"Real"ity or "Real"ty TV Shows

I am often asked by both buyers and sellers about something they have seen espoused on one of the numerous “documentary” or “reality” TV shows about real estate. I usually have to chuckle and then explain the “reality” of our current market. For sellers, I am usually asked something like, we were told (which means they watched it on TV but don’t want to admit it) that if we paint the house it would add three times the amount of the paint job to the sales price of the home. Or, if we knock out this wall and remodel this kitchen we can double our money. In my experience, although each of these things will add value to the probable sales price of a home, they usually will not add enough value to cover the cost of these upgrades. A pool is a perfect example. The most value I have every received for a pool on an appraisal in recent years is $14,000 and there are few pools that can be installed for less than $20,000.

Another common misconception that I see portrayed on these programs is that a four bedroom adds $10,000 to the value of a home over a 3 bedroom. This simply is not true. Although a 4 bedroom may appeal to more buyers than a 3 bedroom, homes with more bedrooms and the same square footage do not sell for more money. In fact, some of the smaller floor plans where the builder crammed 4 bedrooms into 1400 to 1600 square foot homes do not sell as well because the rooms are too small. This misconception is very common in one of the programs based here in Phoenix. This same program and many others also portrays investors purchasing homes site unseen and then flipping them for huge resale profits. Many of these scenarios are absolutely true but they rarely show the bad purchases where the seller takes a bath on the home and loses a great deal of money or even worse consistently risks a couple hundred thousand dollars to make a profit of $5-6,000. Basic investment strategy says that the risk is too high for the potential return. In addition, these investments are best designed for individuals with liquid capital to RISK with experience in remodeling homes NOT the average real estate investor. A real estate investor will usually do much better purchasing potential rental property and holding it for the long term or at least an extended period of time. Some of my investors have doubled their overall investment and realized a 300 percent return on their actual cash return in just the past two years. Whether that will continue to be the case can only be found in the infamous crystal ball.

On the buyer’s side, the reality shows often portray a couple purchasing a home with an agent that they have been recently introduced. The buyer always has a wide financing range and usually has 3 very different home to choose from. The agent typically either “overacts” for the program or they are the most phony and cheesy agents you have ever met. If you require me to gush over the “lavish” and “extraordinary” 12’ X 12’ master bedroom with a tiny closet even though it is less than average, then I am probably not the agent for you. I would characterize the bedroom as small and the closet as tiny. Maybe that is too straightforward but if I have to sell you on the home, it is probably not the right home for you.

In these shows, the agent invariably allows the buyers to “sleep” on the decision for a few days or at least overnight. This just is not realistic in our current market. We used to have a quotation in our office that read something to the effect of “The home that you looked at and want to think about overnight, somebody looked at yesterday.” This is very much the status quo in todays market. They also typically go see the loan officer after a purchase contract has been accepted which also is just not realistic in this market.

Finally, I typically hear some bizarre “advice” that both buyers and sellers have received on negotiating techniques that I know come from the TV shows. ( I can tell by the 5 year old saying “love it or list it” at every home.) They commonly act as if there is a common amount that you should offer lower than list price and there should be at least two counter offers. In today’s market, offering below list price (unless the home is overpriced) is frequently a recipe for outright rejection. Many buyers currently have written numerous, over list offers without even a nibble.