The real estate market like any other asset class is in a constant state of motion. Property values are either going up, down or are stabilized at all times. We know this just by reading the newspapers, watching television and listening to neighbor?s gossip about their asset (the home). Not very scientific way of figuring out a market, but probably as good as if not better than most because it gets to the emotion of the homeowner in trouble. If the homeowner believes it is a sellers market he/she will absolutely try to sell or refinance before listening to you. If it is a buyers market then you are a welcomed guest if you can put money in their pocket for this dog of an asset they purchased long ago. If it is a stagnant or equal market well then the homeowner will be unsure of the value because the newspapers will be onto another subject. There are three types of markets in real estate. They are 1) the Sellers Market; 2) Buyers market; 3) a stagnant market where prices remain constant.
The definition of the Sellers Market, Buyers Market and Market in equilibrium is a look back model that uses two figures to determine a label for which market you are in. They are market time and inventory.
Market Time Defined
Market time is defined by the amount of days that a property in the location stays on the market. For example in a Sellers Market average sales time will be under sixty (60) days. Equal Market average sales time will be under one hundred (100) days. For a Buyers market average sale time will be over 100 days.
Inventory defined
Inventory is simply the amount of houses on the market divided by the average amount of sales typical for that area per month. Sellers Market would be less than three (3) months inventory on hand in a given area. Equal Market would be between three months and six months of inventory on hand. Buyers Market would be having inventory over six months on hand.
SELLERS MARKET FSP
A sellers market is a market where a property will sell within sixty days of being introduced to the market. This market also has a low inventory of properties on the market. This would be defined as anything less than three months inventory in your specific area. Another indication of a sellers market is that the price of the product begins to appreciate until it finally is out of the reach of the buyers causing the market to cool down.
This market can be prolonged by certain financial products such as the interest only loan, negative amortization type of loan, graduate payment loan and of course the variable rate loan. All of which we have seen in both Philadelphia and Massachusetts.
Based upon all of the factors going against the back up plan we offer it is a hard position to find the deals that we need during this type of market and as purchasers we are forced to purchase at auction as well as going to the properties and trying to purchase pre-foreclosure.
Locator in Hot Sellers Market
The locator in a hot market has a hard presentation. Every homeowner feels that they can get market price and that is more than we can pay. This happens because local neighborhood gossip, newspapers in the area saying how much property has risen year over year or month over month. Homeowners are saturated with information about how valuable their real estate is worth.
Next the homeowner is targeted with lending offers to refinance because the value of the home has skyrocketed- use your homes as an ATM machine to pull out some equity and live for a few more years.
Both the low market time and low inventory time cause our business of purchasing properties to be very frustrating. The homeowners are aware that they can sell a home relatively fast even quicker than an auction can be had.
It Makes for a hard market to purchase properties prior to the auction. It is what we call our recession. It allows a homeowner to choose from a group of choices. Essentially we are a back up plan or safety net. In this type of market we need to price correctly and purchase at the last minute from homeowners who have tried everything else.
Buyers Market FSP
A buyers market is defined by sales of properties taking takes over 100 days to sell. The Inventory in this market will stack up to well over six months worth of sales. The homeowner in this situation has only a few options. Financing companies say that they can refinance but usually can not due to the falling value of the appraisal on the home. Remember the newspapers are littered with information regarding the fall of the real estate market. It is the fear of the day for most local newspapers.
Here are a few local articles
?Sellers Frustrated With Real Estate Market
Home Sales Down In Bay State
POSTED: 6:05 pm EDT August 15, 2006
UPDATED: 7:37 pm EDT August 15, 2006
WALPOLE, Mass. -- Quarterly home sales are down in a widespread area of Massachusetts, but prices are only down slightly.
Copyright 2006 by TheBostonChannel.com?
?Market unease: Home prices fall 3.5%
Weakening demand leads to largest decline in Mass. in 13 years
By Kimberly Blanton, Globe Staff August 24, 2006
Home prices in Massachusetts fell 3.5 percent in July, the largest decline in 13 years, as the slowdown in the real estate market finally led sellers to cut their prices.?
?July home sales plunge 27%
The Lowell Sun
Massachusetts single-family home sales plunged almost 27 percent in July, the largest year-over-year monthly drop in more than 11 years, according to a report released today by The Warren Group of Boston. ?
?Buyer?s market: Housing sales dip, prices may follow
By Ben Aaronson/ Staff Writer
Thursday, August 24, 2006 - Updated: 09:08 AM EST
You can?t drive through town without seeing a For Sale or Open House sign and they represent a statewide trend.
According to a recent report by the Massachusetts Association of Realtors, home sales statewide fell nearly 11 percent in the second quarter (April to June), marking the fifth consecutive quarter that activity has declined from the same period the pervious year. Housing inventories are at an all-time high and homes are staying on the market longer, the report found. ?
Locator in Buyers Market
The locator in a buyer market has a much easier presentation. Every homeowner has undergone the conditioning of the newspapers, local gossip etc. that the sky is falling rapidly and that their investment is no longer worth what it was one year ago.
This advertisement of the fall of real estate prices and the end of the price appreciation stops the appraisers? from appraising the properties correctly. Instead of using the standard comparable. The appraiser checks a box and states that property pricing are declining and begins to cover himself/herself with lower and lower values for the property. This causes the banks to tighten up on underwriting guidelines making it harder to refinance their way out of the foreclosure.
Without the refinance the homeowner either has to do one of the following:
1) Restructure the mortgage causing higher payments. Problem with a restructure is that it costs more monthly for a short period of time. Usually very hard for the homeowner to come up with the money.
2) Sell on the open market. Problem is that market time has risen to the point where the foreclosure process is faster than the tie they have to sell the property.
3) File for bankruptcy. This normally costs $2,500 for the lawyer, filing fees and 10% of the plan debt to the trustee. It also has a 75% failure rate.
Consequently our FSP becomes a very viable option for the homeowner.
We are in this market now so find your local newspaper articles and put them in your book to show the homeowners what is happening out there. Make your presentation and then close the deal.
The locators biggest problem during this time is the manager (Investor) has more trouble pricing the properties because of the downward spiral of the market.
Market In Equilibrium:
An even market is when a property is sold within 61-100 days of listing. Inventory is usually six months or less. This is the market that is the easiest to procure deals. It allows the investor to feel warm and fuzzy knowing almost to the penny that the property he/she is purchasing is worth what they think that it is worth.
The Newspapers simply go on to another story and leave the real estate market alone or have articles stating that the market is stable.
Locator in Equilibrium
The locator in a stable market has the best of all worlds. Prices are staying steady keeping the manager happy and all is quiet regarding real estate in the newspapers.
Again it is an easy presentation. The homeowner has seen his equity disappear and no longer knows what the value of the real estate is and just wants to get out from the obligation.
The homeowner is left with one of the three options of a down market:
1) Restructure the mortgage causing higher payments. Problem with a restructure is that it costs more monthly for a short period of time. Usually very hard for the homeowner to come up with the money.
2) Sell on the open market. Problem is that market time has risen to the point where the foreclosure process is faster than the tie they have to sell the property.
3) File for bankruptcy. This normally costs $2,500 for the lawyer, filing fees and 10% of the plan debt to the trustee. It also has a 75% failure rate.
Consequently our FSP becomes a very viable option for the homeowner.
So what does this all have to do with the Fresh Start Presentation (FSP)? Remember the Fresh Start Presentation is the Homeowner Options slide show that you have. It goes through the advantages and disadvantages of the seven (7) options available to the financially distressed homeowner.
They are as follows:
1)Sell on the Open Market
2)Refinance the home
3)Restructure the mortgage
4)File bankruptcy
5)Borrow from friends and family
6)Let it go to foreclosure
7)Sell to an investor
Well each type of market has different advantages and disadvantages to the locator.
Use the newspapers to translate into a selling benefit during your FSP. We need to educate the homeowner that we are in a period where houses do not sell for last years prices but that they are actually going down in price each and every day. Time as usual is the enemy of a homeowner in this situation.
A good locator that wants to maximize his sales would do the following:
1)Read the local newspaper where your route is and cut out the articles that will help get the homeowner off the price they thought it was worth. Copy the article and give it to the homeowner when talking about the price.
2)While he/she is reading the article tell the homeowner that the property may be worth 3,4,5,6,7% less by the time they actually move out, the property is repainted and put on the market by the company.
3) This risk is for our company to worry about unless the homeowner decides to try to sell it on his own.
Good Hunting
http://frontgateconsulting.com/
http://frontgateconsulting.com/
No comments:
Post a Comment