Real Estate Market on STT (Summer 2006)

When running a CMA for a seller to price a new listing, I pull up everything on the island with similar features and then list the differences between each comp property and the subject property. For each difference, there is either a positive or negative comparison. Some comparisons would be differences in neighborhood and view, security, pool or no pool, # of BDR & BTH, condition of property, extra rental unit or not, fenced & gated or not, distance to town/work/school, and many other factors. In the end, you get a RANGE of prices within which the subject property is most likely to sell. The range is based on the selling prices of other properties over the past year.

We discuss the current listings the property would be competing with and how the property compares to each of them. We also discuss how buyers are likely to perceive the property and ways to make that perception positive in as many ways as possible. Sometimes some paint and cleaning up clutter around a property is all it takes to get a property sold quickly for a good price. After all the variables are discussed, the seller is ultimately the one who sets the asking price for a property, not the realtor.

I provide the most accurate information I can and examples of the types of buyers who will be looking at their property and the reactions that are likely to occur. Sellers who aren't in a hurry to sell often price their home at the top end of the suggested price range or even higher. Sellers in more of a rush are more likely to price their property competitively on the market but do then not have as much negotiation room if an offer comes in low (which it really should not if the property was priced right at market value to start with). However, a properly priced property will sell faster and at a higher price than one that was grossly overpriced to begin with. That tactic can often come back to bite a seller in the backside. Extreme lowball offers can have the same unfortunate effect on a buyer when the seller is offended and won't even send them a counter-offer. It's an emotional time for both sides and Realtors are mediators trying to keep both sides calm and rational.

With the lack of inventory on the market currently, some sellers have made a larger profit on their houses by correctly pricing their house... and thereby receiving multiple offers in the first few days after listing. Bidding wars have not been uncommon in the past year, giving some sellers an ultimate sale price up to about 10-15% higher than their original asking price. Yet the interest generated to start with was due to their non-inflated listing price.

The market value for a house is the same whether there is a realtor commission paid out of the proceeds or not. While some FSBO sales are good deals for the buyer, at other times a FSBO sale goes through at a price quite a bit higher than open market value. This can occur when buyers are not working with a Realtor and seeing all the other properties available and don't have a good grasp on what their $$ can buy them. If they have heard that FSBO's are the way to go, they may only look at such properties and believe it when a FSBO seller tells them that their property is the best value around even when it truly is not. One reason for Realtors to be involved is because many sellers are emotionally attached to their homes, especially if they built it themselves or did some renovations while owning it. They see their blood and sweat put into the house as having extra value. Buyers generally don't value homes that way. By keeping a little distance between buyer and seller during the negotiations, there is less likelihood of hurt feelings that can sometimes make the seller less willing to negotiate any discounts from their list price if they feel the buyer doesn't appreciate their house sufficiently.

Another thing you sometimes see happen is that a house is overpriced for the market originally and it sits for a year without selling. Then the market increases in value and the house is suddenly underpriced. There are occasionally a few gems hidden amongst the older listings. What can also happen is that a buyer might be able to get an even lower price on the property if the seller is disgusted by the long delay in their home selling and is willing to take a chunk off the price to get it sold. Don't be afraid to lowball properties that have been sitting on the market a long time. A seller might be willing to deal or they may not. It doesn't hurt to ask. On the other hand, if a new listing hits the market and is appropriately priced, buyers are somewhat foolish to try to negotiate an even better price if there is a lot of quick interest in the property. You are likely to lose it to another buyer.

With the low number of new listings hitting the market lately, it is important to do your homework in advance and then be poised and ready to jump on the right property when it appears. Most contracts allow a buyer a couple weeks to have an inspection done on a property and to back out of a transaction if the property turns out not to be one that will work for their purposes. This makes it possible to safely move to make an offer on a property quickly and have time afterwards to ensure you didn't make a mistake in your choice. If you are working directly with a FSBO seller, you don't always get the safeguards built into your contract offer that you most often do get when an offer is written up by your Realtor.

With FSBO purchases, buyers really should take the "caveat emptor" reality to heart, especially if you don't have a lot of experience in buying and selling real estate.

In my earlier post (excuse my misspellings), I didn't really reference realtors. By far, the smoothests transactions are with a GOOD realtor (like Alexandra). They are often underappreciated, and begrudged for their fees, but when you work with one that knows what they are doing and gets things done... well, there are too many horror stories about what can happen without them. I'm in the lending business, and a good realtor and good atorney are a must for the occasional buyers and sellers in the VI market. For those more experienced investors, they have likely learned enough in time to confidently proceed without one, but I'm sure even they would suggest using a realtor for those less experienced.

Eve,sounds like you've had time to investigate and wait for an ideal purchase. That sounds calculated, and a smart way to buy!LOL No doubt there a some gems still hiding and waitung to be found. I hope you find one.

BTW, what if you could buy a future retirement property (SFR, Condo, Land) with your current self directed IRA with a non-recourse mortgage? Do any of you board members think that would be an attractive product in the VI? Give me some feedback.

IE
Thanks for the compliment. I hate to say we could only afford to be calulating. We have been down to the island 4 times since Feb 2004 to look at properties. I feel we have been very smart about the purchase and will also be able to move our current business down to our new home which is zoned correctly. Somebody was smiling favorably on us 🙂

I feel the real estate market to be to volatile currently to invest IRA into it. At least if Hubby and I go down in a blaze of glory our retirement funds are not going to.

I.E.:

Please elaborate on this (self directed) IRA private property funding method.

F.I.