through your house. If he’s a real buyer great, but how do you really know? Agents are professionals, the clients we represent are real buyers, not random strangers. One of the first things agents do is make sure that the buyer is qualified, meaning they can actually afford the house they are looking at.  Which is no small task. They have to provide financial papers to a lending institution and get a Pre-Approval letter.
Let’s just say your 6’6” 275lbs and don’t really care if the person is a weirdo or not. It is still a hassle to show the house, and put on the show and really, you still don’t know how serious they are.  Agents are bound to a code of ethics, their lock boxes can track showings (who comes and who goes), and all of the buyers are actually serious buyers. You’re not wasting any your time buy letting them into your house.
#2          Stepping over a dollar to pick up a dime. Here’s the big one right, you want to save the commission. Well if you’re offering a 2.5 split to the buyer’s agent, good for you, but like a said before buyer’s agents are not looking for your house and are not pushing your house to their buyers. So this leaves the buyers who do not have an agent representing them. So most sellers think, I’m saving the commission, however most buyers who know the game think they are saving the commission too so they can offer you less.  Savvy buyers are counting on the same savings you are, if you don’t have to pay a commission why should they pay more money for the house? Not only that, most FSBO’s are trying to advertise their house on craigslist. Who shops on craigslist? That’s right, bargain hunters. They are never going to bring you a full price offer or even close, lowball offers are too common for FSBO’s because they think you don’t know what you’re doing. Even if you’re perfectly priced, buyers are still going to lowball you.  In my experience, I have been able to get more money for the same house than the owners when they were trying to sell it themselves, even when including the commission as a part of expenses. In a National Association of Realtors study they found that FSBO’s typically have a lower median selling price; thus the agent assisted home sale typically has a 13% higher sales price than the typical FSBO.
#1 Bottom line: As one of my training coaches told me once, even the CEO of buyowner.com sold his own personal house through a real estate professional. Hypocritical, yes. Smart, also yes.  I hope some of these reasons shine some light and get you to think about how the system works. This is one of the most important financial decisions of your life and although the thought of saving commission cost is appealing there are way too many risks against it. Here is the most important thing anytime you’re considering using a real estate professional, hire an agent who you know, like and trust and they will do a great job for you and get you the results you want. Ultimately when you find the right agent you are going to have a great experience selling your home.
 


Pricing

Getting top dollar for your house when selling is actually one of the most common sources of confusion when getting ready to list your house. It's almost like opposite day and sellers must be warned.  The magical key is to get the price right.  Find good comps and be realistic about the condition that your house is in vs. the competition.  Oh and always used sold comps not active comps (we have no idea what they will actually sell for). For more information on getting top dollar for your listing visit my Blog at krommrealestate.com
If you set the price right your house will sell within the first 30 days, which is exactly what you want. Think about this, when your house hits the market there are already qualified buyers out there waiting for new homes to hit the market. These buyers will move quickly because your house is new and shiny and they are still looking (and have probably been beat out by competing offers on other houses).  
If you’re not priced right and after the first pool of buyers pass on your house, then you have to wait patiently for new buyers to enter the market. And the longer it takes to sell the more and more buyers wonder what’s wrong with this house.  Until eventually you start getting offers that are far below the asking price.  It is statistically proven that the longer the house sits on the market the lower offers it will generate. 
The warning I spoke of earlier was indicative of agents saying your home is worth more than it actually is, simply to get a listing. Many sellers want to hear that their home is worth more because that makes them feel good. However, in reality it will just sit on the market for months and months and eventually sell for far less. That is not looking out for the seller’s best interests but rather the agent’s interests. Confident and professional agents who understand that they are working for you and your best interests will understand that a quick sale, because of accurate pricing, will yield a great sales price and ultimately get you Top Dollar for your home.
If you would like a free Market analysis of your home done by a pro feel free to call or email anytime. I’d be happy to help.


Misconceptions 

Unfortunately unless you frequently deal in real estate or have bought or sold lots and lots of real estate, it’s hard to remember exactly how it works every time. The order of processes and who does what, who is responsible for what. It really can be a little intimidating.
For example, here is a misconception I've heard more than once in the past year.  "I don't like using my friends who are agents because then they will know all of my financial details." Fortunately, this is a false assumption. Real Estate agents have no need to know the financial details of your life, what is needed... is to know if you can afford what you want to buy. That is where a trusted and professional mortgage broker is going to bridge that gap. The mortgage broker is going to collect the financial information and notify the buyer and the agent what the max limit is for your home buying budget. Then the buyer and agent can go and look for homes that match what the buyer wants to spend. 
This also happens to be the first step in the buying process. Always get pre-qualified before going and looking at houses. If you do not have a favorite lender, then ask me and I will recommend a strong professional lender to help get you started.  What you don’t want is to go getting your hopes up on a house that you can’t afford because you didn’t know what you could afford in the first place.
It is an exciting time to be looking for a home. Call me right away if you have any questions.


Reflecting on 2015 
It’s been an incredible year!  First of all, thank you for being my friend and checking out my website there will be lots more to come from this site in the near future. I want to be available to answer real estate related questions or even, not, real estate questions.  I have other passions as well. I could teach you how to take a slap shot in hockey or tie a fly for fishing. I even have knowledge and skill in wooden boat building. Want to build your own drift boat from scratch? Call me and we get together talk about boat building and eventually when you need a real estate professional I will be here for you.  In either case follow my blog for educational and sometimes goofy tidbits of info from yours truly.
2015 has been great! Almost all of my clients have been either my friends or close friends of my friends. I have decided this is the only way to run my business. It’s so much easier to work with friends. In just the past year I have sold property in 3 different counties, sold, bare land, new construction, pre lead paint construction, duplex, townhomes, single family homes, manufactured and foreclosures. The experiences I have taken in this year leads me to believe that 2016 will be even better.  If you already know me please tell you friends about me, if you don’t know me, well than I’d like to know you. Give me a call and let us talk.  I’ve got some great things in store for 2016 and I want you to be a part of it.
Cheers,
John