My New Blog

Many agents are lamenting about how bad the marketis. Most people who were in the business is 1998 will remember that it was a pretty good year. The National

Association of REALTORS® is projecting that in 2008

there will be more than 5 million home sales or 10

million transaction “sides,” the same number as in 1998.

Assuming that there are approximately 1 million active

REALTORS® today, that’s 10 sides per agent.

The question is how can you capitalize on today’s market

conditions to increase your income in 2008?

Target active market areas. Regardless of where you

work, there are some locations and price ranges that are

more active than others. Watch the sales board in your

office as well as the MLS statistics. Focus your marketing

efforts on those areas that have the most business. If

you do face-to-face prospecting such as door knocking,

calling on for-sale-by-owners, prospecting owners of

expired listings, or holding open houses, make active

areas your first priority.

If you normally work the $400,000+ area and the sales

are currently active in the $250,000 to $300,000 price

range, shift your efforts there. Also, be sure to carefully

monitor activity each month. If you observe a shift,

follow it.

Put pressure on buyers who are negotiating by

doing a simultaneous price reduction. Whenever

you issuse a counteroffer with a lower price, ask the

seller to reduce the list price. When the buyers realize

that the seller is lowering the price, it places additional

pressure on the buyers to take action.

The best buyer’s market in 35 years: If you use

print on Web marketing, use your marketing pieces to

proclaim, “2008-the Best Year to Buy a Home in 35

Years!”

Here’s how to back up this claim: In April of 1973,

mortgage rates were about the same as they are today.

Since that time, we have only had mortgage rates this

low during 2001 and 2002, the height of the seller’s

markets where there was little invetory. In the last two

major buyer’s markets, one in the early 1980’s and the

other in the early 1990’s, the rates where much higher.

When I started in the business in 1978, interest rates

were 9.75 percent, en route to 18 and 21 percent in

1980. In the early 1990’s, the rates were hovering in the

11 and 12 percent range. Thus, today’s buyer’s market,

with exceptionally low mortgage rates plus substantial

supply of inventory, is the best time in decades to

purchase.

Show first-time buyers the cost of waiting. There

are several different ways that first time buyers lose

money by waiting to purchase. The first is loss of tax

deductions. In most cases, people who lack a mortgage

pay more federal and state income taxes that those

who qualify for a mortgage deduction. You can use a

mortgage calculator to illustrate this point. For example,

assume that a buyer is currently paying $1,500 per

month on a rental. If the buyer purchases a $300,000

property with $30,000 down and a fixed rate of 30-year

mortgage of $270,000 at 6.25 percent, the buyer actually

nets $24,262 more, assuming that appreciation keeps

pace with inflation, the buyer owns the property for eight

years, and is in the 28 percent bracket.

Another way renters lose money is through wealth

accumulation, generally in the form of creating equity

by paying down the loan and through appreciation.

According to the Federal Reserve, the average

homeowner between 1995 and 2004 had a net worth

of $184,400, of which approximately $60,000 was

due to home ownership appreciation. To account for

the difference of $60,000 of a wealth accumulation, a

$200,000 house would have to decline by 30 percent.

Thus, each year a buyer waits to purchase a medianpriced

home, the lose $6,000 in potential wealth

accumulation.

An additional way that renters lose money is through

increased interest rates. For example, on a $200,000

mortgage, assume that interest rates increase from six

to seven percent. By waiting, the buyer’s payments

increase by $1,578 each year causing a total loss (in

payments and wealth accumulation) of $7,578. If interest

rates increase from six to eight percent on that same

loan, they will pay an extra $3,221 per year resulting in a

total loss of $9,221.

Using the numbers that clearly illustrate the costs of

waiting to purchase will help to get many reluctant

buyers to take action.

First and foremost, what you see when you come here is the weather. We have forgotten how wonderful it is, how special it is, and how privileged we are to have the weather we have here in Lee County. Those of you that are transplants form the north: remember how amazed you were to be able to sit outside in a T shirt in January? How strange Christmas lights looked on a palm tree? How special it was to pick you own oranges or strawberries? How green everything was?

I have been talking to our buyers and relearning from them how special Lee County is. Lest we forget here are some of the highlights we have habitualized to the point that we don't see them as special any more.

1. The Weather.
2. The Beaches.
3. The Restaurants.
4. The Golf.
5. The Culture
6. The Shopping.
7. The Transportation
8. The Boating
9. The Schooling
10. The Gardening.
11. The Fishing
12. The Living Choices.
13. The Newness.
14. The Affordability.

The only one we lost over the last three years was number 14 - The affordability;. and now we even have that again

Take a look around and enjoy

Let's start with the good news.

Last month, more than 900 existing homes went under contract, thus making February the best sales month in Lee County since March of 2006. In fact, February's pending sales were up more than 60 percent from the same month in '07.

We are on a 60-day winning streak. The first two months of '08 show that single-family home sales are 36 percent ahead of '07, and condominium sales are up 16 percent for the same period. Notice, I am talking about "pending" sales, which are contracts written and accepted, but not yet closed. Even though there will be sales that fail to close, we will still post a significant sales increase. So, for those that thought our market was flat-lining, put the body bag away, because it appears it has a pulse.

Before you roll the market out of ICU, let me give you the bad news: Many people will misinterpret, dismiss or ignore this positive news.

Sellers and agents may misinterpret this surge in sales and believe it signals the return of the glory days. If they do, they will react in a way that would be contrary to further recovery. This is my biggest fear.

Skeptics and nay-sayers may dismiss this information and file it in the folder titled "Propaganda to Trick Fence-sitting Buyers." Many will even wonder how this tidbit of positive news made it past the good news censors, who seem to be working at every media outlet.

The die-hard wait-for-the-bottom buyers will chalk up this two-month trend as a seasonal blip. They believe sales will tank about the time the last snowbird's taillights cross Lee County's northern border.

The continuation of the market's recovery beyond the winter season is directly related to the correct interpretation of this long-awaited surge in sales. Does it mean the market is fully recovered or that the market has bottomed? No. Does it mean that prices have stabilized? No. Does it mean agents can finally eat something other than peanut butter? That depends ... do you like Spam?

The surge in sales was not caused by an influx of European or Canadian buyers. It wasn't caused by sunburned snowbirds from Sheboygan, Baby Boomers or ball players looking for a spring training home. In fact, buyers did not cause it at all.

Sales are picking up because sellers are getting closer to where the buyers are. After 30 months behind the wheel, sellers are finally driving their prices into the outskirts of buyer's territory. This is dangerous territory for our market because some sellers will be tempted to slow down, stop or put the car in reverse and drive their prices back up, thinking that the buyers will follow them. All of these reactions will stall our recovery, and heaven knows we don't need any stalling going on.

Our market began its recovery 2.5 years ago, when prices started falling back toward real values. It's been a long journey, but we are finally beginning to see evidence that we are getting closer to our destination. We are now faced with the most important and difficult question since the recovery started, and that is "Will we have the fortitude to finish the trip?" We must press on to the final destination, the tipping point, which is the epicenter of the buyer's territory.

Would you like to see our market fully recovered and prices stabilized? That will not happen until prices in each sub-market reach the point that makes that market tip back toward equilibrium.

So, it really isn't a question if prices reach the tipping point, it's a questions of when. For some market segments, like developer homes that can be bought below replacement cost, that's just around the corner. Other markets should start counting cows or Burma-Shave signs, because there's still a lot of road ahead.

Regardless, every market segment must meet buyers where they are. Therefore, the more downward pressure sellers keep on the gas pedal and prices, the sooner their journey will be over. Sorry, there aren't any shortcuts.

Sellers, I know you are tired of driving, but don't slow down now. There's a lot of open road ahead because the traffic jam is behind you in seller's territory. Over 900 sellers entered buyer's territory last month and picked up a buyer. If you keep pressing forward, you will begin to see buyers thumbing for a ride. When that happens, stop and give them one.

Keep the faith.

Here is a little tidbit to make money, be under the average sale price and average price per SQFT in your market. Break the market down in 60 days blocks. The results will be telling. From 60 day block to 60 day block. The market is quite fluid right now.

2002 thru 2005, the seller’s held the all the cards. The buyers do now. If we have learned anything the last few years. it’s that, you can’t win by fighting the market! It’s basically swimming up a waterfall. It is of no use, you are much better swimming with the current.

This brings me to my point. The market is at best an emotional, wandering beast. It behaves within certain historical guides but each cycle is different in breadth and depth. As Real Estate Investors and Real Estate Professionals, it does not matter how the market behaves, its how we behave that decides our success.

When you want to look at square footage, be sure to look at the following:

1. The air-conditioned footage. This is pretty simple. This calculation does not include the balconies, porches, or garage. When you are comparing buildings, make sure you compare price per square foot on similar size homes at the same levels and with similar views.  It is a good idea to compare the mid-priced unit in one offering with the mid price unit in the other.  Also keep in mind that if one home has one kitchen and two baths but has half the floor space as another home with the same type kitchen and two baths - the smaller unit is going to be more money per square foot. Kitchens and baths are more expensive. Therefore smaller units may have a lower price point, but be more expensive per square foot.
2. The ratio of square footage that you own versus the square footage of the entire project.   It stands to reason that if there is a large number of square feet that the developer cannot sell, (Hallways, elevators, stairs, and  amenities like boat ramps, tennis courts, exercise rooms, boat storage) the price that he must charge for SELLABLE space will be higher.  A low ratio of sellable space to the space built makes for a more inefficient design.
3. The extras.  Is there golf? Work out rooms? Gates?  Water; Etc. How much land does the community sit on? Is it tightly packed? If you compare one condo on the golf course with one on the river, you will not get a fair comparison.
4.  The quality upgrades. The standard features are built to a certain level of finish. One standard might call for solid surface counter tops another might call for granite or mica. We call this the finishes. Make sure you compare counter tops, appliances, grade of windows, flooring, crown molding, closet build outs, and other built ins. Find out what the standard finish is before you compare.

Today I would like to spend more time on these quality upgrades of the construction, the site work and materials used and give you some things to look for beyond square footage price.  I have seen too many projects today that have sacrificed quality in order to meet certain price points. Then the developer decorates a model in such a way that you spend more time looking at the high end furnishings rather than the home itself.

By the way, I think it is flat out wrong for a buyer settle for lower quality just to meet a price point. I would rather see you sacrifice size.  Remember that quality endures. Quality is an investment that will pay dividends

What follows if a partial check list of items to CONSIDER when looking at a new home or condominium.  To help you, have your agent make a checklist for you when comparing homes.

Outside

Driveway/Parking. Is there enough outside parking for guests?

Garage.  Wide enough for cars?  Extra Storage?

Setback.  How far are you from your neighbor?

Drainage. If possible visit during a rain. Are there gutters on the roof?

Soffets.  Are they wood, aluminum, or wire with stucco?

Roof.  Tile or asphalt?

Doors and Windows.  Impact or not? Shutters of not? Doorways covered from rain? Tinted? Screens? How easy to clean?

Landscaping.   Irrigated?

Lighting. Is it where you will need it?

Garbage receptacles.  Are they hidden? Convenient?

Hose Bibs.  Where you need them?

Location of Air Conditioning Compressor. (Consider noise and appearance).

Walkways.  Width, type, landscaping.

Inside

Some of these items you will not be able to see - but are important none the less.

Insulation.  Are any interior walls insulated for sound?  What about drain chases?

Plumbing.  Are there shutoffs where you need them? Compare quality of fixtures. Under mount sinks?

Paint quality. Lower quality homes are spray painted all one color.

Doors. Hollow or solid? Did they paint the hinges?

Closets. Finished interior, plastic clad wire or wood? Lighted or not?

Trim.  Look at the quality of the wood.  Is the trim actually wood or a composite? (Composites may swell in humidity). Lower quality homes have little or no trim.

Design.  Poorly designed homes make poor use of the square footage you pay for. Look for efficient layouts; good traffic flow, and property placed doors and closets.  Where will you place your furniture? Will it fit?

Lighting.  Look over the counters and work areas.. Look for overhead, switched lighting or at least plates where you can add your own in all the living areas.

Cabinets.  Look carefully at the drawers and sides of exposed cabinets. Look for high cabinets in high ceiling rooms. Make sure the finishes match.

Flooring.  Tile is all wet areas or vinyl?

Look in less obvious places for quality: in closets, behind doors, in the utility room.

You may think because you are purchasing new, there is no need for a home inspection, but I would encourage you to have a qualified home inspector prepare a review of your new home purchase.  He can provide you with a punch out list that you can give the builder.

Price per square foot is just a starting point and a basis for further investigation.  A good real estate agent can help you make your comparisons.

An article in the NEWS-PRESS confirms what we have been hearing on the street. People are moving into new homes faster than builders are putting them up. In the three month period ending with September 30, 907 homes were moved into and only 357 homes were started. This will begin to peck away at the 1237 vacant new homes that are on the market in Lee County Florida. It will be a long row to hoe but don't make the mistake of dividing the number of move ins into the vacant homes or even the some 15,000 odd homes on the market to come up with a period of time to get back to normal. First of all, what's normal? Home many homes are "normally" on the market? Ho many MORE homes would have sales signs on them if sellers thought they would attract a buyer?

I know you want answers but the simple truth is there is no one answer to the question, "when will the market get back to normal?" I believe the market has turned. Traffic at sales centers are up and new homes are selling. As noted above the absorption rate has turned. There are pockets that will be dead for years and there are sellers that have yet to see how big a beating they will have to take.We are working with many bargain hunters - and indeed this is a great time to buy. Interest rates are low again and the prices have not yet started to go up.