Chasing Real Estate Markets

Here you’ll find “insider tips” for putting your property out in front of your competition and perfectly positioned as the next property in your area generating purchase proposals. For two years, every time you watch the news, there are more stories about foreclosures, short sales, mortgage “Bail Outs” and federal government plans to correct the “crashed real estate market”. You’ve shared talk at local internet cafĂ©s, and over lunch at work. You’re glad you don’t have to sell in “this market”. The country and world wide economy is in depression. You see For Sale signs in front of neighbors homes, though not as many as last year.

You’re lucky though, with eight years at your supervisory position in health care, you know at least your income and position are stable. You’re accustomed to your mortgage, although it’s more of a pinch since your wife Sandra was laid off 3 months ago. Believing she was secure too, you’d added a second “home equity” loan for a kitchen remodeling, now completed. You’re on top of it and have a budget to keep you in good standing, provided you don’t eat dinner out too often and skip the vacation this year.

After lunch at work your email Inbox contained an offer from another hospital complex in another state at a better salary than you’re making now. Add to the promotion, the cost of living in the other state is substantially lower than where you live now. While Sandra has been out of work lately, she’s managed to delve back into her art work, even has a few sales to show for it. Before taking your present position, you’d moved almost once every five years in your 26 years marriage. Not feeling too sure you’ll rush to break the news to Sandra, you’re hoping to put together more pieces of the picture. You’re thinking that another emotional upheaval, and in this market might not be worth it. Your biggest concern is naturally how long it will take to sell the home and how much you’ll get for it.

The point of this essay is to show you that unless you are accidentally “chasing the market” you should be alright. Competition that ended up “chasing the market” is some of the property that fell into trouble. It’ll also clearly say how to avoid chasing the market inadvertently. On your drive home tonight you hear a news report that home sales are up slightly from one year ago. The information they’re broadcasting comes from the larger state capital more than 200 miles from your neighborhood, still it’s food for thought.

As you turn off from the main drag into your neighborhood you pass by the Schmidt house with its For-Sale-By-Owner sign in the front yard. To the best of your recollection, it’s always been there, all eight years. Actually, in the Schmidt household everything’s for sale all the time, for the “Right Price”. Not all By-Owners are like that of course, but there always seems to be one Schmidt in each community. Since you’re still digesting the offer to relocate, you slow down after the Schmidt house to double check the phone number on his FSBO sign. Luckily you did this otherwise you wouldn’t have noticed three doors down at Marv and Mary’s house, the ABC Realty Sign has a new tag underneath proclaiming “IN ESCROW”. That’s new news. Maybe the radio news story applies to your neck of the woods after all. Marv plays cards with you Friday nights. Surely you’ll get a straight answer from him when asked how much they’re getting for the house. One thing you know for certain, your property has better landscaping and much better curb appeal than Marv and Mary’s, and the Schmidt’s. Marv and Mary take pride in their home and actually it’s closely comparable to yours, the same developer having built them both. Marv and Mary moved in two and a half years ago. For eight years, your Sandy’s hobby is spending weekends planting new tropical and exotic foliage in garden beds across the front of your property. If you do say so yourself, you have the most attractive drive up frontage in the neighborhood, largely due to Sandy’s green thumb.

It’s almost dark, as you turn onto your street. You’ve been juggling a few ideas about how to figure your homes value, and broach the promotion topic at home. A couple of weeks ago, you heard the corner house is going into foreclosure. You never knew the Nastorsons living there. Marv told you they were empty nesters whose daughter graduated class valedictorian from the local high school. Rumor has it, surprised by the climb in home values; Nastorsons were easily able to get $300,000 refinancing from their bank back in 2007. Values then dropped sharply in 2008, 2009. Now they were struggling to meet the payments of the very heavily mortgaged property. You heard the Nastorsons had planned to auction everything off at the end of the month. After selling the kitchen sink, they’re planning on relocating to a two bedroom condo near their daughter’s college. You can’t help thinking maybe you should wait until “after” the Nastorson house forecloses, since it could hurt everyone’s values. Not really sure, you file it away as a question to ask a realtor.

Great gal! Sandra’s behind the promotion news 100%. After spending an hour reminiscing over the kitchen remodeling memories, she’s encouraged about the new job and says she thinks you should actually “profit pretty nicely” from the sale of the house. She asks if you happened to notice the Schmidt’s phone number, it’s not listed, and offers to give them a call. Mr. Schmidt is well practiced at answering calls from his sign in the yard. He says he’s asking $289,000 for his house. He tells you he knows the house is worth more but since retiring his wife wants to move, she says to “just let it go”. He also reminds Sandra the Nastorsons took out stand alone refinancing during the boom. He’s certain they were given exactly $300,000 in the 2007 loan, after originally buying the home for only $169,000. Schmidt’s sure the Nastorsons were required to get an on the spot appraisal. In his mind, he’s figured that they’re way over extended, but reminds Sandra that values are still pretty good today compared to when the neighborhood was new. He asked if you or Sandra knew what Marv and Mary sold for, and said he knew they listed for $297,000. Afterwards you and Sandra discuss the wear and tear of the Schmidt home, the unimpressive yard, the older paint job the exterior’s now wearing. Decidedly even if Schmidt is 15% overpriced (as he usually is) your home is more than 15% nicer and more alluring to buyers than his. This begins to plant “over $290,000″ in both of your minds. Enthusiastic to call Marv before card night, just to say congrats on the sale! Mary answers and wants to ask Sandra about how movers plan to pack certain art items, now that they’re in escrow. Sandra asks, “So if you don’t mind Mary, what did you sell for?”. Mary answers, “You know Sandra, I think we were really fortunate. No one outside the hood knows about the Nastorsons disaster yet, which surely helped. I’m happy to say we got what we wanted for the house. Provided all goes well in escrow, we’re on our way to Florida. Sandra, you know how long we’ve wanted this move! We are just so excited!” After hearing that conversation repeated from Sandra you’re thinking:

*Schmidt’s at $289,000
*Nastorsons were over $300,000 (back in 2007)
*Mary and Marv just got $297,000
*Our house is over $300,000 even with the foreclosure on the corner.

Sandra starts the next morning with a call to the Realtor (Paige Champ) that has been in business the longest in your neighborhood. You bought through her and are convinced of her abilities. On the phone Sandy briefly reviews the top improvements she believes Paige would want to know about and gets sidetracked talking about the African foliage she planted on the east side lawn, the only home in the area with such extensive landscaping. Realtor Paige Champ agrees to meet with you both to discuss the market and see your home. Paige calls at 5pm and asks to come up a little early to see the outside before dark and promises not to disturb you before your set appointment. While showing Paige the remodeling job in the kitchen, you ask if she doesn’t agree that just over $300K is about right.”

Absent a positive response, the three of you sit down at the table where Paige gives you both a copy of the CMA (comparable market analysis”). The first thing Sandra notices is the sales price next to Marv and Mary’s house number seems wrong. “Mary just told me that they got $297 for their home. I’m thinking since they have the same number of beds, baths and square feet, with our new kitchen and our landscaping, we’re well over that amount. Don’t you agree?”

The hard facts reveal something different from the “word on the street”. Mary wasn’t being dishonest during her disclosure to Sandra. Marv and Mary began at $297,000. In their situation, they’d already purchased a condo in Florida, so they’re on a time and budget line. After 30 days without any offers they dropped the price to $295,000 then $290,000 a week later. At sixty days they lowered to $275,000 just about the same time the whole neighborhood heard of the Nastorsons impending foreclosure. Listed at $275,000 they were offered $265,000 for the home. The offer contained other contingencies for Mary and Marv’s concerns (a hefty down payment guaranteeing financing would work out well; a tight “30 days to close” contract; and buyers signed an “As-Is” addenda waiving survey or staking costs for the land; and waiving any requests for repairs during escrow). From Marv and Mary’s viewpoint, the other contingencies covered the $10,000 price difference. Marv’s already carrying 2 mortgages, hoping to get moved before the season’s changed. They’d planned on being entirely moved to FL with the money in Mary’s investment club’s C.D.; (maturing this month). The offer to purchase actually did provide them with “everything they asked for.” Paige states simply that the CMA represents verifiable facts.

According to the CMA, Nastorsons also had their home listed as a short-sale without a sign on the property. It has $462,000 approximate pay off, and the short sale listing price was $279,000. It didn’t sell and the home will go to another realtor that’s handling HUD foreclosures in the area. Paige describes a formula used by some realtors handling REO properties and tells you that with a list price of $249,000, it should get that amount within 2-3% plus or minus; she adds it might even generate competitive bidding and sell for over list. Paige says it could create excitement in your home via spill-over prospective buyers. Much of the result will depend on the condition the house is left in after the Nastorsons vacate, and what the buyer activity is like that month for the area. Paige has relieved much of your anxiety over the “foreclosure”. She is really scrutinizing the CMA, which she calls the “Market Verdict”.

You are looking at another closed sale two streets beyond yours. Sandra recalls the home; it also has the same number of beds and baths, but more square feet. Paige remarks the listing shows they’ve added a solarium onto the back of the home (not visible from the street) and the garage has been converted in to a very tidy, permitted mother-in-law apartment. It closed escrow 21 days ago for $271,500. The Sellers were the Baileys. There is the verdict. It is a statement of market, not the realtor’s opinion. The house that Marv and Mary sold is the closest comparable at $265,000. The next is $271,500 for the Baileys house.

Paige tells you that in the current “buyers market”, there’s more inventory available than qualified buyers. She states that while the CMA represents the market verdict for pricing, it’s also her opinion that the area may see more foreclosures and prices could go lower in the near future. It is her “professional opinion” that you should price closest to the last “most comparable” sale. Paige reviews the days on the market with you and discusses your timeline for the new job. She tells you that buyer activity indeed picked up a bit in the past 90 days. While the Baileys took more than 6 months to sell, if you’re the most desirable home showing the most assets for the best price you will sell. It is Paige Champ’s professional advice that you list your home to sell for a six month period at $259,950. She can see the grimace on your face, and tells you, “I’m willing to begin at the max of $267,000, provided we add special terms stating “Prices are constantly changing in the area; the listing price may need adjusting throughout the listing period.”

This isn’t the news that you expected. You need to catch your breathe and absorb this information. You’re thinking that Paige has a reputation for being honest, and promise you’ll be calling Ms Champ tomorrow after “sleeping on it”. The next morning, you’re still unsettled about the price. You call Paige and ask her to put together the listing paperwork but please not to fill in the listing price yet.

Based mainly on feeling your house is better than Marvs you want to sell yours for $279,000. You want to know the Baileys home with the mother-in-law and solarium. Sandra and you drive by the Bailey’s the next evening; sale closed at $271,500. Like Paige said, you can’t see the solarium from the street; you’re looking at the paper picture trying to guess if it’s really that nice or not. Sandy remarks, “It’s probably costly in utilities, especially if there’s a Jacuzzi tub”. You imagine that buyers want an economically efficient house in the current economy and your new kitchen is just the ticket. Sandra’s thinking out loud; If “ask” $279,000 we’ll end up at $275,000. Its $25,000 less than we hoped but the landscaping and newly renovated kitchen will make for an attractive sale.

It’s human nature for sellers to view their home’s value differently from the Realtor’s. Why shouldn’t you? You’ve invested years of sweat equity and are emotionally attached to your home. Each payment for principal mortgage and secondary home equity loan (kitchen remodeling) causes you to be concerned about up-keeping the look, condition and value of your home. When sellers are presented with a price to list their home that’s less than they hoped for, the most important element is to not take it personally. Don’t ever take personal offense at a Realtors suggestions or a Buyers offer. The realtors have removed emotion from the CMAs. Realtors view them as mathematical comparisons. This is one of the reasons for working with a realtor to handle negotiations for you. They remain professional, non emotional and focused on attaining the best contractual terms for the clients. Your Realtor also wants the best price obtainable for a property. The realtor’s working on a fee for service based on a percentage of the sales price, right? After choosing the Realtor you want to work with; you’re working with an experienced professional dedicated to client’s successes. Trust they know the market trends better than average home sellers do. The market is everything. The market is fluid. The rate of market change varies, but it’s always moving, changing, going up or down, moving slower or faster. Trust that an experienced Realtor® is monitoring local trends.

At the next meeting Paige Champ arrives with Exclusive Right to Sell paperwork for your review. She asks to spend some time photographing the home and completing inventory of inclusions that will be sold with the house. “Remember the $289,000 Schmidt’s asking as a FSBO? You’re not looking at this?” you ask. Paige explains that she is (like the appraiser for new mortgages the buyer will hire) mostly interested in closed sales, not what anyone is “asking” for a home. You also know that Schmidt’s daughter is studying real estate. She doesn’t have her license yet, which is too bad, because you’re thinking she’d be willing to list your home for $299,000 just to get the listing. Paige adds she’s knows you could find less experienced agents to go along with the price of your choosing. She sites several local examples using fictitious names where homes were “overpriced market chasers” and everyone involved was hurt. The agents who bought all the advertising yet never made a commission; the sellers, who after months – years of over pricing homes were exhausted, worn down, and still residing in the houses without successful sales. This rings a bell and you’re certain you know the homes she’s talking about. She offers to prepare a report focused on “unsold” homes in the area over the past two years, which you decline. Paige also explains something called “absorption rate”. Absorption rate she says, is an industry term used to review “days on the market” with sales prices for a given area by looking at total numbers of properties offered compared to total number of closed sales within a given time period. You trust Paige, but tell her you’ll want to list for 6 months asking $279,000. She replies, while she’s committed to seeing you get the best price possible, $279,000 will result in you “chasing the market” when she hopes to see you “in your new job and home”; and reviews the following with you: