On selling the best house in the 'worst' area. Without a realtor. In one of the most savage housing markets ever.
No, no, it wasn't ok.
There are people who play by the rules and do things the way that makes the most sense, or that’s the easiest, or that actually makes them money. I don’t tend to be that person.
Those people weren’t buying a triplex in Detroit (I mean in Detroit) in 2014 to fix up with no previous renovation experience and then run as long distance Airbnbs (pre Airbnb property management company days).
'Detroit, I love you, so we’re selling the house'
We’re headed to Detroit soon to mark 10 years from the date we bought a house there, and to tour the soon-to-re-open Michigan Central Station, that icon of Detroit’s ruin that has been brought back to life. I’m reflecting back a lot on that chapter, and figure the best place to start is at the end. With that, I give you a most earnest blog post, origin…
Those people don’t buy a decrepit Sleeping Beauty, a fairy tale late 19th century home with a turret(!) that’s nearly been demolished by neglect and take on the renovation with their best friend in the middle of a global pandemic.
They certainly don’t get into a bidding war and buy a cute little shotgun (before their spouse even sees it) in a neighborhood ravaged by decades of disinvestment, even if they can literally see downtown from the house with the naked eye and there’s that developer married to a million-or-billionaire who even knows, who’s been pouring money and energy into the area for more than a decade to try to revitalize it and the city acts like they’re also taking steps to make amends for redlining and ignoring it. And when a flipper does buy here, they do the bare minimum. Throw up a coat of paint and throw down some LVP flooring and call it a day so they can rent it out and make a tidy profit all while keeping property values suppressed.
The thing is, I’ve had success juuuuuust enough to make me keep doing things that make no sense to anyone else, and often result in a spectacular failure. One of the things I remember most clearly from my Psychology major studies was that the less often a creature is rewarded for a behavior, the longer that behavior will persist in hope of doing it again, even against all odds. Think: humans at slot machines, and dogs who might get a scrap from the table once in their lifetime but never stop hoping.
Meet exhibit A: me. The entirely non-special neighborhood where we bought a little bungalow in 2004 turned out to be the Next Big Thing in town so we made enough to buy a sprawling Victorian in a decidedly unpopular neighborhood, that then turned out to be the next hot neighborhood (starting out at less than 50 bucks a square foot, with a few years, a lot of work, and significant investment, we turned a 195k purchase into a 590k sale and that’s enough to give anyone a confidence boost).
A little house ‘flip’ just before COVID hit the market in March 2020 and somehow still sold, even though my level of repair (to the bones) took the price more than double the neighborhood median — and still made a few dollars despite the appraisal coming in lower than the (full price!) offer.
Detroit was a financial mess although I learned a ton. The crumbling Victorian reno was a financial catastrophe. (But it sure was pretty!).
Then I got myself into A Mess.
We sold the Victorian and after paying down my investment in a multifamily property poured the remaining after-commission proceeds into the shotgun, which, surprise!, turned out to need far more work than I anticipated. As in tear the roof off and rebuild it, jackhammer the back patio to get new plumbing in, and find surprises like only plywood, no hardwood floor under the vinyl in one room because of damage from a fire in the 1980s that the sellers didn’t disclose (thanks for that oral history, Gary next door).
Along the way we fired our long-time realtor and I vowed to never work with one again. He split the $36,000 commission on that sale with the buyer’s agent because that’s when we were all still forced to cough up our own buyer’s realtor’s commission. The extent of his work?
He listed it in the MLS.
I wrote the listing description, I provided the photos, I created the sales flier, I put together the packet with details on the income-producing history of the property. It was under contract for full ask with zero negotiations in less than 36 hours from the first showing, with inspection for information only so guaranteed no back-and-forth. Ahead of the curve on this whole we-don’t-need-a-realtor thing, I’m gonna say I was, because less than a year later the REALTOR® cartel got blown up with a seismic lawsuit that will change the industry forever. Suddenly this is known to more than a few of us:
It doesn’t take six percent.
Anyway. We never intended to stay in that cute shotgun after restoring it, but interest rates soared along with housing prices while people with the teeniest interest rates stayed put, making for a hellscape of a housing market. Also, I figured nobody would ever pay what we’d put into the house, not with literal abandoned houses on the block and some of the lowest comps in the city surrounding us, but most of all with our geographic location west of the Ninth Street Divide that most Louisvillians won’t cross, even if they wouldn’t acknowledge it.
Then we found a dream house! And decided if we’re gonna lose money, let’s cut our losses now and jump at this chance. We’d looked at every. single. house. that came on the market and they were either Other Peoples’ Flips, which besides being hideous were shoddy at best (we’re spray painting countertops now, seriously?), or way beyond what we could swing at these rates and with what money we had left after sinking it into the shotgun (ok and taking some ridiculous trips around the world).
So we got into a crazy bidding war complete with escalation clause going way above ask, agreeing to a reverse contingency (that the seller find *their* next place), making the inspection ‘for information only’ and not making the purchase contingent on our own sale (plus a few other secrets I’m trying to sell in an article).
And we got it!
Filed under it’s worth a try, we listed our shotgun for a number that’s wildly high for the neighborhood, like, fodder to get laughed out of town, but wildly less than anything even remotely comparable in gentrified parts of town (for houses that I PROMISE are not as nice).
We paid a local broker $500 to list in the MLS, and we put on an open house that my BFF/business partner co-hosted (conveniently for me he was in new home sales for 20+ years!). For two-plus hours the house was full of people. The first ones to walk in the door made a cash offer the next day for full asking price. I was over the fucking moon. And no realtor on their side so NO COMMISSION. With no realtor on our side either that would save us nearly $12,000. Let that sink in for a minute (and Google realtor commission lawsuit).
Before the day was out, though, they texted. This couple who wanted to downsize from their Victorian in our old neighborhood just like we had, they realized they weren’t ready to give up their house. I get that to my very bones because I’d cried oceans over giving up ours.
That’s ok though! Someone else from the open house made an offer, this one a thousand above ask. We were leery because he seemed to be tight on cash. But he loved the house and I was getting ready to leave for Paris for two weeks where I’d be leading my first ever culinary tour. We were set to move a week after I’d be back, so to have this in the bag I took the gamble.
Then the appraiser came.
“You know you’re in Portland, right?”
she said as we stood in the back yard.
Just, wow.
“People think I ruin their sales,” she said, “but just because you’ve put money into it doesn’t mean it’s worth what someone is willing to pay.”
“I can see this isn’t a flip,” she went on when we went inside where she admired the custom trim I’d spent thousands on because an 1883 house with 12 foot ceilings doesn’t get shitty three inch fake wood baseboard from Home Depot in my renovations.
Then she appraised it at $168,000.
I could have vomited. But I was getting on a plane in days and wanted my head in the game for this new venture, but mainly did NOT want to fuck with this when I got back, and a bird in the hand and all that. So we carried on.
The buyer was truly, truly strapped for cash. I made it abundantly clear that there would be no repairs or concessions. Not only as a matter of principle (the whole shell game of making an offer in bad faith because you think you can renegotiate after the inspection is so fucking shady) but because we were already taking a twenty two THOUSAND dollar hit on the price.
The inspection happened while I was working, leading the tour in Paris.
I’ve cobbled together what happened next after intermittent, mostly second-hand conversations. It seems the inspector said there were some issues. That’s what they do. Nothing earth shattering, and nothing that couldn’t be remedied if it weren’t a first time homebuyer without the proverbial two dimes to rub together. What else happened, we learned, was the buyer started looking more into the neighborhood. And got scared.
Any smart buyer should look! Only, how about before making an offer, putting down “earnest” money, paying for an appraisal, and paying for an inspection? There’s zero denying the crime rate —which is similar to that in hipper neighborhoods where the price per square foot is WAY higher.
The buyer terminated.
I had taken the house off-market after accepting his offer. Why? The dreaded days-on-market clock. We humans are funny. We tend to base how much we think something is worth by how much other people want it. A house that sits a long time, not worth as much, if it’s even worth buying. I (thought) I had learned the hard way when the first offer fell through on the Sleeping Beauty house, when we’d kept it pending for 17 days and stopped marketing while interest rates climbed along with the days on market counter. This time I knew I wouldn’t be showing our house because: travel and moving. So I had no back up offers. It was just … gone.
We’d get a better offer, everyone said. It happened for a reason, everyone said.
Then we did! Two hours after the first showing once it was back online (unfortunately at a cost of another $500 to list it), we had an offer for several grand over ask. The best part? It was cash. NO APPRAISAL. It was contingent on the out of state buyers selling their house, a gamble I’d never taken before, but their house was super cute and I was sure it would sell. Plus, NO APPRAISAL. I felt vindicated; the broker we’d paid to enter it into the MLS had questioned me when I listed at the same price again, but my gut was right; people were willing to pay for this house.
The hitch? They’d only seen the house via Facetime video with their local agent. What would happen when they drove down the block and saw the deferred maintenance on some homes (ok, let’s be real, when they saw a nearby house being strangled alive and falling down under the weight of the vines and shrubs completely obscuring it) and the panhandler at the intersection? And the overgrown grass and boarded up windows at the Louisville Housing Authority-owned apartments two doors down? It might be half what a similar house would cost in a more desirable neighborhood, but a good price doesn’t mean it’s for everyone. It wasn’t for me, after all. I addressed this with their agent (I DO love the ability to speak directly to people, not through an archaic game of telephone where I give away my power to speak to someone else) and she assured me she had appropriately set expectations for the area.
The inspection came and went. On the final day of due diligence, not coincidentally the day offers were due on their own house, their local realtor called me after they’d received their offers. They were “petrified,” she said, after the inspection. The scary word was electrical. And indications of that fire 40 years ago that I had disclosed and that had zero impact. We’d fix whatever needed fixing, I said. At that price, for a unicorn buyer like this cash offer, I’d willingly break my own rule of no repairs no concessions. But three hours before the midnight due diligence deadline? They cancelled.
I will always feel awful for how upset I made my sweet doggie who was so worried about me and my visceral response to this gut-punch that he slept literally on top of my body that night.
Were they petrified of the house that they were “so excited” about the week before? Or was one of the apparently multiple offers on their house so good that they decided to skip the “bad part of town” once they saw it in real life and buy elsewhere and used the inspection to get out? Doesn’t matter in the end.
One more time. We decided to list it one more time and if it was cursed by the two fall-throughs, well, the nuclear option would be to rent it. Once a rental in the West End, the value would be decimated in any future buyer’s eyes so that was true last resort.
In the meantime, we scheduled a couple big electrical companies to come see what all the fuss was about, and paid for our own inspection (I’ll talk about the pros and cons of this in a future post). Turns out inspector number one used the words knob and tube, which, sure, would be cause for concern. Guess what? Somebody in the past doing work had left some old wiring laying around in the attic. It wasn’t live, connected, or otherwise a danger of anything other than a creature tripping over it (kidding! we didn’t have creatures in the attic!). It would be best practice to replace the old panel and the service line to it. Though we hadn’t had any issues, we certainly want to know we’re selling in good faith. So we were prepared with estimates for the work this time around.
And sure enough, the very next person who came to see the house submitted an offer. Our first for below asking price, based, their realtor said, on knowing it wouldn’t appraise. (I mean, and probably on seeing the failed sales history.) Fair enough. Here’s how we negotiated this, with help from my best friend who loves nothing more than reading a contract line by line, and thinks out of the box when it comes to negotiations better than anyone I know.
To start, we actually met this buyer. Their realtor wasn’t threatened by “allowing” the buyer and seller to meet, so I made up a bagel board (because I can’t help myself) and got some drinks, and we met on a Sunday morning to hash out the details.
We’d accept their offer, reduce the price by another few thousand to cover electrical upgrades (literally giving them the estimate and list of repairs needed), but make the inspection for information only (barring severe defect which we knew didn’t exist), so no eject button there this time. And we’d require that the buyer kick in several thousand against the predicted appraisal shortfall.
And just like that, we had ourselves a sale.
No surprises on the inspection (and no silly claims like that the new kitchen sink leaked, like inspector #2 alleged). And the appraisal was exactly as predicted: modern day redlining, in which lenders and appraisers won’t assign value to correlate with the actual cost of rehabbing a house because so many others nearby are valued at next to nothing. I have a lot more to say on that, don’t you worry. But the buyer was able to make up the shortfall to get us to the agreed-on price. It’s hard to not dwell on the fact that we could’ve had $17,000 more had the second sale not fallen through, but we still ended up $7,000 to the good vs. the first buyer.
I won’t call this experience a roller coaster. That’s a wild understatement. As I write, we’re 36 hours from closing and I’m not hitting ‘publish’ until every line has been signed and we have check in hand (not after what happened last time!)
Probably I should end with something I’ve learned, or some positive takeaway. But you know? This was grueling. It was crying-till-my-eyes-swelled-shut, snot-nosed, stomach-churning misery.
The best thing to come of it is that I found yes, I can sell a house without participating in the uniquely American scheme that forces homeowners to acquiesce to the predatory six percent commission structure that benefits the realtor and whoever they buy their status symbol cars and such far more than it does the buyer or seller. I’ll have a lot more to say about that to come, but I’ll tell you what: if I can do it with a house that’s priced drastically higher than any others in a neighborhood almost no-one will touch, with a house that came with the red flag of two sales fallen through, SO CAN YOU. And I might just help you. Stay tuned.