The Bruce Lee Axiom of Real Estate:
“Those with Power, have No Need; Those with Need, Have No Power.”
Dr. Roger Sperry said of the Reticular Activating System, “What you Focus on Expands.”
These two ideas are running the minds of buyers right now. Buyers believe they are powerful. Buyers are allowing this idea to not just percolate, but expand.
These two ideas are critical to untangling the real estate mess. The fact that I just said mess indicates plenty about what I am focusing on today.
The strangest data I’ve seen in the 4.5 Years that I’ve tracked data for The Stat Pack was last month: September 2010 saw MORE (not less) pending sales than May or July 2010.
Typically, May and July are two booming months of the year. In 2010, it would have been smart to schedule a vacation during that time, because it was deadsville.
Flip around to early October: I did four transactions in one week. I had not done that since 2004. Sure, one fell apart, but working on four deals in a single week? Something is going on. Buyers are buying.
How buyers are buying is another story. The reason the market is more likely to come around a little bit in 2011 has to do with this perception: Buyers are telling themselves that there are deals out there. The dumbest activity in real estate are practitioners “educating” consumers that “now is a great time to buy”. Baloney. Every consumer has a brain of their own. The believe what their brain tells them. Every brain has a Reticular Activating System. The Reticular Activating System is not trained to act on someone else’s opinion; your on-board Google Processor is trained to lock-in on only on things it knows to be true. It takes way too much mental RAM to make that sucker lock-on to something it doesn’t believe or know to be true. So agents, lenders, title reps and the government can beat drums and evangelize all they want about how good the timing is; it doesn’t matter because Reticular Activating Systems don’t act on this chatter.
But right now, the tide is actually moving towards “belief in the buy.” That belief was best summarized by a buyer’s statement in a late night email exchange last night: “we want an incredible buy in this market.”
Appraisers like to glorify their profession right now by saying the most critical component in a house’s marketing is it’s price. That is ALWAYS the case. A seller sets the expectation and the buyer determines market value. Price is always the first and most critical component to proper marketing. I would not buy an iPad at $1200. At $499? I’m interested. What is different now is that the seller’s initial asking price determines if there is even a chance a home will sell. Last year, 55% of all listings sold. This year, that number is just below 47%. That “8%” decrease is really closer to a 14% drop off in probability of sale. Sellers are starting to get the feel of this by pricing appropriately; again, in the 4.5 years I have done the Stat Pack, the relationship between all-market-average-list-price, new-to-market-list-price and sold-price on a monthly basis had never been as close as it was on October 1. But what sellers still have not got a hold of, or the stomach for, is that if you’re well-priced at $198,000 and get an offer at $180,000… you won! It doesn’t mean as a seller you have to take an $18,000 hit. Counter that junk offer!
But… you got…an…offer! Fifty-three percent of all sellers right now don’t get offers. If no one wants to buy your house, you can’t sell your house. Getting the offer is the critical piece to the equation. Fifty-three percent of sellers are not getting offers.
Buyers are smelling deals. They will hold out for that. But this Christmas, more and more people will look at their personal well-being this way:
- My commute stinks
- We out-grew this home. Years ago.
- I could save $45,000 in interest over that 30-year life of the loan.
- That Dave Ramsey said I could save $112,000 in interest on a 15-year loan.
- I want a better master bedroom.
- The kids need a yard to play in.
- None of my other investments are doing a lick. If I could pull the money out of my house and do something constructive with it, I will.
- There are some really good deals out there in real estate
- I think I need to buy a new home.
This self-talk is the germinating seed that leads to buyers convincing themselves now is a good time to buy. But one of the key components in getting them from “maybe” to “yes, I’m ready to go”, is their feeling of “power” in the process.