The Problem with the Message

I have been wrestling with this month’s article; after reading this week’s articles in our local newspapers I found my soapbox. There is really only one question we are regularly asked by customers and our customer prospects. The sellers want to know “how low do I have to go” and the buyers ask, “how much lower can they go?” As each of you are reading this you too must be asking yourself the same questions. The problem is the message: it’s inconsistent and it’s everywhere. The confusion comes from the media, your friends & family and from the alleged market experts & economists. Whether it is the internet, REALTOR Associations, television shows, or magazines the messages are inconsistent enough to reduce any of us to tears. The messages in the market are so mixed that some suggest the pricing will continue the downward slide while others suggest that we may be turning the corner. The national articles I have read say that it looks like the housing market is beginning to soften; (soften???) Are they kidding? This market has been softening at the very least for 6 months, talk about being behind the curve. Local newspapers would have you believe the light at the end of the tunnel is getting closer, it may be; unfortunately in some cases that light is an oncoming locomotive. Television news shows are telling us that this softening real estate market may affect the rest of the economies. Haven’t they heard the real estate market has been affecting the gulf coast economies for over a year? Look at the local restaurants, clothing stores, talk to the services businesses; they are all hurting, and it is because of the affects of this market. The signals for the buyers and sellers are so confusing that nobody really has a handle on properties’ values. Wrong. The confusions are the incorrect perceptions. The confusion is that none of us want to let go of those dreams we created during the last real estate anomaly. As sellers, if we did not sell while every over-priced property sold and closed, we missed the boat, the ship has sailed and Elvis has left the building. Now it’s time to step up to this market, a buyers market. The fact is that this is the best Buyers market in 20 years. The fact is that correctly priced properties are selling and closing. The question of how low it can go is based on seller motivation. Buyers are writing offers, the offers are all over the place, some are 10% below asking, others are 25% below asking and still more are 50% below asking. It’s about the motivation of the seller and the negotiation skills of the agents involved.Deals are being made. The net result remains the same as ever, two parties agreeing on price, terms and conditions of the sale, this is typical of the past real estate market philosophies and will be for the future. The major difference is that the motivation of the sellers is even more varied and the urgency of the buyers is nearly impossible to measure. This does not make for a dynamic market, it makes for a real, real estate market. All things considered (interest rates, hurricanes, sand on the beaches, turtles, property taxes, homeowners insurance, jelly fish, negotiable buyers and sellers), it has been expressed to me by many brokers that I talk with that the fourth quarter may well be the best selling market of the year. If it is, then now is the best time to get aggressive with pricing this market. Sellers and Buyers need to get as aggressive with pricing terms and conditions of the sale as is consistent with their motivation to buy or sell. I have to say that this is a great real estate market. Ask yourselves, “what makes this such a great real estate market”, I’ll tell you it’s that we still have great interest rates, we do not know how long these will last, perhaps they will until we elect the next president, perhaps not. It could be that there are some very motivated sellers needing to sell, that means deals/equity. These are the two essential ingredients that make this a great market, interest rates & motivated sellers. A great real estate market also means that as new inventory enters the market it will be priced consistent with today’s selling properties. A great real estate market is one where almost everyone makes money, if you bought a property before October 2003 and it’s on the market today, you are making money. If you are buying property today there is a good chance that it will begin to build equity in the not so distant (if not the immediate) future. The bad news and the only bad news in the entire real estate scenario is that as in all business transactions there are risks. For those that bought at the height of the frenzy are going to have to wait several years before you can sell and expect to make any profit. Potentially the only real losers could be the “Flippers”; those buyers who committed to buy never intending to own the property. Even you guys really do not have to lose, you just need to close on the property, eat hot dogs and stuffed rice for a couple of years, then sell and you will make money. You see nobody has to lose. Some sellers I talk to think that if they can’t make their retirement on the sale of their property they’re losing. That’s just not so. If we as real estate investors are making a greater ROI than we can get from our local S & L, we’ve won. We are not losing anything if we haven’t got it tightly gripped in the palms of our hands. The only thing we have are “Great Expectations” and we know how that turned out. This is real estate, there is risk, lots of it and we don’t always win big but we do usually win. You see this is a great real estate market, there are lots of choices and plenty of property to buy and there are some great deals out there. As buyers you have to look beyond the asking prices and get in the game, write offers, be realistic with your expectations and patient with your purchases.
Times have definitely changed, we’re back to the 5-7 year hold, we’re back to the traditional style of real estate investing.If you are a buyer, start talking to a lender and a REALTOR and put on your sneakers. If you are seller scrutinize your price, take a look at what comparable properties have sold in the last 4 months, these are your comparables.Whether you are a buyer or seller one of the formulas I have used and one you might want to try is a .75 - .85% per month appreciation rate starting from October 2003 of comparably sold properties. This idea comes from the average annual appreciate rate of 10% – 12% for the years prior to 2003. Removing the 2004 & 2005 spike and replacing the spike with a reasonable rate appreciation will give us all today’s fair market value.