The Price of Waiting

Laura Treonze (Al Filippone Associates) — Wed, 11 Jun 2008 20:28:56 -0700

Buyers are waiting to buy expecting prices to drop further and sellers are waiting to sell until the market improves. Both are trying to "time" the market and it can't be done. Everyone is concerned about their "investment". The reality is unless you are buying/selling a property that is not your primary residence, you are not buying/selling an "investment".

Your primary residence is your shelter, a place to make memories, and a great way to establish financial stability. An investment property is purchased with completely different goals and set of standards. The past 6 years have clouded people's perception of investing in real estate. Everyone heard the get rich quick stories of people who bought a house on a Monday and sold it for $20K more on Friday. There were many pseudo investors who made money but there also many who lost money even when times were good. Regardless, those people weren't investing in real estate...they were day trading.

So here we are in a market where inventory is high and interest rates are very good and yet no one is moving. It is ironic that when we were in a seller's market everyone was rushing to buy a house as if there was never going to be another opportunity to buy a home. Now that we are in a buyer's market no one wants to commit for fear something better will list for less. Obviously the price of homes responds to supply and demand but everyone is responding to a fictitious lack of supply (then) and an exaggerated lack of demand (now).

Let me give you two examples of the price of waiting...
I know of a seller who has a very small mortgage on a property he has listed for sale. There have been only 2 showings in 35 days which by National Association of REALTOR standards indicates the property is overpriced. The seller will not reduce his price because he doesn't want to "lose money". This statement is based on what he thinks he could have gotten for his home 3 years ago NOT on factual numbers. From his purchase price in the late 80's to his list price now (minus his small mortgage), he is going to make a substantial amount of money...how is that "losing"? If the house doesn't sell this spring he will stand to lose more if the market drops .05% per month for the next 8-12 months (as predicted) than he will by moderately reducing the price now and getting it sold. I won't even go in to the emotional costs of holding on to this particular home. Inventory continues to sit because there are countless sellers thinking the same way.

Then there are the buyers. I recently worked with a buyer who found her dream home but refused to compromise on price with the seller. She based her offer on predictions of future price decreases and expects the seller to accept now even though her offer is less than current market value. There is a good chance she will lose this home. Let's evaluate the cost of waiting...if the market decreases the .05% stated above on a $530K house the price would reduce to approximately $500K (this is not compounded - so it would be less) at 6% interest there would be a difference in monthly payments of approximately $200. However if interest rates rise from 6% to 7% that same house would cost the seller $350 more per month. There are buyers waiting to buy BUT what are they waiting for??

It is impossible to "time" the market because there are too many variables. Buyers and sellers need to establish clear goals, research the inventory, and determine an educated list price/offer. That doesn't mean that every listing will sell or that every offer is going to result in a purchase but it will help both sides come to a compromise. We will make the fictitious market a reality or we can work to communicate with each other to create a solution that is a win-win for both sides.

Don't wait...be distinct in all that you do.

Is It Really That Bad?

Laura Treonze (Al Filippone Associates) — Wed, 04 Jun 2008 14:15:06 -0700

Is It Really That Bad?

Reuters recently reported the stock of unsold homes surged 10.5% to 4.55 million units. Their stats come from the National Association of REALTORS but it is deceiving to look merely at the numbers. The media thrives on a doom and gloom housing situation. Right now they are scaring buyers and sellers into thinking that we are drowning in inventory. I would compare the news reports on housing to a tsunami when the reality is we are in the middle of a hurricane. Both destroy lives but the perception of a hurricane is that they are seasonal and people will survive. After a tsunami entire communities are wiped out and they may never recover. Inventory is high because of sellers, buyers and banks (OK, I am master of the obvious but let me explain...)

Sellers with overpriced "dated" homes on the market 300+ days aren't reducing their prices. They continue to wait in hopes that some uneducated buyer will purchase their home for more than it's worth. (I know a seller who had a cash offer for $20K less then the list price of his property and he didn't accept it EVEN THOUGH his property won't appraise for what they are asking.) Then there are the sellers who are over leveraged because they took equity out of their home to buy "things". They refuse to accept the fact that they either have to remain in their home or sell it in a short-sale. (I had a buyer who made an offer on a home but seller didn't accept because she "needed" list price so she would have $20K to move - a buyer isn't going to overpay for a home because a seller needs to have the money to move on.)

Anyone working with buyers knows that there are people who want to buy. Yes, expectations are higher and they should be BUT buyers need to be realistic too. (I have a client who wants to spend $300K but insists on 3 bedrooms, 1.5 baths, AC, hrdwd floors, city sewer/water, and move-in condition - it sounds reasonable except the two towns in Fairfield County he wants to live in have an average sale price of $430K.) Whenever I have a buyer who can not find what they are looking for on the MLS s/he says to me..."what about foreclosures?" Here is the reality of foreclosures - most (not all) people are foreclosed on because they don't have the money to stay in the home which means they don't have the money for upkeep or to pay utilities and the home is in disrepair. Worse are the properties in the middle of a divorce - people do horrible things to spite ex-spouses. There are opportunities if you don't mind a long search and a lot of sweat equity.

Banks are another challenge. Many (not all) REO (Real Estate Owned/Bank Owned) properties are sitting on the market because banks are as unrealistic as the rest of them. It is shocking when an offer that is 85% of list price isn't accepted on a house that needs tons of work and has been on the market for almost a year. You would think the banks would want to get these properties off their books. It's even worse when you are negotiating a short sale for a client that takes 4 months and two weeks before the closing the bank throws in a new stipulation (like a reduced commission or no deficiency release for the sellers are a couple of examples) and then says, "We'll just repossess the house, we don't care." WHAT???

A lot of negative energy is creating unrealistic expectations and a difficult environment to buy and sell real estate. BUT don't be fooled by the reports. For every overpriced house there is a beauty priced perfectly, for every unrealistic buyer this is one eager to pay market value for a property priced home and for every bank employee that is a challenge there is one that is efficient and helps make the entire process run smooth. This is NOT a tsunami, we will weather the hurricane and hopefully come out smarter consumers.

Stop by next week to read helpful ways to "curb" expectations. Until then, be distinct in all you do.

Laura Treonze's Blog

The Price of Waiting

Is It Really That Bad?