"Real Estate Econ 101"

An agent in our office called me over the weekend to ask me "a Broker question." Over the past 21 years of doing this real estate thing, I've come to learn this type of inquiry is really a "please advise me correctly, so as to keep me out of jail" question. Brokers are always thankful when they get asked. Errors and Omissions Insurance is nice to have when they are not. Anyway (Are you ready for this?) the question was regarding proper protocol for multiple offers! Yes - multiple offers - like the ones we got in that incredible run from 2000 to 2005. It seems that the agent's seller/customer was very motivated... understood market dynamics... and priced the home to sell quickly. Voila - three offers in two days... all close to full price. My goodness, what's happening? Is Palm Coast real estate booming again?

Not really. Capitalism, you see, relies on "market forces" (i.e. not the government) to sell goods and services. Human nature, it seems, is greedy. Want proof? Ever have to teach a baby how to be selfish? Sellers always want a profit, yet those pesky buyers... they want bargains. It's all about "Supply and Demand."

For demand to be "real," it must possess three elements: 1- The Desire to buy. 2- The Ability to pay... and 3- The Willingness to pay. If you haven't noticed, #3 has been sorely missing for the past year and a half. In simple terms, The Law of Demand says: Higher Prices = Lower Demand... and... Lower Prices = Higher Demand.

Conversely, The Law of Supply says: As prices increase, supply will also tend to increase. That is... until supply gets "too big" and then the whole thing spins out of control... like we are experiencing now in real estate. Then, the way this works, supply exceeds demand - and prices fall. In this Supply and Demand language, there is a Nirvana-like "sweet spot," called "Equilibrium." This magic place is the price buyers are willing to pay... and sellers are willing to accept. Hint: We aren't there yet.

The example I started with addresses a multiple offer scenario. It happened when one seller decided to get to Equilibrium. Then, just like in Emeril's kitchen... Bam - it got "kicked up a notch" for both the seller and the buyer... and a sale happened. Our challenge is this: Nearly every seller we meet with says something like this to us - "Yes, we know the market is bad... we understand what's going on... BUT, we don't want to give our house away. So, why don't we list it at $________ (insert a number here that is about 20% higher than the market value) and just try it for a while???" Please... Until sellers step up and accept the realities of the situation, inventory will continue to increase. It's a "Race to the Bottom" and those who get there first will be the winners.