Chasing The Declining Price Curve

Posted at 3:47 PM, Mar. 26, 2008

The following graph illustrates a common pricing phenomenon experienced in a declining market.  The dashed green line represents the current market value of a home and it shows that the value is going down over time.  The red line is the price point the seller selects when they put the house in the market.

There are a number of lessons we can glean from the illustration, the first being that overpricing a home is a sure way not to sell it.  However, in a rising market, sometimes the market will catch up with an overpriced home.  In a declining market, if you don't adjust your price quickly you end up losing equity simply by extending the time a home is on the market.  That first price reduction illustrated on the graph probably would have been a very good place to be if it had been set earlier.  But, by the time the seller moves to that price point the market has moved on and it's no longer deemed an attractive price, and so the chase down the price curve begins.

Now the hard part, we're not always in a position to know how quickly the market is moving.  But, keep the above principle in mind.  Delaying your response to what the market is telling you can cost you money.  Stay ahead of the price curve.

The End is Not Here

Posted at 4:30 PM, Mar. 14, 2008

I pride myself on communicating very clearly.  However, in my previous blog, entitled The End is Near, I may have gotten a little too cute and obscured my message.  So, for the record, let me clarify the message:

1. Markets go through cycles and nothing lasts forever.
2. The end of one cycle and the beginning of the next cycle is not always immediately obvious, and cannot be predicted or anticipated with accuracy. 
3. We are at a point in this current cycle where we are beginning to measure the depth of this down cycle by quantifying financial losses.
4. Being able to measure losses is a good thing because it's the "not knowing" that generates the crippling fear that causes prospective buyers to not commit or choose to wait.  Nervous people don't buy.
5. Buyers with a long-term view should treat this market as an opportunity and not run away from it.

Given the above, we may be pass the mid-point of this buyer's market cycle.  However, there are economists and pundits that feel we have miles to go.  In fact, I think things will get worse before they get better.  But, I do know that it will get better.  The end is not here.  But, it will get here.

The End is Near

Posted at 11:44 AM, Feb. 10, 2008

Although market activity is way up, as can be expected during this time of year, buyers remain hesitant to pull the trigger and sign on the dotted line.  Who can blame them with all the bad news we keep hearing about the real estate market.  It seems every week we’re hearing about a financial lost on the part of one firm or another.  Citicorp and Merrill Lynch are two prominent names that come to mind.  There’s also the near collapse of Countrywide Financial and its subsequent sale to Bank of America at a fraction of the price it would have sold for just a few years ago. 

In my view there is a silver lining in all the bad news we’re hearing in Wall Street, and that is that the losses are being quantified.  There was a time during this mess when we knew we had a problem but didn’t know how deep the hole was.  I’m not suggesting that we have a complete picture now.  There may well be additional losses to announce.  But the fact that loses are being announced and reserves are being put aside means we’re closer to the end than to the beginning of this down cycle.

The attitude of prospective buyers in this market can be cast into two broad categories: (1) Buyers are afraid that the value of the home they’re contemplating purchasing will go down and they’ll be left holding the proverbial bag.  (2)  The second attitude is similar but instead of being based on fear it’s based on greed.  These prospective buyers are bottom fishing and keep deferring their decision to buy in the hope that prices will go down further.

I’m not smart enough to know exactly when the market will turn around and heat up.  But, I do know it’s only a matter of time.  The real estate market isn’t nearly as transparent as say the stock market.  Market changes have a way of sneaking up on you and you often don’t notice that things have changed until after the fact.  So, any buyer taking a long term view should jump in the water now.  If fear or greed freezes you out of this market you’ll look back at this period as a missed opportunity.  Nothing lasts forever.  The end is near.

Don't Let Your Agent Sabotage Your Home Sale

Posted at 1:15 PM, Jan. 5, 2008

Buyers, unlike sellers, typically don't bind themselves contractually to a single real estate agent.  Consequently, agents are careful to take steps to engender loyalty on the part of their buyer clients, especially during the early stages of any business relationship.  So, it's infuriating when a listing agent market's a home in a way that insidiously attempts to snatch prospective buyers from fellow agents.  Two examples come to mind; a listing agent took a picture of the for-sale sign with his name and number and placed it on the MLS as one of the property pictures.  The other example is posting a branded virtual tour on the MLS.  Any buyer viewing the virtual tour will see the contact information for the listing agent.

So, what's wrong with a buyer contacting a listing agent directly?  Well, lots of things.  For one, it can create a dual-agency situation whereby the listing agent finds themselves working for both the seller and buyer.  Under these circumstances the buyer does not receive the benefit of a dedicated agent working exclusively for their best interest.  This has concrete consequences.  For example, a dual agent cannot offer a buyer a price opinion or divulge any information that may help the buyer during negotiations.  But, it's also an issue of fairness.  The MLS is a shared resource intended to be utilized in a cooperative fashion.  When an agent tries to undermine the system by advertising their personal services to prospective buyers on the MLS they're making a very loud statement of where their priorities are. 

What of the homeowner they're representing and whose house they were hired to sell?  Should the listing agent be swapping out a picture of the home in exchange for a picture of their sign?  What if a buyer agent gets so offended by the listing agent's actions that they decide to dissuade their clients from considering the home?  Fortunately, this kind of behavior is not very common.  However, every seller should ask to see the listing that was posted on the MLS to ensure accuracy and that the home is being properly represented.  Don't let your agent sabotage your home sale.

Pricing in Unsteady Market More Difficult

Posted at 3:33 AM, Dec. 4, 2007

Figuring out the market value of a home is never an exact science. There are many reasons why pricing homes is inexact -- (a) no two homes are alike, (b) there are many variables that contribute to price and some of those variables are subjective (e.g. nice view, busy street, etc...), (c) the market isn't as efficient as say a stock market and there's an emotional component to buying and selling a home. These factors can muddy the pricing picture.

Good real estate agents try to counter these factors by relying on as many hard facts as possible. A key source of "facts" is to review historical sales data. The closer the sales data is in terms of time and distance to the subject property the better. Of course, the problem with historical sales data is that it's well... historical. It's a snapshot of past activity. Therefore to price a home "today" you have to factor in current market conditions and trends.

I've been noticing something lately. My facts have been showing anomalies, and this has been making estimating market value more difficult. What kind of anomalies? Pricing anomalies. For example, you'll see half a dozen closed sales on the MLS that suggest a home's likely market value is within a tight $10k range. But then there'll be one or two price points that will suggest an altogether different price which will add a level of uncertainty to the whole exercise.

So, who's screwing up the data? Well, what seems to be happening is that sellers who are in a must-sell situation (e.g. divorce, job transfer, financial difficulties, etc...) are making deals. These deals as they close and become part of the sales history for a community are putting downward pressure on prices.

If you're a seller, understand that the initial price set for a home is an educated guess. Use the collective feedback you receive from prospective buyers and real estate agents to evaluate your asking price and adjust as needed.

If you're a buyer, while it's tempting, don't just zero in on the lowest comparable you find in the sales history especially when there is an abundance of other comparables suggesting a higher price. There is a difference between a bargain and a steal.

Lessons from a Fox

Posted at 6:46 PM, Nov. 2, 2007

If you're following the local real estate market closely, perhaps you've already heard that Foxtons, Inc. has filed for bankruptcy and is closing their doors. For those of you not familiar with Foxtons, they're a so-called "discount" real estate firm serving the tri-state area which includes New Jersey. I can tell you with some confidence that real estate agents hated Foxtons. So, it may not come as a surprise that most of the conversations I had with other agents on this topic is one of celebration. Having said that, my sincere regrets for those individuals that have lost their jobs. I wouldn't wish that on my worse enemy. Fortunately, the economy remains fairly robust despite the drag caused by this nasty housing market.

Back to Foxtons, why was this real estate firm so widely disliked? Well, in a nutshell they were a poor citizen of the real estate community. My biggest problem with Foxtons is that they weren't honest about who they were. They never referred to themselves as a "discount" broker. On the contrary, they claimed they provided "full service for a lower commission." This was just disingenuous, and many a seller eventually learned this after they contractually bound themselves to Foxtons.

Rather than kicking Foxtons while they're down, let me shift the focus to the real reason I decided to write about this topic. What can sellers learn from Foxtons' demise? The Foxtons' bankruptcy has presented a problem for homeowners who signed a listing agreement with them. The pending liquidation of the firm does not release these homeowners from the listing agreement. They're contractually bound until the listing agreement expires, which can be six months or more. Lesson 1: when you sign a listing agreement you are making a contractual commitment with the broker, NOT the real estate agent you're talking to.

Lesson 2: you get what you pay for. This is an old lesson but one we're occasionally reminded of. Commissions are always negotiable. You have a right to negotiate the best deal you possibly can. But, free lunches are rare. A lower commission usually means that something has to give and that something usually translates to less service or less market exposure for your home. In this current market, with few buyers and too many homes, a higher commission can work to your advantage. But, if you do pay a higher commission, understand why you're doing it and what you're getting for the additional fee.

New Jersey's Stealth Sales Tax

Posted at 8:19 PM, Oct. 6, 2007

Many New Jersey homeowners are unaware of the fact that they have to pay a sales tax when they sell their home. Of course the state doesn't like to call it a tax. The official name of the tax is the Realty Transfer Fee. But, who are they fooling? It doesn't matter if you sell your home with a real estate agent or on your own. It's a state tax and you can't get around it. The amount of the sales tax is directly dependent on the sales price. The specific formula for calculating the tax is somewhat involved. But, to give you an idea of the size of the tax, a sales price of $350,000 will result in a tax bill of over $2,100. A $400,000 sales price results in a tax bill of over $3,200 and so on and so forth.

There are a couple of things that bother me about the tax. First and foremost many homeowners don't learn about the tax until after they sell their home. In extreme cases they don't find out about the tax until they're sitting down at the closing table. The politicians in Trenton know it's not a well known tax. Consequently, the tax has been raised several times since it was first imposed in 1968. More disturbing, state officials are considering legislation that will permit local municipalities to add their own "fee" on top of what the state is already charging. The New Jersey Association of Realtors^® has established a web site that provides additional information. There's also a petition to sign if you're so inclined. The web site is www.njhometax.com.

It doesn't take an economics major to understand that these insidious tax increases only serve to line the government coffers and are not in the best interest of the real estate market and general economy. Spread the word! The more people know about the RTF the less likely Trenton will act to raise the tax.

Mortgage Pre-Approval Letters May Need to be Reissued

Posted at 8:20 AM, Sep. 2, 2007

When a buyer includes a mortgage pre-approval letter in an offer or presents one to a real estate agent to document their budget, any letter 90 days or younger is considered acceptable.  However, as a result of the mortgage credit crunch many of the liberal terms and easy money previously available has disappeared or program terms have been changed considerably.  Consequently, when I see a mortgage pre-approval letter that is older than 60 days I ask the buyers to speak to a mortgage consultant again to re-verify their qualifications, especially if the buyers are putting down less than 20%.

There's nothing magical about 60 days versus 90 days.  The point is that mortgage programs are changing.  So, mortgage pre-approval letters need to be fresh.  Whether you're a buyer or seller, keep this in mind and act accordingly.

The Fear Factor

Posted at 5:10 AM, Aug. 19, 2007

Yes, I know it's been a long time since my last blog entry.  I'm not dead and neither is the market.  The big news in recent months is the mortgage credit crunch.  American Home Mortgage, the sixth largest mortgage lender in the United States, became insolvent.  Additionally, other mortgage companies are experiencing funding problems.  None of this is good news, but the world is not coming to end.

Many people outside of the business are not aware that mortgages are often packaged and sold to investors.  This provides mortgage companies with liquidity and enables them to sell more mortgages.  Well, lately the geniuses at Wall Street have realized that maybe it wasn't a good idea to offer mortgages to individuals with sub-par credit scores and real estate prices don't move up in a straight line forever and ever.  This new found insight has caused investors to realize that the mortgage-back securities in their portfolios may not be worth quite as much as they originally thought and they don't have the stomach to purchase additional mortgage-backed investments.  Consequently, some mortgage companies are having difficulty funding their commitments.

Things may get worse before they get better.  Wall Street has to figure out how much the paper they hold is actually worth.  They don't know right now and that is the source of a great deal of fear.  We don't know how deep and wide the abyss is.  But, this will be sorted out in time.  When this happens much of the fear will dissipate.

Of course, Wall Street isn't the only place fearful.  Main Street is showing fear as well.  I'm often asked if this is a good or bad time to buy or sell real estate.  The answer is it depends.  If you're selling and buying another home, what you may lose on the sell side you should make up on the buy side.  If you're just in the market to buy a home, recognize that this is a market that provides opportunities because the market will recover.  Finally, if you're just selling a home, this may not be the best time.

Over the long term real estate has always been a great investment and will continue to be.  So, don't be swept away by the present day's fear.  The resolution of the credit crisis will result in a much more rational market and may even trigger a seller's market as pent up demand is released.

What's Your Real Estate Agent Worth?

Posted at 3:01 AM, Jun. 28, 2007

There’s a lot of discussion and attention given to the topic of real estate commissions.  Some industry pundits suggest that the current dominant business model of charging sellers a percentage of the sales price has to change.  This is a legitimate topic.  However, the motivation behind these proposals is skirting a more fundamental issue, which is the general public’s perception of a real estate agent’s value.

Let me say for the record that I know there are real estate agents out there that are worth every penny they receive.  Whether representing sellers or buyers, these agents make money for their clients.  But, the perception of the public towards real estate agents in general isn’t particularly favorable, at least in terms of their value proposition.  It is this perception that is the root cause of all the commission talk.  People by and large don’t challenge costs when they feel they are getting good value.

Unfortunately, I’ve come to the sad conclusion that the real estate industry is its own worse enemy.  There are people and corporations profiting by the ridiculously high number of individuals who hold real estate licenses and the constant turnover in the industry.  When you get your license you’re hit with association dues, MLS fees, insurance premiums and a whole army of people and firms ready to sell you services and products to help you become a ‘success” in the real estate business.  What few people will tell you is that the economics are not in your favor.  There simply isn’t enough business to go around to gainfully employ every real estate agent, even in the best of times.  Consequently, competition amongst brokerages and agents can be cut-throat and doesn’t always bring out the best in people.

Despite all the hands in the cookie jar, compared to other businesses the cost of entry into a real estate practice is relatively low.  But, this is deceptive because the cost of establishing a successful practice after obtaining a license can be significantly higher than the price tag at the door, and it takes time to become genuinely skilled and proficient.  The ease of entry into the business, and cut-throat competition, dilutes the profession in the eyes of the public, and this causes people to wonder if they’re paying too much for the services they’re receiving.

I see no improvements in the horizon until the real estate industry makes some radical changes in the way real estate agents are licensed and trained.  Entry-level professional standards should be raised substantially.  In the meantime, consumers would be wise to choose their real estate agents carefully.

Selling "As Is" Not A Free Pass

Posted at 4:15 PM, May. 28, 2007

A while back I had a client interested in a home.  There was one thing that worried him.  There were a couple of ominous looking vertical cracks in some of the rooms of the house.  There was no seller's disclosure and the listing said the house was being sold "as is."  The listing agent was contacted and in two words had "no clue" what the nature of the vertical cracks was.  My client understandably got scared away and elected not to make an offer on the home.

For the record, I think using the term "as is" in the marketing of a home is a very bad idea.  It immediately creates the perception amongst some buyers that there must be something wrong with the house.  Secondly, some sellers seem to think that selling "as is" means they're not required to disclose latent issues about the home.  Well, that's just wrong, wrong, wrong.

If you really want to sell your home, don't market it "as is."  There are other ways to communicate your intention to limit maintenance expenditures without compromising your marketing.  And for goodness sake, if there's an OBVIOUS visible defect, be prepared to address any inquiries concerning such items.  It's already a tough market.  Don't make things worse by shooting yourself in the foot.

Are You Looking For a Bargain Or a Steal?

Posted at 3:03 PM, May. 20, 2007

We're in the midst of a buyer's market.  Yet, I've had several conversations with other real estate agents in the last month lamenting that they couldn't get the house their buyers wanted because of competing multiple offers.  I myself was involved with a deal recently in which there were eight competing offers for a home.  You may be wondering if this is some kind of fluke considering all the bad news we're hearing about the real estate market.  Well, what's happening is that there are plenty of buyers out there traversing the market looking for a steal.  When a compelling deal appears they swoop in likes bees to honey.

The irony of this activity is that sometimes in a multi bid environment what starts out as a steal may only end up being a modest bargain at best for the winning purchaser.  If you're in the market for a home and are looking for an amazing deal, you may find one at first.  But, you can be sure that you won't be the only one submitting an offer.  So, my personal opinion is that rather than looking for the deal of the century, buyers are better off focusing on genuine bargains. 

What is the difference between a bargain and a steal?  The line is admittedly fuzzy.  But, I'll define a bargain as a home that is demonstrably priced below market value in a great community, but not so low that it creates a bidding frenzy that alters the balance of power between buyer and seller at the negotiating table.

There are many bargains in this market.  Steals are less common and ultimately a little more illusive at the end of the day.

Less Is More

Posted at 11:49 AM, May. 13, 2007

When one is licensed to practice real estate, the license applies to the entire state.  However, most real estate agents limit their practice to a specific region.  You can't be everywhere at once and it's not practical to be a local expert for the entire state.  On the other hand, contrary to popular belief, the real estate business is a very difficult business to earn a living with.  The National Association of Realtors recently announced that the average income of its members actually DROPPED in 2006 from when their last survey was taken in 2004.  The median income in 2006 was $47,700.  Consequently, real estate agents will sometimes pursue business wherever an opportunity presents itself.  But, if you're going to be successful over the long term, you have to develop a niche and a loyal clientele.  Most successful real estate agents focus their business on a relatively narrow geographic area.

When I first became a real estate agent several years ago I decided to service three counties: Middlesex, Union and Somerset.  However, as time marches on and my business matures, I've come to realize that I'm really just biting off more than I can chew.  Consequently, I recently decided to limit my service area to just Middlesex County with particular emphasis on the Metuchen-Edison area and surrounding communities (e.g. Woodbridge, Piscataway, South Plainfield).  It's still a very large service area, but smaller than my previous service area.  Hopefully, this will be a positive change that will permit me to focus my energies more discretely.  Less really can be more.

Can Buyers Make Multiple Simultaneous Offers?

Posted at 5:14 AM, Apr. 28, 2007

Ask ten real estate agents if it's OK for a buyer to make multiple offers and you'll likely to get diverse answers.  Some agents will tell you that if a buyer only intends to purchase one home it's unethical to make more than one offer at a time.  Other agents will tell you there's nothing wrong with the practice.  My two-cents is that there's nothing wrong with the practice, so long as it's done right.

Consider this scenario:  you're a buyer looking for a home for yourself and your family and narrow your decision down to two possible homes.  You make your first choice and put in an offer.  The seller rather than getting back to you right away drags their feet.  Why?  Lots of reasons:  Sometimes sellers will hold off responding to offers because they anticipate additional offers.  Sometimes it's just poor timing and a decision maker is out of town.  Here's the dilemma for the buyer:  while they're waiting for a response that other house they're interested in may be snatched off the market.

I see no reason why a buyer should be held captive to a seller's schedule.  One option is for the buyer to extend an offer on the home of their second choice.  However, when making the second offer one should disclose to the homeowner receiving the second offer that the buyer has other offers in play.  Some agents will disagree with me and they can write their own blog or are welcomed to comment here.  My opinion isn't based on any legal requirement, but on the simple rule that we should treat others the way we want to be treated.  After all, most buyers would want to know if a seller has received multiple offers for their home.  Conversely, it's only fair for a buyer to disclose to a seller that they have put in offers on multiple homes.

You may be wondering if disclosing to a seller that multiple offers have been extended puts the buyer at a disadvantage.  The fear is that the seller may not take the offer seriously.  This is possible, but no more likely than a buyer being turned off upon learning that there are multiple offers on a home that interests them.  It could actually work out to the buyer's advantage and keep the seller from playing games and give the offer serious consideration.  If your second offer is accepted it could also put more pressure on the seller of your first-choice home to move forward or risk losing out. 

In summary, I'm not suggesting that buyers should make multiple offers a common practice.  However, there are circumstances where it may be appropriate, and as long it's employed with proper disclosure there's nothing wrong with the practice.

Metuchen Real Estate Market Improving

Posted at 6:49 PM, Apr. 10, 2007

Last month I reported that I was seeing a greater divergence in market conditions amongst communities.  The market right now is much busier.  But, most communities in my service area are still experiencing increasing inventories.  In a nutshell, the number of homes entering the market is still outpacing the number of sales.  However, Metuchen is definitely fairing better than most near-by communities.  The single-family housing supply is just under five months versus 6.9 for Edison and 9.2 for Middlesex County.  Although I'm not prepared to declare an end to the buyer's market in Metuchen, things are certainly much more balanced there.

So, what does this all mean?  If you have a Metuchen home to sell this is a great time to do it.  But, don't take the improved Metuchen market conditions as a license to over price.  Over pricing is never a good idea.  Keep in mind that buyers do have choices beyond Metuchen.  If you're a buyer and have your heart set for Metuchen, your negotiating power isn't as strong in Metuchen and you're more likely to pay a premium compared to other adjacent communities.

Trust Me, I'm Good For It

Posted at 6:35 PM, Mar. 31, 2007

Just about every real estate agent or mortgage lender will tell you that before shopping for homes in earnest one should speak to a mortgage consultant to discuss financing options.  Yet, I occasionally run into buyers that seem reluctant to speak to a mortgage consultant because they're afraid of adding a credit inquiry to their credit file.  This creates a dilemma for me.  On the one hand, I don't necessarily want to chase away what may be a perfectly good client.  On the other hand, from a business standpoint, it doesn't make sense spending countless hours with a prospective buyer that may ultimately have trouble qualifying for a loan.

Despite what many people may think, the vast majority of real estate agents don't make a ton of money.  Frankly, there are way too many people with a real estate license and not nearly enough business to keep them all fully engaged.  Consequently, some agents, desperate for business, will take a risk and work with a buyer that has not yet obtained a mortgage pre-approval letter.  Sometimes it pays off and often it ends up being a big waste of time.  It also creates the perception among these buyers that it's OK to work with real estate agents without being pre-qualified.

I've lost a few people who were seemly insulted that I dare ask them to speak to a mortgage consultant before looking at homes.  They tell me that they'll look into financing after finding a home or they will tell me how they have purchased many homes in the past and don't need to speak to a mortgage consultant right now.  It's like they find it unbelievable that I just can't "trust them."  Well, it's not about trusting people.  It's about making informed intelligent decisions.  But, for argument sake, someone please tell me what other business provides hours of consulting and services without asking a client to provide some nominal demonstration of their financial qualifications?  Furthermore, obtaining a mortgage pre-approval letter does NOT obligate the buyer to utilize the lender later on after they find a home.

If you're in the market to look for a home, speak to a mortgage consultant and get yourself a mortgage pre-approval letter.  You will get better service from a real estate agent.  But, just as important, you will have a good understanding of what you can afford.  You can't rely on published mortgage rates.  YOUR rate may be different.  If you have amazing credit and putting down a large deposit you can get a mortgage loan at very favorable rates.  Conversely, if you're going for 100% financing and have less than stellar credit don't be surprised if the rate you're quoted is a little higher than the national average.  Don't you think you should know about your options BEFORE you go looking for homes?

Finally, don't fret about the single credit inquiry it takes to obtain a mortgage pre-approval.  It's not going ruin your credit score.  Happy house hunting...

Discounting List Prices

Posted at 2:24 AM, Mar. 20, 2007

A common assumption among some buyers is that asking prices are just for show and can't be taken seriously.  After all, we're in a buyer's market.  Some buyers who initially come into my office for a consultation assume they can obtain discounts of 10  - 20% over the asking price.  My reply when they ask me how much can they discount asking prices is that "it depends."  It would be nice if I could give a single number and simply discount each asking price x-percent.  But, it's not that simple.  There's a different story behind the sale of each home.  Homeowners sell for varying reasons.  Some are highly motivated and some are not.  While some sellers may initially price their home unrealistically high, other sellers are on-target with their pricing from day-one.  So, you can't make a blanket statement about how much to discount asking prices. 

The Middlesex Multiple Listing System (MLS) maintains sell-price-to-list-price-ratio statistics (SP-LP%) for each town covered by the MLS.  The latest statistics at this writing are for the month of February.  Metuchen has a 96.7% SP-LP%.  This means that the average sales price during the month of February was 96.7% of the asking price.  For February, Edison has a 97.3% SP-LP%.  Most near-by communities have a SP-LP% between 95 and 97.5%.

These SP-LP% numbers would probably surprise many buyers.  However, there is a flaw, or twist, in the MLS statistics.  The ratio is based on the last asking price of a home, not the original asking price.  If a seller seriously overprices their home what typically happens is that the home just sits on the market unsold.  Over time the seller gets a reality check and lowers their price.  Once the asking price gets within 3  to 5% of market value then the home is likely to attract an offer.

Unfortunately for buyers there are no shortcuts.  Every home being considered has to be evaluated individually.  But, there are definitely bargains.  I recently did a price check for one of my clients and concluded that the home they were considering purchasing was under-priced.  So, it's definitely good hunting.  But, it's naive to assume that you can discount the price of every home you see.  Choose a professional to help you navigate this market.

There's More Than One Real Estate Market

Posted at 3:46 AM, Mar. 15, 2007

In the course of reviewing market statistics recently, which I do in earnest about once a month, I noticed a greater amount of deviations across communities.  While the numbers as a whole confirm we're in a buyer's market with large inventory levels, the depth of the buyer's market varied by community.  For example, Metuchen performed very well in the month of February and actually had more contracts and closings than it experienced in January, despite the fact that February is a short month.  Metuchen also has a housing supply that's just over five months.   In sharp contrast, Edison had a mediocre February and saw it's inventory increase about 4% with a more than seven month housing supply.  The numbers were also mixed across nearby communities like Piscataway and Woodbridge.

What does this all mean?  Well, I don't have all the answers and my crystal ball is in the shop.  One obvious point is the buyers can sometimes be well served to expand their search just a tad, because just looking at one town over can result in better deals.  Real estate really is local and its amazing how a short distance to the left or right can change things.

The other question that comes to mind is whether these differences in market conditions foreshadow a larger change in the market.  As I said, my crystal ball is in the shop.  So, we'll just have to wait and see.  But, for now buyers have plenty of options.

Please Don't Shoot... I'm a Real Estate Agent

Posted at 12:48 PM, Mar. 9, 2007

So, I knock on the door expecting it to be opened by the owner.  I had previously called the listing agency to make the preview-appointment and was told I was confirmed and the owner would be home.  Knock, knock... no answer.  I call the listing agency and re-verify the date and time which they confirm.  "Well, there's no one here," I said.  They place me on hold and call the owner again.  After a few minutes they tell me there was a miscommunication and the owner wouldn't be home until the evening.  But, they tell me there's a combination lockbox in the back.  Unfortunately, they don't know what the combination is.  I'm less than impressed.  But, I'm already there.  So, I call the listing agent and she provides me with the combination of the lockbox.  Great, my trip isn't a waste of time after all!! 

I get the keys from the lockbox and open the back door.  Suddenly there's a high piercing noise which I immediately recognize as a burglar alarm warning.  I call the listing agent and ask her for the alarm code.  She doesn't have it.  I'm tempted to walk through the house quickly while the alarm is blasting away.  But, I decide against it.  My fear was that I would get shot by the police mistaking me for a burglar.  The publicity might have been good for business.  But, that's not how I want to show up on the six o'clock news.  Suffice to say I did manage to survive the incident without getting shot. 

Here's a news flash:  If you want to sell your home, you have to let buyers and agents see the home.  I know it's common sense, right?  Yet, you would be surprised at the number of homeowners that actually make it difficult to see their home.  I am sympathetic and realize that selling a home can be intrusive.  Nobody likes having strangers walking through their home.  However, when you decide to sell your home it stops being a home.  It's now an asset that has to be marketed and sold.  Keep your showing instructions simple and straightforward and make your home available at reasonable hours.  The good news is that if you do this it's likely to sell faster.

How to Lower Demand For Your Home

Posted at 4:02 PM, Mar. 3, 2007

	The balance between supply and demand determines the market environment. More buyers chasing fewer homes means rising prices and good times for sellers. Less buyers and more homes flips things around and gives the advantage to the buyer.
	Every home has a pool of prospective qualified buyers that may purchase the home. The size of this “universe” of buyers is determined by many factors including location, price and condition. But, how do we find these buyers and let them know your home is available?
	By marketing the home you try to reach as many prospective buyers as possible. Not every buyer will be reached the same way. Some will see a for-sale sign, others will be reached via the Internet, still others via a newspaper and so on and so forth.
	The more buyers reached the more people come by to see your home.
	If you reach enough buyers you effectively alter the supply-demand picture for your home, independent of what’s happening on the market as a whole. That’s why even in a buyer’s market it’s still possible to receive multiple offers and get top dollar.
	If you’re selling on your own you have the same challenges in terms of identifying and reaching the universe of buyers for your home.
	Generally speaking, individual homeowners are not able to reach as many buyers through their marketing. The pool of buyers also shrinks due to the fact that many buyers are reluctant to buy a home without assistance from a professional (e.g. first-time buyers and upgraders).
	The smaller universe of buyers reached by a FSBO alters the supply-demand picture for their home.

The end result is that less people come out to see your home. This lower demand typically results in no sale. When there is a sale, the lower sales price more than offsets any intended savings of commission.