Much has been written across real estate blogs and mainstream media outlets about unrealistic home sellers. It seems much less common though to talk about unrealistic home buyers.
Naturally everyone wants to get the most home they can for the least amount of money. Which is, of course, in opposition to the home seller, who wants the most money for their home. This inherent conflict is one of the things that makes real estate sales”¦ challenging at times.
It has been my experience of late that home sellers in Phoenix are becoming much more realistic. While it used to be quite common to hear sellers say things like, “But my neighbors house sold for x dollars last year!”, sellers seem to be getting more realistic when it comes to their home’s value, as depressing as that may be.
Home buyers on the other hand almost seem to be losing their grip on reality.
Here are some examples of communication we have received lately:
- We’d like to offer $30K under list price”¦
- I want a single-family detached house in Scottsdale, on a golf course. I can spend up to $150K”¦
- I need a home less than three years old, NOT in a HOA”¦
- We just foreclosed last month and are looking to buy. I think our credit is horrible, and we don’t have any down payment money”¦
- I need a smoking deal on a bank owned home or short sale. I’m willing to pay 50% of list on multiple properties”¦
- I refuse to pay a dime over list price on a short sale or bank owned home”¦
I could go on and on.
The answer for all of those comments above is “you can’t do/get/buy that”.
Here’s the deal. Much of this type of thing comes from simply not understanding what is happening in the real estate market. And by “the real estate market” I am not talking about what you hear on CNN or even your local evening news / newspaper. You need to understand what the market is doing in the specific area you are interested in. “The market” is just too broad and real estate is hyper local.
As a home buyer, you can’t be expected to truly understand your local real estate market. Most people buy available single family homes every 7 – 10 years. We are up to our necks in this stuff every single day. That doesn’t make real estate sales people better than you, or smarter. It’s just what we do for a living (and sometimes I ask myself why in the world I’m doing it”¦). Helping people determine the nuances of their local real estate market is what we get paid for (and why, to be brutally honest, it is very frustrating to have our data, attempts at education, and advice questioned repeatedly ”“ or ignored).
An example:
At this moment in time, the average price of a home in the Phoenix Multiple Listing Service is $175,509. That number is for the entire Phoenix MLS area, which includes all of Maricopa County and a significant swath of Pinal county. That is a HUGE area ”“ almost the size of the state of Massachusetts.
Listen to the mainstream media and you’ll often hear the average priced batted about ”“ it’s rising, it’s falling, it’s hopeless, it’s recovering.
So what does an average home price in the Phoenix area of $175K mean?
Absolutely nothing.
You want a home in Phoenix proper? Average price is $132K
Scottsdale? Average price is $639K
Gilbert? Average price is $221K
El Mirage? Average price is $79K
You see, when you lump every type of home in a 10,000 square mile area into one number, it swiftly begins to become meaningless.
So let’s drill down a little bit. . .
$639K average home price in Scottsdale? What does that mean?
Only slightly more than absolutely nothing.
Right now I could sell you a condo in Scottsdale for $32,000 (but it’s not on a golf course). Or a (really) nice home for $15,000,000. About all the average price tells you is that generally, homes in Scottsdale cost more than say”¦ homes in Gilbert, which are more, generally, than homes in El Mirage.
Here is where being a “realistic buyer” comes in to play
It is a waste of your time and your agent’s time to try to find homes that simply do not exist. That part is relatively easy to educate, and provide hard data to back up that education. Want a golf-course lot single-family home in Scottsdale? A quick trip to the MLS shows you have 323 options, and the five lowest priced ones are: $295K; $350K; $394K; $410K; and $424K. You simply can’t get one for $150K — it does not exist. Don’t waste your, mine and our time looking for one.
You want to “steal” a bank-owned home for 50% of list price? Consider this”¦ In Feb 2010, there were 2,822 lender owned properties sold, at an average of 98.48% of list price. How many do you think were sold at 50% of list price? While I have not looked at all 2,822 sales, I’m quite confident in saying that number is zero. You can’t buy REO properties in Phoenix at 50% off list price. That’s not a realistic expectation.
That’s all hard data ”“ you can’t argue with it (though many do).
Were it gets tough is on some of the more nebulous requests from buyers. You don’t want to offer a dime over list price on a short sale? Well, here is where you may have to rely on your agent’s expertise. I can tell you (and show you) that there are oodles of short sale listings in the Phoenix market priced woefully under market value. We could spend hours pouring over current listings and past sales to demonstrate this. But that’s not an effective use of your time (or mine). And it is still a difficult thing to prove. The problem is, there are listing agents out there with the nasty habit of grossly under pricing a short sale in an effort to generate an offer and/or bidding frenzy. Offer below list price on a home already priced lower than the bank will accept and you are looking at an exercise in futility.
When you are buying a home, you have to be realistic. You aren’t going to get everything a $500K home has to offer for $250K ”“ it just doesn’t work that way. You’re not going to steal a home from a bank, no matter how much the banks annoy you or how much they got in bailout money. You aren’t going to live a Scottsdale lifestyle on an El Mirage budget.
Please please please, for the love of all things good and the little fluffy bunnies, don’t think for a moment that I’m saying all buyers are unrealistic, or that no one listens. Buyers are smart. Smarter than a lot of people, including many listing agents and sellers, give them credit for. Yes, it is frustrating when a buyer won’t listen, or doesn’t believe what we say. Given the general mistrust of real estate agents in the public’s eye, I understand that reluctance to believe. I understand we have to prove we know what we’re talking about. We have to earn your trust. Once that trust is earned however; take advantage of it! Believe what your agent is telling you. I can assure you that they want to sell you a home as badly as you want to buy one.
Think about what your expectations are, and work with your agent to see if they are realistic. It’s OK to ask for as much proof as your agent can provide. Realize though that some things are difficult to prove with hard factual / statistical data. Sometimes empirical data (based on observation and experience) is all you have to work with. Combine the two, work closely with your agent, build that trust and get out there and find that perfect home!
Just be realistic. It will greatly reduce your stress level. And your agents. Remember, real estate agents are people too. (At least most are most of the time”¦)
The Phoenix Real Estate Guy was started by Jay Thompson, and I have a little blogging problem... he liked to say...
Yep, run into that all the time. Everyone's an expert homebuyer these days with all the "info" out there. Folks just need a good agent who can help inform them on what's really feasible in this market.
.-= GA Short Sale Agent´s last blog ..Get Paid to do a Short Sale? Really? How You Can Get $1,500 for Moving. =-.
Great post Jay. You should have all your buyers initial "as read and accepted" before you take them out.
Thank You Jay! Most buyers are intelligent and realistic. The few who are living in an alternate reality are the ones that really drive me up the wall. Especially when they want a foreclosure for half of list price. Prices are already down 50%. It already is half off!
Yes many clients are out to lunch as to the relation between list price and sales price. It always helps to begin to educate clients right from the first contact. I stress to my clients that there is little to no room for negotiation when considering foreclosures. The best foreclosures sell quickly and usually have multiple offers.
.-= Marc Brodeur´s last blog ..Arizona Commercial Real Estate Updated Stats =-.
After writing this I can imagine that you felt a little better…kind of like you got to blow off some steam. I want to thank you for doing it because after reading this post I feel the same way. I have the same pent up frustrations inside that I suppose all good agents out there have with their clients right now. Buyers will not believe me that they have to be agressive in the low end of the San Diego Market (which is very different from the high end). They don't believe that they may need to offer full price or above depending on how it was priced. In turn, what happens is that most of them need to miss out on a couple properties that they wanted before they start getting the message.
There is so much talk in San Diego about how bad the market is, and to much extent that is true. The problem is the interpretation. The market is bad in terms of the price that realistic sellers are getting. But at those low prices there is a lot of competition. The last 3 properties that I listed under $400,000 ( that would be low end in San Diego) all got mutiple offers within 24 hours and sold over list price. Two of them to cash buyers. That's the nature of the beast and buyers need to understand and accept it if they want to be competitive.
Now, if you were purchasing a $3,000,000 home in Rancho Santa Fe I would tell you to come in well under asking price. This is becausue, as you said, Jay, markets are hyper local. Buyers and sellers alike need to understand their local market, stop listening to national news, and trust their agents.
Hi Jay, Yes Buyers often have unrealistic expectations, but why is that? Could it be because the media feeds them misinformation and then they come to Realtors, (who they don't trust) to hear something different.
It makes my job harder to explain in great detail with stats and facts and that empirical data you were talking about, but that's okay, I'm up for it. By the time we're done my buyers are well-informed and know exactly what's plausible and what's not.
Quite clearly you know all of this though – You say it very succinctly, (as usual) in your post.
.-= Denise Hamlin´s last blog ..119 S Mt Vernon Dr, Iowa City =-.
No disrespect intended personally, but real estate agents will never earn our trust. There's an inherent conflict of interest when a person works on sales commissions.
Personally, in thirty-years time I have never, EVER, worked with an agent who put my interests ahead of their own. Only a fool would trust their real estate agent.
.-= Guzzo´s last blog ..Bullish FOMC Statement =-.
Guzzo – I'm very sorry to hear that you've never had an agent you can trust, or who put YOUR interests first. The only way (in my opinion) to build a long term client base in this business is by putting your clients interests first. That's what we do, and I don't know how an agent survives in this market by putting their own interests first.
I know there are agents out there exactly like you describe. But I also know many agents that you could trust and would put your interests well ahead of theirs.
I don't think any of my clients would think that I put my interests first – except maybe in terms of managing time slots I spend with clients (a work-life balance issue). I'm motivated most by having happy home sellers and buyers and, as Jay says, the only way to be successful in this business is to create a lifetime client base vs. chase individual transactions.
Like with anything, generalizations can make sense but one size rarely fits all.
Jay – this is a hard article to write. I'm glad you put it out there!
.-= Laura "Ole" Olesen´s last blog ..File your Homestead Exemption now =-.
Great post Jay, I hear and deal with a lot of the same things on a regular basis. San Diego is on the coast and when a buyer from out of the area sees a REO condo listed for $100K, in EL Cajon they don't realize that this is a 30 minute drive to the coast. They are expecting an ocean view for $100K. As long as you spend the time with the clients they start to realize that there are some good deals but there not giving the homes away.
.-= San Diego Real Estate News´s last blog ..Team Aguilar March Madness 2010 Office Pool =-.
that’s great when a person has an ability to find funny moments in ordinary things:) Thanks for sharing your cheerful experience!
I love the idea that Realtors, a group that generally has been resistant to adopting new marketing techniques, is moving into the Social Marketing realm.
Seems that every buyer is asking for the world. Doesn't really surprise me. This is the exact opposite from what we saw during the frenzy a few years back.
Ha Ha, so true Jay! Here in Los Angeles, just as bad. I try and tell clients that this is a great time to buy and prices are really really low as it is. It is true that prices may be a big lower over time, but that's up for debate. Now is truly a good time to buy, especially if this is for a family home or for a rental home long term. Flipping is a bit risky at this time, still being done out here, but not like the good old days a few years ago. I really don't mind people asking about these things, it's just all part of the adventure.
It is an interesting phenomenon when homes that had been priced at $500,000 are now closer to $300,000 and people still aren't sure it is a good deal. Offer $270. Right. Not going to happen. Especially foreclosures. They are priced to sell quickly, and they normally sell over asking price.
Absolutely fabulous post! Thank you for taking the time to break down the numbers to illustrate your point! While wearing my REALTOR hat, I've had several clients want to write low-ball offers on well-priced properties. What a waste of time!
This is all the media's fault, of course. If you tell buyers for years to expect the world, of course they are going to.
Some Real Estate Agents, although it's their job, sometimes tend to coerce buyers and make themselves sound that something is really urgent. For a home buyer like myself, I'd like to take my time in buying a home because this is not just a pair of shoes that if you don't like it, you'll just have to buy a new pair. This is a long term decision and they have to understand that.
You bring up a great point about how “local” real estate really is. Property values can have major differences from one street to the next. Values change within a street if one side backs on to a busy street or railroad track. There are some in demand neighbourhoods where its almost impossible to get a “bargain”. I do find bargains on condos that have problems with the Condo Corporation and management. Fraud or serious maintenance & repair problems will severely lower condo values. If it looks like the management problems will be resolved in the near future you may be able to get a great bargain. But the maintenance fees may be so high that it isn’t worth buying for a dollar!
Most people believe what they read or hear on the news. In my area you would think we're back to the good old days, 2004-2005. No we're not and won't be for a long time. They also believe that they can buy a home in Newport Beach for the median Orange County price. Not much different anywhere. The more things change the more they stay the same.
If they're not ready to buy in this market with depressed prices and 3.75% 15 year fixed interest rates, they're probably insane. Lots of great opportunity out there!
This is the best time to buy ever. Many investors are sitting it out? Why??? Are they waiting for the prices to go back up so they can pay more?!?
I agree 100%. Now is the time for the smart entrepreneur to make his move(s). Phoenix isn't the only place this is happening either… I truly believe that "recension" is in the eyes of the beholder.
Home buyers north of the border are not much different. Since our markets have not seen the foreclosures that the US has you would think that they would not be so disillusioned, but they are! Everyone just wants to personally gain by a bad situation. But what they don't do it put themselves in the sellers shoes. Just how is a seller gonna respond to an offer that is $40k lower than their asking price…??
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