I’ve read a lot of “horror stories” recently about upside down properties. And it’s bad. The Wall Street Journal reported at the end of February that 11.3 million homes in the United States (that’s 24 percent) are underwater, meaning that the owners of the home owe more on the property than that property is worth.
It would be easy to write an article about what a great opportunity this represents for real estate investors, but I suspect that you probably already know that. In fact, it’s pretty clear that a lot of you are out there literally “saving the [real estate] world” with your ingenious strategizing and maneuvering to help get these homeowners out of hot water while still running a profitable business yourself.
But what to do with the homes once you’ve got them? Well, some trends indicate that a lot of investors are just keeping the properties and planning to rent them out to the new, “locked in” rental population that probably won’t be even considering buying for the next ten years or so. However, a lot of people still want to sell in fairly short order, and that’s where what buyers are looking for really comes into play.
According to a (pretty snarky) article published in the New York Times recently, buyers no longer trust real estate agents, investors, etc. when they say “It’s a great time to buy” because those parties have been saying that since before the boom. However, it seems to me that the problem is not that we are saying that – because it is a great time to buy – but because we are saying it indiscriminately.
The article goes on to quote Barry Ritholtz, CEO and director of equity research at Fusion IQ, who declares that “What they [real estate agents and sellers] are really saying is that it is a good time to be involved in a transaction that generates commission” when they say “it’s a great time to buy.” On the other hand, buyers tend to think it’s a great time to buy when the price of the house is going up – something that may be hard to find in many areas right now.
In order to market properties effectively, sellers (agents, investors and otherwise) need to target buyers on multiple fronts. Unfortunately it is not enough anymore to just say “Hey, it’s a great time to buy” because even though it’s true, we’re met with skepticism because the audience has heard that line so many times before. Instead, we need to figure out what the buyers are looking for on an individual basis (flipping profits, profitable sale in ten years, a home to live in for the next 30, etc.) and market accordingly. Otherwise, even though the sellers are telling the truth, it sounds to buyers like they’re just full of hot air.
Your thoughts are welcomed in the comments area below. Thank you for reading http://realestate.BryanEllis.com!
Buyers and sellers are NOT stupid. However, many buyers and sellers are desperate and confused.
Sellers facing foreclosure hear the smooth-talking agent or investor promise to keep them out of foreclosure. From some agents today, all I hear is the one-size-fits-all “short sale” solution.
Similar to how some BK attorneys want all of us to believe every financial hardship calls for BK.
Buyers jump on list price, naively believing today’s prices beat the hell out of ’06 prices.
For years I’ve followed Barry Ritholtz’s blog at http://www.thebigpicture.com — his blog brings a macro look at real estate as well as stocks.
In this case, the “big picture” is about really trying to help people. I *am* a realtor in Sarasota, Florida. Of course, I want commissions as much as the next guy. However, I know doing what’s right for the person I’m helping (even if it doesn’t earn me a commission now) will come back in referrals or future business.
Some short-sighted investors and agents can’t see this. My guess, Bryan, is that people who read your blog understand this. It seems the “younger” REI (inc. “gurus” and agents) try to simplify solutions…that reward THEM.
For months on my own blog, I too have warned buyers not to fall for more “happy talk” about it being a great time to buy…or that today’s prices couldn’t possibly go lower.
TRUTH is: prices in Sarasota continue to DROP! How would you feel about being underwater before you’re out of escrow? Oh yeah, I know the common “party” response: “It’s a home, not an investment and it (will) recover in value.”
Is it a “good” time to buy?
That depends….
Retail buyers need to adopt investors’ aggressive buying strategies–don’t settle for today’s better-than-06 prices. To the NAR, this is heresy.
For some, the TRUTH hurts!
Mike
Thank you for helping us REI’s see how the use of marketing language can actually disuade a would-be buyer rather than help them to make a prudent buying decision for their true benefit.
I agree with Bryan and Mike, and I’ll add my own perspective.
One of my mentors taught me, “any property on Earth could be a good investment provided it’s obtained for the right price.” A problem is that many people (agents, investors, buyers/sellers, bankers, etc) don’t account for enough factors when drafting an offer. Many agents use emotional appeals to compel their buyers/sellers to act; whereas, many investors obsess on various “numbers” to compel their buyers/sellers to act. A good offer consists of a set of price and terms that maximizes the positives and minimizes the negatives in a transaction.
Buyers/sellers are becoming more jaded, because they’re starting to realize that they only received part of the story. We need to present both the positives and negatives to help our buyers/sellers to make the right choice. Doing this will help our credibility.
Another thing that would help the real-estate industry as a whole is for some agents and investors to stop back-biting. Some agents like all of us investors to vultures, and some investors (myself excluded) liken many agents to leeches. We need to learn to work together more effectively, because we need each other–whether or not we like it. Until we collectively stop airing our dirty laundry and bury the hatchet, buyers/sellers will look at us both with skeptical glares.
I feel that part of the problem with selling homes in this market lies with the banks. There are buyers for homes, but the banks seem to look for excuses to not make the loans, even when they approved the buyer prior to them making an offer. Why should the big banks loan on properties, when they are loosing big money on bad loans? So as long as money is tight, it is the investors who are using private money to fund the purchases.
I read another article that indicated that the bailed out to the banks was free money to them. Then they invested the money back to the government at 3%, why then should they risk at lending the money, when they can make money on free money.