What does buying 50 pair of gym shorts have to do with selling real estate?
It was the spring of 1977 and after spending several weeks with relatives in Albuquerque I was ready to return home with an incredible find back to my hometown of West Lafayette, Indiana. What Southwest treasures did I have to take back from the Land of Enchantment to mundane Indiana? I did value and treasure the beautiful Navajo sand paintings, rugs, and turquoise jewelry, the Hopi Kachina dolls, the incredibly beautiful pottery of the Acoma, San Ildefonso, and Santa Clara pueblos; but not on this trip.
Thank God for the ACLU (oops sorry ACLU, I forgot!), the 1st Amendment, and a non-conforming gym student I was ABLE TO PURCHASE 30 pair of formerly required Albuquerque Public Schools gym shorts for 50¢ a piece!!!! There were many more gym shorts, but what fool needs more than 30 pair of shorts??? At 50 cents each that was plenty! I thought they were a very STYLISH battleship grey color and had a very attractive diamond logo with the letters APS inside it. Gosh, back in Indiana I could tell everyone that APS stood for: ATOMIC PERSPICACIOUS SCIENTIST and everyone would just think I had the greatest gym shorts around! (For those of you not from the Hoosier state-it doesn't take much to excite us) We Hoosiers tend to buy anything from such exotic places as LA, Paris, or New York. Jane Peters and Laurie Mindnich could made a fortune selling their used dental floss on Ebay to us rustic Hoosiers as long as they said it was from LA or NY!!!
I was ready to turn EAST to head back to the Hoosier state along Central Avenue(old Route 66) when an unexplained presence directed my steering wheel to turn right toward downtown Albuquerque. It was as if Horace Greely's presence was saying, GO WEST YOUNG MAN, GO WEST!!! So I returned back to Cook's Sporting Goods store just to take one last look at the 50 cent APS gym shorts and I COULD NOT BELIEVE IT!!! My gym trucks had been reduced in price to 25¢!!!!!
Guess what??? I bought 20 more pair of APS gym shorts because it was half off the previous price even though I swore I was NOT going to buy anymore gym shorts in Albuquerque!
WHAT DOES BUYING 50 PAIR OF GYM SHORTS HAVE TO DO WITH SELLING HOUSES???? PLENTY!!!
We are all familiar with THE LAW OF DEMAND. As price goes up quantity demanded goes down, and as price goes down, quantity demanded goes up.
The LAW OF DEMAND OPERATES BY THREE CONCEPTS:
1. THE INCOME EFFECT: If the price of an item goes down we think it is a good deal and we buy a greater quantity of the item. Several years ago NY strip steak was decreased in price from $9.95 per pound to an incredible $2.95 per pound for one week. I went to the store every day and bought all the NY strip steaks they had while the sale lasted.
2. THE SUBSTITUTION EFFECT: If the price of an item goes up we replace it with a close substitute(if we can). When the NY strip steak went off sale and back up to $9.95 per pound I only bought the cheaper sirloin steak or hamburger.
3. DIMINISHING MARGINAL UTILITY: To an economist "utility" is the satisfaction or usefulness we derive from consuming a product. As we "consume" or buy more of a product( gym shorts ^_~ ) the satisfaction we derive from the product declines at that current price. Several years before I retired from teaching the cafeteria was closed(the students all cheered!!!!!!!) for a major remodel. The students went to the gym for lunch where FAST FOOD VENDORS each took turns selling the students their lunches. The hands down favorite was PIZZA HUT as the kids loved their huge, $1 per slice pieces of pizza. Many students readily devoured two, three, sometimes even four pieces of pizza at $1 each. The UTILITY (satisfaction) for the pizza diminshed with each additional slice they purchased at $1. GUESS WHAT HAPPENED WHEN THERE WAS A SURPLUS OF PIZZAS AT THE END OF THE LUNCH HOUR AND PIZZA HUT SOLD ENTIRE BOXES OF UNOPENED PIZZAS FOR $1????
Those individuals who were filled up on pizza at $1 a slice and who would buy no more went crazy and bought entire large pizzas for $1. The kids who ate the last lunch hour got the INCREDIBLE deals!!!!! DIMINISHING MARGINAL UTILITY!
In the Lafayette area investors are buying up the HUD homes, REO's, and foreclosures TO BE through SHORT SALES! They are reacting to the INCOME EFFECT because those homes are great deals in this current market along with the historic low interest rates.
I am working my data base of teachers/athletic officials( I retired from teaching at the start of August and launched a new career in real estate) and one colleague who told me he couldn't afford to buy another rental responded positively to one of my emails back in September. He was my first closing right before Thanksgiving and it was clear that this was his last rental to be bought for some time. Do you think I sent him an email on an incredibly low priced property in great condition even though he wasn't able to buy anymore investment properties???? Remember DIMINISHING MARGINAL UTILITY (me buying the 20 extra shorts because of the insanely lowered price-even though I didn't want anymore gym shorts) ?????You bet I did, and we made an offer on Thursday night but the house was sold right before we submitted the offer. Can you believe a REO selling in under five hours from the initial offer? Am I discouraged? NO WAY!!! I have the law on my side! (The Law of Diminishing Marginal Utility)
Because of the income effect I had two accepted offers on Thursday with investors (the same day I lost the other offer) ! I look at this market shift as an incredible opportunity to find properties for investors and that is how I am I am contacting people through my data base.
THE LAW OF DEMAND, if properly understood can give us agents an extra edge if we know who it is that is responding to its beckon and call. By the way, I am so glad I don't have to explain to such a sophisticated audience what I did with all those gym shorts. My ECONOMICS students and students in the hallways who I did not even know would stop me and ask me about what I did with 50 pair of gym trunks for only $20!
Let's see, what would a single, low paid teacher who was going broke buying wedding presents for all his high school and college friends while being overwhelmed by Christmas gift lists, and being invited to endless graduation ceremonies do with all those gym shorts???? Hmmmm. . . . .
Wedding Present? GYM TRUNKS!!!
Christmas Present? GYM TRUNKS!!!
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