Realtor Questions

[Thremp]

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That said, this seems like a demand discovery problem, which reverse auction can address.

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I don't know what any of this means. Plz explain.


Side note: Krishan, I don't know how "pure" your market is, but in some areas I see the avg selling price ~98% of listing price or so. So even if you'd be willing to take a lower off, many people won't make offers. perhaps passing through your agent to others that you are "flexible" on pricing or something. Its kinda tricky to get offers that are suitable to work with and not just dumping your house off for less than market value.

[ayamaguc]

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I don't know what any of this means. Plz explain.

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Ok. So just looking at the buyers here (ignoring Krishan needing to compete with other seller's to provide best buyer's value).. There's a pool of potential buyers right? A collection of folks who are
a) at least open to the idea of buying real estate of Krishan's type and in his location
b) have money (though not all equally-- some might only have $1. some have $1 million).

The market price for an asset at any given time is what it will go for. Not what is has gone for. What it could go for. Or 'should' go for. What the agent says. What an appraiser says (unless those cats have a suitcase full of money to back up their opinions with). What the seller hopes for. What the mortgage is for. Or what the seller needs. The price is what someone is willing to pony up a suitcase full of cash for.

$228k was too high 1Q 2006. $224k was too high in 2Q of 2006. $214k was too high in 3Q of 2006. From the sound of things Krishan didn't get much traffic. No one saw the listing and thought 'oh! i want!'. People didn't line up to see the place. There weren't multiple offers (or any by the sound of it) made. People maybe didn't even contact an agent to see the inside (no way of knowing if people drove-by). Those are all signs of demand-- people who want something.

The problem with demand is you can't see it. There's nowhere to look it up per se. You know folks are out there who might be open to buying and who might have money, but you don't know who they are or how bad they want the house. Krishan got no demand on his property at his prices at those times. It could be b/c his agent sucks, can't market the property or doesn't care, and so people who would be buyers at those prices don't know that Krishan's great house is on the market. Or it could be that for the value that can be seen (fungible a bit by how the house is presented and marketed), the price is too high. It's not worth it. The demand isn't there from anyone who is interested and has the money at that price point.

I don't know about you, but I believe the market was trending down already in 1Q 2006 in most areas of the country. It continued to slide and hasn't stopped. So Krishan's price cuts were too little, too late. Maybe 214k would have gotten it done in 1Q 2006. We don't know. But we do know it did not get things done in 3Q 2006.

A reverse auction is where you start with a high price, and roll backwards over time until someone takes your offer. You don't know what the demand is out there, but since you believe it's out there (or needs to be), you start rolling your price downward. At some point your price intersects someone's idea of what the place is worth, and you have sale. You have established the new current market price.

Reverse auctions work pretty well b/c buyers can't judge hidden demand any better than sellers. So now the buyers have to compete with each other. 'I could wait another week and try to save another 5k, but it's a pretty good value right now and if I don't strike first someone else will grab it from me.'

[Thremp]

Thanks for the excellent explanation.

That said, I disagree. His house price doesn't seem indicative of bubble. Most of the country isn't in a bubble, in fact there are very limited, while big, markets that have this problem. I just think he overpriced it and when he dropped his price to avg people are scared off by huge DOM.

[krishan]

There has been lots of great information in the thread. Some people have asked for more specifics on my particular situation so here they are.

I'm not in any way hurting for cash. I paid the down payment for the new house in cash and can cover the two mortgages indefinitely. (And I still have taxes covered too!)

The main reason I don't want to rent is because I think the housing slump is likely to get worse in Charlottesville. Last summer there were 16 unsold houses in my neighborhood at the end of the season. Not all of them were the same model/sq ft as mine but there were at least 6-8 houses that I was competing with. I think that is a ton of competition and doesn't bode well for the market.

I also don't want to be a landlord. It seems like a pain in the ass. The house was built in 1983 and has a non-zero chance of needing significant repairs in the next 5 years. In particular the HVAC is iffy (6-10K to repair). The only good thing about it is I have a 5% interest rate on the house.

I paid 155 for the house in August 04 and houses in the neighborhood were selling for over 200 last summer. Currently the loan sits at 120K. At this point I don't really care how much I get for the house. If I priced it at 195 right now I would be 5K under the competition (which has 400 less sq ft). Even with 3/4% commissions I would sell the house at a profit I would be happy with. I don't particularly like paying a mortgage on an empty house.

Finally there is the opportunity cost of the money sitting in the house. I'm working with ScorpionMan on learning how to pick stocks. I feel like with his guidance I'll likely be able to get a nice return in the markets. I think it's very likely that I can beat the real estate market for the next 3 years (since I think it's still going down and has to recover just to get back to 0).

Krishan

[krishan]

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$228k was too high 1Q 2006. $224k was too high in 2Q of 2006. $214k was too high in 3Q of 2006. From the sound of things Krishan didn't get much traffic. No one saw the listing and thought 'oh! i want!'. People didn't line up to see the place. There weren't multiple offers (or any by the sound of it) made. People maybe didn't even contact an agent to see the inside (no way of knowing if people drove-by). Those are all signs of demand-- people who want something.

The problem with demand is you can't see it. There's nowhere to look it up per se. You know folks are out there who might be open to buying and who might have money, but you don't know who they are or how bad they want the house. Krishan got no demand on his property at his prices at those times. It could be b/c his agent sucks, can't market the property or doesn't care, and so people who would be buyers at those prices don't know that Krishan's great house is on the market. Or it could be that for the value that can be seen (fungible a bit by how the house is presented and marketed), the price is too high. It's not worth it. The demand isn't there from anyone who is interested and has the money at that price point.

I don't know about you, but I believe the market was trending down already in 1Q 2006 in most areas of the country. It continued to slide and hasn't stopped. So Krishan's price cuts were too little, too late. Maybe 214k would have gotten it done in 1Q 2006. We don't know. But we do know it did not get things done in 3Q 2006.

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This all sounds right. If I had a chance to go back in time I would have put in on the market at 212 in Q1 an dropped it to 200 in Q2.

Krishan

[SossMan]

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1. You are consistently giving too much credit to the realtor's ability to move a house.


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it's not that the realtor is going to sell someone who wouldn't have otherwise purchased the house, it's the fact that he will get a ton more prospective buyers looking at it w/ a 4% listing.

[Thremp]

jaydub,

1) You are wrong. This is just plain and simple. Most people and their homes are fairly interchangeable which leads directly to #2.
2) Most homes in the US are built off models. There may be 20-30 in a neighborhood of 400-500 homes in several phases. Maybe some bigger ones in the back, smaller in the front. Or they may all be custom. I have very little knowledge of this. However, the main thing as we have all heard is location, location, location. Your price per Sq foot will be very similar to your neighbors if your homes are in the same condition (with some adjustments for largest smallest home in the neighborhood, regardless there will be a range all home will sell in... Say 100-120 for example). Its not terribly hard to view that range. You can get your agent to pull up information for every non-FSBO for the last few years. I digress... But regardless homes are swappable. They are not a commodity, but if someone wants a brick home with 4 bedrooms and they can save a few grand on one and get a couple hundred more sq feet. They'll do it. Especially if they've never even looked at the other ones.
3) Sunk cost ever?

[jaydub]

Thremp,

I have no idea what you are talking about.


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jaydub,

1) You are wrong. This is just plain and simple. Most people and their homes are fairly interchangeable which leads directly to #2.


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Huh, people can be interchanged with homes, or homes are interchangable to most people? What am I wrong about, the bribing of the agent?

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2) Most homes in the US are built off models. There may be 20-30 in a neighborhood of 400-500 homes in several phases. Maybe some bigger ones in the back, smaller in the front. Or they may all be custom.


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20-30 what? Models? What the hell are phases? Bigger in the front or back, you mean different layouts?

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I have very little knowledge of this.


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Aren't you a realtor? Shouldn't you know this stuff?

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However, the main thing as we have all heard is location, location, location. Your price per Sq foot will be very similar to your neighbors if your homes are in the same condition (with some adjustments for largest smallest home in the neighborhood, regardless there will be a range all home will sell in... Say 100-120 for example). Its not terribly hard to view that range.


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Umm, pretty sure time has a pretty big factor in those numbers but yes with that addition, I will agree that the sky is generally blue.

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You can get your agent to pull up information for every non-FSBO for the last few years. I digress... But regardless homes are swappable. They are not a commodity, but if someone wants a brick home with 4 bedrooms and they can save a few grand on one and get a couple hundred more sq feet. They'll do it.

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Yes, water is wet.

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Especially if they've never even looked at the other ones.


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Wait, so the crux of your argument is that:

1. The agent(s) will refuse to show homes which pay the standard commissions.
2. Buyers will not notice said houses when driving to the neighborhoods.
3. Buyers cannot use the www.
4. Either so many people are paying this bribe that the buyers will not notice that they have seen only a subset of houses or OP's luck is so bad he is consistently the randomly excluded house.

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3) Sunk cost ever?

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Huh?

J

[Thremp]

jaydub,


I am not an agent. You, however, are an example of a person who propounds common misconceptions. Let me clarify some things about the home purchasing process.

1) Agents are salespeople. They would like to make more money than less. IE If you put two houses which are similar next to each other and offer a larger % on one. It will sell first.
2) Buyers do notice houses. Do they drive through every neighborhood? Is every house allowed to even have a for sale sign in front?
3) Most houses aren't on the web. Try it out sometime.
4) Its not a bribe. I don't understand this part at all.

The comments about models/phases/etc. are about house most housing developments are built. Try looking at new homes sometime.

[jaydub]

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jaydub,


I am not an agent.


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Sure thing.

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1) Agents are salespeople. They would like to make more money than less. IE If you put two houses which are similar next to each other and offer a larger % on one. It will sell first.


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Agents don't buy houses. What if one house is 1% cheaper in your scenario?

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2) Buyers do notice houses. Do they drive through every neighborhood?


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The ones they want to live in.

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Is every house allowed to even have a for sale sign in front?


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Just about.

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3) Most houses aren't on the web. Try it out sometime.


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Ziprealty et al would beg to differ.

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4) Its not a bribe. I don't understand this part at all.

The comments about models/phases/etc. are about house most housing developments are built. Try looking at new homes sometime.

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Hey at least this post was literate. Early happy hour last time?

J