If an investor or buyer wants to purchase a home and is ready to write up the offer and move forward, what should a good Realtor do? Unfortunately, many will of course write up the deal immediately and mentally deposit the commission, and perhaps already have it spent. This isn’t the type of Realtor you want to work with.
Instead, you want a Realtor who will ask a lot of questions and provide more information. One who will, in a sense, make you justify why this purchase is the one that best accomplishes the outcome you seek.
Purchasing real estate is an emotional decision, but one which must be supported and justified by non-emotional considerations, namely the financial side of the equation. In helping the number of buyers we have, Sylvia and I observe, as one would expect, that different buyers operate from each end of the spectrum, from emotional to financial, and at all points in between. But no decision made entirely based on emotion or numbers can be the best decision. A balanced blend of the emotional and financial considerations will result in the “smartest” decision.
Some buyers are so fixated on the “numbers” that they are blind to other realities, such as the fact that the cheap crackerbox starter home being contemplated is way too far from everything and comes with serious risks due to it’s stage in the neighborhood life cycle, poor schools and unpredictable and undefined development of the surrounding areas. But it’s “cheap”, and that seems to override the thought process if left unchallenged.
Others fall so in love with a property that they engage in a willing suspension of scrutiny on other important considerations, and operate instead from a place a happy denial. The home doesn’t fit with the stated criteria or needs, it’s over priced and it has misfit attributes such as a super steep driveway or backs up to a very busy street, yet the buyer fixates on something mundane such as, “it has a magnolia tree … we had a magnolia tree growing up and I’ve always wanted a home with one. My mother loved Magnolia trees”.
This is the point of recking for the Realtor. As a buyer, do you want to “hear what you want to hear” or do you want to “know what you need to know”?
Should the Realtor say, “oh, I love magnolia trees too, and if your heart is saying this house is the one, then let’s do it!”
Or should the Realtor say, “you can purchase and plant a 10ft tall magnolia tree at any home for about $200-$300, so let’s not allow that to be a deciding factor”.
Here is Texas A&M’s Real Estate Center Chief Economist Mark Dotzour speaking at the TAR Convention in Dallas earlier this month (Sept 2009).
He explains the Texas Economy and real estate market in a funny yet informative way. The video is about 24 minutes long and well worth watching.
The Austin rental market continues to be strong.Average and monthly rents continue to rise. Days on market is low. But, even with recent gains in prices, we are nearing the end of a decade in which rental prices for landlords will have remained virtually flat. Let’s check the historic graph below before we get into current figures.
If we draw a straight line from 1999 to now, and you own the average rental home, and in 1999 you assumed a 3% per year increase in rents over time, that increase didn’t happen, but your property taxes, insurance and maintenance expenses sure did go up a lot. What we see above isn’t good from a landlord standpoint, but if you’re a renter, you’ve had a nice 10 year run of good rental values in Austin. At present, our rental values are still below where they were in the dotcom boom era of 2000 and 2001.
And if it’s any consolation, had you invested your real estate money in the stock market in 1999, you’d be a whole lot worse off than a decade of flat rents. At least real estate values have come up. We’ll look at that in a minute.
Currently in Austin, average rents for single family homes are about $1,500 per month and the median rents are $1295/mo. See the chart below.
Imagine your grandmother needed to be escorted through a dangerous part of town, and you had to select from available bodyguards. One is a White Belt, a part timer with very little experience, but he returned your call in less than 10 minutes.
Another is a Black Belt with 20 years experience and hundreds of successful missions. Who would you pick for this important assignment? You’d go with the experienced veteran with the proven track record of success, right?
What if your child needed a special surgery, and you wanted to interview surgeons? What sort of criteria would you look for? What sort of questions would you ask? You’d probably ask “how many of these procedures have you completed, how long have you been doing it and what is your success rate?”, right?
Make up your own scenarios – you need an attorney to defend you against a frivolous lawsuit, or an accountant to assist with an IRS audit, or a tree person to work on your 300+ year old trophy oaks. Would you hire newbies with no track record of success? Probably not.
Buying or selling a home is an extremely important financial event, with many variables and 100’s of different ways that things can go wrong, yet the real estate industry, for whatever reason, is not one in which the customer typically uses a strong selection process when looking for professional help. Why is that?
In a real estate seminar I attended recently it was stated to us Realtors, “if you’re not returning your phone message and emails in less than 10 minutes, you’re losing business. 70% of buyers and sellers go with the first agent to respond, so you need to make sure you’re that agent”.
Crap. I’m still “old school” and think that it’s ok to return a non-urgent call within one business day, though I’m usually much faster. But I don’t go for the 10 minute rule. I don’t live my life in permanent hyper-response mode. I’d go insane.
So what would be better selection criteria that would be easy for consumers to understand and relate to? What if Realtors had a ranking system, such as in martial arts, where one earns progressively higher belt color rankings as their experience and competence grows?
And what if we had to wear these belts to listing appointments. Might that change things a bit for agents and the customer as well?
Buyers often want to know which areas of Austin are more likely to hold value and/or appreciate over time. Not just investors, but home owners who want build home equity. My standard answer to this question is usually “stay as close in to Austin’s core (downtown) as you can afford, in neighborhoods that are established and mature (not brand new), and which attend the better rated schools”.
If a buyer in Austin follows those rules alone, her home will appreciate or hold value as well or better than the greater Austin real estate market, over time, in most cases. Of course a buyer can pick the wrong home in the right neighborhood, or find a great deal in a lesser neighborhood, but assuming she stays in the median to average price/size range with a home that is standard for the neighborhood (not too big or too different), it will work out in the long run.
So how do you, as a reader, know that this rule of thumb holds up? Can I prove it? Yes, I can.
Today I’m going to revisit two neighborhoods that I compared three years ago, Circle C Ranch and Avery Ranch. Circle C Ranch is a Southwest Austin neighborhood that perfectly matches my buyer’s rule of thumb. Avery Ranch is a quality neighborhood as well, but not one I normally recommend to buyers because 1) it’s too far outside Austin’s core, 2) it’s too new, and 3) it was oversold to investors from the outset through 2007 when investors in Austin dried up.
So let’s take a look at the stats for these two neighborhoods and see how they stack up against each other as well the Austin real estate market at large.
|Austin Subdivision Sales Comparison|
|Circle C Ranch (SW Austin) vs. Avery Ranch (NW Austin)|
|Houses Only – Jan through Aug 2008/09 Sales – Data from Austin MLS|
|Circle C Ranch||Avery Ranch|
|2009||2008||% Diff||2009||2008||% Diff|
|Avg $ SQFT||$112.29||$119.18||-5.78%||$102.39||$109.29||-6.74%|
|Not Sold %||31%||30%||4.20%||42%||38%||9.87%|
|Prop Tax Rate||2.18%||2.51%|
The above chart compares the Jan-Aug sales activity for 2009 compared to 2008 for both neighborhoods. What we see is the following:
Austin Real Estate values for August 2009 are down about 5% from the same month last year. Average sales prices for the 1,657 houses that sold are down 5.12%. Median sold prices are down 4.80%. The number of houses sold is down 15% from August 2008, which is less of a decrease than we’ve seen for most of the past 12+ months. The sold to list price gap is 96%, which is the same as a year ago and the same as last month. The average list price was $257K and the average sold price $247K, so the average home is selling for about $10K below the final list price. Note that this measures the gap only between the last list price, not the original list price. Unfortunately I have to work harder to obtain the ration of sold to original list price so I don’t calculate it monthly, but my best guess is that it’s probably somewhere between 90% to 92%.
The Days on Market keep climbing, now at 73 days average and 43 days median on market. Even though that’s higher than last year, those are still fairl decent DOM numbers.
The Not Solds (Expired and Withdrawn listings) continue to be fairly high at 45%. This means that of all the listings that departed the MLS in August (no longer Active for Sale), 45% of the listings departed as failed sales efforts. This tells us what we already know, which is that many sellers are not desperate and they refuse to drop their list price below whatever mental threshhold they’ve established, regardless of what the market data says. This in turn is keeping our sold prices reasonably stable but also may be creating a shadow inventory of pent up future listings that will come online in the next 2 or 3 years once seller perceive a better selling environment.
Below is the chart comparing August with the month and year before. Further below is the usual collection of monthly charts and graphs.
|Austin Real Estate Sales Market Update August 2009|
|Homes only (condos, duplexes, etc. not included) compiled from Austin MLS data|
|Jul 2009||Aug 2009||Aug 2008||Yr % Change|
|Avg $ SQFT||$114.00||$112.36||$118.85||-5.47%|
|Not Sold %||39.75%||45.64%||45.34%||0.65%|
Next is the Year to data chart showing how our Austin real estate market is doing compared to the market at the same point in 2008.