The Real Estate Wild Card

The Real Estate "Wild Card?" As though real estate hasn't been wild enough for the past 20 months? If you're a seller, you're not laughing, are you? Before I go deeper, let me define "seller," ok? It's someone who really has a need or a strong desire to sell. I always ask potential listing clients, "On a scale of 1-10, with a "1" meaning "no need," a "5" meaning "if I can get my price," and a "10" being a "desperate need," how would you rank your motivation to sell?" If we aren't at "7 or above," they'd need to be blood relatives for us to take them under our wing. It's just a huge exercise in frustration (for them and for us) to do otherwise. Sometimes I feel like Dr. House on the popular new TV series, "House." I know I'm right, but they sure don't want to hear it, if the news isn't what they'd like. Remember ENRON? When it had gone from $20/share to over $200/share, no one wanted out because it was "too good" to get out. When it plunged to $1/share, reality was tough to swallow. Houses are like that (kinda' sorta') as markets cycle. If you bought in 1998 for $200,000 and could have sold in 2005 for $600,000 and now the number is $500,000... that's not cause for bridge jumping.... That's a 250% return in nine years... plus the best tax write-off in town. Sure your closing costs and professional fees will be a cost of 7-8%, but your tax person can find more deductions there... AND you got to live there and enjoy it for nine years. America - what a country. Just like with stocks, once the train leaves the station - and you weren't on it - you've missed this one. The tendency that sellers have is to embrace that $600,000 number like a prom date, as if the market has not changed. (Admittedly, things can be a bit dicey however, if you're the one who bought it for $600,000 in 2005 - and need to sell today.) Sellers, if you need to sell now, make sure your agent is being real with you. Because the "Wild Card" is coming... and it's a really big deal. If you went to the doctor with chest pains and difficult breathing, and an x-ray "found something" on your lungs, would you want the doc to withhold that, so as not to hurt your feelings? Or would you want the truth and an aggressive plan of action to maximize your potential outcome? No-brainer, right? Then ask your agent to get tough. Pick up the phone and call them. Tell them you want current, accurate data - and a compelling argument for the correct price - the price that will cause you to sell - now. It's not that there are no buyers. Their ranks have not shrunk much more than 10% (as the others "wait for the bottom.") The challenge is not Demand. The challenge is Supply, as inventory has swelled to levels that would take over three years to absorb, at the current rate of sales. As a result, overall prices have dipped negative for the first time since 1996 (see the above chart from the 03/27/2007 Wall Street Journal - Real Estate Journal)

Here's what's coming: Several Hundred Thousand Foreclosures in 2007/2008. That's the "Wild Card." Why is this important to you as a seller? Because this inventory surge is going to push prices even lower. Industry economists (not just one or two crackpots) are predicting a dip of another 5-7% in prices, because of this reality. Just one foreclosure can lower prices in a given neighborhood another 1-2%. Don't let your agent get away with just saying, "We've got to lower the price." Make them prove it. Position yourself wisely. If there are 50 houses like yours for sale, look at the actual "selling prices" of the last 5 to have sold. That's where you want to be. Don't get into the vulnerable mindset of, "They can always make an offer," or, "There's a buyer for every house," or, "If it's meant to be, it will happen." For a ship to reach its port, it first has to pull away from the pier... and sail an accurate course. Ask that your Realtor provide professionally researched data to support their argument. It's what you'll need to make an informed decision.