Exercises in real estate futility.
Part 2: Work harder, not smarter.
Two weeks ago we looked at a savvy home seller who's too smart to be fooled by his agent. Which means he's rudderless and adrift on the sea of real estate. Which isn't the best way to sell your home. This week we'll look at another exercise in futility mentioned at the office recently, and this time it's a team effort. Strapped into one side of the harness is an agent who should know better, and does know better, but got caught up anyway in the oh-so-easy "work harder, not smarter" gut response to a lousy year. And in the other position are the buyers who got caught up in the oh-so-easy "work harder, not smarter" gut response to the real estate meltdown that hit so much of California.
The other day this agent was grousing that every buyer he works with now is obsessed with the investment potential of every home. How much will it be worth in five years? Will it gain more than the area average, or less? Which houses and areas will hold their value best? Which houses have the best upside potential? Which houses are bargains?
"It never used to be like that", he complained. "Earlier this year I sold a home to some people who never asked any 'upside' questions. All they cared about was getting a home they liked, in a neighborhood they liked. I thanked them for that. Because that's how it's supposed to be."
I agreed—two big busts and two big booms have taught me that the answers to upside questions are highly subjective and usually bad guesses—but added, "You're not working with real buyers. I learned a long time ago that any buyer who sizes up houses like they were race horses at Golden Gate Fields isn't going to buy. Buying a home is challenging enough without adding another layer of complexity. A buyer who looks for every angle, a buyer who devotes every waking moment to beating the real estate market, is a buyer who's tied himself up in knots. Because there is no way to beat the market, unless you defraud widows and orphans or have the guts to buy when no one else is buying, and a little voice inside most of these Donald Trump wannabes keeps holding them back."
It's true. The buyer who scours the MLS for hidden gems in under-valued neighborhoods ends up looking at lots of ugly beat-up moral-destroying houses with huge remodeling and repair bills in cheesy neighborhoods located far from anything anyone wants to be near. Homes and neighborhoods that can look compelling only when the real estate market is damn-the-torpedoes-full-speed-ahead and the tide has raised all boats, even the leaky ones, as high as they can go and then some—which is not now. Homes and neighborhoods that can look compelling only with the blinders of boom fever strapped on.
But as you've probably guessed, there's a very good reason this agent sees so many "investor-minded" home-buyers: the bust separated the real estate wheat from the chaff, the genuine article from the imposter, big time, and it showed no mercy. Depending on where you bought during the boom, your Bay Area home might be worth half what you paid for it, or close to every red cent you paid for it. When the difference is hundreds of thousands of dollars, people panic, although the panic of today's investor-minded home-buyer is more an undiagnosed, slow-release panic that presents as "I'll never buy a loser". Which sounds like a winning strategy, except that very few buyers seem certain what a loser is. Maybe because there are no losers, at least not at the right price. So what's the right price? If you're asking what today's right price is, the question is highly answerable. It's entirely unanswerable if you're asking what tomorrow's right price will be, let alone the price that'll look like a good deal five years from now. Append that monumental question mark to the uncertainty suffusing life in general, and the real estate market in particular, and it's no wonder these folks would rather tinker with their spreadsheets and hit a few more open houses than pull the trigger.
What gets them off the fence? Some people have been waiting for local real estate to "settle down" since the late '90s, and at least one of them has turned procrastination into a blogging career. But most fence-sitters aren't crippled by seeing real estate as a morality play. They just want to buy a home, and most of them will. Eventually. When all the uncertainty seems gone. Which isn't now, and may not be soon. And by then, most of the buyers this agent is working with will have forgotten that in the summer of 2011 they were hooked up with...oh...what was that nice agent's name?
So how did my colleague react to the idea that he's wasting his time? He looked pissed and said, "Thank you! You're right! Thanks for reminding me. I knew that, but business is so slow that I've been chasing business I know isn't real. It makes me mad. Not at those buyers, but at myself."
So at least half the team knows the score.