Austin Buyers, when trying to win a multiple offer situation on a home in Austin, how much is “too much” to pay? It’s a hard question to answer because it’s both personal and subjective. One buyer’s “too much” may another’s “good deal”. One buyer’s “perfect” floor plan may be another’s “it’s just ok”.
That said, if you’re about to write your 5th offer having lost the last 4 multiple offer situations over the past 2 months, you have to wonder if the 4 buyers who beat you were all fools. Were they? Probably not. They all have a house now, and you don’t.
And when you finally do get your own home under contract, you may have to pay relatively “more” than it would have required to win one of those 4 lost bid efforts a few months earlier. That’s ok though. Losing out on multiple multiple-offer situations is a progressive, education process. Losing out on homes does provide value and context as it toughens your resolve going forward, and makes you smarter and, more importantly, braver. Hopefully you have a good agent keeping you sane too.
But here’s how I look at paying “too much” for a home in Austin. There are two kinds of “too much”. There is “irresponsibly too much“, and “responsibly too much“. Or, boiled down to its essence, “responsible risk” vs “irresponsible risk”.
We all make these decisions in life, not just in housing, but in many areas, whether it’s picking one job opportunity over another, or one college over another. Spending $2,500 to repair the 12-year-old car vs buying a new one. Even who you marry.
Sometimes, you have to pull up your A-Game, check your gut, and make the best decision you can in that moment. But in doing so, you are taking a “risk”. And you don’t get to find out of you were “smart” until later, at some point in the future, once all the data becomes known and the dust settles.
One of my buyers wrote an offer on a new home the other day. Not a completed “spec” home, but a “to be built”. While we can write an offer for a resale home in 15-30 minutes, signed, sealed and delivered (which sometimes isn’t fast enough in this Austin market), a new to be built home is a long, arduous sit-down in the builder’s onsite rep. We were there for over three hours. And this already knowing exactly what the buyer wanted except for just a few exterior items and colors. It just takes that long to write everything up, print it and go through it all.
Anyway, at some point going through the massive stack of builder contract paperwork with my buyer, a nasty little addendum emerged, the likes of which I’ve never personally seen. “Whoa, what’s this?”, I say.
It’s a document that imposes requirements on the private third party inspector that the buyer may hire to inspect a home. It requires that the inspector sign a document called a “Access Agreement for Home Inspection”. The access agreement requires that the inspector have:
Proof of General liability Insurance of at least $1,000,000
Proof of Auto Liability Insurance of at least $100,000
Proof of Worker’s Compensation Insurance equal to the “statutory minimum”.
Proof of Employer’s Liability Insurance of at least $1,000,000
So I dialed up my new home inspector while we sat there and asked about this. He said it’s total BS. A ploy by builders to limit inspections. He doesn’t meet the requirements, nor do most Texas Real Estate Inspectors (TREC requires $100K liability, so most carry the minimum), much less the Code Inspectors you want to be using on a new build.
Does this mean my buyer can’t use my over-credentialed, highly competent and trustworthy inspector? The builder was happy to offer a list of inspectors they have who do meet the requirements. No thanks. I want my buyer to have my inspector, not yours. So now what?
As someone who’s bought and sold a bunch of rentals, and helped other investors buy, sell and manage investment property in Austin for a number of years, I’m about to ask a question that might seem counter to my professional mission of being in service to real estate investors.
Is rental property investing in Austin still a good way to build long term wealth?
My answer, for a lot of people, is “probably not”.
Let me rephrase the question.
Is rental property investing in Austin a good way to lose money and create financial stress in one’s life?
Absolutely. More so than ever.
So, am I saying you shouldn’t invest in real estate in Austin, or elsewhere? No, I think everyone should consider doing so. But I do think, after careful consideration, a much higher percentage of people should decide against it than would have been the case 15 years ago. The opportunity for mistakes, bad decisions and cash flow disruption for the real estate investor today is much greater than in past years.
In other words, your margin of error is very thin. You better know what you’re doing, or have a good adviser. Success is harder to achieve than if you started in the 1980s or 1990s simply because today’s ratios are thinner. The financial and psychological profile of a good candidate real estate investor today has a much higher bar to clear than in years past. Let’s take a look at why that is.
As we head into the final weekend preceding the final work week of April, and the $8,000 1st time homebuyer tax credit winds down (thank God), I’m seeing a surge of new Austin real estate listings coming on the market each day as well as a huge increase in the number of showings for most of our own listings.
In other words, supply and demand are in a foot race with each other, and both have kicked in the after-burners.
This has caused us, as real estate agents, to behave in abnormal ways as we advise buyers and sellers. I had to tell a seller last week, “I think it’s better that we get your home on the market right away in ‘good enough’ condition rather than burn up a week of market time putting it into ‘perfect’ condition”. Mainly, I didn’t want to burn through one of only two remaining weekends waiting for new flooring to be installed or our professional stager and photographer to do their thing.
Instead, Sylvia staged the house herself, the seller bought some mulch and plants, we left some worn out old sheet vinyl on the kitchen floor, didn’t have the carpets shampooed, and I took my own photos, which look ok but not great. We got that sucker listed and in the MLS 2 days after I first met the seller at the property. Met on a Monday, had it in the MLS on Wednesday. Had our first offer that weekend, though that one didn’t pan out because it was too low.
Why the rush, and is this the right thing to do? I don’t know.
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The Austin real estate market started 2010 on an upswing. Average sold price is up 5.39% from a year ago, median sold price is up 2.12%, days on market are down. In fact, every measured metric on the chart below moved in a positive direction except for median list price, which is down slightly, but of no consequence. Let’s have a look.
|Austin Real Estate Sales Market Update – January 2010|
|Homes only (condos, duplexes, etc. not included) compiled from Austin MLS data|
|Dec 2009||Jan 2010||Jan 2009||Yr % Change|
|Avg $ SQFT||$115.01||$111.61||$108.34||3.01%|
|Not Sold %||53.92%||54.12%||60.41%||-10.40%|
So, is this good news? Maybe. I don’t think sellers should get too excited, and buyers need not start worrying about rising prices. Jan 2009 was a down month, so topping it is nothing to brag about. Nevertheless, I do think our Austin real estate market has sunnier weather ahead, at least for the first half of the year.
The extended tax credit and continued low interest rates will motivate buyers in the lower ranges. An improving job market and the return of good job news, (some of which was announced today with Facebook bringing 200 new jobs and a Solar Panel company bring several hundred more), will cause an already “ok” Austin unemployment rate to keep dropping through the summer, barring any terrible macro-economic setbacks in the national economy. Once interest rates starts rising, as we expect later in the year, that will frighten some additional buyers into getting off the fence for fear of missing out on the good rates.
I think the upper end market will be slower to come back as many of the former $500K to $800K buyers will, I think, scale back lifestyles and settle for less Austintacious digs. Mercedes Homes said as much during a lunch presentation I heard today. They’ve redesigned a bunch of new floorplans to accomodate what their research says will be a more frugal market in the $300K and up range, as buyers seek smaller, better quality homes instead of sprawling big layouts. Makes since to me.
Below are some additional charts and stats. Let’s start with the 23 month lookback chart.
I’ve always been a night owl. My first late night job was in high school, mopping up and taking out the trash part time at a restaurant after closing at 11PM. After high school, not taking well to college right away, I worked second shift 3:30PM to midnight at a factory in San Diego for 18 months. This resulted in countless all-nighters, though I did, unbelievably, maintain perfect attendance without one single late or sick day.
It was a Japanese-owned factory, and perfect attendance each month was rewarded with a $5 bonus and the designation of “Honor Employee”. I liked my $5 bonus the first of each month ($4.34 after taxes), and I liked the way my manager bowed in thanks when presenting the bonus check and saying to me in broken english “You are Honor Employee. We appreciate you”.
To this day, I can’t believe that a wild young, irresponsible, unreliable 18-19 year old like me could be tamed and made 100% punctual by the desire to receive that simple ritual affirmation and a few extra dollars each month. But if you’ve never been bowed to in ritual and honored by an oriental boss, and told you are appreciated in front of all your co-workers, it’s intoxicating. It’s addicting. And it made me feel entirely worthy and valued when everything else in my college-droppout-beer-drinking life indicated otherwise.
So I made sure I was on time every day and didn’t miss work. I think my lifelong work ethic can be attributed to the punctuality habits caused by that $5 bonus and the seemingly trivial yet potent acknowledgment of appreciation each month.
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