33. HOLY TRINITY OF PRICING YOUR HOME FOR SALE

SUMMARY KEYWORDS

market, home, property, sell, area, money, Portland, price, people, competition, buy, build, pay, bedroom, super, real estate, concept, home, year, typically

SPEAKERS

Rob, Intro, Adrian

Intro  00:02

Welcome to the get rich, slow podcast. This is the stuff we and our expert guests wish we knew a decade ago to get the most out of our financial life will provide you with insight into wealth building activities and practices that can expand your net worth exponentially. get insight from top professionals who will reveal how to build wealth the long way, work smarter, not harder and identify your financial blind spots. With over 25 plus years of experience as licensed real estate professionals and a long track record of winning for their clients. Robin Adrian will teach you what it takes to be an everyday real estate millionaire.

Adrian  00:43

Hello, future millionaires and welcome back to the get rich slow podcast. I’m your co-host, Adrian Shermer joined by my favorite co-host, Rob Delavan. How’re you doing? Rob?

Rob  00:52

Oh, man, don’t tell the other guys. Hi. Good morning.

Adrian  00:56

Good morning. Today, we are going to dive into deeper into a subject that we’ve broached before. And it’s, you know, the 10,000-foot view was how to price a home. And we did some kind of generalities there. Now we’re going to bring it down to about half that altitude. And talk about I love this this term. I don’t know if you made it up, Rob. But I’m gonna say that you did the Holy Trinity of pricing your home for sale.

Rob  01:23

Yes. And very little of what I do is actually original thought soaked up, like it’s all been done, but from people that are very, very much more intelligent than I am. So it’s okay. So yes, so this is, this is a fun one, the holy trinity of pricing your home for sale. It’s really, it’s, it’s the three P’s right strategic positioning, with the other two legs of that stool is your price and product positioning price product, I love it. So and it’s just it’s and it’s looking really, you know, big picture, it’s looking at the sum of the whole, you know, how your product compares to the rest of the market, at any given point in a certain neighborhood with certain characteristics of the home, that sort of thing. You know, we’re not comparing four bedrooms, you know, 3000 square foot homes with, with a two bedroom, you know, 900 square foot home, so you have to basically figure out what your market segment is, and then be strategic and be strategic on Okay, what does yours have that others doesn’t, don’t have? And vice versa? What, what is your competition have that that yours doesn’t have or that yours do not have and then just go to, you know, start at the top and work your way down the list. And, and then you know, we do different valuation tools, we use appraisal adjustments and different things to address certain pieces. And then you know, at the end of the day, you find a price point. And then you expose that price point strategically to the market. And then the market responds and corrects. So that’s the big picture. But, you know, there’s, there’s some concepts here about balancing pricing in the home versus upgrading. And then, you know, the concept here that we want to try to teach our listeners is, you know, how do we value the home against the local market? And how do we teach listeners the value of having a team that can do this for you to find that sweet spot? You know, and there’s just, yeah, there’s a, there’s a way to do this, that, that by having a team that does this, you know, 100 plus times a year or more, there’s brokers out there that sell 1000 homes a year, but you know, they’re not doing a whole lot of the steps. But what you’re doing is you’re saying, okay, this person is an expert at this, and I may just may be, might have a tendency to over value my property because I think it’s unique, because it’s very meaningful to me, we’ve had these clients for sure, you know, right, you know, oh, well, a lot of for sale by owners sitting in right market for forever, because they’re overvalued. I drive by a house two or three times a week that has been for sale for probably six months. And yes, it’s such a hot market, but it’s crazy. You know, they heard that story of someone sold for 100k Over

Adrian  04:32

six the back of my throat as I tried to say it even but there’s some like, you know, toxic

Rob  04:40

what would you call those like taglines or

Adrian  04:42

just a thumb or old wives’ tales or whatever? I don’t know if you’re allowed to use that term anymore. But, you know, it’s just you need to you need to talk to an expert who’s seeing enough of that local market. And that’s one of the reasons I like working with you. You know, you’re I’ve had agents that I’ve worked with in the past. asked her like, oh, go everywhere? And it’s like, well, you probably shouldn’t you don’t know what’s happening, you know, 100 Miles 200 Miles away, let alone in an entirely different like, Here, we’ve got the coast, the mountain, we’ve got areas like bend, we’ve got Portland, these are all us different markets as you know, a different country at a certain point. So you’ve got to have someone who’s got enough local data that they can really accurately tell you. Because the extreme of this right is like, I’m not going to build a high rise in a 30,000-population town, a luxury high rise, right? Luxury, high rise can be highly profitable for the people who build them. That’s why they keep building them, you know, you New York’s development right now. You know, people still complain about rent out there, and then they put up the little spear right next to right next to the big park, Central Park. Oh, right. And it, you know, immediately sold right out despite having some, you know, 100 plus million-dollar units, but that doesn’t work everywhere. And so there’s, I like this discussion, because there’s that, you know, we talked about the one part when we were talking about improving your home, right? Sure, what’s the there’s things that you put $10,000 in and they get you 20,000 in value, there’s things right, but 5000, and they net, you $1,000 in value, and you’ve got to really understand how those all fit together, you know, separately, and then how do they fit together as a whole, because just because that adds value that adds value that adds value. We’ve also seen this a number of times, someone goes, oh, man, the land is really cheap here. I’m gonna take all that money I earned in my whole life, and I’m gonna build a monster mega mansion on the edge of town. And then it just never sells because nobody who lives in that town makes the kind of money that affords the mega mansion. It’s just that town’s local economy doesn’t support, obscene levels of wealth, and then these properties rot. You can see them on Zillow all the time.

Rob  06:50

Oh, yeah. And then it happens. There’s one’s a castle on Zillow right now.

Adrian  06:54

Super cool. Yes. What do you compare it with? Like, what are the comps for a castle in the middle of nowhere, right? And that’s the drawbridge. There’s no, there’s no right in for a drawbridge on an appraisal report.

Rob  07:07

And that’s this concept of you know, so, you know, when I refer to this, you know, the holy trinity of real estate, it’s, you know, positioning price for the product, right. So what I mean by it is make that smart decision, you just alluded to it, you know, don’t, I’m never going to tell the client, unless they just have money to burn, which no one does, right? No one wins the lottery in real estate. I say that all the time. The market is efficient. Yes, there’s, there are times when there’s slightly higher prices, we can position things, you know, three to 5%, above market, potentially with in a hot market with lots of competition, right? So we’re going to actually, oftentimes, in this scenario like that, we will position a little bit lower than the competition, because it’s going to drive five or more offers, right. And that generally talking leads to three, you know, that much competition leads to about three to 5%. Historically, higher levels of above market, right, like just competition, scarcity, where human beings at the end of the day, if we feel like something scarce, we will pay more for it. Now, the flip side of that is I’m working on a condominium, downtown Portland, which has had, you know, its own issues. A year and a half ago, two years ago, this, this property would have sold for 50 to $100,000, more, it’s downtown. It’s a beautiful property, beautiful tower, but well maintained and all of that sort of thing. Great finishes on the inside condo, great view, all of that sort of thing. But it’s still it’s still 50 to $100,000 less. And there’s very few actual buyers for something in downtown Portland right now. Right now, let’s

Adrian  08:53

slow down and talk about that. Because that is what do we want to call that micro and macro market? Well, yeah,

Rob  08:58

so that’s, that is the micro market impact of the

Adrian  09:03

facts of Mayors. It’s desirable. It’s by the amount that’s by the water. It was it’s been on top 10 lists for years running. Probably not going to make one this year. Right. But the situation there right now,

Rob  09:16

the macro is that there’s way more people move into Portland right then there are moving out despite being in the news for you know, heavy Antifa and civil unrest, etc. Protesters and all that sort of thing, right? Like, you know, we generally don’t want to be on the news for that kind of stuff. But with that said, macro, there’s still way more people moving to Portland, year over year than moving out. It’s a very attractive area as a whole. It’s close enough to other major areas such as San Francisco, and Seattle. It’s a major hub, but it’s a smaller west coast, Hawaii, Hawaii. Oh yeah. So there’s just

Adrian  10:00

there’s so many interesting things for me to learn the tons of Hawaiian culture out here.

Rob  10:04

Yes, there is great. And there’s tons of positive things about Portland as a whole. But if you zero in on the downtown Portland, you know, and this right off the off the park blocks because of the pandemic, because of the protesting because of all of the things, this this micro area that’s really only like, a couple square miles. Large is, is basically lost value

Adrian  10:31

for dairy. Right? It’s being artificially not I mean; I don’t know if that’s artificial or not, but well, you

Rob  10:37

know, serial exterior.

Adrian  10:39

Yeah,

Rob  10:40

yeah, circumstances have led to a temporary distress of the market of the, the climate within this area. So instead of pricing low and trying to, to create competition, we actually price right around where we think it’s going to appraise typically. And we know and we tell our owners, hey, by the way, we’re looking at roughly, oh, probably two or three showings, you know, a month, and it probably is going to take a couple of months to sell. And when it does sell, you know, we’ll go back and forth, and negotiate accordingly. But there’s probably not going to be competition, lightning would have to strike for there to be competition. So we don’t want to price super low when there’s only one or two potential buyers at all, in this market. Yeah. Oh, that’s the micro. And that’s that strategic concept. Now, we want to be strategic, but then like, how do you find the balance that’s right for you, you know, between like a price low, and negotiate it up and create competition, and it’s gonna go above market? Versus now we need to price a little bit higher, because we’re probably going to end up slightly below list. You know, at the end of it based on what the markets doing with a low activity specific property? Well, what’s right for you and strategic plan? Of course, everybody loves to hear this. That depends? Well, what it depends on is your personal situation, why are you selling? We need what kind of compromises are you willing to make? Exactly. And this, this particular situation, the folks that are selling are saying, hey, here’s the problem, it cost almost $1,000 a month, just for the HOA on this property. And yeah, we can rent it out all day long for 3000 plus dollars a month, it’s a two-bedroom, nice, nice unit. But if you pay $1,000 a month on HOA plus taxes plus everything else plus the mortgage, their negative cash flow every month. So let’s go ahead and get, you know, unlock, they’re going to end up with 250 $300,000 in cash proceeds from this thing. And then we’re going to then use that cash and a 1031 exchange so that they don’t pay capital gains. And they’re going to buy something in the suburbs, this newer construction, and they’ll get $3,500 a month. But though there will be no HOA so for the exact same money, the exact same investment, same payment, all that sort of thing, they will, they’ll end up in a situation where they cashflow 500 to $1,000 more with the same money. So go ahead and take the hit sell it for in the sixes when a year or two ago was going to be seven and use that money somewhere else. And it’s you’re basically going where the funds are treated better. Your asset, your equity in this instance, is treated better outside of the Portland market than it is inside the poor the Portland core. So that’s that concept for vocab

Adrian  13:51

to 1031 Exchange. Oh, yes. One, thank you for that veto.

Rob  13:56

Yes, you made money on a property that you own for a while, and instead of selling it and paying tax on your gain. So let’s say you had made $200,000, you bought it for four and sold it for six, just for simplicity’s sake, instead of paying 25% tax, federal and state in the state of Oregon. That would be 50 grand on a $200,000 gain. You buy another property in replacement of that and make sure to use all of those funds to do it. And you don’t pay there’s no tax to it gets deferred out to the next property when you sell the next one. And technically you can keep doing it over and over and over and over again over decades. And you would always defer that tax out. So versus taking a $50,000 hit every time you sell and then do those three times in a row. And you know, that’s a few $100,000 over a few couple decades and

Adrian  14:51

discouraged passing of properties is a great law and it makes a lot of sense. You are really it makes sense. You should really only be paying those gains when You get to actualize them when you get to use them, when encourage the idea of people rolling in through properties like that, and this does a very effectively, we will dive deeper into that and tax focused episode. Yes,

Rob  15:11

we will have a tax licensed professional able to disseminate that concept

Adrian  15:17

that’s wrapped into that.

Rob  15:19

Exactly. So the question that you had, for me, I believe it was in the seller’s like overdoing it in their home renovations compared to you know, what they’re finding in their local market. Yeah, man. Yeah. And

Adrian  15:32

this is, this is an extreme that affects lots of people. It’s the gentrification problem, right? It’s when there’s a move into an area, and it can even almost poison the culture of a local area, which is a whole nether topic, really. But yeah, you know, it, there’s only so much room, in each band of the market, each, each market can support, you know, X percentage of high-end homes, right, with some notable exceptions, right? There’s your Richmond, Washington’s there’s your there’s certain towns that are just positioned near some sort of resource that makes sense. But then they have their own problems because of that. And we see that in San Francisco, we see that in Richmond, we see that in lots of you know, there’s plenty of metro areas that struggle with having that balance. But that’s a that’s on a high level on a lower level, it’s, you know, are you going to be turning your house into a sellable product. And I love that you refer to it as this sort of purist capitalism, and it is, capitalism is kind of a dirty word these days to some people, but it’s a, it’s a great methodology that that does self-correct. And when you’ve got a market that, you know, homes aren’t, for the most part, big picture, homes aren’t like a widget or an iPhone, or whatever it is, that’s just getting pumped out. And the market decides, you know, whether or not it’s a viable thing for them to buy it for X amount of money. As you said, you know, every time there’s a win or a loss, there’s an equal number of winners and losers at the table of real estate, right. So if homes get sucked down, their value gets pulled down for a short period of time by an external modifier, like, you know, the issues that we’re seeing downtown, which is, you know, layer cake, but does seem to be a temporary problem. That’s a win for everyone who wants to gobble up some real estate down there and take the risk and go, Okay, I’m gonna, I’m gonna buy this stuff. And I’m gonna hold, I have the finances to hold, right? to weather the storm and to know that a downtown Metro like that is going to have its peaks and valleys, often to greater extremes. And so that’s part of the investing picture, too, right? You’ve got to decide how prepared you are for the level of risk that can come with areas that have higher volatility, like a city very many changes super, super rapidly, we see right, highly rapid change. And that’s where it can be a sure bet to buy in an area, like some of the metros that are outside of Portland, right? I mean, we’ve seen them be extremely stable, they have their corrections where they go, because the demand goes up. But they’re not like an artificial, you know, that’s not an artificial, that’s the market genuinely correcting right now and just continuing to pour out. And that’s that that Bullseye effect. Right, right.

Rob  18:24

And so pulling that into like, you know, where do sellers especially, but buyers to, you know, when they’re first in the buying stage and get all excited about a property that they just bought? Where do they usually go wrong when it comes to like home renovations? The there’s a couple spots. Number one is as soon as things start to become big ticket, you need to look really closely at what the competition what the neighborhood is doing their Does, does the neighborhood I mean, everybody’s has kitchens and bathrooms, right? You always get your money out of them. But there’s a way to do a kitchen, for example, that like it’s a small kitchen, in an older neighborhood where the homes are smaller, you can dial it in and make it beautiful, but it’s still small. Versus take that next step and take out three walls and make the whole ground level open like a new house, which is typically double or triple the square footage. And now you took your $15,000 kitchen renovation that was just cute and could have been amazing, similar to what all of the competition is. And you made it 50 or 60 or $70,000 took out a bunch of walls and that sort of thing made the kitchen half of your main living area. And yeah, it’s beautiful. Yeah, it’s going to sell but it’s not going to sell for 50 60k over because all of the properties in the neighborhood in the area. Have the ones that sell for premium have dialed in little kitchens. So where you start going wrong is expensive. Exactly. The bigger the bigger concept here is, unless you’re going to live there and you’re doing it for you, and you’re going to live there for a really long time. You probably want to have, you know, you probably want to make sure that you’re not over personalizing, where people typically go wrong is when they make it super personalized. Now, that doesn’t mean it can’t have sizzle features. sure that that doesn’t mean that, hey, I’m just the world’s biggest coffee drinker. I’m not but say I was. And you put in a $5,000 barista coffeemaker built in cabinetry machine. Well guess what, five years from now, the technology that’s new and fancy and push button and screen and everything else is it’s amazing. Five years from now, that’s going to be outdated, and you spent $5,000 on that, you’re not going to get the money back in versus doing a very basic like instead of built in, and forever. Maybe you do like an appliance garage, right like, which is just a little

Adrian  21:12

easier to repurpose for someone else’s. There you go. We see the studios in Portland’s a popular one for the studios. Hmm, the in-home recording studio. Yes, it’s a funky thing, though. You know, what do you got this glass divider, you got the whole, you know, there’s wiring and everything, it’s very involved to run that stuff all through the house. But then it takes such a you know, it’s valuable, it truly is to the right person for the right. But now your market is so, so small. Whereas a general media room can be something that, you know, people can adapt to their own use exactly, easily.

Rob  21:47

Exactly. So, the idea there is where people are typically going wrong as they over specialize is you want to be as versatile as possible. So think appliance garage rather than the finest, you know, I don’t know cafe au lait, French press, the I just saying words that you know are typically at Starbucks, venti macchiato, you know, on and on and on, right? Half, half Cafe. Anyway, I’m being silly. But instead of being very, very specific, be as general as you can, with hey, I want to space for my coffeemaker Great. Let’s make a space for it that can be used for other things. And then when we stage it to sell, let’s put a coffeemaker in there, that would work. And that’s, that’s interchangeable. So when a seller and

Adrian  22:41

what does everybody else doing in that area lie? Exactly. To You know, we had this I grew up in New England, we had this in New England a lot where there’s these older homes, they have these teeny tiny bedrooms. Yes. So they’re like, that’s an eight-bedroom house. It’s 1200 square feet, you know, is this because that was normal for that time. So a very common thing to do is to wildly decrease bedroom count, which sounds insane.

Rob  23:06

This was a fun one. I appreciate you guys coming on this this particular journey with us that this is this is near and dear to my heart. So

Adrian  23:15

absolutely. Thank you all for your time. We appreciate you joining us, and we’ll catch you again next week on the get rich low podcast. Have a good one out there.

Intro  23:23

Thank you for listening to the get rich, slow podcast. If you like what you learned, please subscribe, rate and review so we can grow wealth for even more families.