The Growing Divide

The Growing Divide

Like Walter said,

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we’re talking about a line in the sand. There’s a very clear line being drawn in the real estate industry these days. The line has always existed in the financial markets, separating bulls and bears. The new line is being drawn between Realtors. Bulls and bears. Pessimists and optimists. For the past decade, we were all optimists, and with markets fueled by dramatic returns, only the foolish were not. Today, the marketplace has changed, yet bulls remain. Unfortunately, it’s the bullish Realtors that are, in many markets, standing in the way of liquidity. The much needed liquidity that is the first step towards recovery.

With Realtors taking divergent sides in this battle for market identification, how does a consumer know which side is right? National news regarding housing is almost entirely negative, yet some markets have held up sans double digit losses, or a glut of foreclosures. Other markets, like Fort Meyers, Florida, have been hit with nearly 40% price declines, yet sales volume is up 125% this year over last. How on earth does a home buyer or home seller know who to trust? The answer my friend, isn’t written on your Realtors business card. If the devil is in the details, this answer is in the statistics.

Let’s say you’re a buyer. You’re trying to determine if a piece of property is a value or not. Your agent tells you it is, but you know better. She’s hungry for a sale, and you wonder if that hunger is influencing her opinion. Proceed with caution, and remember that all markets are very unique, and within a municipality market, there are potentially dozens (hundreds if you’re an urban area) of individual markets. The overall city market may be very soft, and the Realtor may provide you with comps to back that up, but dig deeper. You need to look at the specific neighborhood or development that the subject property is located in. Don’t settle for generic zip code comps. Those comps will help you identify an overall trend in the market, but you need more info. Identify a specific association, chart sales for the past 24 months, contrast with inventory for the past 24 months, and it’ll be easy to identify a trend. Don’t look at 6 months worth of comps, look deeper, and it’ll be easier to identify the direction and strength of a market. Do not EVER attempt to judge a market based on what Zillow, Trulia, Homegain, or another national site tells you.

Recently, I was involved in the negotiation of a vacation home on behalf of a buyer. The Lake Geneva market is relatively soft, and the specific association he was looking in, even softer. To disect the market on a level deeper than just Realtor opinion, we looked at the past 36 months of sales, then compared the past 10 months of sales to that figure. The results showed an average of 28 home sales per year in the development, yet only 5 sales in 2008. The prices hadn’t declined much, but volume was obviously the telling statistic. This was a market in decline. We negotiated our hearts out, yet the seller would only come a fraction off her price, an asking price that was 7% higher than averaging 24 months of sales suggested it should be. This wasn’t going anywhere. Why didn’t the seller negotiate with us? Why was he optimistic of the market when the statistics suggested he was wrong? Why was my motivated, informed buyer unable to purchase the property he wanted?

It might have been that darn line in the sand. While the buyer was working with a realist, the seller may have been working with an optimist, in a specific market that doesn’t statistically support that perspective. Opinion is by nature subjective, but couple an experienced opinion with in depth market statistics, and you’ll easily identify value.

Get out there and find a great Realtor (me), then find an even better value. Don’t blindly listen to your agent (unless it’s me, then listen to every single word I say!) without first determining their perspective on the overall market, and their perspective on the individual market affecting your target property. Force them to back up their opinions with rock solid statistics. Follow this advice, and you’ll make sound real estate decisions, even in a tumultuous market.

reprinted with modifications from my most recent article on faxts and googlenews

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