Torrid tales of a house seller in Austin, TX

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Submitted by amy on August 14, 2008 - 11:38am

Background - my husband & I moved to Carlsbad with our three young sons in April of 2007 from Austin, TX. We were looking to buy here, but my husband really felt the market was going to go down steeply, so he wanted to rent. Since we hadn't yet sold our house in Austin and he made a very persuasive arguement, we signed a year lease for a home in La Costa Greens, where we still live in a month-to-month agreement. He was right, and we're glad we're renting.

In July 2007 we had an offer for a lease-purchase option for our Austin house, and as it more than paid for our mortgage there, plus a nice monthly profit, we agreed. When the term expired, the potential buyers decided not to exercise their option due to health reasons (they moved to a much smaller one story house) and so we now have the house on the market again. Austin is the #3 seller's market in the country, and although it's not nearly as slow as it is here, it's still not what it was even a year ago.

We know we had the house priced too high last year for what it was, so before listing it in late June of 2008 at a more realistic price we had it totally painted inside & some out, new carpeting put in, landscaped, cleaned & professionally staged (the tenants are out so it's vacant). We have it priced at $349,900. It's 3,613 sq ft, 4/3, built in 2001, in an award-winning school system (walking distance to the middle school) and backs up to conservation land which will never be developed, so the backyard is very private. There are two parks and a community pool within walking distance, and it's less than 20 minutes to get to downtown Austin/University of TX.

We've had a decent amount of showings - 1-3 a week, but no offers (I do realize this is a decent amount of action in this slow market). We seem to be priced reasonably compared to other 4/3 in the area, and at $96.84 psf we're less than the other listings in the neighborhood (with one exception - a new listing nearby with a similiar floor plan but one less bedroom and a yard that backs to another just came on the market at $315,000. The house is currently rented and is not in very good condition). Feedback from other realtors and buyers has been mostly positive. Negatives have been the floor plan (upstairs there is a huge game room & one huge bedroom & a full bath - we used it as a guest area, but you either love it or hate it) and the lack of a 1/2 bath. Nothing that we can really fix. We're offering $2500 towards closing costs as an incentive. We can reduce the price, but our agent thinks we should hold out another month or so as it's "just taking longer to sell things these days".

My husband is getting very impatient and would like us to lease the house again rather than reduce the price - he thinks even if we get a decent offer that it's too hard to get a loan right now and the chances of actually closing are slim. I am very hesitant about doing so as we just invested $4K in getting it ready for market, and I want to be able to purchase a house here when we (and the market conditions) are ready. Pros are that we could probably lease the house for about $2200-2400 month. Our mortgage is currently $1700/month, but we could refinance into a 15 yr loan and get it paid off quickly & have an investment property. Cons are that since we live here in SO Cal, we'd have to have a property manager. I am also nervous about the tenants - we were very lucky last time, but we might not always be. Plus we've already lost our homestead claim so our property taxes are increasing. And finally, that would mean we would need to continue renting here indefinitely.

Here's the MLS link to our Austin house:

I'd appreciate any feedback, opinions, comments - whatever. Y'all are a remarkable crew and I have learned a lot about the market here in So Cal thanks to this site. My husband also thanks you as you all say pretty much what he's been telling me, so I am not driving him TOO crazy about buying a house here.

Submitted by gn on August 14, 2008 - 12:45pm.

- From what I know, property tax in Texas is pretty high, so if you total the mortgage + tax, you may have a very small monthly profit if your house rent for $2200 - 2400.

- You said: "... that would mean we would need to continue renting here indefinitely." It sounds like most of the down payment for the eventual home purchase in So Cal would come from the equity of the house in TX. If that's the case, consider this: the market in Austin is not likely to improve any time soon.

In fact, the market in Austin is likely to turn worse. This means that you'll lose even more equity in the next few years. So the following scenario is likely to become true: in 2 or 3 years, when the market in So Cal is close to the bottom & the time is right to buy, you'll have less equity in the Austin house to use for a down payment.

You mentioned that your mortgage is $1700. Assuming that you have a 30-yr fixed, this means you owe about $250k. If this is true, your equity in that house is about $100k. Much of this $100k is likely to "vanish" in the next few years, as home prices will continue to go down.

I would lower the price & sell as quickly as posible because once you enter Oct/Nov, with all the holidays coming up, it'll be much harder to sell. And next year, it'll be worse.

To sum it up:

If you continue to lease that house: you'll get a small monthly profit & all the downside potentials. The risks clearly outweigh the rewards.
If you sell ASAP, you'll lock in today's market price & avoid all the downside potentials.

Submitted by Bugs on August 14, 2008 - 12:54pm.

If you think the market in Austin will turn around sometime in the next few years then the strategy of trying to wait the market out might make some sense. The key, of course, is dependent on what you think the long term trend for that area is.

If the property were here, I'd tell you to discount it like you really mean it and get out now before it gets even worse. But that's because I am of the opinion that this type of home in this area is going to take a beating for the next few years.

Austin was late to the speculation party and apparently has also lagged going into correction. That doesn't mean it's immune or that the correction will somehow overlook that area.

Submitted by amy on August 14, 2008 - 2:44pm.

These are just the type of thoughts I was hoping for. We actually owe about $200K on the house, and property taxes are included in what I referred to as our $1700 monthly mortgage payment (and yes, they are high - about $6500 annually). My husband thinks keeping it as a rental propery might make financial sense - he agrees that there will probaby be some loss of value in Austin, but because houses are so much cheaper there & so much more aligned with salaries, that it won't be as severe as we're seeing here. And he may be right, but why play with fire? I would rather just sell and get out while we can. Any suggestions on what we should lower the price to? I talked to my realtor today & she thought $339,900 if we are "serious about selling it quickly".

Submitted by gn on August 14, 2008 - 3:50pm.

Many seasoned realtors have the following rule of thumb:

- If there are people looking at your house & you get offer(s) within the 1st month of listing, your asking price is within 10% of the "market price".

- If there are people looking at your house & you have no offer. Your asking price is at least 10% higher than the "market price".

- If there no one looking at your house, your asking price is at least 20% higher than the "market price".

I think this is especially true with places like Austin where the supply is not too high compared with the demand (the market is "soft", but it's not that bad). The fact that you haven't got an offer within the first month despite pricing it agressively is "telling".

With that said, it's likely that the current market value your house is $315k or less.

Prices in Austin will likely go down for the next 2-3 years (may be not much, but still the direction is downward). Then, even when things pick up, it'll take another few years for prices to get back to today's level. Are you willing to rent for that long ?

Submitted by jficquette on August 14, 2008 - 5:30pm.

I know Austin is a booming place. Tons of jobs and people moving there. Because of that I would suggest that if you can't breakeven on the house then just keep renting it. If you can breakeven then sell it.

Austin will eventually stabilize because wages will grow faster there then in most other areas.


Submitted by DCRogers on August 14, 2008 - 9:37pm.

Reduce it and sell. Texas ain't gonna be immune to what's coming.

Submitted by EconProf on August 15, 2008 - 10:06am.

Do whatever it takes to sell it now.
I was in a similar situation 2 years ago. After the property did not sell with several price markdowns, I rented it. It has since fallen further in price. (Incidentally, my mistake was taking my broker's advice and initially pricing it too high).
The hassles of being a landlord from afar are huge. First-timers always underestimate the numerous hidden costs.
I'd suggest an immediate sweetener of $2000 to the buyer's broker. If that doesn't work within 10 days, then lower the price significantly. You want to make a splash on the market.

Submitted by goldfish on August 15, 2008 - 11:36am.

It seems you have initially priced a little high and missed the season. You need to reduced the price by a meaningful amount and whatever incentives that you can provide.

Submitted by amy on August 15, 2008 - 5:10pm.

Thanks, all. We reduced the price by $10,000 to $339,900 this morning. I will keep you posted. Wish us luck - we could use it!

Submitted by zzz on August 15, 2008 - 6:17pm.

Amy, I don't know your exact neighborhood but I know Austin, and your home is on the south end of the city limits which isn't as desirable as some of the more central locations ( I mean no disrespect). With the economy in flux, as well as the housing market deteriorating, I believe you need to be more aggressive given there are homes priced a bit higher than yours for sale in far more desirable neighborhoods, such as Westlake. You also have to compete with Circle C Ranch and the new homes being developed there.

I wish you the best of luck!

Submitted by svelte on August 19, 2008 - 7:49am.

That's a beautiful house - I could easily see my family living there - all I would change is the outside trim color, remove the stained glass (too churchy)and bathroom wall paper. I'd just deduct what I thought removing those things would cost and make an offer!

Adding a pic of the back yard and the rest of the kitchen would help give potential buyers a complete picture of what is being offered.

Good luck!

Submitted by poorsaver on August 20, 2008 - 4:57pm.

I'd reduce it to $299,000. Big psychological impact under $300K. It should sell within a month. My son is in basic training in the Air Force right now, and I'll be attending his graduation on Sept 12. I was planning on checking out Austin anyway while I'm there since it's only an hour's drive. Maybe I'lll drive by your house.

Submitted by Shadowfax on August 21, 2008 - 12:06am.

What a gorgeous property. All I ask is to find something like that here priced similarly! (fat chance)

Good luck--it's a beautiful place. You should be able to sell in a heartbeat once it's priced "right" for the market.

Submitted by seattle-relo on August 21, 2008 - 11:31am.

Amy, I'm in Austin right now and it does seem like things are really slowing down with a lot of resales on the market... Your house looks beautiful, I agree that with aggressive pricing you should get an offer, I wouldn't be comfortable waiting the market out...things could get worse. Just my 2 cents. Good Luck to you!

Submitted by RussSLC on August 21, 2008 - 4:33pm.

I just went through a similar situation. Moved to Newport Beach in March 2007 and kept my house in Austin as a rental.

I wasn't planning on buying in S. Cal, so I thought it'd be great to keep a rental while waiting for a transfer to another part of the country.

Just moved to SLC a few months back, and my tenants were still in the property in Austin. My realtor/property manager said signs were all pointing toward a major slow down in Austin, so I offered the home for sale to my current tenants last month. Great tenants, but I knew I was in for a lowball offer.

I accepted approx. 40K less than what I could have gotten for it 9 months ago (SW Austin, Travis Country 4/2 for $322,000.)

Things to keep in mind:

1. I did not like the stress of not being able to take care of the "little things" that went wrong when I lived in the house (I'm not cut out to be a landlord.)
2. What is happening to prices in S. Cal will be happening much quicker in Austin, as the cheap money was still available until early this year, and prices just started dropping.
3. A ton of Californian's bought homes in Austin (3 of my 5 neighbors) over the past few years as investments, so rents have not gone up like they have in many markets. Still below 2001 levels.
4. My realtor/property manager said sales have been "tepid" over the last few months.
5. You can't look at what your home was worth last year...I "lost" 40K, but it wasn't my money to begin with, and I still took a nice profit.

I would drop your price to 25K under a comp. that was sold in the past month and hope to start a bidding war.

BTW... Can anyone recommend a site similar to this that tracks the SLC market?

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