Many of us who own homes have painfully watched the equity we had in our homes dwindle and in many cases completely disappear. The WSJ reported recently “More than one-third of all homeowners have less than 25% equity, including 15% that are underwater, meaning their homes are worth less than what they owe.” Real estate professionals watched their businesses all but dry up unless they were willing to retool and start trading on other people’s misfortune during one of the longest deepest housing market declines in history. Believe it or not it has been six long years since the experts admitted that values were declining. Many of us in the business smelled the smoke in 2005.
Markets in some parts of the country started to crumble sooner than others but here on Martha’s Vineyard I would say we were about six months behind the first wave. Smart investors saw the end was coming and immediately pulled back taking a wait and see position; they knew that the Vineyard was not immune from economic fluctuations and it would be just a matter of time. Even so others kept buying at the top of the market. Sure enough, that wave finally crashed into our shores full strength and by 2007 our market practically came to a standstill.
Today we are hearing even after many false starts, unequivocally the bottom of the market has been reached with prices rolled back in line with 2002 – and adjusting for inflation as far back as 1998. Once again I think we are going to be late to the dance, but this time it will be on the upswing. I would suggest that we are about six months away from reaching our bottom on Martha’s Vineyard. I think we will still see further price reductions in some areas and classifications while in other areas and classifications prices are starting to inch up; not by much, maybe two percent over the next 12 months.
One reason we have not hit bottom here is, instead of our inventory being absorbed more properties come on the market every week. It is true that many of those new properties were on the market last year or two or three years before and they are simply being reintroduced, but the inventory is not going down, although in some cases the asking prices of those properties are going down. Even so there are still many home owners here who ‘don’t have to sell’, and they continue to resist realistically pricing their properties which leads to confusion in the market.
I was reading something the other day that was promoted as being the results of a survey asking the question ‘what does it take to get buyers to close?’ – ‘close’ meaning to buy. The list consisted of 5 concerns: Not having to do a lot of work before a new owner can move in; having a large enough outdoor space for recreation and privacy; being in a safe neighborhood environment, being comfortable with the amount of the mortgage payment and knowing they can make that mortgage payment, and last but not least, knowing they are paying the right price for the property. This was the one item of buyer concern that I took issue with. Why? Because according to the survey, the way a buyer determines that they are getting a good deal is by “looking at the percentage and actual dollar drop from the original price.” Is it really that simple? Are buyers really that naive? If that price differential was the only barometer buyers use to determine if they are getting a good price then they still haven’t figured out the seller’s game and the seller’s win.
I physically inspect many new properties every week and I follow the market here on Martha’s Vineyard like a hawk. I have developed a keen sense for value over the twenty plus years I have been in this business and I can tell when a property is overpriced. Nine out of ten times when I ask a seller agent who priced one of those properties that I consider to be overpriced, the answer is ‘the seller’. The property is reluctantly listed at that inflated price with one agreed upon caveat; if it does not sell within two weeks or thirty days the price will be reduced. It may not be reduced to the price initially recommended by the seller agent but the discounting will begin – and I will continue. We all know it.
So you tell me, if you are following a property and by doing the math you determine that the price has been reduced by 40% from its initial asking price and that initial asking price was 30% above where it should have been priced in the beginning would you still be as excited?
I know determining or understanding pricing here on Martha’s Vineyard can be very confusing. There are so many factors that figure in to valuating properties on this Island that it can make your head spin. There is the cachet associated with each town – and there are six towns. There is the cachet of the location, be it water front, water view, in-town, etc. All of these things have an effect on pricing, but what should not have an effect on pricing is the seller’s opinion; they know the least about market values.
I tell my clients that purchasing a property on Martha’s Vineyard ultimately comes down to making an emotional decision, but I believe my job is to get my clients as close as possible to a realistic number so they feel comfortable that the price is right.
Showing posts with label Fair Market Value. Show all posts
Showing posts with label Fair Market Value. Show all posts
Saturday, May 05, 2012
Tuesday, February 28, 2012
This Negotiation Is Not About You And Me
Helping my Buyer Clients to find the right property, and then researching and discovering the hidden secrets relative to that property are certainly important elements of what I do as an Exclusive Buyer Agent. What happens after my Buyer Client has identified the property they want to buy and are ready to make an Offer is what really matters. This is when the negotiation begins.
After we have found ‘the property’ that turns their light green, I discuss with my Clients how to proceed. First we look at all the comparable properties, such that they are. We dissect the subject property as best we can so as to get some idea of its possible market value. That does not mean looking at the Assessed Value and using that as our benchmark. Matter-of-fact, there is really nothing we can use to get a spot-on number. The Assessed Value and even an Appraised Value are merely guess-estimates used for specific purposes and guided by subjective opinions and data. Probably Comparable Sales, if there are any, are what will establish the closest value number, but no two properties are identical.
After we are done thoroughly reviewing the market data and discussing the various ways to approach negotiating an Offer, my final advice to my Client is to think about it and knowing what they know now, ‘offer what it is worth to them’. Don’t misunderstand, I am not talking about making a 'lowball offer'. What exactly is a lowball offer? I was reading an interesting interview the other day with Jeffrey Stanton who is a Negotiation trainer. For clarification sake, I will use the Martha’s Vineyard real estate market as my reference going forward. In a ‘balanced market’ the average margin price difference between the asking price and the selling price is usually around 3-5 percent. In today’s ‘buyer’s market’ the average selling price is usually 6-12 percent below the asking price. However, there are incidences where a property may sell for between 13-20 percent below the asking price, or even less. Usually properties are passed by when Buyers think they won’t stand a chance if they offer what they believe the property is worth when that number happens to be way below the asking price. Just to confuse matters even more, in any market the exceptional properties (i.e. those that stand out above the rest for one reason or another) will sell above the asking price, and where multiple buyers are engaged those properties will sell well above the asking price. I always tell my Clients if they are hesitant to make an Offer, “If you really want it what’s the worst that can happen? The Seller can say no”.
There have been occasions when I have presented a thoughtful and respectful Offer that was considerably lower than the asking price. Even before the Seller Agent presented the Offer to the Seller they would tell me that ‘they’ were personally insulted by the Offer. Oh really! This is not about You and Me! This is about my Buyer and your Seller. But of course if that is the tone the Seller Agent is going to accompany my Buyer’s Offer with there will probably not be much of a chance of success for anyone. But that is okay because I can deal with that. Stanton suggests in cases like this that the Buyer’s Agent request to present the offer to the Seller in person. That does not happen on Martha’s Vineyard mostly because the Sellers rarely live on the Island year round and are usually not here during negotiations. This is why I am always ready to present my case to the seller agent supporting my offer with the facts – as my Client and I see them.
The other mistake that Seller Agents and their Sellers make is that they do not respond when they perceive an Offer as being too low. The biggest hurtle to jump is from looking at a property to making an Offer on a property. By not responding to an Offer, that means there can be no conversation. It should not matter what the Offer is; beginning the conversation is all important. Stanton said, “A lot of times, a lowball may be all the buyers can afford.” He went on to say. "It could be an investor or a buyer looking to steal the property, or a buyer who really likes your property and is just taking a shot at it, never knowing if you're going to say, Yes or No. Just don't take it as them disrespecting you." Sellers should not be offended by a low Offer and they should realize that when they make a Counter Offer, no matter how small that Counter Offer may be, it is saying, I am willing to engage …. (Note: By law, real estate agents are required to present all offers to a seller.)
Once the conversation has begun between the Buyer and the Seller that is when the true motivations of both parties will start to appear. It is really important for both the Buyer Agent and the Seller Agent to manage expectations on both sides and control emotions --- including controlling their own emotions. And remember, this negotiation is not about you and me.
After we have found ‘the property’ that turns their light green, I discuss with my Clients how to proceed. First we look at all the comparable properties, such that they are. We dissect the subject property as best we can so as to get some idea of its possible market value. That does not mean looking at the Assessed Value and using that as our benchmark. Matter-of-fact, there is really nothing we can use to get a spot-on number. The Assessed Value and even an Appraised Value are merely guess-estimates used for specific purposes and guided by subjective opinions and data. Probably Comparable Sales, if there are any, are what will establish the closest value number, but no two properties are identical.
After we are done thoroughly reviewing the market data and discussing the various ways to approach negotiating an Offer, my final advice to my Client is to think about it and knowing what they know now, ‘offer what it is worth to them’. Don’t misunderstand, I am not talking about making a 'lowball offer'. What exactly is a lowball offer? I was reading an interesting interview the other day with Jeffrey Stanton who is a Negotiation trainer. For clarification sake, I will use the Martha’s Vineyard real estate market as my reference going forward. In a ‘balanced market’ the average margin price difference between the asking price and the selling price is usually around 3-5 percent. In today’s ‘buyer’s market’ the average selling price is usually 6-12 percent below the asking price. However, there are incidences where a property may sell for between 13-20 percent below the asking price, or even less. Usually properties are passed by when Buyers think they won’t stand a chance if they offer what they believe the property is worth when that number happens to be way below the asking price. Just to confuse matters even more, in any market the exceptional properties (i.e. those that stand out above the rest for one reason or another) will sell above the asking price, and where multiple buyers are engaged those properties will sell well above the asking price. I always tell my Clients if they are hesitant to make an Offer, “If you really want it what’s the worst that can happen? The Seller can say no”.
There have been occasions when I have presented a thoughtful and respectful Offer that was considerably lower than the asking price. Even before the Seller Agent presented the Offer to the Seller they would tell me that ‘they’ were personally insulted by the Offer. Oh really! This is not about You and Me! This is about my Buyer and your Seller. But of course if that is the tone the Seller Agent is going to accompany my Buyer’s Offer with there will probably not be much of a chance of success for anyone. But that is okay because I can deal with that. Stanton suggests in cases like this that the Buyer’s Agent request to present the offer to the Seller in person. That does not happen on Martha’s Vineyard mostly because the Sellers rarely live on the Island year round and are usually not here during negotiations. This is why I am always ready to present my case to the seller agent supporting my offer with the facts – as my Client and I see them.
The other mistake that Seller Agents and their Sellers make is that they do not respond when they perceive an Offer as being too low. The biggest hurtle to jump is from looking at a property to making an Offer on a property. By not responding to an Offer, that means there can be no conversation. It should not matter what the Offer is; beginning the conversation is all important. Stanton said, “A lot of times, a lowball may be all the buyers can afford.” He went on to say. "It could be an investor or a buyer looking to steal the property, or a buyer who really likes your property and is just taking a shot at it, never knowing if you're going to say, Yes or No. Just don't take it as them disrespecting you." Sellers should not be offended by a low Offer and they should realize that when they make a Counter Offer, no matter how small that Counter Offer may be, it is saying, I am willing to engage …. (Note: By law, real estate agents are required to present all offers to a seller.)
Once the conversation has begun between the Buyer and the Seller that is when the true motivations of both parties will start to appear. It is really important for both the Buyer Agent and the Seller Agent to manage expectations on both sides and control emotions --- including controlling their own emotions. And remember, this negotiation is not about you and me.
Friday, November 26, 2010
What is all this talk about Assessed Value and Appraised Value? What is the difference and what is Fair Market Value?
Today more and more, we are hearing many seller agents say their listed properties are priced "well below Assessed Value". What does that say about the listing price? Does that mean the listed price is a 'good deal' price? Is that the Fair Market Value? Absolutely not, and quite frankly the assessed (tax) value has little relevance when it comes to the actual market value of a property which can be below, at, or above the listing price.
The Assessed Value of a property is arrived at by a cursory unscientific look at properties in an area. Most of the time the Assessor does not actually visit the property, and if they do, 99% of the time they never set foot through the front door to inspect the interior (i.e. floor materials, appliances, fixtures, level of trim and finish, etc.). A home owner does not have to allow an Assessor inside to inspect their home. The Assessor gathers and tabulates as much information as possible about a property and then they use that for their valuation. Opinions on value are always based upon the subjective interpretation of the information available to the Assessor at the time of the assessment. Assessment information is usually 12-18 months behind the market which is one more reason the information cannot be used as a true barometer for current market value.
The Home Appraisal is much more thorough, detailed and timely. When preparing a Full Narrative Appraisal for a property the Appraiser will inspect the property inside and out and compare the subject property to as many comparable sales as possible. Since no two properties are the same, they will make specific adjustments for as many items as necessary. If too many adjustments have to be made then the comp is not a good one and it is removed from the equation. After the adjustments are made and values are established for each comparable, the numbers are averaged and a market value is established for the subject property. It sounds complicated and it is, but it is not scientific. Appraisal analysis is considered an art form and the opinions of the Appraiser are understood as being subjective, even though this is the most accurate method to establish market value we have today. Today Appraisers must be licensed and undergo continual and extensive training.
You will notice I did not say ‘Fair Market Value’. In appraisal analysis the correct term used today is ‘Market Value’. Okay, so what is Market Value? Market value is the price at which a buyer is ready and willing to buy and a seller is ready and willing to sell in an open market arm’s-length transaction between strangers. Both parties have reasonable knowledge of the property and are not under any compulsion to do business. This now rules out any form of distress sale as a way to establish market value.
Here on Martha’s Vineyard market value is heavily biased and distorted by emotion which creates ‘intrinsic value’. I have always said that if you as a buyer try to value a property according to the numbers, you will end up very frustrated because many sellers as well as buyers place an intrinsic value on properties based on their own preferences and circumstances. Quality of life creates an intrinsic value as does hearing the roar of the ocean or watching the sunsets from the comfort of your deck chair. I would have to say in general ‘Market Value’ on Martha’s Vineyard is intrinsic even though it is not the same for everyone. I believe making a purchase on Martha’s Vineyard is ultimately an emotional decision. My goal is to get you as close as possible to a fair deal price as possible and to make sure you know as many details about the property as possible. My responsibility is to protect you from as many unpleasant surprises as possible, but I cannot make the final decision as to whether the purchase you are making is a good deal. If you are making a fully informed decision that makes you feel good and is good for your family then you can say you are making a good deal.
The Assessed Value of a property is arrived at by a cursory unscientific look at properties in an area. Most of the time the Assessor does not actually visit the property, and if they do, 99% of the time they never set foot through the front door to inspect the interior (i.e. floor materials, appliances, fixtures, level of trim and finish, etc.). A home owner does not have to allow an Assessor inside to inspect their home. The Assessor gathers and tabulates as much information as possible about a property and then they use that for their valuation. Opinions on value are always based upon the subjective interpretation of the information available to the Assessor at the time of the assessment. Assessment information is usually 12-18 months behind the market which is one more reason the information cannot be used as a true barometer for current market value.
The Home Appraisal is much more thorough, detailed and timely. When preparing a Full Narrative Appraisal for a property the Appraiser will inspect the property inside and out and compare the subject property to as many comparable sales as possible. Since no two properties are the same, they will make specific adjustments for as many items as necessary. If too many adjustments have to be made then the comp is not a good one and it is removed from the equation. After the adjustments are made and values are established for each comparable, the numbers are averaged and a market value is established for the subject property. It sounds complicated and it is, but it is not scientific. Appraisal analysis is considered an art form and the opinions of the Appraiser are understood as being subjective, even though this is the most accurate method to establish market value we have today. Today Appraisers must be licensed and undergo continual and extensive training.
You will notice I did not say ‘Fair Market Value’. In appraisal analysis the correct term used today is ‘Market Value’. Okay, so what is Market Value? Market value is the price at which a buyer is ready and willing to buy and a seller is ready and willing to sell in an open market arm’s-length transaction between strangers. Both parties have reasonable knowledge of the property and are not under any compulsion to do business. This now rules out any form of distress sale as a way to establish market value.
Here on Martha’s Vineyard market value is heavily biased and distorted by emotion which creates ‘intrinsic value’. I have always said that if you as a buyer try to value a property according to the numbers, you will end up very frustrated because many sellers as well as buyers place an intrinsic value on properties based on their own preferences and circumstances. Quality of life creates an intrinsic value as does hearing the roar of the ocean or watching the sunsets from the comfort of your deck chair. I would have to say in general ‘Market Value’ on Martha’s Vineyard is intrinsic even though it is not the same for everyone. I believe making a purchase on Martha’s Vineyard is ultimately an emotional decision. My goal is to get you as close as possible to a fair deal price as possible and to make sure you know as many details about the property as possible. My responsibility is to protect you from as many unpleasant surprises as possible, but I cannot make the final decision as to whether the purchase you are making is a good deal. If you are making a fully informed decision that makes you feel good and is good for your family then you can say you are making a good deal.
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