Saturday, January 28, 2012

Real Estate Today. Eliminate Peril, Enhance the Experience, Move the Recovery.

The classic movie Jaws, the first one not the sequels, is the story of America's real estate world. All is well in the world until disaster strikes the innocent, happy go lucky victim in the middle of the night. The grotesque remains wash up on shore and the government rallies the citizens to attack the unknown source of evil quickly to restore confidence so the economic well being of the community can be restored before the profit season begins. With all the usual suspects rounded up in the  sea and slaughtered, the Mayor declares it safe to go back in the water. Business as usual. Come on down. The water's fine. Jump in. You'll be safe... Whoa to you young fella (Chief Brody) who dares to challenge leadership and suggest caution.

Of course we know how that story goes; the threat is declared over too soon and more people suffer disaster. The town folks make a few bucks off of the tourists, but then the tourists leave but now they are not going to be so easily persuaded to come back. Fool me once, shame on me, fool me twice....I don't trust you.

The government first time homebuyer tax incentive is real estate's version of opening the beaches too soon. Many of those buyers churned our commission checks, closing fees, and mortgage origination fees to keep some businesses open, but the buyer may have had their legs chewed off by buying and overpaying in the only competitive market of the time---below $250,000.  The little equity they had in the transaction (3% down) vanished as soon as  the buyers left the scene. The serious business of recovery  began only last year.

If a Realtor has any value in the recovery, it's in the area of eliminating unreasonable risk for the consumer of our services. With a year of untampered markets behind us, the buying and selling journey has a solid base of sales. Those sales are what underwriting needs to establish values on which to approve financing applications. Appraisers have sales to use to evaluate value in the manner required by the underwriters. Realtors have data to use to inform their buying and selling clients on what might be reasonable price. Owners can make decisions to place their homes on the market or sit out knowing what is probable instead of hopeful.

Now that the underwriting process is on more solid ground, it is imperative that no government interference with incentives muddy the water.  The bankers, realtors, appraisers in the proces know what to expect. We know where the pitfalls are (unsubstantiated prices, unapproved buyers, defects in the homes, underwater mortgages). We can navigate. The waters are not treacherous. Jaws may have gone out to sea. The more consumer sentiment moves to feel safe, the more people will come back to the process of buying and selling, and moving on with their lives.  Mess with their serenity and we'll be watching a sequel... and we know the sequels suck.

Wednesday, January 11, 2012

Dane Northwest Middleton Schools Sales 2011

One area that gets an abundance of attention from relocating families is the NW corridor of Dane County, Middleton Schools. Because this area is outside of the Beltline, we should include Blackhawk Neighborhood in the discussion.

A review of sales of 19 homes for $600,000 and above over the last twelve months might reveal a trend to pay attention to in 2012. I've written about assessments in previous blog posts and hopefully I've been clear that I don't want to put too much weight on assessments when doing market analysis. Just the same, there is no way of avoiding assessment numbers when the buying side of the market is looking to the assessment number to argue for their offer positions. We can't look the other way and say it doesn't matter when it does matter to somebody in the discussion.  With that disclaimer out of the way, let's review 2011.

It was early spring and I started to hear "Your price is too high. Homes are selling for a lot less than assessment." It wasn't just bargain shopping buyers saying that, seasoned Buyer Agent Realtors were telling me I was wrong too. If I was going to enter this debate I decided to do some homework. A review of multiple neighborhoods around Dane County showed that there were pockets where the price to assessment ratio was upside down, but overall the sales prices where still far more than the majority ahead of the assessments. But the damage was done. The buyer sentiment was set. And the mode of operation was: See assessment first, then price. If price is greater than assessment, look no further, conclude price is wrong. 


My 19 sale group of homes shows this:

Sale price as a % of Assessment:                100.43%
Sale price as a % of First Asking Price:        91.54%
Sale price as a % of Last Asking Price:         94.01%

Days on the market average:                        138 days

Of the nineteen sales, 7 were in the Town of Middleton. Six of those 7 homes sold for less than the assessed value. The City of Madison (Blackhawk) recorded ten of the sales and every one of those homes sold for over the assessed value.

I read this data as a suggestion that owners will attract the attention of buyers when their price meets the buyer's expectation, and the buyers might expect the price to line up close to the assessment in the Town of Middleton.  In Blackhawk, buyers who expect to be able to buy homes below assessed value may have  no success arguing their case.

There are sixteen homes on the market today in the same area. Only 5 are priced below assessment, and the average price to assessment is 105.35%. The average price reduction already has been greater than 6.5%. Maybe those owners started with aggressive expectations. The average time on the market for these homes is 249 days. Eight months is a long time to be patient. I wonder if we might be seeing a number of these owners make price adjustments in February. The cumulative effect would be significant to owners who set their prices based on asking prices.