Julia Roberts wanted to sell her house in Hanalei, HI initially for $30 million. Hey, it was an awesome location, it was a beloved home in the area, it was a licensed rental, and she had the miracle worker Neal Norman on her side. Well, after a year, they came to terms at $16.2 million, about half of what she started at.
But she made money. Because she bought “well”, working with Neal in 2011 to buy the same place for $13.4 million. That’s a $2.8 million gain in 5 years.
The 2016 local real estate market is the definition of a seller’s market.
Sellers in a market as strong as this one are commonly tempted to ask for an extra $10,000 to $15,000 in their asking price, “just to see” if someone will bite. But the reality is this: buyers are smarter than sellers. Sorry to say it, but it’s always true.
There’s a way things work in real estate:
- Sellers set expectations
- Buyers determine market value
- Appraisers substantiate market value
A buyer is going to spend hundreds of thousands of dollars on a home. They might be using cash, but they’re probably making 360 installment payments on a mortgage. Buyers start figuring out very quickly what market values ought to be. They have Zillow. They have Redfin. They have eyes. They have taste. It’s their future that’s being purchased and in this case, their chance to define the unknown future is far more powerful than whatever comparable sales a seller may have from the past.
When a seller sells, they cannot choose who they sell to.
They cannot choose the exact market conditions. They cannot prevent having another seller around the corner poach the market. What is poaching the market? A seller that comes on “high to test the market” a week later sees another new-to-market seller come on the market at a price right below theirs. That newer listing gets the buyer first and a now a new, likely less-expensive appraisal comp has to be considered.
The fundamentals of the market right now are so strong, a Colorado Springs bubble is not likely for 18 to 36 months. Too much is working in seller’s favor. But Denver is flattening, partly due to prolonged lack of inventory but also due to the simple expense. Even if the fundamentals say a bubble should not happen, it does not mean that buyers don’t talk about bubbles. The market can defy fundamentals. For market-based reasons, Brexit wasn’t supposed to happen. For mass-demographic based reasons, a Trump Presidency wasn’t supposed to win the election. The data said such things wouldn’t happen. They did. The data right now says a bubble won’t happen. But probably half of all buyers right now are talking “bubble”. That means buyers are cautious. Even if there are more buyers than sellers operating in the market right now, buyers do not want to buy dumb. The opportunity to buy dumb grows with each day.
When a buyer buys, THEY DETERMINE MARKET VALUE. Not the seller. If the buyer will not agree to the seller’s terms, no deal happen. The delta between what that buyer buys the house for (price x) and what that buyer later sells the house for (price y) is the money made on a sale. Buying well may not be possible for a buyer anymore, but that does not mean that they will not try.