Real Estate Investing

David Knox, the most excellent real estate trainer whose presentations are as funny as they are informative, riveting, and fascinating, has coined the name of a new syndrome: PDS. 

These sellers tend to resist the reality that they must lower the listing price of their home, unwilling to accept that the days of the boom market are gone, said Knox, who spoke at the REALTORS® Conference & Expo in Orlando last week.

PDS - or Price Denial Syndrome - is a common problem these days among sellers.  Knox told Realtor.com magazine that sufferers often blame the real estate agent for suggesting a lower price for the home.  In addition, they also find ways to justify a higher price. 

I recall going to a listing appointment once for an average home.  A single man had hired someone to decorate, plus he added a privacy fence in his backyard which was next to a very busy road.  The problem was that his so-called decorator put up wallpaper - very unappealing to most buyers these days.  To make the problem even worse, the wallpaper was put on wrong, the stripes were placed horizontally rather than vertically.  It looked silly, but he was so proud of it that I didn’t criticize. 

To my knowledge, he still lives there three years later because, thankfully, he wasn’t really interested in listing… he just wanted to find out what his house was worth if he decided to sell.  I think he was disappointed that the decorating and the privacy fence didn’t add $25,000 to the value. 

Unfortunately, this idea that your home is worth more than it actually is commonplace.  When you’re ready to sell, your buyer doesn’t care that you need the extra money.  With a hundred other homes to choose from, they’ll just move on to the next house.  If they see your price constantly being downgraded, they’ll think something is wrong with the house or it’s in a bad neighborhood. 

Sellers *must* get the price right the first time and it’s up to the Realtors to be truthful right at the beginning.  It’s very difficult to tell people “No, you can’t try a higher price for two weeks.”  As Knox joked,

Buyer activity is highest when it’s just listed so don’t turn off the serious buyers at the beginning. “Tell them that you can raise the price after the first two weeks.” 

Go read more of his thoughts here.

CNN.com has a live poll right now asking “What is the housing situation in your area?”  Readers can check:  1.) Lots of foreclosures, 2.) Fairly stable, or 3.) It’s booming.  A not-surprising low 5% answered “It’s booming.”  The big news is that most people acknowledge their own markets are fairly stable.

This finding may well clarify one of two things - or maybe both.

• Most homeowners are in denial that their homes are losing value.  MSNBC reports,

Despite dismal housing headlines and reports showing falling prices nationwide, owners in some once-hot areas still believe their home is gaining value or at least holding its own. And by hanging onto too-high expectations, sellers are unwittingly keeping the market from finding a bottom.

and

That puts real estate agents in a precarious position of pricing a house to sell, but not insulting the homeowner by recommending a lower asking price. To a homeowner, a low, but realistic, listing price is “like someone calling your kids ugly,” Ariely said with a laugh.

• Maybe every market isn’t bad because all real estate markets are local.  The community I live in has been hit hard by foreclosures because the city managers allowed investors to come in and develop en masse: cheaply built sardine housing with no green space, no sidewalks, and shady lenders.  The community next door is thriving.  Up the road in either direction we find strong sales and weak sales.  A lot also depends on the whether the homes are starter homes or luxury.  Sandy Nelson, an agent in Olympia, Washington, said,

Have you heard the saying “A man with three watches never knows what time it is”? This applies to gauging the real estate market. Consumers, adept at finding  property data on the Internet have experienced that data from Zillow.com is different from Trulia.com, and a home’s tax assessment is a whole other story. 

Turning to the news isn’t very helpful either, as you often hear conflicting reports depending on the media spin.  Real estate is extremely local and detailed. For example, “Home sales in Thurston county are down” is not the same as “Home values in Thurston county are down”. This isn’t just a nuance; these are differences that completely change the picture. It’s like taking your temperature with a tire pressure gauge rather than a thermometer.

Before you jump off a bridge over the value of your home, talk to a professional in real estate to see if what you read is true.  You might want to just stay put until things settle down.  While not every person can wait and see because time IS of the essence, sometimes it is better to wait and see.  If tomorrow doesn’t bring the solution you seek, then next week, next month, or next year might.  Meanwhile focus on things you can change.  Do like Real Simple writer Steve Almond did and try to live a week without spending money.  

On the way home, we stop to pick up buns from Erin’s favorite Portuguese bakery. I could argue that I’m not buying the buns for myself, but rules are rules, so I beg Zach to pay for them.

“Come on,” I say. “I’ll pay you back next week.”

“Isn’t that just a deferred purchase?” Zach asks.

I ponder this question, weighing its logic against the prospect of returning home to my wife bunless.

“Listen,” I say. “The lettuce in our garden is going crazy. Buy me these buns and I’ll give you a bushel of romaine. Dude, that’s a straight-up barter.”

The commentary is witty, but it’s sobering to think how hard it would be to really stop spending and the reason our economy will recover. We will continue spending money because bartering won’t sustain our lifestyles.

Photo by clearlyambiguous via Flickr Creative Commons.

I feel kinda bad for President-Elect Barack Obama.  Seriously, who would want the daunting job he is now facing?  In my own little bubble, I only worry about housing - what’s in store for the real estate market in 2009?  2010?  Can I continue to make a living as a residential specialist?  Will my clients be able to hold onto their jobs so they can make the payments on the house I find for them?  What about my own house?  It needs some repair work, but with the pay I’ve made lately I’m doing good to keep up with just my mortgage payment, much less fix the gutters and put on vinyl soffits.

You can see all the worry I’m facing and these concerns are just a fraction of my own big picture.  That said, I can’t imagine taking on the problems of the whole nation under the microscope of the world.

So before I overwhelm myself with *everything* this new Administration will be dealing with, I’m refocusing back on the housing market for 2009.  Money Magazine Senior Writer Stephen Gandel wrote a great article where he predicted housing will continue to be slow in ‘09:

Then look at the fact that 18.6 million homes in this country are now sitting vacant, more than at any other time since the Census Bureau began tracking that figure in the 1960s. And that 2.8% of U.S. mortgage loans are now at least three months in arrears, up from 1.4% a year ago. That rate is projected to peak in early 2009.

But if a recession lasts for three-quarters of the year, as some economists are predicting, the number of foreclosures could remain high longer. Add it all up and you have another lousy year for real estate.

However, Mr. Gandel went on to say that if prices drop low enough the housing market wildcard could be investors buying up the excess inventory because they’ll be able to rent for more than their monthly payment.  Right now investors should be considering real estate as a staple of their financial portfolio.

Further while these times are exceedingly difficult for all of us, the difference between this week and last week is that the person who was elected to serve as President brings something many haven’t felt in a long time… personal responsibility.  I believe - and this is not necessarily the opinion of banks.com - that Barack Obama can inspire people to find ways to save money, to spend wisely, to get their financial houses in order.  And when this type of personal responsibility spreads, we’ll see the economy opening back up, the housing market blossoming, and the stock market recovering.

Photo by BohPhoto courtesy of Flickr Creative Commons.