In the interest of fair play and equal pay for equal work, I suggest that every male worker in America take a pay cut of 27%. The money they give up will go toward paying down the national debt or reducing the deficit, or funding education and health care or something else that is good for those in need. In the meantime, women would, finally, be paid equally for the work they contribute. Isn’t it the men that caused the financial meltdown anyway, that should pay to clean it up? If you look deeply into the recent real estate crisis and the near collapse of Wall Street and everything it entails, it was pretty much a bunch of guys that made the mess. But I am guessing my suggestion will never happen.
With good intentions of converting some spreadsheets into more manageable formats (easier to read and understand) I ran into that welcome flurry of real estate business this last 2 months of the year. It is a nice rush of deals still closing and thank goodness for some end-of-year business. I hope you were able to get involved in it. As a result of that activity, I did not find time to work on my spreadsheets, so this month they will look much the same with updated figures. As we enter winter, this slower season allows us to do some deferred maintenance on systems and allows sales people to budget and plan for the upcoming year.
Who decided that each and every deal should be so difficult these days? Where do you want to start?
I have attached a newly updated Absorption chart (click on the site header to go to the home page and look on the right side for the charts or “Pages”) with figures through the end of November, 2010. They are what they are and I welcome you to do your part in making them better. List and sell a house, for example. Or buy a little cottage you could rent out and become a landlord; figuring your money might be safe and sound in real estate. I am buying a little tract of land (undisclosed location!) and have hired a surveyor and will be paying for title insurance, so I hope that qualifies to get me into real estate heaven. And WOW – are there some good deals out there or what? When did you say I should buy?
The other side of the equation, across from the happy purchaser finding a bargain, would be the seller that has few options and feels they must sell in the near future. Now is not a good time to be under pressure to sell real property if you want to get your money back, or take a little profit out of the sale. Many have opinions about how far back real property prices have been sliding since mid-decade; and most seem to come up with 20 to 30% in a broad brush look at it. What exactly does that mean? If a home is worth 25% less now than what it was worth in, say June 2006, (and then it was worth $450,000) today’s “value” would be $337,500. In June 2006, if you were to list that home (assuming it was in excellent shape and showed well to potential buyers) you could ask $450,000. And get it. But back then buyers, sellers and Realtors knew that trend lines were going up, so the asking price might have been more like $490,000. And in the process of seeing the home, buyers might have felt some urgency and made their offer a little higher than what they thought it might be worth. The appraisal might have come in at $465,000 but the buyer may have agreed to pay $470,000. The buyer may have been competing with another prospect and felt they didn’t want to lose the chance at that home. Transactions like that have a tendency to pump air into home sales as one deal feeds another and the upward spiral is kept moving by buyers that don’t want to be left behind.
That example is in stark contrast to today’s buyer prospect that might see that identical home (still in excellent condition) with a sticker price of say $340,000. Based on recent buyer behavior, if they do make a written offer to purchase the home, they are likely to start at the marginally insulting amount of around $300,000, testing the resolve of the seller and searching for soft spots in the protective shield surrounding the castle. The offer would be submitted at $300,000 and then the seller would counter at $325,000 (coming off the already low asking price by an additional 4.5 percent). Does the buyer agree? Probably not, unless they can get the seller down a bit more (to $320,000?). As some sellers have hosted prospective buyers walking through their home for possibly two years already, they are absolutely not going to lose this buyer. They might be seeing their first actual written offer in that length of time. That seller might very well end up settling for a number like $310,000. And that amount happens to be almost 9% below the asking price, which was believed to be the true value. What just happened? The new sales price influences future sales prices and appraisals of homes in a downward direction. The next buyer wanting a similar home in the same general area would learn of that sales price and would not consider paying more than a couple thousand over that amount. Their motivation is to get an even better deal; they know many sellers are highly motivated. Buyers are rarely paying asking prices in this market, even if the price has already been lowered several times.
This is all well and good, but the seller might not be willing to sell that home for $310,000 now. We can all hope that the seller can hold onto that home and stay there or possibly lease it, so that a desperation sale is not necessary. We would all like buyers to be jumping on the fantastic deals out there, and also would love it if sellers would hold fast to what they expect to get, so the downward pressure on prices can come to a halt. We don’t wish for that so we can make more money servicing the real estate world, but we do wish for that as a holiday gift so that stability and consistency could return to our market. We can do business on any price level, from $200,000 to $2 million, but when sellers are emotionally exhausted (and financially hurting) and prices are agreed to with such painful negotiating, everyone comes up short on the ‘good tidings to all’ index.
Gladly our inventory of homes is lower and sales have held steady so the length of time for a complete absorption of all listed homes has gotten a bit shorter. November bounced back from a dismal October and we are on track to see total home sales in 2010 exceed the 2009 total. Nice to see some good news! Next reporting cycle will show some calendar year statistics and that’s when we embark on the mission of success in 2011.
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