The Goldilocks Syndrome

According to an article which appeared in the October 31st issue of the St. Petersburg Times, sellers who set an asking price that is too high suffer from the "Goldilocks Syndrome" -- that is, they want more gold than the market is willing to deliver for their property.

The article points out that there are a number of factors which sellers need to keep in mind when setting the price ...

1. The Economy. Sellers have to keep in mind what the market will bear. Those prices from 2005 and 2006 have gone the way of the dinosaur, so don't ask what you won't get.
2. Comparable Sales. Buyers, appraisers and real estate agents look at price per square foot. That value is determined by the selling price of similar homes in your area. That selling price is the market telling sellers what it is willing to pay for a house in a particular neighborhood. Smart sellers listen attentively and act accordingly.
3. Amenities. Upgrades can increase your value, but not on a dollar-in-dollar-out basis.
4. Location. Yes, location matters. It's not just your neighborhood, it's where you are in your neighborhood. Busy streets -- even in a great community -- are less desirable.
5. Seasonal Influences. Pay attention to the school schedule if you're selling a family home. Families tend to buy in the summer so they can be moved when school starts. Second home buyers tend to buy in the winter when the snow is flying in the north. Time your sale accordingly.
6. Appraisal. Mortgage lenders won't approve a sale for more than the appraiser feels the house is worth. So, even if you get your "dream price", you may not be able to close the sale unless you have a cash buyer.

If you follow these six steps you should be able to avoid the Goldilocks Syndrome, price your house correctly for the marketplace, and sell it at the highest price in the shortest time.

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Home Prices Soar, Er, Go Up A Little

I don't know if you happened to catch the news that home prices rose in August for the third consecutive month according to the well-respected Standard & Poor's/Case-Shiller report. After three years of decline, prices this summer advanced at an annualized rate of nearly 7 percent nationally.

News was not quite so bright in the Tampa Bay area. Here, the price index increased a much more modest 0.4 percent. Experts blame rising unemployment, faltering consumer confidence locally, and the overall lack of speed of the economic recovery as reasons for the slow growth in the Tampa Bay region. I think you can also point to our traditional bugaboos of property taxes, homeowners insurance premiums and lower incomes as also contributing to the slow growth in real estate prices.

Robert Shiller, one of the creators of the report and a noted economist, said that he expects prices to rise for the next few months but can't forecast beyond that. Shiller said that this does not seem to be a time for home prices to be booming, so the future holds a lot of uncertainty. Despite some signs of economic recovery, economists feel that home prices could dip again due to unemployment and an expected rise in foreclosures combined with the end of the tax credit for first time home buyers. Overall, however, prices rose in 15 of the 20 major metro areas surveyed by the Case/Shiller.

I guess the question is whether this is the beginning of the end of all this, or just some kind of anomaly in the data. Only time will tell.

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How Buyers Determine Their Offer Amount

Ever wonder how buyers come up with the amount of money they are willing to pay for a particular property? Sometimes it's a pretty good offer compared to the asking price, but often it's an offer that is so low that the seller is insulted and won't even prepare a counter-offer.

How do buyer's come up with some of these figures, you ask?

Well, there are two things to keep in mind. First is the asking price. Sometimes the seller is simply asking too much money, and the listing agent who lets the seller ask that high amount has done nothing more than create an unrealistic expectation of what the seller can expect for his property. So, when a lower than expected offer comes along, the seller is instantly insulted and won't consider the offer further.

Where did this low figure originate?

Often the low offer is the result of the buyer's personal computer skills.

Buyer's today are highly computer literate and many choose to do their own real estate research and shopping rather than rely on a real estate agent. They'll hire an agent to help them after they have researched the neighborhood, inspected the proposed house on-line, and visited with a mortgage company to make sure they qualify. Then, the buyer will hire an agent merely to help draw up and submit the offer, conduct the negotiations (if any), and complete the closing tasks.

So, where does the offering price come from?

Well, buyer's agents are telling me that this is how many buyer's develop their opening offer.

The buyer goes to the Yahoo! home page. There, he selects "View Yahoo! Sites". He next selects "Real Estate" and then chooses the option for "Home Values". After that, it is simply a matter of typing in the property's address and location and pushing the "Search" button.

In the blink of a cyber-eye the buyer is given several estimates of market value for the property. These come from Zillow, EAppraisal, and often from CyberHomes, dot com on all of these sites of course. In addition, the buyer also gets the local tax assessment for the property and many times can find out what the current seller paid for the property, what his outstanding mortgage is, and when he purchased the property.

Armed with this kind of data, the buyer probably feels he has a better idea about the true market value of a property than does the seller. This pricing data becomes the top dollar for the buyer's offer on the property.

Now, if the seller is still thinking that he wants way more money, well, that's when the insult takes place and the discussion may come to an end.

In most markets around the United States today, and especially so in the Tampa Bay area, we are in a buyer's market. Within this buyer's market, prices are being set by buyers, not sellers. Sellers need to price their property within the guidelines that buyer's will find acceptable. All sellers and agent's have to do to be within the guideline is follow the computer-based pricing steps outlined above. If you don't like the numbers, fine, do an in-depth CMA and try to justify a higher price for the property. That is always a seller's option, and there may be many legitimate reasons for a property to be priced higher than what comes up on the buyer's computer. But when an offer comes in that is way lower than the seller expected, don't be too upset. It probably came from an on-line pricing source and it is likely going to be the best price you are going to see from that buyer.

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Tampa Bay Real Estate Prices Still Too Pricey According To Economists

My friend and fellow real estate agent Dave Heideman has been a keen observer of Tampa Bay employment levels for quite some time now and has made many suggestions that have found their way into the stories in this blog site. Dave has sent me numerous e-mails in which he points out that real estate prices in Tampa Bay remain too high because of the area's high level of unemployment, low level of average income, low rental rates and questionable mortgage and banking practices.

Dave is quick to point out that people who don't have jobs, or are in fear of losing the job they have, don't (or can't) take out a mortgage and buy real estate. It's just not the prudent thing to do. Dave is also quick to point out that people whose incomes are low simply can not afford to buy real estate at the inflated prices being asked by many sellers who mistakenly purchased their now-for-sale property at the top of the market in 2005 or 2006.

This all makes sense if you think about it, and some deep-thinking economists have recently reinforced Dave's point of view.

Mark Vitner, an economist with Wells Fargo bank, was quoted in the St. Petersburg Times as saying that a "jobless recovery" may start in 2010, but that jobless recovery will keep home sales tame because employers won't rush out and start hiring lots of new employees next year. So, same old story -- no new job, no new house.

Vitner predicted an additional overall 4.5% decline in home prices next year around Tampa Bay, but stressed that neighborhood price declines could be significantly more due to the local nature of property values within specific neighborhoods. In some neighborhoods, prices might decline 20%, in others 60% -- it depends on the neighborhood.

Another economist, Mark Zandi of Moody's Economy.com, points out that Tampa Bay home prices are overvalued and probably won't bottom until mid-2010. He says that continued high unemployment, competition from low priced distressed properties and foreclosures, and rising mortgage rates will further depress prices as we head into next year. Zandi said flat-out that Tampa Bay area homes, when measured against local income and rental rates, are priced too high. Period. No ifs, ands, or buts about it.

Sellers of real estate and their agents need to keep these factors in mind. In order to sell any product including real estate, you have to offer it to people with the income and credit necessary to complete the purchase. Given the current recession, job losses, and generally low incomes found in Tampa Bay, sellers need to price property at a point where the "average Joe" can afford to make the purchase. Pricing houses like this is California or New York City is just a waste of time because most people here don't have that kind of income.

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September In Pinellas: Pretty Good Month!

September appears to have been a pretty good month for real estate sales in Pinellas County according to the latest info from the Pinellas Realtor Organization.

Let's start with a quick look at the Absorption Rate (AR) which is determined by dividing the number of units sold in the month by the total number of units listed.

For single family homes, the AR moved up to 11.2% from August's 10.3% -- a pretty good jump in inventory turn. Condo's may have fared even better! The AR for condos for September moved up to 7.4% from August's 5.7% figure. That's the direction we want to see.

Single Family Homes

During September there were a total of 6,358 single family homes listed for sale in the Pinellas MLS system. That's a decrease from August's 6,446. If you are a seller, this is good news. It means there is less competition from other sellers, and it also means that buyers have fewer homes from which to select so your house may have a little better chance of being sold.

Sales for September also took a nice jump upward. Total sales totaled 715 units in Pinellas, as compared to last month's sales total of 665 single family homes sold.

Prices, however, continue to fall. The median price for September dropped to $138,500 as compared to $165,000 from September of 2008. That's a 16.1% decline in median price during the twelve months ended September 30, 2009. Sellers need to keep this on-going price decline in mind when pricing homes for the market and negotiating with potential buyers.

Condominium Sales

There has been some recent activity in new condos in downtown St. Petersburg, so the condo numbers may look better than they really are.

During September, there were 5,691 condos listed in the MLS system as compared to 5,796 last month. But, there were 419 condos sold in September as compared to only 333 in August. I think that jump in sales may reflect recent activity in some of the new downtown condos. We'll have to keep an eye on condo sales during the coming few months to get a reading on that market.

The condo median price fell like a rock in the past year. Between September 2008 and September 2009 the median dropped from $150,000 to $129,000.

I ran across this little bit of info and thought I'd pass it along: So far in 2009 in Pinellas County, 45% of real estate sales have been to cash buyers, 33% to a conventional mortgage, 19% to FHA/VA buyers and 1% to seller financing. That cash-buyer figure is interesting, isn't it?

Good luck to all!