Over the past few years in many of our markets, as listing agents and buyer's agents, we've become spoiled with quick sales from limited choices of little or no listing inventory.
Sales closed with little or no objections, and multiple offers. Inspections and appraisals were routinely waived, and on each property there were multiple offers. Even the garbage listings that we'd once turn our noses up at … listed, and somehow sold. Seasoned agents who were veteran of softer markets were dumbfounded as listings they rejected … sold with other agents, and prices climbed even higher still. Perhaps buying a home further out in the suburbs is the solution to our problems? Sound familiar? Low rates, strong buyer demand, and short supplies of listing inventory set the stage for a perfect stupid real estate storm.
Burgeoning real estate ranks, anxious buyers and sellers, plus loads of new agents with little or no experience buoyed this exuberance with closed home sales of questionable value. Little or no advice was offered to clients because everyone was caught up in the frenzy of the real estate moment. Gee, what was everyone thinking?
It's like a game of musical chairs -- only it applies to your real estate. It all works okay until the music stops. Are there any buyers for your home? Are they willing to pay you more than you paid for it? The problem with this scenario is that buying or selling real estate impulsively without qualifying the product. I really believe the old steadfast real estate axiom, "Location, location, location," was abandoned during this time!
We must never forget that location has many practical applications to value. Location applies to demand areas for commute, best schools, shopping, and most of all where there will be a strong market demand for the property. So without a great location, a purchaser may end up with real estate of questionable value. The true test of what you purchased is always in the resale of that property, and the greater the demand, the greater the price.
In a rising market, everyone was a real estate expert. In the past few years, ranks of real estate agents swelled across the country, and since many agents never bought or sold anything, how could they advise their clients? The 45 hours of real estate pre-license course really does not qualify anyone to advise a client. So, products weren't qualified for future needs or worth, and no one questioned the impulse purchase.
It did not matter that the property was located two hours from the city, but the terms stunning views, panoramic vistas, and great mountain lakefront sold the properties. Insatiable purchasers, would be investors, unsophisticated speculators, and unyielding home sellers fueled the market conditions by not having any solid plan for the purchase or sale other than the belief that prices must continue to go higher because the home and its surroundings looked so beautiful! I guess this can be called either stupidity or innate greed! But can prices go still higher, and will they? If answered objectively, it depends on what you purchased, and where it's located.
To those that are only familiar with a rising market, the only answer would be, "Yes!" Please keep in mind that even a broken clock is right twice a day! But if the answer is, "No," then we must ask ourselves what will sell and why? We must qualify the product.
Among the items that should be considered are: price of the property, condition, location and demand! What properties will hold their price if the market changes? If the markets do change, what's the best property to hold for a long term? What properties will have the best chance to appreciate in value? We must be able to answer the "Whys?" We must keep in mind there are always external pressures to real estate. Stuff happens!
Interest rates rise, energy costs can increase without warning, layoffs of local employers can occur, and before you know it … affordability has crept beyond the reach of consumers, and the euphoria finally gives way to reason and common sense prevails once again! So what qualifies a good property or a smart purchase? The answer is a back to real estate 101 basics. Location, location, location!
To keep it fundamentally simple, it is easier if we think of qualifying as a grading system! As we assist a buyer as a buyer's agent, we must be advising them of the assets and liabilities of the properties we show. If we are acting on the behalf of a seller we should be advising them of the realities of the market, and how they can best obtain the best price, and most favorable sales terms.
If we do not, we are not real estate professionals, and we are just order takers. So what is the real value in a property? How it the value determined? Keep in mind we are discussing a changing real estate market, and not talking about a real estate bubble; we are discussing a shift in sentiment of consumers. During this phase, buyers as a whole are cautiously rethinking their own needs. Consumers will take a time out to sort out their own needs versus wants. Rising fuels costs, heating bills, longer commute times, all translate into a need for practicality, and perhaps a better location. The real reason for a market change may be a longing to return to core values, and increase a quality of life rather than choosing the impractical and an ostentatious home. A smaller, older home closer in may be a lot more practical.
True value may be defined as the utility the property offers. Maybe it would be great to walk to church, have good schools for the children, nearby shopping, or be able to ride a bike to work if one wants to! Think about it. Location offers a life with an epicenter, as opposed to schizophrenia of the suburbs. Is there value in that?
As real estate agents and professionals, we need to be more proactive with home buyers. Qualifying the real estate in question as if we are grading a diamond should be part of our routine. What value is perceived in the property? What are the pluses and minuses? What surrounds the property? What is it near? What are the school districts? Are they good schools, mediocre or sought after? Is the property in question ideal for a short or reasonable commute? Is the property convenient to shopping, recreation, dining, mass transit, and offer desired amenities? Is the value of the property reasonably priced compared to the perceived valued offered?
For a moment, think about all the new homes being constructed in the suburbs At first glance they are perfect! They offer new schools, perhaps some over crowding, lower school scores and fewer choices in curriculum because it has not been totally defined or established in the newer schools. Homes in these brand new swim tennis communities may offer more bang for the buck, but offer only limited choices for shopping, and in reality have longer commute times due to road construction delays as infrastructure is brought to the new communities.
Initially the attraction of the smell of new paint, carpet, granite countertops and lower taxes, gives way to a reality check brought on by the stress of daily living. Higher commuting costs, marginal or mediocre education opportunities, long tedious commutes, and more wear and tear on the car. Conversely, closer in, there are older homes with bigger yards, many may even need some updating and paint!
They may be located in an area where there are established neighborhoods, houses of worship, good schools, accessible highways, mass transit, and shopping, and only 5-10 minutes from your job.
In a buying frenzy, the impulse would be to buy the new home without weighing out all the other factors. It is reality versus fantasy time. The true worth of any new home is the resale of it! If we go into an in depth analysis when we buy or sell, experience shows us we have not too much reason for concern. Good school districts will always be sought after; everyone wants a nice neighborhood, and a commute that is short enough that you can enjoy your home when you return home at the end of the day.
In short, a good choice in real estate will always be about location, location, and location.
