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Why Buy?

On ActiveRain we do a lot of talking regarding the value proposition of the sales person. We also do some talk about the conditions of the market today in different areas. But what are the value proportions from your changing local market?

It hasn't been long since home values were rising at statistically rapid rates. In the heated market place it's demonstrating for our clients, the benefits of buying and buying now are more implicit. The benefits don't need much explaining. With low rates and ascending prices, not buying or refinancing seems almost irresponsible.

But how do you define the value of investing today? In each market, there are differing opportunities. There are differing reasons and methods to invest.

In the interest of our business, I'd say in some way it's up to sales people in the industry to help find and define the opportunities that are available to our clients.

The opportunities aren't always obvious, usually the lesser known ones are best.

The market has changed and with the reasons for buying being less obvious, I appears that helping our clients is now going to have to include an aspect we haven't had to touch on as much in recent years.

Isn't that a part of our value proposition? I'd say that a real estate agent could get by without being cognizant of such things however how much more valuable and how much easier is your work when you can quickly asses your clients needs and determine where the value prospect is for them?

Posted by Caleb Mardini on 02/08/2007 07:48 AM

Comments (19)

home value, sales

19 Comments on Why Buy?

FEB

2007

Caleb, you've raised a good point. In hot markets, sales skills are almost unnecessary. In average or difficult markets those skills are mandatory. For both the salesperson's success and for the client's benefit. Education is a key characteristic of a good salesperson (realtors and LO's alike). There are opportunities in any market if we learn to adjust our tactics to the market changes. Remaining fluid (mentally) is a key to success. Knowledge allows us to remain fluid.

Fluid? I like that Mark that' is a good way to put it.

FEB

2007

Just so you know

This post was not featured by ActiveRain. It got my vote because it is industry specific, well-written, timely and thought provoking.

Mark (rookie moderator)

Caleb...

If you don't mind I am just going to park and watch the flow of this conversation :)

"Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world." F.D. Roosevelt

"paid for in full", We generally buy real estate on margin. It's like buying futures on margin, only less risky.

Remember, I make my living selling homes, not investments. When a client makes a comment about real estate gaining in value I always correct them. I tell them about me purchasing a lot for $18,000, watching the value increase to $25,000 and then selling it three years later for $8,000.

I also tell them about me buying a house for $62,000. That house had been purchased new just three years earlier for $124,000. I then watched the price decrease to $55,000 and then I later sold it for $135,000.

Over time, history has shown values to increase at least at the inflation rate and since we generally buy on margin, our equity increases much faster than inflation. But if you are buying a home for a short interval (the average is only 5 years in my area), and your timing is wrong, you can lose money.

I sell homes more on why you would buy a home as opposed to rent a home. You can paint the walls, you can plant a garden, you can have a pet...etc.

I am with Chris and Franklin: It is the safest investment!

I would say if you are an investor you are speculating on certain events to occur to make a profit and you must be prepared to HOLD if those events do not occur to make a profit because eventually, more than likely, you will profit someday.

I think many who purchased to make a profit at our height and shortly after needs to be counseled about rental rates increasing quickly and seek different options rather than just "dumping" and cutting/suffering losses.

Renee, I would agree with you...if you are truly an investor and you are looking for a place to invest some spare cash and are prepared to hold.

If your home is the only real estate you own and is really your only significant investment I do not sell it as an investment. If that person is transferred in three years or has to move for some other reason, I do not want to be the one that told them they would make money on their investment.

Marty, you bring up good points, but I would say that for every buyer a home purchase is always some form of investment.

Renee Chris and Franklin you have pointed out purchases can be great financial vehicles. It agree In many ways the opportunities that are found in a market will depend upon the needs and preferences of the buyer, so in that sense a buyer is always investing, albeit in some other aspect of their lives.

I was trying to hit on the over all value proposition. I believe it significantly enhances the sales persons value if they can talk to their client about the value they are seeking from the purchase and to be able to help them find where that need can be met in the market place.

I guess the question is to ask whether or not we are making a regular concerted effort to show them the value of buying, being that that value has changed and is less obvious, or are we still assuming they just know?

Caleb,

"...however how much more valuable and how much easier is your work when you can quickly asses your clients needs and determine where the value prospect is for them?"

Excellent point. Your post also makes me realize that not only locally, but perhaps also nationwide - now is the time when the agents who've been "getting by without being cognisant of such things" (unless they quickly get cognisant) are filtering out of the business.

Marty,

I really like your approach. Many have said, especially in "hot" markets, that real estate professionals can (and should) maintain integrity by not promoting speculation. I agree with you that this is particularly important when dealing with first-time home buyers.

Nice blog and...nice photo Caleb!

Patricia Aulson/SEACOAST REALTOR/NH,ME &MA

URL: www.patricia4realestate.com

It seems to me that our value lies in our knowledge of the market. Whether the market is a fast or slow; agent knowledge is the key. Knowing your market and recognizing true value is the advantage a good agent brings to the mix. You have to know more then the numbers you have to know why one area is worth more or less than another.. and often a street or a block can be the difference. People buy for a lot of reasons and a good agent will listen to determine what a specific client wants. We can't protect them from a sudden move due to a job change or family difficulty but we can give them our best information on where tthe market has been in the past, where it is today and where it may go in the future based on XYZ factors.

Right now in my area prices declined in some areas and increased slightly in others in 2006. At the moment prices seem flat but that can change if the market suddenly gets flooded with inventory or if inventory continues to stay flat. This is what I need to discuss with my clients. I can't predict what will happen but I can share my knowledge of what has happened. I can tell them that the home they think is so adorable has a fundamental flaw that will drive them nuts in two years. I can point out that the street may see higher traffic in the future because there may be a new shopping center on the corner.

For investors I need to know what is happening in the rental market and the value of land. The biggest factor in our area isn't the value of the structure (unless it is fairly new) but the value of the land and what can be built on it. Are there zoning changes that may affect future value. Again this is market knowledge.

How do you get market knowledge.. experience is a big factor.. but so is paying attention to what is happening around your town. Find out what builders will pay for dirt, read about planned zoning changes and purposed new developments the city may be considering. Talk to other agents and get their take on what is happening.

My value is my knowledge.. the more knowledgeable I am the more I am worth to my clients..that's what we get paid for..

OPPORTUNITY COST 101

There is no doubt that if you're living in it or renting it out, you want to be sure you're making a wise financial decision (note I did not say investment!)... but sometimes with such bad market news you're going to hesitate, especially if you're reading horrible articles like on MSN Money.

That's what is happening here in South Florida. There are listings that are just sitting there. Sure, sometimes they are priced wrong for the current market and have ignored the dips in prices... but the buyers are waiting because there are still some sellers acting like we're in a sellers market.

There are buyers that are gunshy because they think that they'll lose some value right off the bat. I had a conversation with one a couple of weeks ago. He said that he thinks there is another 2-3% drop before rebounding. I told him this:

First of all, there is no magic prognostication software to determine what's going to decline and how much. Overall, he COULD be right... but that doesn't mean that every little area will suffer it... Some may go up and just have the average brought down due to foreclosures or a glut of Condo inventory in Miami. West Boca Raton (75mi North of Miami Beach) might be more stable because it isn't condo based and he's looking for a home near a particular demographic neighborhood and schools for his son.

What is more important to consider is that Rates aren't going down significantly for a while. SO I spoke to him about ENTRY and EXIT Strategies. I told him that if he waits 6 months and the rates tick up 1/2%, he could easily be $100-200 more per month depending on the loan amount - even if he sees a 5% decline in the property values he still will pay more monthly which will cost him much more in the long run!

The Opportunity Cost of NOT buying could mean:

SCARCITY - Qualifiable - Losing the property that you love and not being able to replace it
SECURITY - Qualifiable - A bird in the hand is better than two in the bush - there is security in knowing that his family will be in place and comfortable before the fall term begins ...
PRICE - Quantifiable - the property may go UP in value based on other market factors while other parts of the market or the market as a whole goes down
RATE - Quantifiable - the interest rates may rise causing him to end up spending more on the monthly payment than if he were to buy today
UNKNOWN - Qualifiable - things could crop up that cause an issue that keeps him from qualifying for a loan later - Quantifiable - there may be nothing suitable in that area to buy in 4-6 months

So I summed it up this way:

"If you're buying a home - buy a house you LOVE. If you have this many regrets causing you to keep from purchasing then maybe you just don't LOVE the house. Don't, though, let a good deal or the right house slip away from you because you're betting on the market. Know what is controllable and what isn't. The right house could disappear as quickly as it came on the market and you could miss out on the right property while trying to figure out the right time to make your move"

Rent versus Mortgage (with equity being the kicker along with tax deductions on interest)

Mortgage rates are still LOW.

First time home buyers do NOT have to buy the home they LOVE...it's their stepping stone for the future.

I will state something a little different. I don't see myself so much as a salesperson. I don't want to convince a client to do something. I don't want my client to purchase a home because of how I 'pitch' the property. I consider myself more of a service provider. Information, knowledge, resources, etc. Within this bundle, there may be some information present for the client to determine on their own what they perceive with regards to value. But I don't want to sway that perception....its up to them!

Paid for in full. Maybe not immediately, but through the course of ownership and management. Maybe Roosevelt was a visionary knew there would be HELOCs and refi's?

David: Great analytical post I will try to remember, but the greatest sticking point is DO YOU LOVE IT! A buyer knows when they walk into a house if they can love it.

Ozarks Joan

Before I was in real estate, I spent 1 1/2 years selling health insurance. I worked for a high pressure office that taught you to SELL. They taught us every trick in the book, I could tell you some stories.

But when I sold my first house, (I was still making a living selling insurance at the time), the buyers came to me, I didn't cold call them. They told me they wanted to buy a home, I didn't have to convince them that they should buy. They told me the type of home they wanted, I didn't tell them what I thought they should buy. All I had to do was find what fit their needs and they were overjoyed.

I called my boss at the insurance company and said "I quit". That was 16 years ago.

Ever since then I threw out all the sales tactics, I don't convince anyone to buy. I only work with people who have already made up their mind that they want to buy. Sometimes after meeting with them I tell them that they shouldn't buy but I never try to talk anyone into buying a home. There are plenty of people out there who already want to buy. Our job is just to offer our services to those people. If we do our best in representing them, if we look out for their best interest, not ours, we will have all the work we need.

FEB

2007

Caleb I agree with this statement: "In the interest of our business, I'd say in some way it's up to sales people in the industry to help find and define the opportunities that are available to our clients".

And I really like that picture of you with the goggles!

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