A picture may be worth a thousand words, but nobody’s house is worth what they think it is in this market.
The tough part is telling people that.
I went to see a house in Southwest Newark, N.J., practically in Hillside, in an area where the streets go block-by-block. I went at night, which on reflection was slightly stupid, but I didn’t know that part of town well and was trying to get a handle on what the city was like. (I have always held to the “eat your own cooking” philosophy.) So I jumped off a bus and walked along for a while, watching respectable blocks alternate with loud blocks and deserted blocks by turn.
And then I came to what can only be called a nice block, with tiny little Colonials in decently kept rows. We’re talking small houses — 1,800-square-foot, three-bedrooms, with just one bath – but good starter homes. There was a listing of a house for $199,000, which was listed in the MLS as a “rehab” candidate listed “under market price.”
Well, they got half of that right. To say the house needed updating is to put it mildly – it had a ’70s kitchen, carpet that needed replacing, holes that needed to be patched in the plaster ceilings of every room, and it was just begging for paint. In addition, there was junk everywhere – when you entered the house, the narrow hall was lined with coats on both sides, so that the effective space was about 3 feet wide. It felt like entering Narnia.
But full market price for a house that size in that neighborhood, according to the comps, was $210K. Throw in a little “everybody loves Newark” fudge factor and you’re up to $225K. But the house was no deal.
I tried to prepare the homeowner for this as I toured the house with her. “The new construction across the street is going for nearly $500K,” she said to me.
“Yes,” I said. “Those look nice, but they’re three-family houses with rental incomes attached.”
“We put in an extra half-bath in the basement,” she said.
“Yes, but it might have to be redone,” I argued.
And so we went, back-and-forth. She insisted that her husband was “getting around to” patching the plaster ceilings, and I gently suggested that there were few handymen around of the generation that could dovetail that repair. She didn’t see her home as worn or even shabby; she saw 11 Thanksgivings and was sad to leave.
I liked her so much that as I left I made one suggestion to her.
“It needs some work; it’ll show better if you take the coats out.”
Then I waited a couple of days, mulling, and called the agent.
“Look,” I said. “I know she’s been in that house for a long while, and she’s sad to be moving, but it’s barely worth $199K new. To rehab it, I’ve got to put in a new kitchen, revamp the bath, polish up from top to bottom where it hasn’t been taken care of. It looks like it’s got no major structural defects, but I’ve still got to put forty thousand dollars into it.”
She didn’t even bother to argue that a new kitchen and bath and carpet might not be forty thousand (and to tell the truth, I didn’t know, since I didn’t do the walk-through with a contractor; I was leaving myself some wiggle room.)
“So you’re offering…what?”
“One-forty. I don’t want to insult the owner because she was so nice, but she just doesn’t understand what a dumpy condition the house is in. So if she can fix it up and get her price, power to her, but if it sits you remember me; I’m her backup offer.”
I went over this story with one of my partners. I’m still pretty new at making offers, and I wanted him to hear every detail of the story, see the house as I saw it, be an audience to my conversation with the agent.
And he had only suggestion: “don’t be apologetic. Not, ‘I’m sorry, but I can only offer you one-forty,’ but, ‘my offer’s one-forty.’ You don’t know what she’s thinking and how she’ll handle it. That’s it, ‘One-forty.'”
Useful words – but I’m not optimistic about this one.
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