Buying and Selling Real Estate – Lessons Learned
Real estate markets are cyclical. The most recent downturn was the worst in my lifetime (I’m 66). Unfortunately we can’t do it over again but if we could, what would we do differently?
Buyers
The greater your sense of urgency, the greater will be your risk of making a big mistake. Buying at a Sales Launch Event, sometimes called “priority selection events,” makes no sense. Launches are designed to be extravagant, crowded happenings where a sense of competition for a limited number of properties fosters a sense of urgency. Planned amenities are displayed in beautiful renderings. Lifestyle is promoted. Free food and drinks are plentiful. Don’t fall for it.
Get it in writing. If you can’t reach a written understanding with the developer or seller, you’re open for trouble down the road. And while you are negotiating, take off you happy ears. You can’t expect the seller to be honest with you if you can’t be honest with yourself.
Don’t get sucked in by easy credit. Just because someone is willing to lend you a lot of money is not sufficient reason to borrow it from them. Again, be honest with yourself. Commit to spend no more than you can afford. Investments are built upon a solid plan. Speculation is built upon hope.
Spend more time researching the details of your real estate purchase than you did researching your recent HDTV purchase. If you wait till you get to the closing table, it’s too late. You’ll be signing or initialing piles of forms. And you will sign because if you don’t, you don’t get the house. So do your homework before the closing.
Sellers
Buyers don’t care. They don’t care how much you paid for your home. They don’t care how special you think it is or how much money you need to get it or how much you spent to fix it up. They don’t care. The only thing that matters is what your property is worth to them. Get over it and price accordingly.
Don’t fall in love with your assets. If you’re selling in a declining market, don’t follow the market down. Get ahead of it. Even if your property is the lowest priced listing in the area, if it’s not selling, it’s not low enough. Price aggressively or suffer the consequences of continuing carrying costs and additional price reductions (all too late). It doesn’t matter what similar properties are listed for. The ONLY thing that matters is what similar properties are SELLING for.
Because you paid $50 thousand more than the seller paid only a few months ago, you cannot assume the person behind you in line is going to do the same. Developers do not create speculators any more than casinos create gamblers. Casinos are built because gamblers already exist. If the music stops, what will you do if all the chairs are gone?
Real estate is not liquid. You can’t call your realtor and tell them to “sell my property at the market first thing Monday morning.” It may take months or years. Real estate is not liquid like stocks. Carrying costs can eat you alive. In gated or condominium communities, these include association fees and possibly club dues.
Your house is probably a lot more unique to you than it is to a prospective buyer. Your house is being compared to a lot of other houses. Most of them are spruced up to impress buyers too. Speaking of being unique; all those personal things around the house that make it uniquely yours make it more difficult for a buyer to think of it as theirs. Put away the pictures and knick knacks.
Have I scared you? A little bit, I hope. We are at the beginning of the next cycle of wealth creation. I doubt the next run-up will be as dramatic as the last one, but we should still be careful. Understanding risks can help us avoid them.
