Recently I met someone who was looking for a home to buy on Marco Island. They asked me to suggest some good buys. After discussing their lifestyle, I made a suggestion. Then they asked “why do you recommend this particular property?” “It’s one of the few that meets your criteria and budget”, I replied.
The next response from the prospect was, “how long has it been on the market?” After considering the question, I wanted to ask the relevance, but instead responded “Three years”. It seems in today’s market, everyone thinks that the longer the property is on the market, the less they will pay. In reality, sometimes it just takes a seller a long time to accept the marketplace.
Back to the story. Keep reading, I’ll get to the point eventually. Continuing the conversation, they asked, “why hasn’t it sold at this price?” Again I responded with, “it hasn’t always been this price and it was just reduced”.
Next, “can you tell me what the previous price was?” My turn, “it started at $1.5 million three years ago and it was reduced from $1 million to $800,000 last month”. Now here’s a great counter, “no way! It must have been way overpriced three years ago!” Then, “it seems like a good buy now”.
The fact is if the seller had placed the property on the market 6 months earlier, it would have sold near the $1.5 price; and the seller has been chasing the market down since.
Now to the point: 3 years ago the Wall Street Journal, I think (or was it USA Today), described the Naples real estate market (stats include Marco Island) as 80% plus overpriced. However, last summer, the June edition (maybe July) of the U.S. World and News Report identified the Naples market (don’t forget Marco Island) is about 30% undervalued.
What a change: from 80% overpriced to 30% undervalued! “How is that?” you asked. To understand the marketplace, one needs to merely look to replacement costs. Find a vacant homesite and get a proposal from a builder to build your dream home. Before you sign a contract, investigate the resale market and you’ll discover many similar houses available at a much lower cost.
Now, please don’t go out and tell your builder that he (or she) needs to knock off 25%. If you do they won’t build the house because they can’t build it without a loss; and I don’t know of any builders that are willing to work for nothing or pay you to get the job. Also, sometimes you’re being quoted an unusually low price by a builder so they can keep their crews busy and not lay them off.
Let’s consider the developer. Some of them have inventory that is costing them a significant amount to carry. They might list the property at a loss to avoid the bleeding (that’s financial bleeding, I don’t know any that have slit their own throats, yet).
Let me get to another point. Most of the “talking heads” report that the real estate market seems to have flattened. There are some markets that may continue sliding (at a slower rate) and others have discovered rising values. Back to the Naples/Marco Island market, the sales activity is up and inventory is down. As of March 1st, the inventory of house on Marco Island is 20% less than March, 2009.
“What’s the point?” you say. Supply and demand is the bread and butter of economics. We all learned it in elementary school, and some of us forgot it. With the increase in sales activity, the inventory will continue to be reduced; and as it is lessened, there will be less comparable properties from which to choose.
A few months ago I had clients looking to buy a house. They provided the families wants, needs and budget. About a year ago there were in excess of 800 house “for sale” on Marco Island. When they arrived for the appointment, we sat and discussed some issues and then the husband asked “what are we going to see?” and the wife said, “let’s go see the houses”. I think she expected a day of shopping.
I had to break the bad news. I told them we were only going to see four houses. They were not too excited about such a limited choice. The good news: they liked the first house (they did see them all) and it is now theirs domicile.
The moral of the story: if you are certain of your wants and needs, a vast majority of “for sale” signs aren’t representative of your choices; and if you’re looking for the perfect house, stop looking, it’s never been built. After building 175 houses (Flagship Homes), some custom, I don’t think I ever talked to the customer at the end of the day without someone saying, “I wish I would have included ________”