Real Estate and the Law of Supply and Demand

A Plea to Colleagues and Sellers

Our single problem boils down to the” hinge” upon which the whole capitalistic economic system turns, namely the law of supply and demand. Currently our market is saturated with inventory, much of it not even close to being competitive with recently proven and tested market values. Even if our inventory is competitively priced at market value, average days on market are still way too high. The solution is simple- either decrease the supply or increase the demand or both.

This web site, as well as a plethora of other venues, is dedicated to informing the public of the many benefits our area offers for families, investors and businesses. I am grateful for this site and the light it has shone upon our area, highlighting the incredible quality of life we currently enjoy and showcasing the bright plans for our future, which are well underway. Thus I will focus this article on the other side of the equation, our “Achilles heel” – an oversupply of inventory.

When tough economic times come in the macro economy, individuals tend to feel like they’re a ship being tossed by the sea, i.e. out of control. However, there is actually something we all can do to help things move forward more quickly. My definition of “moving forward” is to see the average days on market reduced to tolerable levels -let’s say less than 60 days. My definition of moving forward would more importantly include the notion of appreciation over against declining values such as we have seen in the past few years. I know there are a few investors and buyers out there who couldn’t care less at this moment about us “moving forward” but there will come a day when they too will care.

Before I point fingers, I want to dwell for a moment in the mirror. Whoa! Since I am now in reflection mode, I want to candidly admit that I have taken listings that are simply overpriced. Why do I do this? There are many reasons but most of the time I just feel for the folks that must get more than market value, sometimes much more in order not to lose their shirts. I am a sucker for a sad story. Countless times I have heard stories from retirees who just want to be with kids and grandkids in some other area but they need ex amount of $$ to make it happen. Other times my motive may be sinister, to be perfectly honest. I might take an overpriced listing due to the exposure I get from the sign. One only needs to drive down Front Beach Road or Thomas Drive to see more than a few playing that wild card. Some signs have been up for years. Every now and then a wild card pays off. We get the call off the overpriced listing that leads to a sale, nearly always somewhere else. Other times there is personal loyalty I might feel for a friend or a friend’s friend or family. Oftentimes we will take an overpriced listing because we hope to get it adjusted right later (rarely happens), or because the customer may be a repeat customer (those are tough to pass up). Whatever the excuse, in the final analysis, is it honestly a legitimate reason to take a listing? If we are honest in our Comparable Market Analysis and we see that the seller simply refuses to digest the proof when we present it, then we have to have enough nerve to do as Nancy Reagan once said, “Just say, ‘No’”. There is another reason that we all run into from time to time. Sometimes we are asked to list a property that is unique or simply nothing recently has sold like it. In those cases and perhaps in most, we ought to encourage sellers to invest in a fair and objective appraisal. Sadly, at times they do invest in appraisals but they oftentimes are more friendly rather than fair and objective. Unfortunately, every time I have walked away from an overpriced listing, some other brokerage will come in behind me and take it. The solution is not hard to see – the solution is hard to do. It can be done but at a gut level there needs to be the will to do it.

Sellers insisting on saturating the market with a dream price are really preventing the dream from coming to fruition and, coupled with our willingness to list them, we have in a sense created more of a nightmare than a dream. Most buyers today are well informed, internet savvy, and have done their homework. If they have a targeted area they are likely to be quite familiar with the competition and the recent closed sales. The potential buyer for your property will evaluate your property in light of the closed sales, not in light of folk lore or fairy tales. We hear many stories about so and so selling his property for this and that. Problem is there is no proof, no HUD, no record of a sale.

One other fallacy embraced by sellers is the upgrade fallacy. Granted, upgrades will enhance value some but the kind of mileage most folks try to get out of upgrades is utopian. You can spend 50k on a decent pool easily but it may only add 15k worth of value to your home in this current market. It may help it sell faster but you’re very unlikely to get what you put into it or even more than 50% return. I will never forget the $225k worth of extra value one seller wanted for his house due to the extra- reinforced tie downs and galvanized nails and the unique pressure treated wood he used to build his own house with his own bare hands.

Sellers, if you have an honest appraisal or a good CMA, and you want more than the market can give you, and you’re not willing to settle for market value, then please wait for a better day. If you have to improve it, do it, if you have to rent it out, do it, but WAIT, don’t put yet another wish on the market, exacerbating the problem .

If you must sell then you must, but if you must in this market you must still sell at the value the market will give. Buyers don’t care what you paid for a property; they care about what other properties like yours can be bought for. Sellers need to be aware that improvements and updates do add value but not dollar for dollar. What you spend on improvements rarely converts dollar to dollar IN THIS MARKET. It helps to sell a property faster for a bit more money but not a lot more money. There are some inexpensive upgrades which can enhance curb appeal and the interior presentation that do pay off, such as turf improvement, landscaping, painting, flooring. However, this market is stingy at the moment and we need to be honest with ourselves.

Somehow we have got to get this thing from our hearts and heads to our deeds and actions. My hope is that we can all take what we know and be brave enough to put it into action. Let’s start a new trend one listing at a time. Let’s fine tune our inventories and shed dead weight. We are hearing lots about reform in recent days. Let’s do our part!

Scott Seidler GRI
Prudential Shimmering Sands Realty
850-774-5007 or 850-774-5004
Scott AndSonjaRealEstate.com