"It's the Sellers, Stupid!"

An editorial from the Real Estate Executive Summary. Long, but EXCELLENT.

We read everyday about the "shortage of buyers" in today's market place. We'll take the other side of that scenario and say there is a shortage of sellers-at least of "realistic" sellers.

A look at recent market history will help put that into perspective.
During the 13-year period 1987 through 2000, the median home price had risen from $75,000 to $125,000, for an average year-to-year appreciation of approximately 4 percent. But in the 7 years between 2000 and 2007, .the median home price climbed from $125,000 to $225,000, or an average year-to-year appreciation of a little over 8 percent In many areas, double-digit appreciation occurred in each of those years. . .

A seller who purchased his/her home in 2000, for $125,000 (the median home price that year) and who sold that home today at $200;000, would have realized a little over 6 percent appreciation each year-50 percent higher than the average during the preceding 13 years. In today's market, attempting to sell that home at $225,000 (the median price going into 2007) will likely mean that the home will be on the market for an excessive period of time.

One of the problems obviously lies with those who purchased somewhere in middle or later part of that last seven-year period of unrealistic appreciation. If forced to sell today, those folks will not be able to realize much appreciation, and may even suffer a loss.

Fueling the fire is a media barrage of stories about foreclosures and other distressed sales situations. Prospective buyers, particularly those who are not pressured to buy at this time, will obviously be "bargain hunting," so that the differential between the unrealistic expectations of both buyers and sellers becomes an immense chasm that cannot easily be bridged.

Adding to the problem during the price run-up was the unrealistic willingness of lenders to extend credit to buyers who previously (and today) would not have been able to qualify. Many of those loans were adjustable with very low "teaser" rates, 9 year interest-only loans with short-term balloon features. Those who purchased in the middle of the upswing and who are now finding themselves forced to sell (because they can't afford the increased payments and can't qualify to refinance) are listing their homes at prices that are unrealistic to today's buyers.

And where are these dispossessed families going to go? If they escape their current plight with any cash and without going through foreclosure or bankruptcy, they may have a chance to downsize into more modest homes. The plight of the distressed seller presents two commissionable events for an agent who knows how to work with distressed sellers, and that involves both convincing the sellers to list in tune with the market and the ability to work with lenders who are prepared to deal with the same realities. The "short sale" can bail out some foreclosure-bound owners, and there are mortgage products available today for buyers who have had some credit or foreclosure problems.

Enter the real estate agent. Both sellers' agents and buyers' agents will have to have a very keen sense of the real “today’s market” and know how to convey that sense of realism to their clients. Not an easy task. But those who are not doing that are adding to the problem. Too many homes are listed at unrealistically high prices and shouldn't even be on the market. Their aging "For Sale" signs are fueling the buyer's perception of a glutted market. Too many buyers are expecting bargain basement prices. And the increasing volume of foreclosures and "short" sales are driving average sales prices down.

As veteran real estate guru Joe Klock puts it, "No home in history has ever sold for a penny more than the best offer obtainable from the best buyer available in the then-current market." And most buyers today are not willing to pay inflated prices, as there are plenty of homes that can be purchased much more reasonably. (These are the ones whose sellers understand the market cycles and who are satisfied with a reasonable annual appreciation rate.)

So what is all this telling us as real estate brokers? If ever there was a need for highly educated real estate agents ­both sellers’ agents and buyers' agents - it is in the marketplace we have just headed into. Listing homes at unrealistic prices just because the sellers "have to" get them, makes no sense. But agents who are fearful that their business is drying up become desperate and do desperate things. Similarly, agents working with bottom-feeding buyers are not doing anything to help the situation.

Today's marketplace requires exceptional skills and expertise on the part of the real estate agent. Those who have taken the time to gain knowledge and designations such as the Accredited Buyer Representative (ABR) or the Seller Representative Specialist (SRS) should have a considerable edge. Knowing how to make a property stand out among the competing listings is also important. Professional property "stagers" are gaining popularity. USA Today recently reported· that a review of sales of 2,800 properties in eight different cities revealed that listings that had been "staged" sold almost twice as fast as non-staged houses, and on average, at substantially higher prices. Designations denoting proficiency in home staging have also cropped up, including the Accredited Staging Professional (ASP) and Accredited Home Staging.

Agents who blindly buy into everything they read in the newspapers and see on television will not be mentally conditioned to take the steps necessary to become part of the solution. A recent Time magazine feature, "Cracks in the Economy" opened with a page--and-a-half montage of real estate signs, showing "Foreclosure," "Reduced Pricing" and "Amazing Pricing" riders. The subhead: 'The real estate slump has no quick fix - and could expand into a full-blown recession." The article also noted that "Houses are now sitting on the market for an average of 9.6 months, more than double the lag of two years ago;" and "Housing prices can go down too. And they may have a long way to fall."

Just putting one's head in the sand and refusing to be subjected to such media foreboding is not the answer, however, as our clients and customers are seeing and hearing the same things. Rather, we need to be able to take an informed," analytical approach to marketplace statistics. For example, Michael Moran, chief economist for Daiwa Securities America Inc., provides a different perspective on the current subprime problems. He says reporting by the media has been "exaggerated" and "sensationalized," noting that subprime mortgages comprise only 13.5 percent of the market, and that only 20 percent of the subprime market is currently under stress. "That's only 3 percent of the total mortgage market. But you won't see many such comments in the press.

As for foreclosures, the picture is not as bleak as the raw statistics suggests, according to John Robbins, CEO of American Mortgage Network and former chairman of the Mortgage Bankers Association of America. "Half of loans going to foreclosures never go completely through the process. And every major servicer has a dedicated group that does nothing but loan modifications.” Robins says the new Fannie Mae, Freddie Mac and FHA programs for subprime borrowers are also going to have a positive impact.

Lawrence Yun, NAR vice president of research, notes that for every two new jobs that are created, we historically see one new home buyer. The economy has created 4.3 million new jobs in the past two years. "Right now we're not seeing those new home buyers because they're sitting on the fence,” observes Yun. "Once they look past the headlines, they'll see that this is actually a very good time to buy.”

As Realtors, we have to study the facts of the current marketplace carefully and analyze them critically. Then we have to learn how to translate the realities of the marketplace into a compelling message that will bring buyers and sellers into a more reasonable negotiation position.

The Real Estate Executive Summary is published monthly. Visit North America Consulting Group for more information.