Gary Cardillo’s Southwest Florida Real Estate Blog

Is This Really A Buyer’s Market?

May 15th, 2006

Over the past few months we have been updating you on the changes that our market has been undergoing; and there have been many.  We went from a red hot market where sellers enjoyed unprecedented profits as they watched the value of their homes go up almost on a daily basis.  Then as if almost overnight, we saw a dramatic change that have left sellers and now buyers scratching their heads wondering, “Where do we go from here?”

 

During most of 2005 rumblings of an “over heated market, bubbles bursting and expected tax and insurance increases as well as rising interest rates,” started to dampen  the feeling that the real estate roller coaster was going to continue upward for years to come with the arrival of the “baby boomers.”  We first saw the change from a psychological perspective with the buyers who started to question the long term stability of the market.   

Last July the market literally came to a stand still as buyers, one year removed from Hurricane Charley, decided to take more of a wait-and-see approach.  No longer were we immune to the slow down that was occurring around the country, and no longer was Florida a place where you could purchase a home for half the price of the home you sold up north, living off the balance you put into your “nest egg.” 

With inventory levels increasing, we started to realize the impact of the investors, as the number of homes on the market and the prices they were listed at, were at an all time high.    As quickly as they came, they left, and our market has been trying to adjust since that time.  However, it is the psyche of both the buyer and seller that need to adjust even more than the inventory levels. 

Recently I wrote an article aimed more at the seller, challenging them to take a hard look at the listing price of their home.  It is no secret that sellers have been spoiled over the past few years with enormous returns on their real estate investments.  The reality, I wrote, is more of a realistic expectation of return on the original purchase price of their home.  To expect a 200% or greater profit that some experienced these past few years may not be realistic in today’s market, especially after owning the property for just a short period of time.  But then again, some of the offers we are seeing put on the table are equally unrealistic. 

Just in the last week alone, we had offers on two brand new homes that bordered on “Grand Theft.”  Not looking to be an accomplice to such a transaction, we respectfully declined.  In one case, the home which was built in 2006 and had over 2000 sq ft of living space had been lowered over $30,000 making it the least expensive home on the market in it’s category by far.  An out of area agent called with an offer almost $30,000 below the new list price with no money down, 100% financing contingency, a significant portion of the buyer’s closing cost to be paid by the seller, a home warrantee and an additional $1,000 from the seller to pay for a new water filtration system.  My answer to the buyer’s agent was, “Why stop there?” 

The other home was a brand new custom home overlooking the golf course in prestigious Burnt Store Isles.  Priced already over $100,000 lower than what you could possibly build a home like this for today, (and with less upgrades); I received an offer over $150,000 below the list price.  To compound matters, the agent said he had a piece of vacant waterfront property on the same street he would be willing to trade on an even exchange for the house.  My reply to him was, “Perhaps if you want to add the parcel of land to your offer, we might have a deal.” 

It is no secret that this market is sending mixed signals.  Has it bottomed out?  How much more does it have to go?  These are the questions we are fielding everyday that are keeping the buyers on the sidelines.  For those who are willing to get into the “game,” many of the offers are reflective of what I described above.  My suggestion, if you are selling your home, price it at a fair market value and if you are buying a home, don’t be insulting.  Look at what it costs to build a home and what you would expect as a reasonable offer if it was your home. 

As I have written before, sellers like to use active comps when listing their homes and buyers go by sold comps when looking to purchase a home, and the two may not see eye to eye.  In this market, I suggest we look at things a little more from each others perspective if we are going to see our market return to a healthy balance.