Common Traits

"Don't assume, gather the necessary market information before making your purchase and have an advocate that works for you." If I had heeded those word last January I would be less poor today - I'm not sure I'd be richer - but I'd be less poor.

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Act I: Don't Assume

      Our client wanted a contemporary home of 2,000 plus square feet. We built our search parameters and prepared a broad search and then searched daily for homes on the market. A contemporary home was found in Delefield that met our clients' needs. The asking price was $375,000. (The asking price had started at $424,000.) Our client really liked the home, spending over four hours in two trips to view and discuss the home.
      I know how the real estate system works so I could not assume the home asking price was the homes' value. (Gee, I wish I'd thought of this concept when I invested in a stock that had a P/E of 67.) You've read here before that I believe many agents make false promises to sellers about home values simply to get the listing. The "listing" is the lawn sign and contract for that company to market and sell the home. When the home doesn't sell, the listing agent works to get a price reduction. The agent and company maintain the listing which allows the agent to make a commission on the sale. That's a little like a stock broker making money on the sale whether the stock sells high or sells low. I could not assume the homes market value was $375,000.
      Once our clients verified the home fit what they wanted, we prepared a market analysis. The market analysis searches what the seller paid for the home, what similar homes in the area are selling for, assessed value, time on market and other pertinent real estate information. (Gee, I wish I'd thought of the concept of doing research before investing in my stocks. I bet my professional investor does research.)

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Act II: Gather information - make an informed choice

      Our analysis showed the home had a range of value between $320,000-$325,000 or $50,000 less than the listed asking price and $99,000 less than the original asking price. I'm sure our client was concerned, because emotionally, they wanted the home. With such a drastic gap between the asking price and value, they believed to obtain the home would require paying subtantially more than our market analysis indicated the market value to be.
      The financial markets are comprised of many types of investments, all requiring analysis before investing. Somewhere within the market are investments that fit your wants and needs and are a good value. And so it is with a home. There are many homes to purchase, so obtain the information you need to make an informed choice. The investment advisor I use looks at my financial goals and objectives annually and, based on research, invests with those goals in mind. He analyzes the market and buys at market value. We do the same for homebuyers.

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Act III: Use a Professional who advocates for you.

      We cannot "steal" homes for our clients but we can gather the information necessary to buy the home at a fair price. The first thing our clients asked was "What do we do?" We suggested if they liked the home that they make an offer of $325,000, the top range of market value. If that was not accepted or if a counter offer was made, we would keep looking for another home while keeping an eye on the home to see if the price to dropped. The offer was made at $325,000.
      The seller and listing agent were a little annoyed at the offer because it was so far off of asking price (Which asking price, the $424,000 or the $375,000?). Remember, we were not trying to "steal" a home, this is what the market analysis said the home was worth. The seller countered at $345,000.
      Our client asked us for our recommendation and we said, "We've already made a recommendation - it's in our market analysis." Ultimately our clients offer was accepted at $330,000, $45,000 less than asking ($94,000 less than the original price) and $5,000 over market.
Many times during the negotiations we could have told our clients what we thought they wanted to hear and certainly could have been less of an advocate for our clients with the listing agent and seller. That's what traditional agents do. As exclusive buyer agents, we have one party to advocate for, our buyer client. The same cannot be said of the traditional real estate system. The stock market analogy may be made between and stock broker and financial advisor. The former is compensated based on trades and the latter based on the amount of money earned for the client. The latter is a higher calling in my opinion for it limits conflicts of interest.

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And another thing...

      Agents don't add value to homes. Homes have a range of value based on supply and demand and what homes sell for in a nearby radius. What agents do is market homes, provide exposure and service the sale of the home (the paperwork).
      It can be frustrating to see so many homes with false listing prices. As long as buyers believe the hype (Gee, thought I saw that word tossed around with the dot.com failures.) and buy based on emotion, the system will profit. One can make the classic real estate argument that a "fair price" is what any willing buyer and willing seller agree upon. (Can you say Cisco Systems - selling last year for $154.00 and today for $17 a share.)
      Let me close with this. I looked at a home with a client on March 31, 2001. It was a terrific home in a nice location with many nice features. The asking/list price was $224,000. Our market analysis said the home had a value of $170,000-$175,000. I suggested to our client that we keep looking for homes that met their wants and needs while watching this property as the price dropped. The first price drop occurred April 9, 2001. The price is now $219,000.