This post is motivated by the current market, and furthered by my love for the movie “The Big Lebowski.” The title of the post is one of my favorite songs from the movie, and it’s a good spark to my day, to get me to write a long overdue post.
Many people I talk to are surprised when I tell them that the market has picked up steam – locally. They have a neighbors house that has been on the market for the better part of a year, due to a divorce, and the home is vacant and going through short sale… Well, I have to tell you, that’s not totally indicative of the market. Sure there are short sales, foreclosures, REO’s, etc. However, there are also homes that are in good shape, and priced right. Basically, if you take the 10,000 foot view of the real estate market – locally here in Southeast PA – you will see what I believe the 4 factors are that impact the Supply vs Demand relationship.
First off is expectations – let’s be clear BUYER EXPECTATIONS. Unfortunately, seller expectations stopped being realistic in 2008, maybe even the end of 2007. Buyers are driving the market – they are the market. Perception is reality – and when what they expect isn’t what they perceive, it’s onto the next property. Buyers are expecting LOWER PRICES. Now, keeping everything consistent, lower prices means just that – a lower price for the lovely home you and your family have kept up with over the past years. That is something we’ve likely all felt, declines in our home values.
The relationship gets tricky next… the second factor is the buyer also expects the home to be in GOOD CONDITION. In the MLS, they list this as “Average+.” However, “average+” is about as overused as a term can be. What is average? Well, based on the average inventory on the market today, we all likely live in above average homes… heck, most people are probably renting above average apartments! Somewhere along the line, the seller’s felt that since they’re taking a lower price, the buyer can just deal with the issues. Unfortunately, the seller is finding out all to often that the buyer isn’t going to deal with the issues.
The other two factors are the reality. The homes prices are lower (relatively) but the condition is poorer (dramatically).
So, basically what the buyer is expecting is lower prices with unchanged condition from before. What the seller is expecting is to dump their…. um, dump, for a lower price. And, here we have the disconnect. Honestly, it’s mostly the banks with this mindset – and it won’t be until they come down much further that the inventory issue will begin to go away. Right now, cash is king – and if you’re lucky enough to have a down payment, and most of your closing costs covered (the banks typically will only allow 3% in comparison to a “full assist” of 6%), you’re unlikely to have the money to dump into the home to bring it back to it’s livable state.
I preach to my seller’s something I learned from Pat Scargle – one time chef at Canal Street Pub and Restaurant – one of the most valuable lessons one can learn – in the restaurant biz, or any other.
The eyes eat before the stomach.
How profound…. ingenious… remarkable. Think about that. How simple is it, and most people just don’t get it. You wouldn’t bite into a greasy burger with the bun sliding off of it, burnt cheese, and wilted browning lettuce, would you? So what makes a seller think that a vacant home, smelling of moth balls and pets, with unkempt landscaping, dirty traffic-stained carpets, outdated hardwood, and foul bathrooms would sell? I mean, I will buy the burger – but, not likely I am going to eat it (I say likely because I did wrestle for many years, and know what hunger can do). The burger sets me back a buck or two. The house, well, that’s on a larger scale… so, you’d think the principal is even more important… clearly some don’t.
My niece is out looking for her first home – I asked her the question:
Are you looking for a fixer-upper, or, a home you can fix up?
These are two different properties, in two different price ranges. It’s that simple.
The reality of today’s market is that inventory (homes) is in poor condition. This would call for a reduction in price in any market. However, the price is down – comparable with the rest of the homes in good condition.
The media can help us all out – do us all a huge favor. Take the “distressed properties” (REO/Short Sale/Foreclosure) out of the “inventory.” They’re not the same. If cereal prices were down, and I went to Giant to pick up a box… I wouldn’t expect to pay the same for the smashed box that had been run over by a cart, and possibly opened, as I would for the new box with the crisp corners and unscathed surfaces…
To complicate matters, there is also the issue of lending. Banks won’t lend against many of these properties due to their condition. Some are half-flipped rehab projects that got as far as spending money…. demolition isn’t an expensive art… but, other goods cost serious money. So, the properties owned by banks, banks won’t lend money for…. go figure that one out. Another one of my pet peeves with the market – banks just don’t think logically. After all, the guy (or girl) at the desk has no vested interest. Zig Ziglar will tell you “Once it becomes personal, it becomes important.”
So, if you have a nice home that you take good care of, and you’d like to move… it can happen, and relatively easily. If you have a dump, get comfortable.
But, seriously, if you’re considering a move now – or in the near future… time to drop in and see what condition your condition is in…