The Grand Canyon between Sellers and Buyers.

As a student of real estate markets and trends, one cannot help but see a growing delta between buyers and sellers in their perspectives on the market. The average buyer has become a critical shopper. He, she, or they spend much time looking at sold comparables, websites like Zillow and Trulia, BEFORE they actually start to look at specific properties. It maybe simply a characteristic of the latest generation of homebuyers… Yet as a group they are extremely analytical. Furthermore, they are surgical in their approach to home acquisition. They learn, and know value. They purchase based on value. The best measure of value is price, or more precisely initially ‘list price,’ but ultimately ‘sale price.’ The current home buyer is looking for great value. The list price must be compelling not competing. Many of the buyers I am working with now spread sheet their search. It is empirical. It is not emotional. It is also based on closed sales, not based on the list prices of competing properties. Buyers know and understand absorption rates… (The number of months, it will take to sell all of the listings on the market, at the current rate of sales.) Also, the ‘average buyer’ is in his. her, or their mid thirties. (The average seller is significantly older). The National Association of Realtors just released a new statistic that 94% of buyers between 25 and 40 use the web as their first and primary source in the home finding/acquiring process. This is amazing. ‘Pretty pictures’ in magazines or newspapers are not as effective as online photos, floor plans, videos, etc. The typical buyer speaks a different language and engages the process in a totally different way than the typical seller. The generation difference is amplifying the void between sellers and buyers. For buyers, this is a ‘strategy’ to find a great value. Sellers are trying to sell their ‘home.’ Most buyers are simply more objective.


The sellers are as a group, well intentioned but somewhat misinformed. The sellers are in most cases genuinely committed to selling. They firmly believe that their house or their neighborhood is better than the recent comparables and competing properties. In many instances they never view any of the competing properties. How do you make an informed decision without ever looking at the competition, (at least online)? Often sellers have only one or two Realtors give them a marketing presentation. The single largest mistake that they make is that they hire the Realtor with the highest recommended list price. What about record of sales, experience, and understanding of the market. I recommend that my potential sellers look at their home’s assessment, Zestimate, and Trulia value before we meet and discuss price. Many sellers are unwilling to discuss the absorption rate. As an example: in East Greenwich, for example, there are 14 houses on the market over 1000000. One is pending above a million and 2 have sold in the first half of the year. 3 total in six months is an absorption rate of 1 house very two months. With 14 listed it will take 28 months to sell the existing inventory. North Kingstown is more challenged. 1 sale, nothing pending and 20 properties above $1,000,000. A normal market would be 6 to 7 months of supply. The buyers know this: many sellers simply ignore this. The pattern and trend is the same in the lower price points, but fortunately not as severe. One of the contributing factors is that competition among listing agents to get the properties listed overwhelms the need for realistic price setting.

I have been speaking of buyers and sellers as universally the same. In fairness, they are not. The effective buyers are buying value and quality, not necessarily luxury. The effective sellers are learning the language of the buyer: it’s called value. With a significant oversupply price will come down. In Rhode Island, there is a herd mentality among sellers. One bases price on the other competing listings that are NOT selling. The price needs to be based on closed sales. This is a very difficult market. Prices continue to adjust downward. If you do not need to sell and want premium value, take your house off the market, and try again in a few years. If you need to sell, price it to be competitive. You should be one of the best two or three ‘values’ in the price point. Do not follow the sellers’ herd blindly over the cliff.

If you do this well as a seller, you will be able to be a BUYER.

Fixing Health Care for REALTORS®

NAR Officers' Blog Entry:

Last Thursday, July 9th, Senator Mary Landrieu, chair of the Senate Small Business Committee held a roundtable on health reform and its impact on Small Businesses. Senators Olympia Snowe, Chris Bond, Ron Wyden, Jeanne Sheehan, and Kay Hagan attendaned for a conversation with 9 ‘stakeholders.’ I was honored to represent REALTOR® stakeholders. This was my second visit in the past two weeks to Washington, DC to meet with health reform decision makers. The process of government is very ‘deliberate.' Two general observations, first, people in Washington are generally well intentioned and are trying to do right by their constituents and the country. Second, it is amazing that anything gets done given the first observation.

In real estate, we have an industry specific vocabulary: PITI, FISBO, HUD-1s, CMAs, BPOs, etc. Washington also has its own vocabulary and the health reform conversation its own vocabulary. (Our Washington Staff does an exceptional job with preparation for each of the meetings. Jerry, Jamie, Marcia, and Ken all met with me to review our policies and to teach me the ‘nuances.’ There is a lot to absorb. In my case they give me a list of vocabulary words to use AND a list of words to avoid). Among the recommendations that I shared with the Senators is the need to use plain speak, understandable language, in the deliberations on health reform, but more importantly with the actual program. It is important for Americans to be able to understand the choices they have in language that they can understand. When I am involved in the conversation, I find it necessary to listen with a very precise ear to actually understand what is being said.

The main message I delivered was the nature of REALTORS® and our business models. The demographics are telling: The average REALTOR® is 54 years old, up 2 years over the past two years, 60 percent of REALTORS® are female. The average REALTOR® earned just over $36,000 before $5,800 of business expenses. More than 300,000 of our 1.2 million members have NO insurance. A significant portion of the remainder have limited, non-comprehensive insurance. Over lay the fact that most REALTORS® are independent contractors. As REALTORS®, we have a need for affordable, portable, comprehensive insurance. You can review the balance of our ‘principles in the health care reform conversation at www.realtors.org/healthreform.

One of the other messages that we have delivered is that health care reform should be funded and paid for from insurance reforms, and cost savings. It should not be funded from any housing related taxes. Our comments are clear: “Do not ask us to choose between health care and home ownership.”

I concluded my comments with the observation that REALTORS® are making economic ‘triage’ decisions right now. Many REALTORS® are forced to make choices between paying their mortgages or health insurance. Obviously, many forgo comprehensive health insurance and rely on the HOPE Insurance program: Hope I do not get sick.”

Among the industrialized countries, the United States spends more of its Gross Domestic Product on health care than any other country, and yet the outcome of that investment is an inferior medical delivery system. REALTORS® want what is good for Americans, but they are pragmatic. Make sure that what is spent has value. Make sure that the costs reflect rather than belie the value. -- Ron Phipps, 2009 NAR First Vice President

Real Estate Metrics: Numbers Sellers NEED to Know

Sellers are trying to understand the market. Buyers have figured it out. Buyers have the upper hand. In some instances, they have the only hand. Rather than expound on the obvious, (it is a buyers market), it makes sense for seller’s to learn what the fundamentals are.

For the past forty plus years, most sells relied more on competing properties to determine value. Clearly sellers needed to look at closed transactions, but the philosophy was price ‘to’ your competition. The assumption has been that there is demand and that the delta between demand and supply was always within realms of reasonable. Some markets were sellers markets and some were buyers’ markets. This market is so extreme that the approach of pricing ‘to’ your competition is now obsolete.

Sellers must price to the price that will generate a sale, not traffic (showings) or interest. In the Rhode Island market generally, distressed sales, foreclosures and short sales, make up almost half of the market. Simply stated, sellers are competing against foreclosed and short sale properties. This means that prices will be lower. In many neighborhoods prices have continued to go down. That makes pricing very difficult.

So what are the numbers that a seller needs to know to price his or her house: First, he or she needs to know about the recently (90 days) closed properties. The absorption rate, how fast are houses selling, is also important. It is usually ‘figured’ in terms of months. How many months will it take to sell all of the properties currently listed and the current rate of sales?

The interest rate is very important. The mostly buyer of your home is going to have a mortgage. Need to understand what the mostly type of buyer your home will appeal to. If it is a first time homebuyer, it is mostly that the loan will be 90 or 95%. Take the time to determine want the potential buyer need to pay on a monthly basis. Most sellers ignore this step, ‘the price is the price.’ But in a market with higher unemployment and limited wage growth, what the buyers can afford to pay will have a profound impact on the sales price. The number you need is the monthly cost of Principle, Interest, Taxes and Insurance (PITI) for a buyer with a 10% down payment. This is what it will cost the new buyer to live in your home.

Two numbers are very misleading: days on market and the list price/sales price ratio. Days on market are difficult to us as each listing agreement starts at day 1. So if a house has been listed three times, the totals days on market may be 430, but the MLS reports that days on market are at 76. You want to look at the ‘property history’ to get a true picture of the total days on market. List price sales price ratio is also difficult and distracting. First because of the multi listing agreement situation just described, but also because of the price adjustments during the listing. If a property was originally listed at 475k and was reduced to 425k and sold at 400k…Which numbers do you compare? Clearly you need to build into your price room to negotiate. You will get there much sooner if your original list price is at or below other sold properties, not other competing properties. (There are still a number of sellers who are shopping for their price. Even if you find a naïve buyer the appraisal process will prevent the buyer from being able to over pay. So as a seller you need a naïve cash buyer to have a chance of selling above the market. Those buyers are 1 in a million.)


Ultimately, you need arrive at a list price that is not competitive, but compelling. You need that price that says to a buyer, we are a great value, not simply a fair value. We have a significant oversupply; price is the only ‘cure.’

One final number you need: a phone number to your local Realtor. This market is uncharted. You need expert advice to analyze and interpret the numbers. Many Realtors, including this one, work on a contingent fee. If successful in selling the property, he, she or I am paid. That is a really pro consumer model. Get professional advice. According to the National Association of Realtors, unrepresented sellers end up netting 16% less after success fee (commission) than represented sellers. Make sure the Realtor you hire is a full time, experienced licensee with a record of sales in this market. It is also appropriate to interview more than one Realtor to represent you. Finally, ask about the success fee (commission). It may be more competitive that you expect. Ask if the Realtor has a variable rate fee, which can be other, (most often lower), if both ‘halves’ of the sale, seller half-buyer half, are completed by the listing firm. That will also involve a conversation about agency and representation. Who represents whom?

You have enjoyed the shelter that home ownership has provided. Make sure to ‘capitalize’ as much as the market will allow when you sell. But that requires that you be realistic and reasonable.


The Numbers the Sellers Need:

1. Sales Price of Comparables (90 days)
2. Absorption Rate (Months)
3. Interest Rate
4. Monthly Payment (PITI)
5. Realtor’s Phone Number

House of the Month: 259 Forge Road, North Kingstown, RI

Just over the Greene River, past the entry to Pojac Point, one will find a meandering driveway that leads into the woods: 259 Forge Road. Five acres of treed privacy ‘wrap this grand estate residence. Originally designed and built by Jim Malm and his team in 2005, this home is a fresh interpretation of the American Shingle Style exemplified by the Tennis Hall of Fame in Newport. In harmony with its setting, the generous use of cedar shingles and native stone in a dramatic, classic statement is ‘of’ its site, not on it.


One of the main design features is that of ‘purposed space.’ As a time when energy efficiency and function have become more critical, 259 Forge Road is a creative application of this philosophy. Each space is large and open without being massive. Each space is versatile and functional: Each space is ‘purposed.’ The main gathering space, the two story great room, is dominated by stone fireplace that is engineered to store heat for the home, (from the boiler). Aesthetic and function in balance. The room enjoys a wine decanting station. The formal rooms are elegantly finished with high details and exquisite craftsmanship. The floors are Brazilian cherry.

One of the most amazing spaces in the house is the kitchen. The cabinets are locally crafted in birds-eye maple. The granite countertops are expansive. The appliances are exceptional and include a GE Monogram gas stove, Advantium oven, warming drawer, two dishwashers, etc. Among the unusual features of this kitchen is the soft drink tap system. The breakfast area has a herringbone pattern in the floor as well as a huge curio buffet.

The main level includes a sumptuous master suite. From the walk closet to the Japanese ‘soaking tub’ this is truly over the top. The marble floors are heats and the shower has multiple shower heads. The sleeping chamber is generous and welcoming.

One reaches the second level via a grand stairway. Hand turned spindles and the mahogany railing are woven together in a breathtaking manner. The terminus of the stair way is a living loft, ideal for causal conversation, reading, or relaxing. Three bedroom suites on this floor are served by two marble bathrooms. The bedrooms themselves have built out closets, window seats, and high tech electronics.

The lowest level is a great surprise. The recreation room is focused on a grand fireplace with a ‘sitting hearth.’ This is one of those places to share family stories and create new memories. The floors are also heated on this level. The full gym has a full bath for showering after exercising. The office is bright and open.

For the engineer in the family, the systems are impressive. From the smart boiler to the communication systems, this is a great example of innovation and execution.

The backyard involves a swimming pool with waterfall, decks, patios, a fire pit and rock outcroppings. This is one of the rare homes that embrace its setting rather than ignoring it. The swimming pool waterfall flows from the natural stone into the man-made pond. Once again there is a balance between the natural and the human.


Now that you know that this is a special home, you are probably asking: Why would anyone leave this home? The family is looking for a new adventure. The house before this one was going to be their last. It is time ‘to do another.’ So if you are looking for spectacular, check out 259 Forge Road, North Kingstown.



Facts:

Constructed 2005
Land Area: 5.06 Acres
Above Grade Living Space: 4034 sq. ft
Total Living Space: 5200 sq. ft.
Bedrooms; 4
Bathrooms: 4 and a half
List Price: $1,750,000.