Real estate has never been fair. By nature, every piece of dirt is different. Real Estate is not at all like 10,000 red Kia’s coming off the production line, or 1 million incandescent bulbs compared to 1 million LED bulbs. Real estate is 57 Main Street which is different than 59 Main Street which is different than 59 Lexington. Every piece of dirt is different. There are different views. Different solar yields. A multiplicity and perhaps seasonality to traffic patterns. Lot dimensions. Topography and slop. Distances to amenities. School Districts. Barking Dogs and other Sounds. If the road gets plowed because of local political cronyism.
Commodification allows the relative merits of one product to be viewed over another. A Red Kia might have higher insurance and unintentionally “say something” about the owner that a pleasant Green Kia might not. But take a single piece of dirt, and look at the dozens – nay, thousands – of individual variables, and the mind gets perplexed. Consumers don’t hear stories about people who missed out on the investment chance of buying a 2004 Red Kia. Consumers do hear about people who missed out on a chance to buy a bungalow across from the Little Nell is Aspen.
Real Estate sales account for more than $1 trillion in annual GDP. If so much economically is uncertain, how can something so heavily rooted in permanence like real estate be that attractive? Because unlike any other consumer vehicle, the American consumer gets to act like the free-minded capitalist they are by participating in the greater macroeconomic reality. While real estate isn’t fair, there are some “rules”:
Location, Location, Location
Sellers set Asking Prices, but Buyers Determine Market Value
A popular property today combined with a buy-and-die timeless location (the 2 & 20) is a rare find. Pay attention to it.
So what was good advice in a down market, was good advice in a thriving market, and remains brilliant advice in one that appears to be in the midst of flux (2018 into 2019): Buy with the mindset that real estate is not fair.
Starting Point Number One: Not all neighborhoods are created equal.
Starting Point Number Two: Not all floorplans are worth living in for 10 years.
Since a buyer can not change their neighbors and rearranging the topography and slope of a lot is not practical, and if there is a possible six-lane road behind you… why would a buyer want to live there a year from now, let alone ten?
Sustainable is an over-used word in the contemporary vernacular, but people of all political and lifestyle persuasions bandy it around as if it was readily understood. Personally, I like the word “durable”.
The buyers that bought back in 2012 just as the market was coming out of it’s 5-year negative downturn often bought with “value” in mind. Buyers who bought in 2015 and 2016 upgraded value to “worth”. Buyers who bought in late 2016 through early 2018 often bought based on “winning.” As in “I have to beat someone else, my offer must be more competitive.” This purchasing behavior was then and always is, the inverse of value.
Value is not defined as settling for a ranch home with vinyl floors. Locally, value is too-often associated with “new” (this is because Colorado Springs was a town of 250,000 30 years ago and is now a town of 480,000. Half the city was built in the last 30 years).
Value is simply the relationship between what you get for what you pay.
The major difference between Value and Durable is that Durable is like adding a third-dimension to the equation: how long will the value last?
In 2017, 88% of all residential single-family homes listed in the Pikes Peak Association of Realtors MLS, sold (16,337 sold; 18,435 listed for sale). In 2011, the year the market stabilized and went from triage to recovery, the probability of sale percentage was merely 60%. In 2008 it had been 47.9%. In 2018 Year to Date, the percentage has slipped, to 79.9%. That almost 80% probability is still extremely healthy, but it indicates growing uncertainty. This now means there is a one in five chance (the 20% remainder) that a home does not sell. What of that 20% is not selling? Can price be the cure? Or is the marketing moving back to a place – for years to come – where a consumer simply will not buy that house backing to Briargate Blvd for the Pikes Peak View? Will a consumer buy the remodeled house that still doesn’t get sun from November through February due to the location in the bottom of a steep valley? Will someone buy a 6000 square foot home with a bizarre floor plan on the simple metric that the dollar per square foot is 20% less than anything else in the area?
Real estate isn’t fair. As the market slips, prepare for the competitive buyer to change back towards the “worth” buyer, and perhaps even skip a step and go to the 2012 version known as “the durable buyers”. As the consumer adapts to more durable decision-making, it’s getting less fair every day.
Based on information from the Pikes Peak REALTOR® Services Corp. (“RSC”) for the period December 2010 through October 2018. RSC information may not reflect all real estate activity in the market and is provided as is without warranty or guaranty.