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In a down market, you've got to pay attention to the buyers
By Mike Blatney  | | Mike Blatney | | During the last several months, I have visited markets where the sale of existing inventories was the problem. I have noticed a lot of "white elephant" issues with aging inventory. Houses next to busy streets and railroad tracks, with non-conforming exteriors and floor plans, poor add-on footage, etc., are all examples of properties that are more difficult to sell in any market, but especially in a declining market.In an appreciating market, there are fewer homes for sale. Buyers will accept and settle for houses with white elephant issues since these are sometimes all that is left to choose from. In a declining market, the houses become part of a larger inventory. The sale price must be adjusted to offset the lack of demand and the increased supply of better properties on the market. Your first opportunity to adjust the sale price is when you are buying! It is very important that you recognize and adjust the after-repair-value (ARV) to compensate for these white elephant issues before you make the offer. I have always discouraged the rehabbing and retailing of properties in a declining market unless they are the cream of the crop. Retailing a problem property in a declining market is asking for trouble. Second Eyes expert Kent Letterman says, "In a normal market, I tell new franchisees in training to adjust 5% for a white elephant issue, and more for multiple or severe white elephant issues. In a declining market, I tell them to double the adjustment." This means a $200,000 house with a white elephant issue would only be worth $180,000 in a declining market. Lately, I've seen some homes with severe white elephant issues. I was standing in the backyard of one such property when a train came by, creating a vibration I'm sure would have measured a 7+ on the Richter scale. I visited another house that was right next to an eight-lane freeway! Great place for signage, but the market for that property was almost non-existent when you take into consideration the active inventory of homes to choose from in the neighborhood, away from the freeway. You should make an appropriate consideration before making an offer on properties with issues of this severity. Some franchisees have properties in inventory with white elephant issues, and are wondering what to do to get them sold. Here's what Suzane and Rick Edson of HouseBuyers in Austin recently did. Suzane showed me a property they rehabbed next to a semi-busy street. This was an up-and-coming older neighborhood, and the Edsons hoped they could attract a young single or couple wanting to live in this neighborhood without giving up the amenities of a newer home. The house had been finished and on the market for a while. Suzane listened to the feedback from showings. The majority of the comments mentioned small backyard, noisy street, and the master bedroom did not have a private bath. She and Rick decided to address the feedback. They installed a new fence next to the sidewalk, adjacent to the busy street extending it as far as they could toward the front of the house. It increased the size of the backyard and served as a great sound barrier. They also installed a doorway from the master bedroom into an adjacent bathroom that currently opened up only to the hallway. Then they staged the house and put it back on the market. Sold in seven days! The important thing is that the Edsons listened and reacted to what the market was telling them. You can do this with any property -- with or without white elephant issues! In these remaining months of summer, focus, focus, focus on reducing your inventory! . . . Mike Blatney is director of field services for HomeVestors. He's on the road just about every week helping franchisees build successful businesses. In Dallas/Fort Worth, you can listen to Mike every Sunday morning on the Real Estate Investors Hour, 8 a.m. CST, on WBAP 820 AM. Click here to listen live via HomeVestors.com or download archived shows.
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