Why picky buyers pay more for Austin real estate

It’s called a “buyer’s market” because real estate buyers have a market advantage over sellers. The buyer advantage is a result of high inventory and lower demand. Buyers have a lot of Austin homes to pick from, and there are more homes for sale than there are buyers to buy them. This means Austin buyers should be getting great deals, right? Wrong. Many don’t.

Many buyers give away their buyer’s market advantage in favor of indulging a highly particular and restrictive set of search criteria. In other words, some buyers are looking for the “perfect” house, and once they find it, they are not willing to walk away even if the seller stubbornly holds out for a higher price than market conditions should bring.

The buyer doesn’t have a strong #2 or #3 choice to move on to. Instead of enjoying the benefits of an ample selection of homes, some buyers create their own artificial shortage of homes by ruling out adequate candidate properties, and thus limiting their options, and thus their negotiating leverage. So long buyer’s market, for those buyers.

Many sellers might be saying, “yeah, well bring me one of them there picky buyers because we’re priced too high and we need to get lucky”. Well, some of you will. Not many of you, but enough to keep the others hoping.

Here’s the thing if you’re a buyer in Austin….

In this type of real estate market – a buyer’s market – you ought not be shopping for the perfect home, but the perfect seller. You want a motivated seller ready to be flexible on price, one who actually wants to sell the house versus a seller who is just trying the market on for size. Our buyers who are willing to walk away from two or three deals before they find the really motivated seller are the ones getting the really good deals.

To accomplish that, you have to have the pragmatic, low emotion mindset of an investor. Otherwise, in this market, if you pay top dollar for your “perfect” home, you are upside down the day you close because you paid too much.

Our investors consistently obtain much better purchase prices than our owner-occupant buyers. There are exceptions, of course, but over time, this is what we experience. The reason is simple. I can show an investor a set of 15 homes and we’ll find 5 or 6 that are suitable candidate properties worthy of an offer. If the first seller isn’t willing to be flexible, we’ll move on to the second, third or fourth choice. The investor is not emotionally attached to a particular home, but is focused on obtaining a below market purchase price.

Out of the same set of 15 homes, an owner-occupant buyer might find one or two possibilities, but will still want to keep looking.

The typical owner-occupant buyer isn’t always focused on value, but on emotional satisfaction. This isn’t necessarily the wrong approach, and perhaps “picky buyer” could be termed a more forgiving “lifestyle buyer”, but either way, it’s not a wealth building strategy. It would be like passing up a superior stock pick because you don’t like the company’s logo. To pass up better deals in favor of cosmetic design preferences of no financial consequence is an emotional approach, not a financial decision.

So, should buyers throw their personal preferences out the window and just go out an low-ball 6 offers until they find the best deal? Of course not. But what we find is, at the end of the day, the same three criteria of price, location and quality/size are the dominant decision items. Each buyer, whether you consciously think of it this way or not, has a set of Must Have, Should Have, and Could Have preferences. Where people go astray is in allowing the “should haves” or the “could haves” to rule out otherwise suitable homes.

For example, if a buyer loves almost everything about a particular home but says “I hate these tile floors”, we can cure that problem with a dollar amount. It costs about $1.50 per square foot to demo/remove ceramic floor tile, and about $5 to $7 per square foot to install very good quality wood flooring. So if we’re talking about 700 square feet of ugly tile, you convert that to $5,250 and factor it into the offer you make, but you don’t rule out the home and keep looking just because of the tile, as most buyers are apt to do.

And let’s think for a moment about what we do in a home. I’ll use myself as an example.

First, I wake up in a warm bed next to a wife of 18 years who loves me. I stand up upon carpet, walk into a master bathroom where the plumbing works, take a hot shower and get dressed and ready for my day. The color of the carpet, tile, shower fixtures, etc. don’t really impact my life. Yes, I like my house, and find it aesthetically pleasing, but really, does the color of my bathroom counter really matter to my happiness and ability to get up and get dressed?

Next, I go into a kitchen that has food, and I cook a hot breakfast for me, my wife and two beautiful kids. I do this every morning, seven days a week. And I could and would do it, and the food would taste the same, and our breakfast table chatter would be the same, no matter the layout of my kitchen, the color of the granite, whether the floor is wood or tile. None of that really matters, does it? Is life really about the designer aspects of our homes? Or is it something else?

Next I leave the home, driving one or both kids to school, and I often don’t return to the home for 8 or 10 hours. And when I do, as in the morning routine, my life and happiness are not determined by the cosmetic features or colors of my home. Sorry, that stuff just doesn’t matter that much. And then I spend another 8 hours sleeping, during which time I am unaware of and oblivious to the quality or appearance of anything other than my bed.

But to buyers looking at homes, you’d think the cosmetics and nuances of the layout and floor plan would be life determining factors. That off-shade tile will most certainly rob the buyer of all future happiness, so we better keep looking, right?

When my family moved to San Diego in 1966, I was 4 years old. My mom tells me she and my father bought the one and only home they looked at. I was stunned to hear this a few years ago when I asked her “how many homes did you and Dad look at when you bought the house in San Diego?”. She said that one looked like “it would do”, and they already had some Navy friends living in the neighborhood who had recommended they buy there. That was the extent of their house hunting process.

Near the end of my Dad’s life a few years ago, as he was fading into Alzheimers, and we talked about life and love, he never did say “I wish we would have looked at more houses before we bought that one in San Diego back in 1966”. The one he owned for 26 years, that was 900 square feet, and in which he raised two sons.

Folks, the petty stuff that must of us obsess on in life (and I’m as guilty as the next person sometimes) just doesn’t matter. It doesn’t matter at all. Honestly, it doesn’t.

Any home can be filled with love and happiness. Any home can house smart, happy kids who grow up to be great people. Ay home can be a great place for grand kids to come visit and ride on Grandpa’s shoulders. Those outcomes won’t be determined by the color of the tile, paint or formica. Nor whether you have gutters or a covered patio or bronze doorknobs.

Your life and hapiness will be determined by the quality of your time spent together. You don’t need a McMansion or a show place to live happy lives. Yes, you want a house you like, but keep it in perspective and in the context of your financial and family goals.

Now, go find a perfectly adequate house for a great price!

Posted by Steve
7 years ago
Steve

Steve is a Real Estate Blogger, Husband and Dad, UT Austin Grad, Runner, Real Estate Broker and owner of Crossland Team and Crossland Real Estate in Austin TX.

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Mike B - 7 years ago

Awesome post Steve! Great to keep things in perspective.

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Justine - 7 years ago

Wow! This really struck home with me, thank you!

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shireen - 7 years ago

I agree! But now I am even more persuaded that we should sell our home and downsize into a rental.

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Julia - 7 years ago

Wow Steve, I am so pleased to read this type of content! It’s great. So positive and very thought-provoking. Thank you for taking the time to write this.

I wholeheartedly agree. I bought my first house straight from family because they were moving out of town and just asked if I wanted to buy their house. I’m so glad I bought my house from them instead of shopping around! I am *sure* I would have bought a house at least twice expensive (and still would have easily qualified). There was a lot about it I didn’t like that made me feel like it was “just a house”. But then I thought about people who fix up their house to sell, and how much they love their house right before they sell it. I thought why not do that before I want to sell it? Sure enough, it’s more and more a home because I can fix it up the way I want. It’s smaller than I would have chosen, but that makes property taxes lower, energy bills lower, the price of wood floors lower, and the purchase of furniture lower.

I’ve come across articles about surveys on happiness, and often people in very nice expensive houses are just as happy as people in smaller, typical houses. I’m sure that’s even more true when you’re looking at a number of houses that are all more or less similar.

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anonymous - 7 years ago

Steve, good post, but your message to me really means a loss of business for you. You are asking to take the consumer mindset out of purchasing a home. Fine by me, but that will mean a dropoff in realtor demand if you suceed in changing the collective minds of consumers. The funny thing is, our economy wouldn’t be hurting if we weren’t such good consumers over the last decade or so.

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anonymous - 7 years ago

One other thought occured to me: being able to withstand periods of negative equity is linked to how well you are doing compared to your peers and how satisfied you are with your choices. If you settled on your house and you are experiancing more financial pain then your peers, here comes depression and likely foreclosure.

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Steve - 7 years ago

Thanks for the comments everybody.

> You are asking to take the consumer mindset out of purchasing a home.

I’m saying the consumer mindset is flawed, focuses on the wrong things, and at its worst produces the opposite result of what was sought.

For people of my mindset and personality type, a home provides safety, security, convenience and, if properly selected, a good investment. I’m not a “cultural creative” though, who wants my home to make a statement about who I am, or reflect my values. I don’t care about any of that. I’m climbing a ladder to financial independence and financial freedom, and I want all my choices in life to support that goal so I have more options in life.

We only get one turn around this merry-go-round of life, and when I’m dropped down into my grave, my life won’t be measured, nor will I be remember for whether my home had high ceilings or not. My kids might appreciate the nest egg that will send my grand kids to college though.

I think we all want good health, good relationshups, and a meaningful purpose and mission in life. Those things are achieved (or not) as a result of the habits in which we engage, the quality of relationships we build, and the choices we make. the house we live in doesn’t affect it much at all.

I guess my post drifted off into a more philisophical direction, but as Realtors, we really do see first hand that people honestly believe that their happiness and satisfaction in life is going to be determined by the physical attributes of the homes in which they choose to live.

I’m just saying that while there is a grain of truth in that (you don’t want your home to create stress and hardship because of a long commute, or poor condition, etc), on a basic level, what I observe with many buyers is that way to much power is given curable cosmetic issues that don’t affect the bigger picture of what life is really all about.
Steve

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Larry - 7 years ago

Thanks for the article Steve.
I completely agree with you for the investment perspective.
And up to a point, it is also my own attitude with some minor exceptions. I don’t care about colors and lots of details.
On the other hand, most people (usually women) are more likely to care about details and since they have to see that flaw every day, that make them very upset with the whole house just because it does not have something they would like. Usually they ignore that 95% or more of the features of the house are perfect. They will concentrate and only see that “big” (for them) defects. That is human nature.

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Julie - 7 years ago

I certainly see your point and think it’s important to never lose perspective, but some of us do consider the way our homes look to be important. It’s my hobby and my great pride to currently live in my dream house. Did I also create wonderful memories in my starter, builder’s special first house? Of course and we also enjoyed making it our own by changing physical details. But I get great pleasure out of my surroundings now. As I write this, I gaze out on my beautiful, huge backyard with mature trees and I don’t think “maybe I could have gotten a house for 10 grand less that didn’t have those details”, but how happy I am to be here.

That said, I do think people need to look past aesthetic details. Our house’s exterior was painted a hideous battleship gray when we bought it and my husband almost wouldn’t look at it it turned him off so much. Of course, $1,000, 2 months and a lot of hard work later, we’d repainted the outside a color we loved. I would have hated to walk away from a house we love so much over something as silly as the exterior color.

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anonymous - 7 years ago

I understand your stand perfectly. However, if I’m going to spend thousands and thousands of $$$ on a home, I want it have some features that are important to me. If I can’t afford those features, then that’s another issue. The more I pay for a home, the more particular I will be.

I agree that the color of the flooring or walls should not be the determining factor, but the size of the lot, size of bedrooms, number of dining areas can make a difference in the comfort level and how long it will suit the family.

For the most part, I think your argument is from a man’s point of view. Now to hear from Sylvia????

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Sylvia - 7 years ago

I have lived in many types of houses in my life and I’ll have to say the quality of the house, it’s floor plan and whether or not it had granite counter tops is not in my memory, mostly it has been the happiness, love and fun times with family that make the happiest homes.

When I was a child we lived in Mexico City for 6 years. Most of the time we did not even have a refrigerator or much of a yard to play in, but I remember the love and the time I spent with my mother and two brothers. In my adult life, I have lived in many different types of homes and have moved several times (5 or 6) since my two children were born.

For awhile I thought I had to have a large garden tub and we lived in a home that was impossible to remodel and put one in. We ended up building a whole new house mainly because I wanted a large master bathroom and tub. Now I think I would be happy in a small house that is easy to take care of and convenient to work and my children’s school.

When I work with buyers, I try to narrow down their “must haves” to 5 items: Number of bedrooms and baths, square footage, number of stories, location and size or type of yard.. Sometimes it varies, but that should cover all the most important items.

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shireen - 7 years ago

LOL, I do love my high ceilings!

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Daren - 7 years ago

I like your use of the term ‘cultural creative’; however, I think most home buyers approach the process as consumers. With a bit of education and perspective (such as you’ve provided), perhaps they’ll approach the buying process with less emotion and less attachment.

I see your point and would like to offer that the spaces in which we live and work do shape our thoughts, ideas, and perspectives. This is essentially the purpose of architecture: “The purpose of architecture is to shelter and enhance man’s life on earth and to fulfill his belief in the nobility of his existence.” — Eero Saarinen

Then again, I’d seriously doubt that you disagree with the value of good architecture and design. I think you were going off on a bit of a riff to support the large point that buyers need not be so picky with cosmetic details that can be easily and, often, cheaply changed. I agree: a buyer will quickly lose any advantage they have when they set out to seek the perfect home. That home, as we know, does not exist. Even buyer’s who elect to build a custom home will end up in a house they’ll find less than perfect. Perfection of a house has nothing to do with the spirit of a home.

“Space has always been the spiritual dimension of architecture. It is not the physical statement of the structure so much as what it contains that moves us.” — Arthur Erickson

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Daren - 7 years ago

You inspired me to write a even more about this topic. It really does drive to the emotional core of why home ownership still lies at the core of American dreams. http://activerain.com/blogsview/981705/Finding-the-perfect-house

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Steve - 7 years ago

Hi Daren,

I agree with your points regarding house vs. home. I do think that design and decoration (i.e.Feng Shui) can influence the dynamics you’re talking about as much if not more than the physical architecture, in the average residential home. This is observable when touring homes and seeing the reaction of buyers in staged homes versus unstaged or messy homes.

I think we basically agree, if I’m reading you right. My position is not that the layout and features of a home don’t matter, it’s that they don’t matter nearly as much as many buyers think. In other words, those attributes are given too much power over the decisions process and allowed to eliminate homes that would have worked for a buyer had only they been capable of assessing the home in a less critical way.

Steve

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New Austinite - 7 years ago

STEVE! I’m taking your advice. Found a property I’d like to bid on, but decided to find at least two others that I can throw low offers at. Forces me not to get too emotional.

Motivated sellers……here I come. 😉

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Garreth Wilcock - 7 years ago

Great post Steve, and I’d just add one disclaimer – it’s only a buyer’s market in certain areas. In Northwest Austin in the last month I’ve taken buyers to homes that have had multiple offers in the first days. 3 offers by 5pm on day 1 in one case.

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Austin Messenger - 7 years ago

Good observation about staying flexible if you want the best deal. This will become even more important as the market starts to pick up and sellers are less willing to make concessions. The absorption rate (current inventory vs sales rate) is a mere 2 to 4 months in many areas and that’s in a so called slow market.

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Steve - 7 years ago

Hi Gareth, very true.

Austin, I’d double check your inventory stats. Except for the sub-200K range, all price points have excessive inventory. Check the market update on this blog for the Feb stats.

there is a lot of confusion on how to calculate months of inventory. I see it done different ways .Sometimes the past 12 months is deivided by 12 to get an average monthly rate of sale, which is then divided into the current available inventory to obtain “months of inventory”. I don’t like this method as going back an entire year uses data that, in my opinion, is too disconnected from the current market.

Others just use the number of sales for the previous month. This too is unreliable in my opinion, because there can be blips and ups and downs (such as we’ve seen lately) that skew the numbers.

I’ve settle on using the trailing three months average, which isn’t perfect either, but I think is a closer reflection of current activity. It will tend to inflate the months of inventory heading into faster seasons, and deflate it heading into fall, but I still think it’s the best comprimise.

If you check our Feb market update, you can see that all price ranges over $200K have 8+ months of inventory.

http://crosslandteam.com/blog/2009/03/09/austin-real-estate-market-feb-2009-update/

Steve

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