Archive for June, 2007
June 28th, 2007
If you are like many wondering just what is selling, the following is a breakdown of homes sales, year to date, by price category. This is for the period from January 1st through May 31, 2007, and represents residential sales for the entire county.
Homes priced from:
$300,000 and under 1200 sold 80% of total
$301-500,000 206 14%
$501-700,000 62 4%
$701-900,000 10 1%
$901,000 and above 14 1%
A total of 1,492 homes were sold in the entire county in the past 5 months. The median price (the number most quoted in statistics) was $195,000. The average price of a home was $232,000. For many, these two figures are confusing so simply stated, the difference between the median and the average price is, the median price is the point where half the sales are below, and half the sales are above that price. The average price of course is derived by dividing the total number of sales into the total sales dollars.
Susan Herrera of CNN, recently interviewed Dr. Edward Learner of UCLA’s School of Management, where he commented on the current state of the real estate market and how he feels the return to “normalcy” is going to take a couple of years. He further stated, “Sellers need to clear inventory and cut price.” Perhaps the weight of his words for aggressive pricing was more succinctly put when we went on to say, “Buyers should view a house like a bus; if you miss one, a better one will come along in an hour or two.”
Susan Wachter, Professor of Real Estate and Finance at the University of Pennsylvania’s Wharton School of Business was also interviewed and commented that the real estate market was still in decline. She feels the market will bottom closer to the end of the year however, she did stress that prices need to continue to go down as they are still too high.
Other analysts have drawn the correlation, “as interest rates go higher, historically home prices are lowered.”
As a seller, this information should confirm what we keep saying, by aggressively pricing your house now you may save yourself thousands in the long run, as you won’t be chasing a “declining” market. We have seen that today’s buyer is no longer responding to “fair market prices” or “competitive market prices,” they want a deal. They feel the market is still adjusting and the only way they are getting off the fence is if they feel by negotiating well enough today, they would still be in good shape tomorrow if the market continues to decline as expected.
You have to ask yourself, “Am I competitively priced or am I the DEAL?” The result of your property selling may be more in line with how you answered the question!
Few can contest that our area is everything Money Magazine and Forbes suggested in voting us as “One of the top places to live in the country.” The adjustment in real estate prices was expected, and needed, to return ourselves to a healthy balance. The faster we achieve this balance, the quicker we are going to realize the potential the media and developers alike have predicted for our area for years to come.
June 18th, 2007
If someone came up to you and said, “I just purchased a house for $200,000 below what it was originally listed for,” your most likely response would be, “What a steal, someone must have been in big trouble to sell at that price.” My question to you is, “Did that home sell conventionally, or did it sell at an auction?”
The problem most people have with an auction is the perceived stigma they feel is attached to it. For many, the word auction conjures up a distressed sale by someone who is in serious financial trouble. Visions of strangers coming through your home like vultures circling over their prey, is more than most people can bear.
In the past couple of years we have experienced a roller coaster ride in the real estate market that most people have never seen before, and may never see again. Shortly after Hurricane Charley, many of those who purchased homes prior to 2004 saw the value of their properties soar. Returns of 200% or greater were not out of the ordinary however, now that the market is going through its anticipated adjustment period, those profit margins are returning to more realistic numbers. Investors who were giddy with the increases in the stock market in the late 1990’s through early 2000’s were joined by those real estate “investors” who enjoyed the meteoric rises prior to 2005; and how quickly we all went from being surprised by the “return on investment” to expecting that kind of return on investment; and for many it was the unwillingness to concede a significant part of those returns that kept home prices high that resulted in sluggish sales. Recently, Michael Saunders, founder of the Michael Saunders Real Estate Firm, was quoted regarding Sarasota and Bradenton’s 14% increase in home sales stating, “Early on, the Realtors in our area made a collective effort to get prices in line (realistic) that has attributed to our area’s growth.” Although I believe, demographics played a larger role in their areas recent resurgence; it is the reference to the reduction of prices that is credited with their turnaround. So what does this have to do with auctions?
With over 6300 homes on the market at the present time, there is more competition than ever for developers, investors and individual homeowners alike, to make the price of their homes as attractive as possible. Incentives from developers in the form of cash discounts and credits towards upgrades are being offered to the buyer. Higher commission rates, Hawaiian vacations and even Rolex watches are being offered to Realtors for bringing customers to them as they desperately seek to reduce their over inventoried positions. Even some homeowners are offering higher commissions to the selling agent just to feel they are getting their homes shown more often however, with all of this being said, the bottom line is price.
Today’s buyer still feels the market is adjusting, and with all the negatives in the press that continue to erode away at the their confidence level in the market, those willing to jump in are taking their time in making a decision and only doing so at a great price. The only way to get today’s buyer off the fence and quickly, is by making the price too good to pass up. Does that mean a “fire sale,” absolutely not! But today’s buyer is looking for the assurance that even if the market does continue to adjust downward a bit more, they still negotiated a good enough deal now, where waiting an extra few months would not have put them in a position of getting a better deal then. That brings us to “Auctions.”
An auction is nothing more than another tool that can be used to sell your home…..quickly. There are many types of auctions from the Dutch Auction, that is similar to a conventional way of selling a home where the price starts high and works its way down, to the auction most people are familiar with where the auctioneer is trying to get the potential buyers to bid higher. Recent statistics show that auctions will account for 30% of all real estate sales in the next few years and are currently the fastest growing segment in the real estate industry. “Absolute” auctions are those where any offer is accepted regardless of price, whereas those with a “Reserve” are characterized by an established minimal bid or price that must be offered, or the property does not sell. For those not willing to trust human nature to bid the price up, an auction with a reserve may be best for them. But keep in mind, no one wants to see the other guy get the deal, and thus the price gets bid higher. Statistics have shown that auctions also get a price very close to fair market value which is defined as,” The price at which a ready, willing and informed seller would sell his property and a ready, willing, and informed buyer would buy, neither party being under any pressure to act.”
Instead of looking at an auction from the stereotypical point of view as a “distressed sale,” try looking at it as a guaranteed sale, in a guaranteed time frame. Unless you purchased a home in the last year or two, auctions may be a very viable avenue for you to pursue if you are looking to sell your home quickly. Banks are starting to look at auctions more favorably as well as “Short Sales,” as it helps them avoid the costly legal fees of foreclosures for those that are facing severe financial difficulties. The benefit for you as a seller is the commissions are paid out of a “Buyer’s Premium” or participation fee. That fee which can run from 10-15% of the purchase price, pays for any commissions due from the sale. As a seller, you will have a set marketing fee usually for the month that can range from $2,500-$10,000, depending on the company. While this may sound high at first, the marketing associated with the auction is very extensive that often- times includes national data bases.
Auctions are just one of the tools some of us use to sell homes for our clients; it by no means is being used to replace the existing way we sell homes today. Depending on when you purchased your home and the price you paid in comparison to what the market will bear, will determine whether or not an auction is right for you.
As for the home I mentioned in the beginning of this article that sold for $200,000 below its original list price, if you thought it sold through an auction, you were wrong; but I bet most of you thought this was a desperate seller who had to give his house away through an auction. In reality, this seller would not price his house aggressively enough, and as a result took over 200 days to sell his home for $200,000 less than his original asking price. Had he considered an auction, he would have sold it in a fraction of the time and probably for a much better price, with a lot less frustration; and don’t forget about those monthly carrying costs!
You don’t have to be a desperate seller, just a highly motivated one, to realize the potential benefits of turning your money more quickly through an auction. For more information on Auctions and other real estate questions, please feel free to contact us at 888-818-4945.
June 13th, 2007
As a former psychology major, I have always been intrigued by the emotional diversity of the human mind. At times it seems to have a spirit or will, that serves as a great source of strength in helping us overcome adversity and fear. Other times it can appear weak and fragile leaving us confused and doubting our abilities to face life’s challenges.
Having transitioned from one career into another, I have had an opportunity to work with people who have overcome great odds to reach the pinnacle of success however, I have also witnessed some of these very talented people second guess their abilities when their respective market changed, even when the change was expected.
The same has happened with our market as many homeowners, investors and realtors alike find themselves questioning the degree and length of time this market will continue to adjust. Once confident, many of these “investors” who were either “banking” on the equity in their homes, or who overleveraged themselves with investment properties, not expecting the market to change so rapidly, are now growing more concerned about the prospects of recovery in this market. For many, their confidence may be shaken, but for those who take more of an analytical approach instead of one based on emotion, the market is actually performing as expected.
As one of ten writers of this column I am often asked to comment about various real estate related news articles and opinions that come across our TV screens or other forms of media and surprisingly, many of those asking the questions are the same ones who were very bullish in this market. Even more interestingly is how their behavior pattern is very similar to the “day traders” of the late 90’s and early 2000’s when making money in the stock market seemed as easy as “shooting fish in a barrel.” When their market turned, many of these investors who thought they cracked the code to riches, found themselves looking for answers to the sudden change in their market; sound familiar? To help you through this time, let me share with you some of the questions I have been receiving and my personal responses, but first let me explain to you the four cycles of the real estate market that I feel were clearly outlined by Maryann Mize of Charlotte State Bank in some of her presentations.
If you started in the quadrant of “Under Supply” you are essentially starting with the cycle that is ripe for growth and is poised for the beginning stages of development. Just as it says, there is an under supply of inventory in a variety of sectors of the real estate market. Following the quadrant of Under Supply is that of “Expansion” that is characterized by declining vacancy rates and new construction and growth. These two quadrants represent “Increasing Demand.” The third sector or quadrant is that of “Over Supply,” with increasing vacancy rates and inventory levels and the fourth is what is considered “Recession” that is characterized by further increasing vacancies and more completions in new construction. These last two quadrants are those of “decreasing demand” and it is between these last two quadrants that we find ourselves today.
The questions I receive most have to do with the type of buyers in the market. Some have heard the Europeans are coming here, while others claim they hear the investors are back in the market. Traditionally, the Central and South Americans have favored Miami for its Latin influence and nightlife, while the Irish and Brits prefer to invest in the Orlando area for the theme parks and the potential for year round rentals. What we are seeing primarily in our market is a diversity of “End Users” who are looking to purchase a home for personal use. Where we could pick up additional opportunities from the international market are from some European countries as well as Venezuela that are starting to see the signs of Socialism and are considering Florida as a safe haven for their real estate holdings. As for the investors, I beg to differ from the opinions of some, as I believe most are on the sidelines waiting for the opportunities on the horizon where there is a growing consensus that the fallout from the “sub prime” market is going to be felt, causing higher delinquency rates and foreclosures. Many feel this time will come in late summer and I am hearing that even the Wall Street investors who are looking at real estate are positioning themselves to take advantage of the great opportunities that will be at hand; and that brings us to the “mindset” of today’s investor.
Today’s investor is thinking very differently than those that were in the market two years ago. Much like the behavior of the “Day Trader,” those claiming to be “Real Estate Investors” a couple of years ago, where jumping in with high hopes the market would continue its meteoric rise due to low interest rates, affordability and the influx of baby boomers projected for years to come. The investor of today is banking on the vulnerability of market and is looking at opportunities “for a steal.” As a seller, this investor is not who you should be looking for; it is the “end user” who is more reasonable in their pursuit of a good deal.
Another question I am asked relates to the increasing inventory levels and the lack of sales in the market. For the eight years I have lived in Florida, January 10-15, regardless of the industry, has always been the beginning of our busiest season. With people looking for any glimmer of hope, we started to see signs of life with an “Up Tick” in sales at the end of the fourth quarter of 2006 and the beginning of 2007. Now the market seems to have hit a little bit of a trough again as the economic news has been volatile. Personally, I feel the increase in inventory levels is due to the optimism and anticipation of a busy season, and with the general public very uneasy about the economy and the inconsistencies over the past few weeks in the stock market, many people are putting their properties on the market hoping to capture any momentum there is. As a result, instead of inventory levels going down, they have increased and home prices are continuing to adjust.
Recently I was watching T. Harv Eker who wrote the best seller, “Secrets of the Millionaire Mind,” in which he said, “It is how you train your mind to think that will insure your success.” Are you of the mindset to protect what you have or is it to “Win” by taking chances and creating opportunities for success? Previously, I referenced Robert Kiyosaki, author of “Rich Dad, Poor Dad,” who said years ago, “When everyone starts to get into the market, that is the time to get out, and when everyone is trying to get out of the market, that is the time to get in.” It is a contrary way of thinking, but now that you understand our market, you can either choose to let the market dictate circumstances for you or you can look at all the opportunities within the market and program your mind to take advantage of those that will benefit you the most, regardless of whether you are a buyer (end user), seller or investor. What’s the secret? Think more analytically and less emotionally and then consider if this is a market in despair or one full of opportunity?
The rich make money in good times, but they make even more money in the challenging times, according to Kiyosaki. The question you need to ask yourself is how you are going to train your mind to take full advantage of the opportunities this market will bring.