I just did something for which I am, on one level, ashamed. I entered a sales listing into the Austin MLS that is not properly cleaned, prepared, staged or photographed. The yard isn’t groomed. The photos are crappy 4-year-old rental listing photos I took when I started managing the property for the owner. The tenants moved out Monday, and it’s now live in the Austin MLS in tenant “move-out dirty” condition.

Have I gone mad? Perhaps.

I called the owner today and simply said, “look, this may sound crazy, but I think we should go on the market right away, without delay, and not spend any of the $2,000-$3,000 budget I told you to be ready to spend on yard grooming, landscaping, repainting the interior, preventative maintenance, repairs, etc., because I have a feeling the house may just sell as-is really quickly without doing any of that”.

Then I confessed that this advice goes against every grain of professionalism I have. We always fully prepare our listings before placing on the market. I curse and ridicule listing agents who don’t. It’s an embarrassment to show an unprepared listing to buyers. Yet, I just entered one.

After clicking “submit”, a full 3 minutes elapsed before the first Realtor called to ask about it. 3 minutes.

The final outcome of this experiment will determine whether I’m smart or just overconfident. But let me put into context the events that led up to this decision.

• I closed the sale of a listing Monday April 30 that never even made it into the MLS. Sold as-is, no repairs.
• Sylvia put another South Austin listing under contract tonight, full price, sold from the “Coming Soon” sign before we could finish prepping it or enter it into the Austin MLS. Something is going on here.
• My listing is a small 3 bedroom with a garage in 78704 listed for $225K. The next cheapest 3 bdrm w/garage in 78704 is $350K.
• There is, at present, only one other listing cheaper than mine in 78704, period. And it’s a foreclosure with 2 bedrooms and no garage.
• I talked to my friend and fellow Realtor, Carry Bills yesterday, who is a 78704 expert, and she said buyers simply can’t move fast enough.
• Data analysis aside, I have a gut feeling about this. I trust my gut more than my brain, usually.

The Austin real estate market has shifted. That doesn’t mean every home sells fast and without proper preparation. We have some listings in Belterra and South Austin, and one in North Central, that don’t have buyers beating down the doors yet, even though they are well staged, professionally photographed, priced right and show great. This is a market of shifting pockets and neighborhoods rather than a monolithic market moving in unison. Austin agents in a shifting real estate market have to change our thinking a bit, when circumstances dictate.

What kept bothering me was the possible outcome of having a seller, based on my standard advice that I give every seller, spend money to prep a home that may sell just as fast for full price with no prep at all. That is a very real possibility. I think it’s my responsibility to explain that to an owner and suggest that we try it.

If you’re a buyer with a search portal set up by your agent or elsewhere, waiting for a 3 bedroom with a garage to come on the market in 78704 for less than $349K, you should have already received your email alert, just like the agent who called me after 3 minutes. There is now a total of 1 listing that matches that particular search. And it’s in a great location on a huge pie shaped culdesac lot for $225K.

Is $225K too low a price?
Why not prep it well and try $235K or more? No, this home comps out at $200K to $220K in this particular location. We add value for a rising market and price it just past the top end of the range. Even a hot market has its limits, as do appraisals. If the price is right in that sweet spot, buyers will react and compete for the listing. Too high and it might get a lot of quick showings, but no offer. It’s tricky hitting the right price, and easy to miss the mark if overexuberance plays a role, but I think we’re there.

If I’m wrong about this, we can always pull the listing after 10 days, mark it “T” for Temporarily Off Market, do the prep and go live again with the good photos and all. There is plenty of selling season in front of us and the Austin real estate market just keeps getting hotter.

This isn’t a full-blown market update, but I wanted to post a few graphs real quick to show current market activity and movement. Let’s start with the graph below showing Average and Median Sold values for homes in Austin for the past 49 months.

So, what looked like a pretty bleak December/January (lowest of lows for past 49 months. See the previous bottoms) quickly turned into an upswing. This isn’t necessarily unusual. In fact, if you look back at every May in the chart, that’s when the price peaks normally occur, and we’re heading that direction again this year. What is unusual is the fast and sudden absorption rate of homes combined with shrinking inventory. This is a sudden “spike”, at minimum, and may develop into a sustained upswing. I’ve been monitoring this and don’t see any let-up yet.

Let’s look at the Active/Pending chart below.

Above, we see the aftermath of the Tech Bust in 2000/2001, and what happened to the Austin sales market in 2003. For 2003 there was an inverted Sold/Not Sold ratio. More listings failed to sell than actually sold. That’s a really weak, sour market when that happens. Dismal in fact.  But then it happened again in 2010 in Austin. More sellers gave up (Expired or Withdrew) than successfully sold their homes in Austin. 2010 was the 4th year in a row of declining sales volume.

Then in 2011, we see these lines achieving separation again as the number of failed sales drops and the number of closed sales increases. And the separation is sudden and pronounced, indicating very strong buyer demand.

Now let’s see what that graph would look like for just the first 3 months of 2012.

So, as we see, the Sold/Not Sold lines are moving apart rapidly. I didn’t chart it in a way that shows percentages, but the Sold/Not Sold ratio for March 2012 is the lowest I’ve EVER seen at 26%. That is, take the total number of listings that departed the Austin MLS (Sold+Exp+With) and divide into that total the number of Failed, or “Not Sold” (Expired or Withdrawn) listings, and we get 26%. As comparison, even the HOT 2006 market depicted in the chart previous to the one above had a ratio of 28%. Even in good, solid seller’s market there will be about 1/3 of homes that fail to sell for various reasons, so I can’t over-emphasize how strong 26% is.

So, demand is strong and accelerating. I’m less unwilling to call this the “beginning”  of Austin’s next “up” cycle. I still have hesitation, just because. The world financial markets are still unsettled as is the U.S. job market. We have a Presidential election to get through. Etc. Still, just looking at the Austin real estate stats, it’s hard to not declare the current level of demand a “hot” seller’s market. And the degree to which I think this may just be a market burp is rapidly declining. We’ll know for sure by mid-June 2012.

Winning Multiple Offers in Austin

The last time the Austin real estate market saw this many multiple offers was in 2006 and 2007. Back then, buyers working with me and Sylvia won more than their share of these competitive offers by following a simple strategy, which was, make your offer acceptable and ready to sign with no mistakes or weird language. That’s it, basically. There is also the cover letter, and offer price strategy, but it’s not rocket science. More on that in a minute.

I was fired by a buyer in 2006, who told Sylvia “I only want to work with you from now on. Steve is pushy, arrogant, rude and doesn’t listen to me“. Actually, I did listen to the most important thing this buyer was telling me. She really, really wanted this house and would be very upset if she lost it to another buyer. Understood. I know the mission and what we must do, I told her. We need to write a winning offer, and I know how to do that.

So we sat in Starbucks and started writing the offer, at which point this California buyer wanted to instruct me about how and what to write, which included some non-standard language and quirky California nonsense. I was confused, because on the one hand, buyer really wanted to be selected over the other multiple offers, but on the other hand buyer was insisting we write the offer in a way that would doom it to failure.

Therefore, I repeatedly said, “no, we’re not going to write that in. You want your offer to be the one the seller likes most and decides to sign without countering“. It was like pulling teeth, partly because we were both “Type A personalities, but what we ended up presenting the seller was a super clean, ready-to-sign offer, with no mistakes or goofy non-standard provisions. Seller indeed liked our offer best and signed off as-is, without countering everyone for “best and final”. The buyer got the outcome she really wanted and was happy about that. But then she fired me because she was so upset with my refusal to write the offer her way. I felt less bad about that than I would have felt about sending in a crappy, embarrassing offer that failed the buyer. Sylvia took over and everything went smooth through to closing.

Fast forward to yesterday.

Sylvia received a call yesterday from the buyer agent for a buyer who, at first, had submitted the highest offer in a multiple offer situation for one of our listings. Though it was the highest offer, it contained goofy, non-standard provisions which the buyer stubbornly refused to change. This after our seller decided to pick his offer and work it first, rather than countering everyone for “best and highest”.

First, Earnest money was too low, less than 1/2 the normal amount. That confused us. We told the agent “that needs to be 1% at least“. Then there was the long Option Period with low Option Fee, a demand that seller provide a new survey, an extended closing date, and more.

We tried to clean up the offer with a response, saying “fix these things and send it back and the seller will favorably consider signing if we don’t receive something better before then“. Buyer stubbornly refused, so we turned our efforts to another offer and got that one to work under the same terms this buyer could have obtained.

The winning buyer has survived the Option Period and is on the way to close later this month.

The losing Buyer agent called yesterday to tell us the losing buyer is extremely remorseful because buyer can’t find a house as desirable as the one he missed. Buyer wants to know if there is any way to get another shot at the house.

Yes, write a backup offer.

But, to the agent, or any agent who knowingly allows a buyer to dictate losing terms in a multiple offer situation, I would ask, why did you let your buyer dictate the losing terms of the offer instead of cleaning it up and presenting something clean? I mean, you knew it was multiple offers, and you sent that garbage offer anyway, which had zero chance of being signed as-is. You should have forced your buyer to write a proper offer. You should have stopped your buyer from shooting himself in the foot.

I could divert here into a sidebar conversation about the fiduciary role of a real estate agent, and what that means, but I’ll instead state simply that some agents believe their role is to simply follow the instructions of a client, no matter how misguided, and others believe that the agent has a duty to advise and counsel a client, even if that means arguing and disagreeing with a client about which move to make, or how to respond to a certain situation. I’m in the latter camp. It’s the difference between a Fiduciary Agent vs. Functionary Agent.

If you are an Austin buyer, or thinking of becoming an Austin buyer, and you’ll be searching for a home in one of the many areas in Austin that have become a Seller’s Market, such as the 78749 zip code, Circle C, South Austin, an important question to ask your buyer agent is:

Do you know how to write a competing multiple offer that wins?

Then, in response, that agent should be able to articulate a strategy and “best practice”, that, though not guaranteeing success, allows you to know that the offer you present is an offer that was not set aside over an avoidable technical issue or mistake.

So What are the Best Practices for Multiple Offers that Sylvia and I employ?

1) Identify the correct “Regret Point” for your offer amount.
The price at which, even if you lose, you are at peace that you didn’t offer more, and you’ll simply move on with no regrets, focusing on the next house instead of dwelling on the one that got away. You find that tricky “perfect offer amount” spot by not thinking about how much you want the house, but how much you might regret not getting it. Think “regret avoidance”, not “happiness gain”. I always ask buyers, “if we offer this amount and lose to a higher offer, are you ok with that or will you deeply regret not offering more, beat yourself up and tell me you should have offered more?” It’s a very subjective, emotion based exercise, but it’s the most important thing to determine before writing the offer.

2) Write a clean offer, leaving nothing but the price to be countered.
This is not difficult, but most agents don’t do it. If it’s multiple offers, use the Title Company the listing agent prefers, not the one your agent likes. Offer a higher Option Fee and shorter Option Period. Earnest Money should be 1% of offer price or higher. Show that you’re serious. Don’t ask for a new survey, money back at closing, excess Home Warranty amount, and don’t write demands such as “seller to clean windows before closing”. Don’t insult the seller. This isn’t rocket science, but so many buyers and agents really foul up offers with dumb and unnecessary offer provisions.

3) Communicate clearly any narrative that enhances the desirability of the offer.
This item could be the topic of an entire article, but, in short, sellers will in fact often choose the people they like, or relate to, over a higher offer from an unknown buyer. For example, if you are a family with three young kids making an offer for a home being sold by a family on a cul-de-sac full of families, and you’re competing against an investor, then that seller needs to know who you are because they want their neighbors to have another family, not an investor and renters. If you don’t convey who you are and give yourself that advantage, you and your agent are blowing it. Your agent should know this. You can either write a cover letter directly to the seller or your agent can write a letter or speak with the agent when sending the offer.

4) Communicate clearly ALL areas of flexibility that you’re able to offer
If you can be flexible on closing date or by offering a Seller Lease-back, make sure the seller know this. If you are an investor buyer and not moving into the home, and we know the seller will be closing on a new-built home in 5 months, we can make your offer include an offer to lease-back to the seller for 5 months. The owner-occupant buyer can’t be that flexible, and if the seller is looking at an offer that allows them to remain in the home after closing and only move once, they are going to give a lot of value to that offer even if it’s not the highest offer price.

5) Use a Competent Agent
I almost didn’t add this last point, because it should go unsaid. But we do in fact have a buyer under contract who won a multiple offer situation in the 78749 zipcode last month primarily because the listing agent knows and likes Sylvia. The agent told Sylvia, when letting her know our offer was selected, that he told the seller, “I know Sylvia. She’s a good agent who runs clean deals. And this is a clean offer. I don’t know these other agents or how they do things“. The reputation and experience of your agent can matter.

The Austin real estate market is looking up. I’m withholding exuberance in favor of a calm, measured hopefulness that we’re seeing the front end of a sustained upswing instead of a short, temporary spike. Should the former prove to be the case, many buyers will be competing for the same homes through multiple offer situations. The above best practices won’t guarantee success, but you’ll know you brought your “A” Game, and, if you lose, you can move on to the next home without regret. But bringing your “A” Game will increase your odds tremendously. Make sure you have an “A” Game Agent helping you so that you won’t feel the deep regret that the above mentioned buyer is now feeling.

Almost overnight, with little warning, the Austin real estate market has caught fire. We are encountering multiple offers and buyer frustration. Not everywhere, but in the popular neighborhoods. Let’s look at some Active/Pending stats for popular neighborhoods.

Circle C
27 Active Listings. Average Days on Market = 35
31 Pendings.  Average Days on Market = 32

Over half of all listings under contract. A normal ratio is about 1 of 5 listings under contract in a balanced market.

Southwest Austin 78749 Zipcode (includes Legend Oaks, Village at Western Oaks, Westcreek)
25 Active Listings. Average Days on Market = 88
49 Pendings.  Average Days on Market = 38
Double the number of homes under contract than there are available. This is an ASTOUNDING ratio reflecting a lot of pent up demand.

South Austin 78704 Zipcode  - MLS Area 7 – Zilker/Barton Hills
10 Active Listings. Average Days on Market = 126
16 Pendings.  Average Days on Market = 50
Like SW Austin, the Active/Pending ratio is inverted, with more Pending listings than Active.

Northwest Austin 78759
60 Active Listings. Average Days on Market = 59
51 Pendings.  Average Days on Market = 47
Nearly half of all listings under contract.

The ratio for the entire Austin MLS at present is 1 of 3 listings under contract, which is very strong overall, even in typically weaker areas like Manor and Hutto. What does this mean for the Austin real estate market?

Our Austin real estate slump, which began the second half of 2007,  may be over. Prices are increasing as demand increases. If this demand carries over into the summer, and job growth continues, we might be at the start of our next 4 to 7 year uptick, and we may have just turned into a seller’s market.

This also could be a temporary spike that doesn’t carry over into the summer selling season. We will need to see if it is a sustained surge or a short spike. Also, the increase in demand may just trigger a whole bunch of “sellers in waiting”, who have either held off or rented their homes, to list and sell this summer as the leases end or they decide to move up. That will increase inventory and perhaps balance the excess demand. It’s going to be an interesting Spring/Summer season, and I’m really excited about the possible end of the doldrums.

Meanwhile we continue to have a lot of difficulty with lenders. A deal we closed yesterday was delayed a couple of days because the lender suddenly wanted an IRS “receipted” copy of the buyer’s 2011 tax return. the accountant’s signed copy along with the Certified return receipt wasn’t good enough. They wanted something directly from the IRS. The underwriter decided this was needed a couple of days before closing.

Another of our buyers had to terminate a contract because the lender would not approve the income using a signed employment contract for the buyer’s new job in Austin. Bank wanted a paystub, which buyer obviously didn’t have as the job has not started. So, buyer will have to move to Austin, find temporary digs, start the job and get the first paycheck before buying a house. What a hassle.

So, we’re dealing with a lot of this sort of stuff with lenders, which, oddly, is reducing the already strong demand we’re seeing. And if investors, like Sylvia and I, could get multiple new loans again, there would be a lot more investor activity which always follows an upturn in the market.

I’ll try to increase the number and frequency of the market updates I use to produce monthly but have been slack in doing since the market has just been slogging along in an uninteresting way the past couple of years.

The Austin real estate 2011 sales breakdown by MLS area is below. Most areas of Austin are holding steady. I’ve color coded the results columns of each area to show whether or not that area performed above or below the greater Austin market on whole.

For example, let’s look at MLS area “W” (West Austin).

This shows are W outperformed the Austin real estate market in some categories, but not in others. Those categories break down as follows:

Number of Sale: The number of sales overall in the Austin market rose by 6.9% in 2011. Number of sales rose by 5.95% in MLS Area W, so it gets flagged a red colow code for under-performing the overall market.

Avg Sold Price, Median Sold Price, and Sold Price per Square Foot all outperformed the market as a whole. Avg and Median Days on Market underperformed as well.

That said, pricing metrics are the most important in determining the direction of the market, so keep that in mind as you review the various areas and how they did in 2011 compared to 2010. Squre footage is not ranked but is shown for referrence and used to calculate sold price per sqft.

The color coding allows you to see in a glance areas that did well, did not do well, and that were mixed. A row of “all red” means the area under-performed on all metrics. Several areas unfortunately did just that.

MLS Area 8E (Westlake), RN (Steiner) and DT (Downtown Condos) were the only three areas to earn green stripes all the way across. (Note: Downtown is the only area we report Condos. All other areas are houses only).

Areas HH (Kyle/Buda), N, NE (North and Northeast Austin), PF (Plugerville) and SWE (Deep South Austin) all Redlined across all metrics. Many other were mostly red save for the number of units sold.

If you’re not familiar with Austin MLS area, see the map below.

The Austin real estate market did about what we expected in 2011, which wasn’t much. Basically treading water with some slight improvements, but nothing that represents a notable shift in market activity. Instead, it looks like momentum is building for a breakout year of increased activity and rising prices either in 2012 or 2013.

Let’s start with a look back at the past 12 years for some context.

From 1999 to 2001, you see the effects of the Tech Bubble, as Austin experienced strong job growth, which in turn drives housing demand. From 2002 through 2004 (and most of 2005, though not obvious from the graph), Austin housing prices were flat, as we suffered the hangover of lost jobs after the Tech Bubble bust. Then in 2005 jobs returned as well as a lot of real estate investors who felt that other areas such as Phoenix, Las Vegas, Boise, Florida, etc. (which we now know were in a severe bubble) were playing out. So we had a mini burst of strong buyer demand through about the middle of 2007. After dipping in 2008, prices have slowly climbed since then, though many homes still sell for 2007 prices. By 2010, overall values were back to 2007 prices and have now surpasses the 2007 high. That’s the Austin real estate market in a nutshell, for the past 12 years.

Let’s look at the gains in 2011 compared to 2010.

The number of homes sold increased by 6.67% in 2011 compared to 2010. That’s a fairly solid increase. At the same time, the number of “failed sales” (expired and withdrawn) listings fell from 48% in 2010 to 40% in 2011, meaning more sellers were successful in eventually selling their homes. In 2010 almost half of all MLS listings failed to sell. For 2011 it dropped to 40%. Days on market increased, which ties into the lower failure rate as sellers allowed their listings more time to sell instead of giving up. All the other stats, as you can see above, showed only slight movements. Prices are up 1.6%, not enough to get excited about, but moving in the right direction if you’re a “waiting” seller.

I’ll be working on a breakdown area by area later this month to see if there are notable trends in “hot” or “not hot” areas. I suspect there are, but not to the degree that one might imagine. As usual, comments and questions are welcome.

Eanes ISD Boundary Shown in Green

Where exactly is “Westlake” in Austin? Well, it depends on which boundaries you use. In the broadest sense, “Westlake” is considered to be those areas which attend Westlake High School, or those areas within the Eanes ISD boundaries, as shown on this map.

So, in general terms, the area west of Austin known as “Westlake” is everything that feeds into Eanes ISD schools.

If a buyer tells us they want a home that attends “Westlake Schools”, we will restrict the search in the Austin MLS to homes where School District = Eanes ISD aka “Westlake Schools”.

Many people also think of “Westlake” as the 78746 zipcode. In fact, the entire 78746 zipcode is contained within the boundaries of Eanes ISD, except for a small southern portion that crosses Barton Creek into the Barton Creek Greenbelt and Austin ISD. None of that area is developed though, so all homes in the 78746 zipcode attend Eanes ISD schools.

The 78733 zipcode is also contained within Eanes ISD. This includes neighborhoods such as Barton Creek West and Cuernavaca. But if you ask people there where they live, they are more likely to self-identify with the neighborhood rather than say “Westlake”. See map below.

But isn’t Westlake a separate city? Yes, it’s the City of West Lake Hills. See the map below and the area in puple, which shows the actual boundary lines of the municipality known as West Lake (two words) Hills.

City of West Lake Hills shown in purple

Notice that the city of Rollingwood is also located within Eanes ISD. People who live in Rollingwood would probably self identify as “Rollingwoood” residents instead of “Westlake”, though they live in the “Westlake Area” and attend Eanes ISD. The blue area just south of the municipalities of West Lake Hills and Rollingwood is technically inside the boundaries of City of Austin. This is the area north and northwest of Barton Creek Mall and includes subdivisions such as Woodhaven and Bee Cave Woods.

Residents of Woodhaven and Bee Cave Woods live in “Westlake”, but not inside the municipality of West Lake Hills. Sylvia and I live in Woodhaven, in Westlake, just a few blocks from Westlake High School, but we are residents of the City of Austin. Woodhaven is within walking distance to three Eanes schools – Cedar Creek Elementary, Hill Country Middle School and Westlake High. Thus, the neighborhood is heavily populated by families, as is Bee Cave Wood. In fact, we moved here specifically to be walking distance from Westlake High, though we also enjoy the awesome west/central location.

Finally, where exactly is Westlake High School? Surely it’s in West Lake Hills, right. Nope. It’s actually not located within any municipality. See the map below.

Westlake High School Austin TX

See those white areas on the map, and where I type “Westlake High School” in red? Those are unincorporated areas of Travis County. So, any crime at Westlake High would fall under the jurisdiction of the Travis County Sheriff, not West Lake Hills or City of Austin. People caught speeding through the school zone at Westlake high will be issued a ticket by the County.

So, if any purists would wish to argue that “Westlake” is only those areas located within the municipality of West Lake Hills, they would also have to say that Westlake High is not in Westlake. I’m sure there is a tax, finance or other logistical or political reason for leaving Westlake High in Travis County instead of annexing it. I haven’t investigated that, but it does seem odd that it’s not located inside West Lake Hills.

Hopefully you have a better sense of where “Westlake” is now. To me, it’s easiest to just think of it as those areas with Eanes ISD, per the first map above,. When a buyer says “we want Westlake Schools”, that’s what they mean.

Below are the Austin housing market stats for October 2011 and year to date.

As shown above, average and median sold prices are down 2.3% and 3.6% for Oct 2011 compared to Oct 2010. The number of homes sold increased and the number of failed sales efforts (Withdrawn or Expired) decreased. The sold to list price ratio increased a bit and the Days on Market improved.

Nothing really suprising or new here. The Austin real etstae market is still moving along somewhat, treading water for the most part. See the Year to Date and 44 month graphs below.

Year to date stats through Oct 2011 look more promising, from a color-code standpoint, but the movements are small.

Below is a “past months” chart I started a few years ago. I paiants a pretty good graphical picture of the Austin real estate market price movements the past 44 months. Pretty boring except for that one blip there in summer 2010 which quickly subsided.

Monthy Avg and Median Sold prices for Austin Homes

You can sort of see on the chart above that average prices want to increase, but really just haven’t more than a slight amount. This is over a 44 month period, almost 4 years. Still, many real estate markets in the US have done much worse over the same time period, so we’re not complaining.

We have job growth in Austin. We have good interest rates. But we also have a lot of financial uncertainty nationally and internationally, and an upcoming election. Investors are out there, just not that many. Many investors can’t get loans. Buyers seem content to wait, though we’re still closing deals each month.

I feel like there is pent up demand in the Austin market that is going to explode at some point. Our leasing market is very strong with very qualified renters who could actually buy, but are renting first.

Questions and Comments welcome.

Sylvia and I just sold a couple of acreage lots that we purchased in Oak Hill back in Feb 2007. For those who remember, Austin’s real estate market was still running full tilt in early 2007. I bought three lots in a new subdivision, we built a new custom home on one of them and moved in, and held the other two for investment.

The Original Plan - what was suppose to happen 
We bought the lots directly from the developer for around $85K and $90K each. I figured they would be worth $150K or more within the following year or two. The house we built, which we really didn’t need but which I though would be a good investment, cost about $475K to build turnkey, including lot purchase. It appraised for $610K when we closed the loan, which I thought was a bit high, but nevertheless I figured the value would appreciate to over $700K within two 2 years. We’d sell it, take the tax free capital gains, and buy again in Westlake near the high school.

I think of this strategy as “laddering up”, whereby each successive home purchase/build and move-up results in tax free income and an increase in net worth. Others I know have done this with “slow flips”, buying fixers and staying the required 2 years while renovating, then capturing the tax free capital gain and reinvesting into the next home. Over time, this is a powerful formula.

On paper, this all made sense. The home we’d lived in prior and sold to build this one was built in 2003 on another lot we’d owned since 1999, and it had appreciated nicely. Because of our convoluted tax system, there was a sizeable capital gain profit to be taken tax free on the sale of that one. Those proceeds were dumped into the new one to start a new two-year clock ticking. Any home you sell that you’ve owner-occupied for at least 2 of the past 5 years is not subject to capital gains tax upon sale, so in an appreciating Austin real estate market, moving often can actually be a wealth building strategy and a way to earn tax free capital gains.

What Actually Happened
The plan didn’t work out as expected.

The instant equity we had upon completion of the home vanished in Austin’s real estate downturn. We sold the house for slightly more than we paid to build it, but that wasn’t the plan. The lots did not go up in value either. After holding them for 4.5 years at a cost of about $8,400/yr each (interest and property taxes) we sold them for slightly more than we paid.

Everything I predicted will eventiually happen with regard to values, but over a 7-10 year timeframe instead of 2. Basically, as I look back on all of our real estate investing in Austin since the 1994 when we purchased our first rental property, that house and those lots rank up there near the top with real estate investments that lost money instead of making money.

Why I’m Not Upset
If you want to be a real estate investor in Austin, or more specifically, if you want to use real estate as a wealth building vehicle, you have to be on the field playing. That means taking risks in search of rewards. In hindsight, are there real estate investments I wish we would have avoided? Of course. But there are even more that did work out, some exceptionally well. Sometimes you hit a Grand Slam, other times you strike out. Meanwhile the singles and doubles keep things moving along. Over time, especially over decades of time, it all pans out in the end. So I’m not upset or worried about this hiccup at all.

But What About Small Investors Doing Just One Deal
This is what scares me. One investor doing one real estate investment one time that doesn’t work out. The real estate investing landscape all across the U.S. is littered with these investors who got in during the bubble, many using their home equity as down payment, and watched their real estate investments crater. Some hung on and still own those properties. Others went into foreclosure or short sales. Most are permanently wounded psychologically, having gone though difficult financial stretches trying to hang on. They never should have invested in the first place because they were not financially prepared to do so. Most will never buy real estate as an investment again.

Which is good news to the rest of us. Thank goodness the Amateur Decade of real estate investing is over. Renting has come back into favor, which benefits those of us holding long-term rental investments. Loans are no longer being given to unqualified borrowers. People are now more aware and skeptical of “get rich quick” real estate programs and flip shows on TV. Ironically, since I sold my two lots each for more than I paid, a cable TV show on real estate investing would call that a “profit”, albeit a small one. Hopefully people are smarter than that now, and understand that there are “silent” carrying costs that these shows ignore in favor of the sexier gross numbers they show on the recap.

Meanwhile, Austin’s market is coming back. I sold my lots at the dip. Had I kept holding another 3 years, the values would have increased substantially. But sometimes you just cut your losses and move on.

The Real Estate company Redfin recently announced the release of its Agent Scouting Report in its various markets around the US. This allows Redfin “clients” (term in quotes because anyone can sign up at Redfin.com and instantly be a “client”, whereas most agents think of a client as someone who has signed an actual Listing or Buyer Representation Agreement).

What is the Scouting Report? It allows consumers to view some stats on the current and past activities of Austin real estate agents. Here is a screen shot of Sylvia’s below, so you can see what we’re talking about, then I’ll elaborate further.

Click to Enlarge

It would be a good idea to click on the screen shot to view an enlarged version. If you have a Redfin account, you can click here to view the actual live version.

The Scouting Report allows anyone, in seconds, to type in the name of an Austin Realtor and see what the past 36-month production stats are for that agent. If this becomes a widely adopted and accepted way for consumers to evaluate agents before hiring, it could be a game changer for our industry. I’m all for it, with some reservations. But overall, I think it’s a good thing.

For example, Sylvia’s Scouting Report will reveal that, in the past 36 months, she’s closed 107 sales (53 Buyers, 54 Sellers), which is about 3 per month over a 36 month period, through the Austin MLS. It doesn’t include builder sales or non-MLS sales. The report will show a map of the location of each home and a link to the photos, sold price and full details of each sold home. The easy-glance maps helps a consumer see the geographic areas of operation of an agent, and where the concentration of business is for that agent.

One word keeps appearing in most of the articles and Blogs I’ve read about this – “Disruptive”. As one who thinks the term “disruptive is thrown around too often by the media, especially in the past 5 years about the real estate industry, I think this could actually be disruptive to the real estate industry and its agents.

Let’s start with one well known fact. Real Estate Consumers do a very poor job of selecting agents. The Scouting Report might change that and start weeding out the dead wood agents from the industry.

Most (over 70%) of real estate consumers hiring an agent from scratch hire the first agent to return their call, according to NAR surveys. More than half only interview one agent. So, as an agent, you don’t have to have a record of success, you just have to return calls fast.

This is why so many real estate Lead Conversion workshops and courses focus on agents becoming “hyper-responders”. There are all sort of products that enable this hyper-responder mode. Software that instantly texts you the phone number of a sign caller. Call Capture products that route sign callers to live agents who collect the lead info and text and email it to you. Caller-ID capture systems that even email to you public data info on callers based on Caller-ID (creepy). Email auto-responders that reply to inquiries with multiple automated follow-ups.

Sylvia and I have never bought or used any of these “instant response” or “lead capture” products. We just try to answer the phone and return calls reasonably quickly. During business hours, our phones ring simultaneously at our desks and cells, so we’re pretty easy to reach. And, for sure, I’ve returned a lot of calls the next business day to be told “we already hired an agent”. So, I know it costs us business, not being hyper-responders, but I don’t want to live life as a tweeked out hyper-responder, ready to jump and jerk into action at every ding or tweet that my iPhone emits. If I’m at my daughter’s volleyball game, I’m at the game and I’ll return calls later. If we’re out for dinner, we’re out for dinner, not talking on the phone in the restaurant. I don’t believe in the 24/7 access that some agents try to provide.

Maybe the Scouting Report, or the inevitable copycat industry clones that will follow, will raise awareness with consumers and ultimately help with the public perception of real estate agents as professionals with records of success, or lack thereof. If you’re going to hire a listing agent who has closed 2 sales in the past 36 months instead of the one who has closed over 100, do it for reasons other than the immediate return call. If that consumer behavior doesn’t change, the Scouting Report will be a nice tool for a small few only, and the wider general real estate consumer population will continue to reward instead call-backs instead of evidence of success.

Problems with the Scouting Report
There is some data the Scouting Report doesn’t convey well. For example, my own Scouting Report makes me look lame. Sylvia and I are a team, and we’ve always run most of our deals through her Agent ID in the MLS. Almost every listing and buyer sale is run through her MLS ID, so a Scouting Report on me doesn’t show my level of production. This is true of other husbnad/wife teams, and the larger Mega Teams.

For example, I know and agent with over 500 closed sales in the past 36 months. Most of those were handled by “listing specialists” or “buyer specialists”, but the deal was credited to the primary agent. Therefore, there may be a listing agent under that team scenario who has successfully transacted dozens or 100+ transactions but for whom a Scouting Report will show a big Goose Egg. That’s going to be a problem for some.

There are other shortcomings in the data that was chosen for display, and the data NOT displayed (for example, Expired/Withdrawn Ratio for listing agents, Sold Price to Original List Price ratio, etc), but overall, I’m in the camp that this is a good thing for consumers, if they will take advantage of the data and use it wisely.

Today I attended a property tour for my listing in Great Hills. There were 11 homes on the tour, including our listing. The other agents on the tour were the listing agents for the other 10 houses. This gives us a chance to see each other’s listings and to offer feedback on pricing, staging, etc.

This particular tour was a van tour. There are two types of Realtor tours – caravan or van.

Caravan Tour
On a caravan tour, agents travel in a caravan either alone or carpooling. This limits interaction and always results in the caravan getting stretched out with the faster ones getting way ahead and the slower ones getting way behind. So, the last few listings end up having the agents straggle in at staggered times and then that listing agent has to lock up and in turn becomes the final straggler on the next home. This is a bummer, but that’s how it goes. It’s also a huge waste of gas to have 11 agents travelling in 7 cars.

Van Tour
On the van tour, we all ride together, talking on the drive in between homes, and there is more interaction and discussion about the houses and the market. This is better in every way except one. When riding in the van I lose track of where I am because I’m not driving or paying attention to where we’re going. This affects my ability to offer an accurate pricing opinion on the feedback sheet. It’s not easy to say how much I think a house is worth if I’m disoriented and fuzzy about the neighborhood I’m in.

Imagine being blindfolded, driven to a property and let out in the front driveway. You walk inside, look around and then have to write down a price opinion. That’s what it’s like. Yes, I know I’m in Millwood, but which side of 183? Which schools does this one attend? Wait, are we down the street from that park? Can you hear the railroad tracks from here?

This disorientation doesn’t happen when I drive myself into a neighborhood and up to a house with buyers. When I’m driving, I have a clear sense of where I am. I’m taking notice of the street and the other homes as I approach the subject property. Now I see why buyers sometimes get turned around and confused about where certain homes were that we saw, because they are riding instead of driving.

So, are property tours even worth the time and effort and is the opinion I wrote down on the 10 feedback sheets today worth anything to the listing agent and the seller? Are the 10 feedback sheets I received for my listing helpful? Yes, here’s why.

More Sets of Eyes
We offer feedback on more than just price. Often, a listing agent (and sellers) just don’t notice things that a fresh set of eyes picks up. Make it 10 sets of eyes and you get some instant feedback about the awful accent color on that dining room wall that the listing agent and seller thought was ok. When a listing agent can tell a seller “9 out of 10 agents today said we need to repaint that wall and tone it down – it’s distracting”, that’s valuable and useful feedback.

Sometimes the agent already knew this and has already told the seller, but hearing it from a “group” of Realtors finally drives the point home and the seller agrees to call the painter.

Pricing Reality Check
On a lot of pricing feedback I simply have to write “seems high but I’m not an expert in the neighborhood”. I don’t want to dog the other agent if I’m not sure (though some agents are hoping for as many “price drop” recommendations as possible because  the seller is being stubborn and the too-high price).

But offering a legitimate pricing opinion is hard sometimes on these van tours. I’m looking at one house, for which I just stepped out of a 15 passenger van on the driveway and I wasn’t really paying attention to how the neighborhood looked as we drove in because I was talking with the other agents. Yes, I have a general sense based on the part of town, type of home, price per square foot, but do I really know if $225K is too high? Not really. I’d need to run a CMA. Maybe in my main stomping grounds of South/SW/Central Austin I do, but less so up in Millwood and Northwest Hills.

Now, if I walked into the same home in Millwood west of Hwy 183 as the 8th one I’m showing to buyer on 10 a home outing in a that same area, I walk into it with a context of the other similar homes we’ve been looking at that day because they were all in a more narrow price range, size and geographic location. I can in fact stand there and say “this one is priced too high. It needs to be in the low $200s instead of $240K. And I can be confident of that because I’m viewing that home relative to its direct competition.

Today’s tour ranged in prices from $184,999 to $429,990 and was stretched across vastly disparate areas of Northwest Austin and a wide range of ages and sizes of homes. It’s harder to zero in on a pricing opinion when viewing a mismatched batch of homes from different neighborhoods. No buyer would have had the set of homes I saw today on a list of candidate homes, because it wasn’t a group of homes that would result from a focused search in a narrow range of criteria. This makes these homes harder to judge.

Nevertheless, if 10 out of 10 say a price is too high, that agent should take note and discuss with the seller.

Shop Talk
Finally, other than being more efficient from a logistics standpoint, the other advantage of riding in a van with a bunch of listing agents is that we can trade notes and thoughts on the current market, how things are going with their listings, etc. What did I learn? Sylvia and I are in the same boat as a lot of other agents.  Some listings sell faster than we thought, at better prices than we expected, and others sit with no offers.

Frankly, a couple of the houses I saw today seemed like really good buys (including our own listing) but the agents say they are not getting any nibbles. If it’s price right and staged well, it’s hard to know what else to say to the agent for feedback other than being patient or trying a price drop. Austin is indeed a frustrating and schizophrenic market in many ways.

If someone would have told me 3 months ago that we would list one in Avery Ranch at top value and sell it in 3 days with multiple offers, I would have said “fat chance, not in Avery Ranch”, but it happened. If someone would have told me that we’ll list a home in Round Rock in Vista Ridge and go under contract in 1 week, I would have been just as skeptical. There are a LOT of homes for sale in Round Rock. Conversely, our listing in Great Hills is a fantastic home in great shape and priced well for that area, but we’ve had no offers yet. That surprises and frustrates me. It’s a tough market to read right now.

The Takeaway: The Property Tour process is helpful as it adds just a bit more context, additional opinions and sets of eyes to help us decide whether to hold tight or make a change with our listings. If you have a home listed for sale right now, ask your agent about getting it on a property tour. We so do with all of our listings because we value the feedback.

I recently read the autobiography Keith Richard’s Life. In it, Keith Richards, of Rolling Stones fame of course, talks about becoming a songwriter and how it changed his perspective on life. It caused him to more closely observe people and how they behave. To more closely listen to comments and phrases people use, always keeping an ear tuned for that next catchy song line. Explaining how the songwriter part of him is always active and aware, “never turning off. Unconsciously constantly running.”

I totally understand. It’s like that for me as a real estate person. Not that I’m literally “always thinking about” real estate, but I easily connect real estate concepts and the behaviors I observe in people to things outside real estate. It happens automatically, whether I want it to or not. When I go into a house I’ve never been in, such as a friend’s house, I notice things about the house automatically. Not that I judge good or bad, I just notice. If I was quized later about ceiling height, flooring, layout, updates, etc., I’d probably be able to recall whereas a normal nRealtor wouldn’t pay attention to those details.

I also take note quite often of how people make choices and decisions. This can happen in line at Amy’s Ice Cream, in the parking lot at Barton Creek Mall (it’s curious the effort people go through to get a closer spot, or “better location”), or even eating out and observing the phenomenon of how often “I’ll have the same thing” is selected. Decision-making just interests me, which is why I like working with and helping home buyers so much.

Thursday night last week I escorted my youngest daughter and her friends to see the midnight showing of Harry Potter and the Deathly Hollows Part II. We arrived about 8:45PM, waited in a line for a while, then we were let into the theater at 10:30PM, an hour and a half before showtime.

As we were about middle in line, the best seats were already taken, but there were plenty of good ones remaining in the top section, though they were filling fast. Our group of kids stalled at the bottom entrance as they scanned the remaining supply of seats. I said bluntly “Don’t think, just go”. and one of the boys said “good idea” and they immediately hauled it up to the third row from the top where they claimed 5 seats in a row, relegating me to sit a row below on an end seat (most likely to the delight of my 15 year old daughter, who would have preferred an even greater distance I’m sure). This actually proved to be an excellent vantage point from which to observe the slow stream of remaining viewers enter the theater and look for seats.

Latecomers to theater seating exhibit almost the same behavioral attributes of buyers in a sellers market, where there are no easy pickings. Here’s what I observed.

Theatergoers arrived at the bottom left of the seating section and quickly looked up to the right to scan the available “inventory” of seating. Several different behaviors were repeated.

The Doddlers
I’m not a professional lip reader, but “Oh no!” and “Oh sh*t!” are pretty easy. Groups ranging mainly from 2 to 6 kids would arrive, see that there were no easy pickings, then stand, frozen, not moving while they processed the options. Those options were to head up to investigate whether some of the empty seats were truly available (as some in fact were), perhaps split the group into two smaller groups, or head down to the dreaded front section, just below the screen, which is generally considered “too close” (bad location). As these indecisive doddlers stood contemplating, others arrived, made quicker decisions, and eliminated what would have been the best available choices had the doddlers not doddled. Eventually they made a move, but an uncertain one, and the delay cost them by reducing the available choices.

This is just like buyers in a tight Austin real estate market, or the somewhat overpriced market we currently have. They arrive in Austin, are surprised to find the pickings not as easy as they were expecting, and often fall into a trance of inaction, not wanting to settle for lesser pickings, but observing that it’s not getting better while they wait. Eventually they make a decision, but waiting has not necessarily benefited them as others more ready to decide select the best homes available.

The Investigators
These kids also expressed “oh, no!” upon glancing up at the seating, which deceptively had some open spots, most of which were already “saved” though. Unlike the doddlers, they take immediate action, moving tentatively toward the unavailable seating just to make sure. Asking politely “are those taken?” as they move up the rows. Some got lucky, but only the first groups. After confirming that all the rows of 3-5 empty seats are “Pending” (being saved), they reluctantly move down to the available seating in the less desirable section near the screen. Some made this assessment and moved on quickly, others remained in denial a bit longer, paying an opportunity cost for delay as the lower sections continued to fill with the next group of arrivals.

This behavior is just like the buyer who wants a nice, charming cottage in central Austin with a remodeled kitchen and bath for $200K. We tell them it doesn’t exist, but they need to see for themselves and check it out a bit. See firsthand. They email listing after listing. “What about this one?”. We’ll go see it tomorrow. It’s a dump, you don’t want it, trust me. Eventually they accept reality, make search criteria adjustments, and expand the search.

The Decisive Opportunists
Another type of theatergoer would arrive, look up at the mostly full seating, look down at the less full lower seating, and immediately, without delay, head toward the best remaining lower seats and take them. Not much time was spent thinking about this. Literally, just seconds. Maybe some of those empties up higher might actually be available, but they don’t care, they want a quick, sure thing and to be done with it. Usually there was a leader commanding the others to follow. “Let’s go .. come on!”

There are buyers like this. They size things up rather quickly, scan the adequate choices and make a decision. Oddly, as I’ve written in past blog articles, including this one back in 2007, these are often the happiest buyers. Much less stressed. Perhaps slightly disappointed there wasn’t more to pick from, but unwilling to torture themselves agonizing over improbable long shot efforts. They go for the low hanging fruit and seem satisfied to a higher degree than those who search endlessly for the “perfect” find.

The Researchers
Finally, there was one young couple, about 15 years old each, dressed in costume. The girl, dressed like Hermione was trailed by a young Harry. She arrived at the same location as the others, looked up and started scanning seats. They only needed two together. Using a combination of eye contact and hand motions/pointing, she located a lone empty seat and started straight toward it, with Harry right behind. This was about three rows below me. “This one is available?”, she confirmed. I was surprised. I thought at that point everything was full. Then glancing down about 8 seats to her left, she located another lone seat. She walked straight to it, Harry in tow.

Alas, it was taken. But I knew what she was trying to do. Had the second been open, she would have orchestrated an 8-person shift to the right and created a 2-seat spot for her and young Harry. She gave one last glance at the other options, then immediately marched across the rest of the row, down the other side to the very front of the theater, and again scanned the entire theater top to bottom, ending up identifying what was probably one of the last remaining sets of two seats on the edge of the second row from the front, and securing them immediately. That young girl is going to be a leader some day, if not already.

There are buyers like this too. They don’t settle for first and easiest, but they don’t waste a lot of time sizing things up either. They methodically explore all options quickly, then make a decision. Most commonly, these are the investors we use to help back in the 2005-2007 boomlet we had in Austin. Fly in on a Thursday night, look on Friday, make an offer Friday night or Saturday morning, wrap things up by Sat night then fly out Sunday. Occasionally, an owner-occupant on a 1-trip purchase visit will do the same, but these buyer-types were usually investors unencumbered by emotion.

The funnest thing for me though, in killing an hour and a half watching teenagers and young adults demonstrate their assessment and decision-making skills in a “market” of an ever shrinking ‘supply” of seats, was witnessing how hard it was for some, and how easy it was for others, to size things up, accept reality, and make a decision.

This is exactly what we see in adults buying houses. Some really, really, honestly have a very difficult time making a decision. Others are very quick and sure. Most are somewhere in between. In this way, the young Harry Potter fans are not much different than adult home buyers. All eventually learn, you can’t always get what you want, but if you try, sometimes, you get what you need.

One Last Thing

Finally, at the end of the night, at 3:30AM as my younger daughter and I pulled up to the house, my older daughter and about 6 of her friends were sitting out on the driveway still talking. They had attended a different theater. On the ride home, my younger daughter had explained to me why this Harry Potter movie “wasn’t one of the best. It was ok, but not that great”.

She recounted scene after scene that departed too much from the book, in her opinion, or was left out. It wasn’t the right two guys (Crab abd Goyle) in the scene with the fire. The scene with Griphook the Goblin didn’t explain enough. The final showdown with Voldemort was all wrong, and anti-climactic. She liked the movie despite all that, but, as she explained to me in great detail, it had a lot of room for improvement.

We greeted my other daughter and her friends on the driveway. “What did you think?” I asked. She said, “it was the best movie of them all. My favorite”. All her friends agreed.

Had they seen the same movie as my other kid?

The next day we drove to Padre Island for a short weekend vacation at the beach and, along the way, the two girls debated in the back seat whether Harry Potter and the Deathly Hallows Part II was a good movie or not. Finally, the older daughter nailed the younger with the following truth:

“The reason you don’t like it is because you let yourself be annoyed and upset by small things that don’t matter and aren’t important to the big picture. All the important stuff was perfect, line for line just like the book. Snape’s memories were perfect. Your just choosing to focus on little things because you don’t want to like the movie”.

Whoa! This is exactly like a lot of buyers. “I don’t like the color of the garage door”. “The front porch seems small”. “I don’t like brick”. Even homes in the perfect location, the right price and with a good, decent floorplan are not good enough because the minor items are not up to snuff and are allowed to become important factors.

This fault-finding plagues a lot of buyers, the jumping out to them of small imperfections while the overall greatness of the things that are most important – location, price and layout – go unrecognized because of the “noise” of minor and curable imperfections. It’s a human condition, really. Not everyone has it, but a lot of home buyers do. It makes it really hard to fall in love with a house, because all homes are imperfect in some way. Even brand new homes.

I’ll leave it at that.

I’ve been working with buyers recently looking in Central Austin neighborhoods. A recurring scenario always develops. Buyers are in love with neighborhoods such as Allandale, Travis Heights, Zilker, Barton Hills, Hyde Park, East Austin, etc., but cannot find an acceptable home to purchase in the Central Austin areas they love.

A couple of months ago we did get lucky and find a newer home in an older Allandale area and my buyers got exactly what they wanted at the price they wanted. More recently though, after exhausting all available inventory in Allandale, a different set of buyers finally gave up. We eventually found a great house in a Northwest Austin “family subdivision” of cookie-cutter homes that is now awaiting closing. The buyers are, however, very, very happy with the home they are buying, having decided against being hard core Central-Dwellers.

This is a common outcome for buyers who start off in love with Central Austin. Many end up in a newer subdivision further out because the just can’t handle the Central Austin housing stock.

This morning, I received a call from an agent about a lease listing I have in East Austin. “Will the owners consider selling instead of renting?” she wanted to know. “Let me guess”, I responded. “Your buyer wants East Austin but you’ve shown all the available inventory and it’s all either over priced or too ratty, or you keep losing out to multiple offers”.  Bingo.

The buyer, I was told, has lost out on multiple instances of multiple offers, losing the last one even after bidding $14K over list price. Ouch. Been there, done that with buyers myself. Very frustrating. Welcome to the Central Austin home buying experience.

So, the Austin everyone falls in love with – the non-cookie-cutter central areas with charming homes on tree lined streets close to everything, walking distance to the funky little coffee shop and the hip new restaurant and 6-12 minutes from work – contains these older Austin homes that are actually not suitable for the majority of buyers who fall in love with the neighborhoods in which they are located. That’s the reality of it.

It’s sort of like being enamored by the aura and ambiance that cool, funky hippy chick you met at the party last Saturday night. The conversation was great and you had the time of your life! You think about her constantly for three days and you’re certain it’s real love. Then over lunch in the light of day three days later you realize she has some deal breaker “issues” going on that you’d really rather avoid dealing with.

Central Austin is that cool hippy chick and you’re just some poor dude with good credit who wears Dockers, works in a cube and wants desperately to be anything other than a bland, normal person. You want to be a cool Austinite, or that cool couple living in Central Austin, near a park where your dog can run. But when you and/or your wife get inside that charming Craftsman in Hyde Park and get your first look at that grungy small bathroom, you immediately feel repulsed and rule out that house. Could you really be expected to get by in a 5×8 master bath with a commode, standard tub and a one pedestal lavatory sink? “Who can wake up to that every day?” you might wonder.

And this continues until frustration and deflation cause a rethinking of either your price range, home size/condition and/or location. Suddenly, Circle C, with big soaking tubs and separate showers, separate commode closet, double vanity sinks and huge master closets seems much closer to downtown than before, especially when you walk into a $350K home in Circle C and compare it to what you get for $350K two blocks from the cool coffee shop.

So how does one actually find a suitable home in Central Austin? You have to either lower your standards or raise your price. One word: Compromise.

From my experience, something has to give. You have to compromise on something. First on the list would be decor and finish-out, or the visual appeal of the inside of the home.

Be Less Picky
For Sylvia and I, location trumped everything when we super-downsized a year ago from our nice big 3,300 sqft custom home on 1 acre in Oak Hill to our cramped little 1800 sqft 1970′s tract house in Eanes ISD. For us, being walking distance to Westlake High School and the local shops, and a short easy drive (or bus ride) to Zilker and Downtown overcomes everything else. This is the best location for school-aged families in Austin, in my opinion. The house is livable, but I’ve helped many buyers who would walk in to our very home if it was for sale and say “no thanks, needs too much updating, too small, no 2nd living room, etc”.

So, we’ve given up on space and the quality finish-outs we’ve become accustomed to the past decade-plus, and we are happy with the decision. We are going to update and upgrade eventually, but we’re durable old Austinites who know how to rough it in a fixer-upper for a year or two. We lived in Travis Heights for 5 years in the early 1990s without A/C, we both had frugal upbringings, so living in a 1970s track home with popcorn ceilings, old bathrooms and thick wall texturing is not a big deal for us.

By default, we are less picky than 90% of the buyers we work with. Because of that, we got a great deal on a house the seller previously had been unable to sell.

If you can become less picky, you open up a lot more options.

But some buyers just can’t get there. They just can’t do it. If you’re that buyer, then your candidate pool of Central Austin homes just shrank big time. By well over 70%. You have very few suitable properties to consider, unless you can swing my second suggestion and raise your price range.

Raise your Price Range
For some buyers, raising the price range $50K to $100K will do the trick. Going from $350K to $450K opens up a lot of options. Oddly, many buyers have already raised their price range in a round-about way, but are not aware they have done so. I’ll show an older house with dated kitchen, baths and decor, and watch and listen as the buyers walk through and muse about how they would need to redo the kitchen, baths, etc. and I’ll mentally be adding up those costs and say “you just rattled off about $50K in updates and upgrades to the home”. And they’ll say, “oh, it will cost that much?”. Yep, it will. And if you’re willing to spend that much on a fixer-upper, why not raise your price rage and find something already fixed up?

For example, on a 1,500 sqft home Central Austin 3 bedroom, 2 bath home, let’s run through some rough numbers:

New engineered wood flooring throughout, with tile in the wet areas = $8 per sqft = $12,000
New kitchen cabinets and countertops, another $12,000-$18,000.
Update master and Hall baths, $3,000 + $6,000 = $9,000.
Scrape all popcorn ceilings = $1.50 per sqft = $2,250
Custom two-tone paint throughout, walls, trim and doors = $2.50 per sqft = $3,750
Misc Repair and updates to fixtures, ceiling fans, etc = $2,000
Mechanical updates if needed to HVAC, Electrical, Plumbing = $5,000 +/-

So, on a typical walk-through of a home that cosmetically is sound but “needs everything” with regard to updating, you can easily get to $40k to $50K before you even start talking about  moving walls and making structural changes such as opening up kitchens, adding arched openings to closed in formal dining rooms, etc. And if you’re going to do all that – and do it right – you might as well replace all the trim and doors and do the exterior and landscaping as well.

In a blink of an eye, you’re at $80K to $100K in improvements before even factoring in the costs/value of lifestyle disruption and possible displacement from the home during the work. But you’ll end up with an awesome home.

That said, it would be easier for most to simply find the home that has already had all of this (properly) done and pay more for that home. Often, these are the homes that attract multiple offers though, because there are more buyers who are unwilling or unable to imagine or complete a remodel project to a home do to time constraints or they just don’t want to deal with it, than there are buyers willing to take on a rehab project. Thus when a nicely done remodel appears on the market in Central Austin, it receives a lot of attention if priced right.

Expand your Geographic Boundaries
There are a lot of really super nice people living in Circle C and Steiner Ranch. Many are old Austintes who grew up in South Austin, got real jobs, got married and have two or three kids. I assure you they are still very cool and young at heart. But they are living the parenting phase of life. Also, many transplants, so you get a good mix. They want good schools and more home for their money, and in Circle C or Steiner Ranch, you get a great house for about $120-$135 per sqft as opposed to $200-$300 per sqft in Central Austin. And your kids will have more kids to play with than in Central Austin. That’s not to say Zilker or Travis Heights isn’t a great place to raise kids, but it’s a statistical fact that families in Central Austin are a dwindling demographic.

Yes, some buyers  have their sensibilities offended by the production builder subdivision look and feel of these type of planned unit neighborhoods, but I can tell you a lot of our buyers end up there after getting Central Austin Fatigue. It’s not the cool “Austin Hippy Chick” neighborhood, but rather it’s the “Sensible Mom in the MiniVan” type neighborhood. We all find the right blend of wants and needs, cool versus bland, sensible versus exciting in our housing selection. For some, forcing themselves into a small central Austin home just doesn’t survive the reality check of two days of looking.

Don’t give up on the great Central Austin house until you have to, but many of you will in fact give up and move further out. For those who swing it, enjoy your cool Central Austin ‘hood!

Would I love a Travis Heights Cottage with wood floors and a giant oak tree in front? Sure, but it wouldn’t make sense at this stage in life. A 1970s home in Eanes does make sense because of the schools and the location. If Sylvia has her way, this is our last house. We’ll see.

Homes values in Austin are trending up overall. This graph shown below can be deceptive though, because market activity is highly localized within pockets and neighborhoods. Let’s have a look and I’ll discuss further below.

It’s impoortant to understand what a graph like this is and what it isn’t. It’s not an indicator of the value of your specific home. Many homes in Austin still won’t sell for the price they sold for in 2007. Many will sell for more now. It’s very dependent on activity and demand in your local area.

We recently listed a home in Avery Ranch at a farily agressive price and had multiple offers right out of the gate. That actually surprised me. Many other homes in Avery Ranch are just sitting though. We put our listing through a lot of prep and staging in preparation for the market, and the market responded. I see a lot of listings that may look similar on paper, but when you walk in, they fall flat on preparation and staging, often with dumb things left undone such as minor touchup paint and yard cleanup.

Meanwhile, one of our Central Austin  listings which is priced well (a 3/2 under $250K) in a great location off S. 1st  in the 78704 zipcode isn’t receiving the level of activity we’d expect at that price point in that location. It’s staged and well prepared as well (though it did have tenants occupying it at first). But we’re still waiting for the right buyer. This is frustrating. I know this house is a good deal but can’t explain why the market isn’t responding.

So, “prices in Austin are up” doesn’t apply to every home.

Nevertheless, the chart is meant to show the overall macro trend as indicated by the data in the entire Austin MLS for all homes sold. From that viewpoint, the Austin real estate market has surpassed the former peak of 2007 and looks to be experiencing increased values overall. Eventually, a rising tide floats all boats and that’s where I think we’re heading. I think Austin is on the leading edge of what may be a steady 4 to 7 year up cycle. Not a boom per se, but steady and reasonable value appreciation of 3% to 5% annually.

One of the indicators of this can be found in the new home market. Many builders are slowly increasing prices on floorplans. It’s very tentative, but, for example, in one neighborhood in which we sold a buyer a home in Lakeway, the on-site agent says they’ve already sold more homes this  year than in the previous two combined. And they just raised prices again and they are entering into the last third of available lots. There will be a shortage of “Grade A” lots soon, so builder are going to be hesitant to run out of inventory and will instead slow that by increasing prices. This will in turn affect resale values.

Let’s have a look at the month-by-month Austin home sales for the past 40 months.

The Market spiked in July last year because all of the lower priced sales close by June 30 (remember the $8,000 tax credit that caused a lot of buyers to pay $10K over value to get the $8K credit?), so July 10 saw a disproportionate number of higher price listings sold. Remember, this is the first summer in 4 years where we don’t have some sort of government meddling and interference in the market. So out look-back stats are still looking back at distorted data and the resulting market hangover that persisted through the remainder of 2010.

Not show in these charts is the decrease in the “Not Solds” (the number of Expired/Withdrawn listings versus sold listings each month) which, for June, dipped to about 32%. More on those stats in a later post.

On a side note, I’ve been in a blogging slump. I just haven’t felt like writing, but I’m trying to get my Mojo back. After 5 years of cranking out blog articles about Austin real estate and other various stuff, I sort of hit a wall this year. They use to just drip off my fingers without much effort, but it’s become difficult for me to sit down and start writing. I think June 2011 was the first month ever where I didn’t write anything at all. My plan is to try to start writing shorter articles and more of them, and see if I can get back in the groove. We’ll see how it goes.

Popcorn Ceiling

As I was suffering with allergies last month, praying the medicine would work, and wishing I could at least start to half-breath again, I took respite on my living room sofa and laid there for a while, like a zombie, staring at my ceiling, meditating and trying to will my sinuses into operation.

As I did so, I made an odd observation. “This is one of the nicest popcorn ceilings I’ve ever seen!”, I thought. I continued examining the ceiling, from corner to corner. Not a blemish, stain or evidence of previous repair or patchwork anywhere. No discoloration around the A/C vents. No defects at all. The popcorn ceilings in my house are, in a word, pristine. Not bad for a late-1970s ranch-style home that’s spent over half its life as a rental.

Many home owners scrape their popcorn ceilings (aka Acoustic Ceilings). If you hire someone to do it, it costs roughly $1.00 per square foot to remove and re-texture, depending on various factors such as the ceiling height, the type of paint that’s been applied to to ceilings, and whether it has asbestos (as much popcorn did up until the 1970s).

When we list homes in Austin with popcorn ceilings, and seek feedback from Realtors who show the home, we’ll often hear “the buyers didn’t like the popcorn ceilings”. Often, a listing in 1970s Austin neighborhoods will boast of the popcorn removal. In our Austin MLS right now, there are comments in listings that say (actual quotes):

… popcorn removal & paint 2007
… NO popcorn here
… ceiling popcorn removed
… owners have gone through the trouble to remove the popcorn ceilings
… NO POPCORN ceilings
…etc.

People hate popcorn ceilings. But as I look at my own vintage 1978 popcorn ceilings, and how perfect they are, I wonder what all the fuss is about.

I mean, really. What’s the big deal? Sylvia and I are getting ready to install hardwood floors this summer, and I know the popcorn ceilings will drastically reduce the echo noise produced by hard surface flooring. This sound dampening provides a more pleasant acoustical experience in the home, being much easier on the ears. This, in fact, is why it is technically called an “acoustical texture”. The term “popcorn” came into use because it describes the appearance. But have you ever been in an all-tile or all-wood home where the ceilings have been scraped flat? It’s noisy and echoes badly.

So, when you’re up watching Letterman, your spouse shouts from the bedroom “turn down the TV!”, and you respond “it’s already down to number 4, and I can barely hear it”. You have your scraped ceilings and wood or tiles floors to thank for this unwelcome sound travel throughout your home. Throw rugs will help a bit, but are not nearly as effective as popcorn ceilings at dampening sound.

Some people think the popcorn ceilings have asbestos and are dangerous. Partially true. Some of the 1950s and 1960s popcorn had asbestos, but these ceilings emit no vapors or fumes that can be inhaled. As long as they are covered with paint, and you don’t disturb and breath the dust, you are not exposed to anything toxic.

I do agree that once the ceilings have had a few roof leaks, been painted, and start to look funky, the popcorn can become unattractive. But so can a flat textured ceiling that has suffered the same fate.

That all being said, Sylvia dislikes the popcorn. When we replace the flooring, she’ll probably say “shouldn’t we go ahead and scrape the popcorn while we’re doing the floors anyway?” (Project Creep) My response, “remove this perfect, pristine popcorn?! Are you crazy?! I love these ceilings!”

Please, somebody agree with me and let’s admit that this obsessive neurosis about the texture and appearance of a popcorn ceiling is nothing more than “texture snobbery”.

Below is a chart breaking down the 2010/2009 sales comparisons by MLS Area for the Austin real estate market. This time I’m adding a couple of new things. First, there is color coding on each of the summary rows for each area. A green shade indicates “improvement” in the measured metric. I put “improved” in quotes because it’s debatable what that means, and for whom, so perhaps a better word to use would simply be “increase” toward seller’s market. Note that a decrease in Days on Market is an “improvement”, however, as it means homes are selling faster, so a negative number on DOM is coded green and vice-versa, whereas the other negative numbers are red. Confusing enough? I hope not.

Next, I added a new column called SP/OLP which is the Sold Price divided by the Original List Price. I think this is a useful metric to observe as it informs us of the gap between the original list price a seller was hoping to obtain and the ultimate sold price achieved. This is more useful to know than the more commonly reported metric of SP/LP (Sold Price/List Price) because it doesn’t disguise the price drops that occurred before the home eventually sold.

In other words, a home that started at a list price of $300K, was eventually dropped to $270K, and then sold for the $270K list price, would produce a SP/LP ratio of 100%, but a SP/OLP of 90%. The 90% is a more accurate measure of market strength or weakness in a given area. You’ll see below that some areas are right at 95% (which is pretty good) and some are below 90%, which is a tougher market requiring bigger price drops.

OK then, let’s take a quick look at the new format using the cumulative sold data for all of 2010 compared to 2009.

So, with the color coding, this allows a “quick glance” gleaning of which areas saw increases/decrease in the measered metrics across the board.  We can see above, looking at the entire Austin MLS market as a whole, that the average sold price increased 3.78%, median sold also increased, by 2.63%, Sold Price Per Square Foot increase 2.04%, and homes sold faster when looking at Avg Days on Market. But we also see that 5% fewer homes sold (lower demand) and that the median DOM and the SP/OLP ratios worsened. This “mixed” market is in fact what most areas produce.

One last aside, if an MLS Area is mostly red all the way across, such as Area 10S, does that mean buyers should avoid that area? Absolutely not. This is a look in the rear view mirror and doesn’t necessarily predict the future or indicate a trend. Same with areas that did well in 2010. This is just a snap shop of what happened in the given year 2010 compared to the year prior. If you own a home in an area that had a dog year, your particular neighborhood or size/price of home may have perfromed differently, and that won’t be reflected in this type of macro analysis of area-wide stats.

OK, the entire Austin MLS is broken down by MLS Area in the chart below. As usual, questions, comments, observations are welcome.