With Terry Story, a 31-year veteran with Keller Williams located in Boca Raton, FL
During this week’s Real Estate Roundup, Steve spoke with Terry Story, the 31-year veteran at Keller Williams, about a fundamental change happening in the real estate industry. Steve and Terry also talked about some key real estate myths that home sellers need to be aware of.
How Homebuyers Are Categorized
As Steve pointed out early in their conversation, “There’s a fundamental change in how homebuyers were historically categorized and how they’re being categorized today. Now, there are basically three tiers of homebuyers: upper, middle, and lower.”
The uppermost tier are the people who are willing to pay higher premiums for move-in ready homes with all the requisite amenities. Terry confirmed that she sees this type of buyer quite a bit. But she also sees a lot of buyers in the middle tier: people who want homes in their original condition. The goal with this type of homebuyer is to boost the home’s value through “sweat equity”—home improvements.
Finally, there’s the lower tier of buyers. This segment is primarily comprised of flippers or contractors, looking to pick up a home on the cheap, ideally paying no more than 60-70% of its retail value.
Speaking of value, Steve and Terry together noted that, “Land appreciates, houses depreciate.” Even if you’re not a renovator, if you stay in a home for several years, then you’re likely to spend a significant amount of money fixing it up, re-doing it, or maintaining it. Many people, when estimating how much value they have in their home, fail to take into account all the money they’ve put into it over the years, like replacing hot water heaters or heat/air systems.
The Middle Tier Is Falling Away
Steve mentioned that a recent article highlights how the middle tier buyer is falling away. “The reason is that current buyers are more comfortable with technology than they are with construction. Buyers are looking for homes they can move into quickly, homes that already have everything they want.”
There are simply more deterrents for middle-tier buyers, Terry chimed in. “If you’re buying a home that needs renovations, you have to have the money upfront to not only buy the home but then also to hire contractors,” she said. So, more people are in the top tier of those looking to buy a home that’s already the way they want it.
Five Real Estate Seller Myths
Steve and Terry then moved on to discuss some common real estate myths that are important for sellers to keep in mind. The first is that you don’t need a listing agent until your home is ready to go on the market. “I disagree with this,” Terry said. “I think it’s better to bring in the realtor before you put your home on the market. That way, they can help you determine what does and doesn’t need to be done to get your home ready to sell.”
Steve presented a second myth: “I do not need to upgrade the property for sale.” But according to Terry, it all depends on what the house needs and what type of upgrades are on the table. Her advice: “If you think a buyer’s going to come in and think it needs $10,000 worth of painting, it’s worth spending $1,000 in painting before putting your house on the market.”
The third myth—that you need to have an open house before you can sell your home—isn’t necessarily true either, according to Terry. “Open houses are a great way to get additional exposure, but the reality is that people are using technology such as real estate websites to decide what they want to look at, and then they’ll make an appointment to look at a home they’re interested in.” And virtual open houses are becoming increasingly more common.
Steve stated, “Number four, I need many open house signs at multiple key intersections.” He started to express skepticism about that one, but Terry chimed in and said that in her experience as an agent, that one isn’t a myth, it’s a good idea.
One final myth: A buyer that’s truly interested in a home will pay more than market value. “That’s a simple, flat out ‘no’,” said Terry. People are smarter and more well-informed as buyers these days. And Steve pointed out an adage that applies well beyond the real estate market: “Buyers only buy what they perceive has good value, period.” Terry added that if you over-price your home, potential homebuyers, even if they like the house, may not make an offer because they don’t think the seller has a realistic view of their home’s value and, therefore, won’t be easy to negotiate with. If you’d like to learn more about buying or selling a home or to connect with Terry Story, check out Keller Williams!
Disclosure: The opinions expressed are those of the interviewee and not necessarily of the radio show. Interviewee is not a representative of the radio show. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 31-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: So fundamentally, things are changing in the real estate business and buying and selling is changing, which is natural as new technology comes afoot. So let’s take a look at historically how buyers were categorized and how they’re being categorized today. So number one, there are top-tier buyers. These are people willing to pay a premium and this group looked for move-in-ready homes that had all the amenities they were looking for.
Terry Story: That’s right.
Steve Pomeranz: You see that all the time.
Terry Story: Yep. Sure do.
Steve Pomeranz: Then there’s the middle-tier buyer who looks for homes in original condition and the group hopes to get a decent price and then improve the home over time with sweat equity. You see that a lot.
Terry Story: I do.
Steve Pomeranz: And then finally, the bottom-tier buyer. This is the third group where contractors and flippers are looking for distressed properties they could buy for 60 to 70% of retail value. Seeing much of that?
Terry Story: No.
Steve Pomeranz: Not. Okay. Well, according to this article, the middle tier, which historically represented a significant percentage of market sales is disappearing. And the reason is that current buyers are more comfortable with tech than they are with construction, and they forego the middle tier because they want to pay more for move-in-ready homes that look like the finished properties they have seen on HGTV, which was the subject of another episode that we did here. So take me into your world and tell me what you think.
Terry Story: People, first of all, when you think about it, you’re talking middle-tier sellers. In every market price, that price point is different. But the middle-tier buyer is buying their second home, move up buyer or transferring buyer. So time is an issue and as so is cash. So traditionally, if you’re buying a home that needs to be renovated, you have to have the money to a, buy the home, then you have to have the money cash to put into the home to pay the contractors to make the renovations. So those are a little bit of a deterrent. So they would prefer, in many cases, that it’d already be done. The tricky part is that the house that they’re looking to purchase, if they’re going to pay that premium, they want it to be done the way that they want it. So what I see, Steve is a very trendy thing. So what I don’t care about these, they’ll buy a home where somebody has renovated it to the newest trendiest items.
Steve Pomeranz: That’s not good. Well, I mean-
Terry Story: It’s attractive for the moment. But now you just paid a premium for that, and it’s going to go out of style in two years.
Steve Pomeranz: Yeah. But you’re looking at it from a business point of view. This is your home and you really should, your home should be the way you want it. You have to live in it every single day.
Terry Story: So don’t go chasing the trend. I guess that’s my message in all of this. So the middle-tier people, they want some of those features. Some of them will say, well, I don’t want to pay for this, and then they won’t, they’ll just want to do it on their own. But it’s gotten a little complicated.
Steve Pomeranz: My personal situation is that I never had the time or the experience to bring in serious contractors, and I didn’t want to live through that headache. I wanted a home that was done. Now that’s not to say that, and we found one. But that’s not to say that I haven’t continued to improve it and continue to spend money because it’s this constant outflow of money.
Terry Story: It’s very constant.
Steve Pomeranz: I always tell the story about how a young couple came to me once many years ago, and they said, “Steve, we want to save money. We want to buy a house.” And I was like, that’s so cute because I’ve spent so much money on my house.
Terry Story: I redid my kitchen 18 years ago, and I’m redoing it again. So if I keep staying in the house, I’m not going to put a whole lot of money into the kitchen because I’m going to be changing it again in 20 years.
Steve Pomeranz: Yeah, yeah. Well, you know the other thing too-
Terry Story: You got to make it the way you want it and like it.
Steve Pomeranz: That’s right. Well, when people calculate the returns on real estate, they calculate what they paid and what they’re selling it for. They forget and they probably haven’t kept all the records anyway and don’t know how much they’ve put in in the meantime. Years ago, I was asked to do a study of this for the Palm Beach Post, and this was when real estate was advancing at double-digit rates of return. Remember in ’04.
Terry Story: Good old days.
Steve Pomeranz: And I said, well, real estate appreciates about 3% a year. And they go, oh no, it doesn’t. I said, yes, it does. This is the way our numbers work and these are the national statistics. They refused to run that quote because they were just running what was hot and popular.
They were part of the hypnosis that fueled the-
Terry Story: We’re going to continue to grow at 10% a year.
Steve Pomeranz: Exactly. But the bottom line is I was putting in what’s called depreciation, which is the fact that homes, bricks and mortar, are deteriorating every minute of the day.
Terry Story: And land appreciates.
Steve Pomeranz: Okay.
Terry Story: Houses depreciate.
Steve Pomeranz: Houses depreciate. So you’ve got to balance the two of those things. That’s a very good point. I don’t know how we got off on that tangent, but it’s pretty interesting. All right, so here’s five seller myths, and we talked about this off air and I think this is kind of true. Number one, I do not need to have the listing agent visit until my home is ready.
Terry Story: I disagree with this. I think it’s better you to bring in the realtor before you put the home on the market so that they can help you determine what should be done and what shouldn’t be done. Because you may think something should be done and I can’t tell you how many sellers think, oh, I need to do this. When in reality they don’t.
Steve Pomeranz: Also, you’re already going to be paying the expert, right? Right, so you might as well get them in and their knowledge than trying to do it yourself.
Terry Story: That’s right.
Steve Pomeranz: That’s a rule of thumb for me is bring in experts all the time. Number two, I do not need to upgrade the property for sale.
Terry Story: It just depends on what we’re talking about as far as upgrades and again, that’s when a realtor can come in and help. If you’re going to spend $1,000 in painting it and a buyer’s going to come in and think it needs $10,000 worth of painting, it’s worth spending $1,000 in painting. That’s just a small example.
Steve Pomeranz: What if you don’t really, I guess you’re going to paint it a beige or something-
Terry Story: A neutral color.
Steve Pomeranz: Neutral color right.
Terry Story: If you have wild colors, I can tell you that they don’t show well on the photos. They’re going to bypass your home. We talked about this earlier, that the internet is so important. Everybody’s making their buying decision within 10 seconds. So it really needs to look sharp.
Steve Pomeranz: Wow. Okay. Number three, I need open houses to sell my home. We talked about this recently. You’re saying not really so much.
No, not really so much. Open houses are a great way to get additional exposure, but the reality is again, the buyers are making their buying decision on what they want to look at online and will schedule an appointment to look at the home.
Steve Pomeranz: Right. Are the days of people getting in their car on Sunday and driving around neighborhoods and going to open houses, are they still around?
Terry Story: No. I shouldn’t say that. We just did an open house and we had 15 sets of people come through, and there were some people that they were just driving around. It was a beautiful day. They were just meandering around. They saw the open house. It’s the curiosity. A lot of it, they’re looky-loos, that’s what we call them.
Steve Pomeranz: They’re probably your neighbors.
Terry Story: And they’re neighbors. A lot of neighbors, but they’re looky-loos, oh, I wonder what this looks like. Just curiosities.
Steve Pomeranz: Number four, I need many open house signs at multiple key intersections. I don’t think that’s-
Terry Story: I think that’s a yes as an agent.
Steve Pomeranz: Well, I love honesty, and number five, if buyers really want my house, they’ll pay more than market value.
Terry Story: Yeah, no, That’s a simple flat out, no. Well, let me say this, if the price is too high, now I’m not talking about egregiously, I get the feeling that that precludes someone from making an offer. But it seems to me if they want to make a lower offer, they should make a lower offer.
Steve Pomeranz: They don’t, it’s human nature. Buyers only buy what they perceive to have good value, period. I’m telling you.
Terry Story: And they’re not going to set the value by offering a price.
Steve Pomeranz: No, I’ve had clients say to me “when he lowers his price and is more realistic, then I’ll make an offer.” They also believe this, now listen to sellers, this is really important. They feel that if it’s overpriced and they know the values, they’ve looked at all the homes, they feel that the seller’s not going to be realistic and worth working with because they’re not realistic in their asking price, and that’s the reason why.
Terry Story: Good advice from Terry Story. Terry is a 31-year veteran with Keller Williams located in Boca Raton, and she can be found at terrystory.com. Thanks, Terry.
Steve Pomeranz: Thanks for having me, Steve.