When Did a House Stop Becoming a Home?

I've said it before and I'll say it again, if sellers are expecting to make tons of cash selling their homes after living in them for 1 or 2 years, they are simply being unrealistic and, frankly, stupid. Blanche Evans of Realty Times gives us her take on today's consumer,

"Today's homebuyer thinks a home is only an investment. The NASDAQ has never recovered to its 2000 highs because people want the big return on their investment. They could likely look at housing the same way - not interested if it only returns two percent a year. Never mind that two percent a year is the historical norm. They want more."

How did we get to this point? When did homeowners start feeling entitled to lots of money from the sale of their home simply because they purchased it and made no improvements to it while they lived there? How did we go from pride of home ownership and being ecstatic that we were finally able to "realize the American Dream" to a competition of "How much equity were you able to squeeze out of your house?". I'm sure this mindset might have something to do with this.

Another Example of a Poor Business Decision

This home in Preston Hollow sold in February 2006 for $815K. It was vintage early 90's and desperately needed updating, but otherwise a solid home. The new owners did a nice job renovating the home and it looks like it shows great. But why the heck-fire would they be trying to sell - and expect to make $200,000- after owning the home for just 2 years? That's $100K a year people!

Are they flippers? Are they sellers just looking to move up, down or sideways? Do they have to sell or do they just want to sell? Are they being relocated?

I just don't get it. They have already reduced their asking price to $1,025,000 down from $1,070,000 and been on the market for over 4 months. Considering there are 173 homes for sale between $900K and $2 million in Preston Hollow it just doesn't make good business sense to be selling their home right now unless they are willing to get a little bit more realistic with their price. But this is exactly why there are so many homes on the market because no one lives in their home long enough to earn any equity and they expect the buyers to be ignorant of the fact that they bought the home for $815K 2 years ago. Seriously folks, you need to start paying attention.

Buy Me. Please! I'm in Preston Hollow

I was completed around January 2006 and have yet to find a buyer. I was originally listed in the MLS in January 2006 for $1.8 million for 10 months and no one wanted me. What's weird is that I was relisted after that for $1.975 million. Now I'm currently for sale for $1.895 million. So let me get this straight. No one wanted to pay $1.8 million for me in 2006 but they'll pay $1.975 million 10 months later? My builder should check out Jeff's post about seller greed. Oh, and someone please buy me!

The Dallas Real Estate Market Summed Up

I used a quote a while back in one of my previous posts to explain much of what is going on in our current Dallas real estate market. But here's an equation I like that sums it up nicely.

Seller greed (uneducated sellers) leads to overpriced listings;

Overpriced listings don't sell because buyers don't perceive value;

When buyers don't buy, inventory increases;

Increased inventory over time leads to a decrease in sales prices.

You can take this to the bank. Buyers aren't stupid and don't really care about your "upgrades" if the price doesn't make sense to them. Like it or not, buyers are not willing to pay your asking price just because you "need to make $X amount of dollars" when selling your house. That is what we mean when we say "the market is telling you your house is not worth what you're asking". Buyers determine value and they are always out there looking. Serious buyers are educated about asking prices in the areas they want to buy. They will not waste their time making an offer on a home they feel is over priced.

And don't kid yourself by saying, "Buyers just aren't looking right now" because they very much are. They just aren't seeing value in the homes that are currently on the market. Realtors that understand this and the above equation and how it applies to their clients aren't whining about a terrible real estate market because they're too busy attending closings.

What I Learned in Class: Part II

Is real estate a product or a commodity? A product's price can be influenced by marketing and advertising and the seller sets the price. Think products that are advertised during the Super Bowl. A commodity's price is set by the buyer and no amount of marketing or advertising affects the price of a commodity. Think the price of gold, for example.

Realtors and our clients have been treating a home as a product instead of a commodity and unfortunately we are not doing ourselves any favors. Think about it. You bought a stock at $100/share and then 1 year later that stock is at $50/share. So you turn to me to sell it for you for $100/share. But since I have a fee you want me to add that fee on top of the price you want. So even though no one is buying this stock over $50/share you have asked me to sell it for you at $115/share. Does this make any sense? Not really. Even if I advertised your stock on TV during the Super Bowl no one will buy the stock over the market value. Why? Because it is a commodity and not a product.

This is exactly what is happening in our real estate market today. Sellers who bought at the height of the market and have only been in their homes for a year or two are putting their homes on the market at inflated asking prices to recoup their costs. The problem is that buyers are seeing right through this. There is no perception of value. And when there is no perception of value there will be no sales.

Many agents and sellers are saying "There just aren't any buyers out there looking!". This is a myth and here's why. If a home's market value is $500,000 and that home lists for $450,000 how long do you think it will stay on the market? Not long at all. This is because buyers know when a good deal presents itself. The bottom line is that there are just as many buyers out there today as there were in 2005. The only difference is that today's buyers don't see the value in many of the homes on the market because the sellers are asking inflated prices to recoup their costs. And where there is no perception of value there will be no sales.

To wrap up, seller greed is due to being uneducated about the current market conditions which leads to overpriced listings, which means few or little sales, which leads to increased inventory, and when inventory rises, consumers push prices downward. (Supply and demand)

So if someone is thinking of selling their home and they need to ask top dollar to get out of the home without paying money at closing, I would tell them to stay in the home until they can ask a fair price. Otherwise, they will not only be wasting their Realtor's time, they will be wasting their own time and effort showing the home for 6 months or longer.

Best Real Estate Quote of 2007

Beautifully stated. This quote by Michael Bizenov, president of Sterling National Mortgage, has Dallas written all over it.

"The sellers are still looking at the price their neighbor got two years ago, and the buyers are looking for the mythical 30 percent price cut [the media keeps ranting about] and they're both wrong," he said. "It'll take some time for the stalemate to end."

Preach on!