Every One thinks they are an Expert

I was reading an article written for Houselogic.com about pricing “Your Home”. Actually, the information could be used to price the home you want to sell or the home you want to buy. 

After reading the article I came away disagreeing with some of what the expert had to say.

I agree that pricing a home based on data, not emotion, can mean a swift sale. That’s a no brainer and has to do with that ‘endowment theory’ mindset I have talked about before.  However, I do not agree that “home pricing is more of a science than an art”. Home pricing is an art; it is an educated ‘guesstimate’. Any appraiser will testify to that, and the reason why is because no two homes are the same and no two properties are the same – there are too many variables for a scientific conclusion to result.  The author claims “crunching the numbers is always the better route to an accurate home price”.  Well, it beats throwing darts at a board, and appraisers do crunch numbers to a certain extent but it is their professional experience that guides their final analysis and ‘appraisal’ of a property.

From this preface the author goes into various topic headlines.  The first one is “The Pitfalls of Overpricing”.  Let me tell you, overpricing can be the kiss of death and for some reason seller agents do it all the time here on Martha’s Vineyard.  I suppose the rationale that has proven true is “you never know”, or as I like to say, paraphrasing what allegedly PT Barnum once said, “There is a sucker born every minute”.  That is becoming less and less true due to both the advent of the Exclusive Buyer Agent giving buyers their own advocate and due to more and more information (?) becoming available on the Web.  Nevertheless, overpricing is part and parcel of the real estate marketing game and, as I said, it can be the kiss of death.  Besides the fact that it will take much MUCH longer to sell a home, the author rightfully points out “Continually lowering the price could turn off potential buyers who might start wondering just what is wrong with your home.”

Under the next topic, The Pricing Trap, the author points out that it is wrong to think that ‘renovations’ will “result in a dollar-for-dollar increase in the selling price – or more.”  There are dozens of articles out there listing the best bang for the buck upgrades and improvements, and those that are not so good but should be looked at as enhancing the owner’s quality of life while they own the house.  This is more a cautionary for would be home sellers and don’t forget that some improvements you make may just be improvements the buyer would want to make according to their taste.  Also, those fruit trees in the front yard that you think are so special – take them with you because a buyer is not going to pay extra for them.

Now here is an interesting adage: “Don’t buy the nicest home on the block”. That is most certainly true in America but on Martha’s Vineyard it actually works in reverse.  Martha’s Vineyard is old and so are most of the homes here, with many of those old homes in varying stages of disrepair and decay.  The life of a modern home today is about 40 years which would apply to those built in the late sixties, early seventies and certainly most of the crap that was thrown up during the 80’s.  Sure, we have some wonderful old antiques that are hundreds of years old, but to renovate them can cost as much or more than if you were to tear them down and build a modern replica. Yes, we have the talent to do that here on Martha’s Vineyard.  Anyway, the point I am making is that if you buy or build the biggest house in the neighborhood eventually it will inspire and encourage others to follow suit. That’s how the Vineyard will go through a renaissance once we have a strong economy again, although there are a number of projects like that going on right now.

I totally agree with the author when she points out that Zillow’s Zestimate’s are a factor in the incorrect pricing of homes for sale, or even for buyers to rely on when looking for and making offers on homes.  “The estimate is often wildly inaccurate.”  Yup, you bet it is.  Stay away from Zillow … ask a professional real estate licensee and make sure that licensee is a REALTOR®.  Ask me, I’m a REALTOR® and a True Exclusive Buyer Agent – I Represent People, Not Property. 

The rest of the article is irrelevant for the purpose of my writing but if you want to read the whole article for yourself go to Not Sure How to Price Your Home?

The Price Is Right – Or Is It?

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.

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.

Martha’s Vineyard Real Estate – Should You Be In The Market Now?

There are too many people who should not be in the real estate market right now, both buyers and sellers. They’re not serious, they are time wasters, and to me real estate is not a game.

If I were a seller’s agent, and I am not, and a home owner came to me asking me to list his property at a certain price that was out of line with my market research, and saying “let’s just try it for a while at this price”, I would say no thank you. Perhaps that seller is unable to sell his property at fair market value because he owes too much, and is upside down --- loan vs. current market. Perhaps that seller does not have to sell, but is just testing the waters or derives some pleasure at seeing his property advertised at a big number. It is sellers like this and the resulting skewed values and distorted inventory that create the negative public opinion and add to buyer’s misperceived impression of the market.

If a buyer came to me, and they do, saying they want to “steal a property”, I say no thank you. Pricing property is analogous to water seeking its own level. If you price a property too high, it will languish on the market until the price comes in line with the market. Across the country, 36% of all properties sold for list price or higher. Only 12% of all properties nationally sold for 90% or less than asking price. What this means is buyers continue to wait until properties are priced correctly. If you recognize that a property is priced correctly, you need to bid accordingly because properties that are priced correctly will normally sell quickly to a savvy buyer, and there may be more than one savvy buyer making a run on a property at the same time. Buyers must realize right now prices are good, interest rates are excellent and anyone with cash or excellent credit has power if they use it wisely in their negotiation. I’ve seen this too many times. Buyers who are eager and ready to get into the market, but continue to sit on the sidelines waiting for the ‘go signal’ from on high that prices have bottomed out are destined to join the ‘would have … should have’ club. You know who I am talking about, those people who painfully recount that they could have bought that property for ….

In the investment game, if you think you are at the bottom, or at the top, it is too late --- you are already on the other side. Right now is a great time to approach the market because the fruit on the tree is abundant and ripe. I don’t blame anyone for having doubts and fears; after all, the news these days is mostly negative and full of fear. I love what Louis Rukeyser once said about investing, no matter what you do, it is going to be wrong so do something, because the worst thing is to do nothing.

We need to remember real estate is cyclical and this too shall pass. Historically, the down-markets normally last two to three years and the up-markets last from seven to ten years. I believe we are walking in the valley right now, but we just don’t know it. It is going to be a long slow trek through the valley and we may not reach the mountain until the end of 2008, or the beginning of 2009, but we are on the march. One thing is for sure, real estate values overall continue to go up. Real estate is the one sure investment that always appreciates over time.

The Housing Slump Isn't Over Yet After All.

The beginning of 2007 took off with a flourish of sales activity. Shrewd investors took advantage of market uncertainty successfully negotiating good buys for many of the better properties here. The prediction of low and stabile interest rates and a strong economy suggested a turn around in the housing market was eminent. Then came the subprime lending fiasco which had an overall negative effect on the market.

Sellers, realizing the pool of “qualified buyers” had shrunk over night finally started making serious reductions in home prices, but there were very few qualified buyers. Therefore, the typical spring flood of properties back onto the market was met by buyers unable to make a purchase or reluctant to do so believing the downturn was not over yet.

The balance of supply and demand at the lower end of market continues to be heavily weighted toward the supply end. Here is an article that appeared in this week’s Boston Globe that addresses the fact that the housing slump isn’t over yet after all.

However, at the high end of the market, where the ripple effect caused adjustments on some prime properties, well-heeled buyers fueled by generous bonuses from the financial market are carefully picking at the prime luxury properties.

All Real Estate Is Local, but that has not been the perception?

In David Lereah’s new book, “All Real Estate Is Local”, he references the investment mistakes his Grandpa made by listening to the national news instead of paying attention to ”local influences and activity” He goes on to say, “Whatever the national trends are with regard to real estate – whether they are booming or busting – what really matters is what the market conditions are in your region, town, or neighborhood.” David Lereah is Senior Vice President and Chief Economist of the National Association of Realtors® (NAR).

Starting in 2001 real estate speculation began picking up steam in certain areas of the country that were growing in popularity. These areas were primarily coastal cities on the east and west coast. It would be five years before this trend would run its course. Investors were quick to jump on board with the hope of making a quick buck -- and they did. Properties were selling before a shovel touched dirt or a hammer struck a nail. We saw this in the 80’s here on Martha’s Vineyard when the construction and housing market was out of control, but we learned from that bad experience and won’t let it happen again.

When the press started reporting the news that the Boom was over, they did so by painting a national picture of doom and gloom with a broad brush. We all listened to the reports. Prospective buyers relished the thought of getting a good deal, “a steal”, and regaining control of what had been a so-called seller’s market that had all but shut out everyone except the well-healed from the Vineyard real estate market. Sellers, on the other hand, started to panic but refused to give up their position. They fervently resisted lowering what, in most cases, were overly inflated prices based upon subjective personal opinions instead of factual market price analysis provided by seller agents.

We entered a buyer-seller standoff period where nothing was happening, except at the very top of the market. But even there activity slowed down and sales were few and far between. No one wants to overspend and appear foolish regardless of how much they are worth. The wave of panic continued to build while rolling from coast to coast, and everyone was talking about a “buyer’s market” whether the perception was true or not.

On the Vineyard, sellers continued throwing chum at the market week after week in the form of insignificant price reductions. So like any good bargain shopper, buyers continued to wait, wondering how low the market would go. Personally, from the beginning I saw this as an opportunity for a leveling of the market and never believed the negative hype as it pertained to Martha’s Vineyard. Water seeks its own level and it would just be a matter of time, I thought, before we reached that point.

All of a sudden, but not by surprise, there was a new specter looming on the horizon. Was the housing bubble about to burst? Buyers had been led to believe there was no end in sight for the hot market and prices would just continue climbing. They were drawn into a false sense of security and anticipation of assumed future gains. Greed and some very creative financing products also encouraged buyers to overextend themselves by committing to attractive short-term, low adjustable interest rate loans. This enabled them to get into the market with little or no money down. But in some areas of the country the market suddenly came to a halt and prices started to decline. Frantic buyers not wanting to lose money immediately started canceling new home sales contracts and in many cases forfeiting substantial deposits.

With prices now plummeting by double digit percentages in many popular cities, and adjustable mortgage rates going up as much as double at the first reset, many new home owners found it easier to simply walk away from their homes purchased with up to 100% financed loans they could no longer afford. This was the case in cities like Boston, Cape Cod, Phoenix, Las Vegas, Los Angeles and Ft. Lauderdale where there had been overly zealous growth, but it was not that way throughout the entire country.

On Martha’s Vineyard the rate of appreciation was above average but not even half of what it was in the 1980’s. There were only a handful of speculators here that might have been in jeopardy. The Vineyard has always been a pricey market and that is not by accident. People who “get the Vineyard” are passionate about wanting to live here and make emotional decisions; quite often paying a premium to be part of the unique Vineyard lifestyle.

It was not only the home buyer who was affected by the slowdown in the market. Existing home owners who were courted and vigorously encouraged to take equity out of their existing homes for that dream vacation to Hawaii or that slick new Escalade were finding themselves in an unexpected upside-down or negative amortization position. The news of a threatened foreclosure glut loomed heavily on the horizon --- but once again we should have remembered --- real estate is local.

When a homeowner cannot maintain their mortgage or sell their home to save themselves, the end result is usually foreclosure and over a million home owners in the US are facing that end today. The foreclosure process begins when a borrower is over 30 days late with a mortgage payment. The lender will usually send a letter of notice to the borrower along with notification to the state’s Land Court notifying them of an action to foreclose. This does not imply a fait accompli, as most borrowers are able to work out the loan with the lender before they lose their homes. With prices continuing to decline in some areas, options have become more limited. However, in Massachusetts, the number of foreclosures is not even close to what it was in 1992. Government leaders are now calling for state and federal assistance to subsidize aide to home owners threatened with foreclosure.

Although Martha’s Vineyard is a wonderful and very special place, like all good things, greed can play a major part in pushing the envelope. We experienced a period for many years where everyone thought they had the goose that laid the golden egg. Many properties came on the market for ridiculous prices, both at the very top and at the very bottom of the market. Still, we relied upon the market to have the last word, but the astounding reality was that there was always someone who would pay the price. Today this is changing to a great extent not only because of the perception of a more level playing field or buyer’s market, but also because buyers are choosing to have their own agency representation.

So where are we today? I believe we are at a tipping point in the Martha’s Vineyard real estate market, but it will not be without a little more pain. One of my pet peeves is there are too many substandard, poorly maintained buildings of no important historic significance for sale here that have outlived their economic and functional usefulness. There is an old real estate expression, “underneath it all is the land”, and in many cases that is where the value is --- not what sits on the land. I maintain that many of the 40, 50 and 70 year old structures should be removed and replaced with more attractive energy efficient “Green” construction. Sellers have to realize they can no longer expect to get $400,000 to $500,000 for a property with a dilapidated house or unheated shack, when the value of the land is almost half of that selling price. Buyers need to realize they are not going to be able to “steal” properties. They must have confidence that if they pay a fair price for a property, they will have a solid investment that will appreciate in time, but not overnight.

We have to come to the realization on Martha’s Vineyard that this is not a buyer’s market, but an opportunity for a balanced market. A market where properties are priced fairly and sellers have realistic expectations. However, the lower to middle-end of the market is distorted because we still have a number of sellers who are not realistic or serious about selling their properties; they’re just fishing. Their perception of what their property is worth, albeit uninformed or ill-advised, overrides the facts. There are three phrases I constantly hear that always make me smile: “The seller is motivated”; “The seller doesn’t have to sell”, and “The price is negotiable”. What the heck does all that mean? Does it mean the motivated seller will accept well below market value or the non-motivated seller is firm on the price or will only accept above market value? Does anyone in the market today assume that prices are not negotiable?

The pool of qualified pre-approved buyers at the lower end or entry level of the Martha’s Vineyard real estate market is drying up. Lenders are adopting much stricter guidelines for buyers with limited resources and marginal credit. If you were pre-approved for a loan last year you may not be eligible for that same amount today. A larger down payment may be required and you will most likely not get a loan approval without verifying your income. If you are contemplating a purchase this year, save yourself disappointment and wasted time for everyone by going to a lender and getting pre-approved for a mortgage. Believe me, you are better off knowing your pocketbook will match your expectations. Negotiations are difficult enough today and being pre-approved will strengthen your bargaining position.

I’m the owner of SplitRock Real Estate, an EXCLUSIVE BUYER AGENCY and to paraphrase a statement from a REALTOR® sponsored national ad campaign, real estate is my life. I know my business; I study it and I’m passionate about it. My perspective is unique because I view the market from the buyer’s vantage point, and my goal is always to arrive at a fair deal. I will do my best to protect my buyer clients and will look after their best interests. My task is to educate and counsel my buyer clients so they can make informed decisions they will be comfortable with. I encourage you to begin or continue your real estate education at www.SplitRockRE.com .

Have We Seen the Last of Real Estate Markdowns?

I realize the Boston market is not Martha’s Vineyard, so the demographic ingredient of people moving out of Massachusetts doesn’t affect our market. However, I think you will find the speculative forecasts given by three diverse professionals -- an economist, an architect and a real estate broker, to be interesting.
(Click here to view >) Market continues a slow adjustment