CNN Money.com ran this story last month on what to do if you want to sell your home on your own and it got me thinking about the many challenges this housing market faces. Before I tackle that I want to make a few notes about the CNN Money FSBO (for sale by owner) story.
They state that the number of home owners who sold their homes on their own jumped from 12% to 20% from 2005 to 2007. (I am doubtful of those numbers and I’ll see if I can verify them. The numbers I have seen have typically been in the 12-16% range consistently for the past few years and that has not shown any growth, but it has remained flat). There’s a lot more that goes in to selling a home that just cutting out some commissions. Most FSBOs go on to hire a real estate broker to eventually sell their home.
There are a couple of interesting points that they make that I would challenge and it also leads me to more thinking on the challenges of the market as you’ll see below:
- Open houses: they say be prepared to hold open houses on weekends. (Note, very few homes are sold off of open houses. Most agents hold homes open not to sell the home, but rather to pick up new buyer prospects).
- Establish an asking price by getting an appraisal…yes, you can hire an appraiser for $325-$350 to do an appraisal. However, the market is very dynamic and we are seeing many situations where an appraisal means nothing. They are generally too high today.
Today’s market is more complicated than ever before in modern day real estate. There is a confluence of factors that are impacting the market that can confound even the savviest home buyer or seller as well as the most sophisticated and experienced real estate professional. What are those factors?
- 24/7 news media with thousands of stories about the nation’s challenging housing market. (I just ran an advanced Google search to see how many entries had been made with “housing” in the past 24 hours…can you believe 1,080,000 entries showed up?!) This makes it very difficult for the real estate consumer to filter through this much information.
- Technology has not only democratized access to information but also to the establishment of value. It used to be that the agents really drove value. Today it’s the consumer and much of that is being done on the internet.
- Collapse of the subprime mortgage market and shifting qualifications from banks for new mortgages. Both professionals and consumers are confused about this. We talked in the office today about the idea that there is all kinds of mortgage money available but it seems few can qualify for it given the banks restrictive requirements. Hopefully this will continue to loosen but with the ongoing uncertainty with companies like CitiGroup, it’s difficult to predict when the stabilization will occur.
- Deterioration of all levels of credit quality from prime to subprime. The loose money on Wall Street the past few years is still being unwound. The fact is none of the geniuses on Wall Street really know how big the losses will be. (If they know, they are letting the news out slowly…it’s my opinion that the losses will be significantly worse than the billions disclosed already).
- Rising foreclosures and distressed sellers. There are many folks who aren’t going to be foreclosed on, but they are right on the edge and don’t have any room to move in the price of their homes.
- Reluctance of sellers to accept the new market realities…each home is different, but generally speaking, housing prices are still too high and need to come down to get buyers to even write offers.
- Buyers are trying to steal properties…many people are looking for the deal of the century…perhaps rightly so, but this makes for unrealistic expectations by buyers.
- Collapse of the national homebuilders…before this is all over and the market turns upward, a few of the national homebuilders will need to file for bankruptcy. I would suggest that a few of them need to merge because right now it’s almost as though there is a fight to the death…i.e. last man standing once the dust clears. It’s a classic consolidation of a mature industry.
- Overly optimistic forecasts from the National Association of Realtors…NAR has had to revise its forecasts it seems every single month for what must be the past year. (You’ll know we’re at the bottom when they have a few months where they finally under forecast and the actual sales data surpasses their estimates). As a result of NAR’s’ constant optimism, there is a general loss of confidence in the data forecasts.
All of that being said, I believe this market can get back on its feet but we will need to see confidence restored in the real estate buyers. Until then, the tide has clearly turned and the sellers need to start lowering their prices in order to entice buyers back in to the market. Once buyers feel they can buy property and minimize their downside exposure to future price depreciation, they will start buying again.