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The
Times They Are a Changin' Agents
I talk with from different parts of the
country are telling me similar stories
these days---stories about investors who
aren't as excited about buying
properties as they were months ago, and
how they're much slower to act now than
they used to be. And
at the same time many sellers still want
the prices their properties would
command if appreciation and speculative
buying were still as hot as they were
months ago, too. And
in putting these two factors together
you have what could be one of the worst
situations investment agents can be
faced with--buyers and sellers who are
basically indifferent about making a
deal. Low
cap rates were making sense in many
markets throughout the country while
annual appreciation was still going
through the roof in many areas. But now
that rapid appreciation has tapered off
in many areas, all the potential buyer
is often left with to consider is a
property with a low cap rate that won't
appreciate like it did before. And for
many prospective investors that's not
much to really get excited about now.
But the sellers still want the inflated
prices they were used to getting until
only recently, and if they can't get
these prices anymore many of them are
content just holding onto their property
for now...unless there's a bona fide
underlying need for them to sell. It
used to be in many areas across the
country that a property could come on
the market listed at a high price, and
then in just a short period of time the
market would catch up with the listing
price and the property would then sell
for the full price, and sometimes for
even more than that. It was as if buyers
could just put the photos of 10
different properties on a dart board,
throw a dart at the board, and feel
confident that in buying whichever
property the dart landed on, they'd be
considerably wealthier a year later for
having done so. But
in the midst of this market transition,
the market for users buying properties
still remains strong in many areas. And
at the same time oftentimes it's still
difficult to find the properties to sell
to these companies as the supply of
these properties for sale often remains
tight. The
reason the user market remains strong in
many areas is because users aren't
buying properties as a pure real estate
investment. They're buying buildings to
operate their businesses out of, which
is very different from buying based on
cap rates, cash flow, and anticipated
appreciation. Most companies would
rather own their buildings than lease
them. And it's this desire along with
the profitability of these businesses
that allows the companies to buy their
buildings for reasons that have no
relevance to pure real estate investors.
Pure real estate investors buy because
of the overall financial return they
anticipate from the property, as they
have no business they'll be running for
profit out of the property. With
this in mind, you must do everything you
can to get people out of their state of
indifference over buying and selling
right now. And when you take new
listings for sale, you need to do so at
prices the owners will negotiate
downward from. Until recently buyers
would pay the full asking price for a
property and sometimes even more, but
that's happening less frequently
nowadays. Buyers are back to wanting and
expecting to negotiate listing prices
downward, and if the sellers refuse to
budge off of their asking prices, this
will make it increasingly more difficult
to negotiate a sale. I
know it's been awhile since many of us
have encountered this kind of
negotiating in our marketplaces, but
this is what used to be called a
"normal" market...one where
negotiating downward from the listing
price was what occurred on almost every
sale. When
buyers are feeling more uncertain about
what represents a good deal nowadays,
when they're able to get the owner to
negotiate his price downward, this makes
them feel more confident that they've
really found a good deal. And sometimes
the very act of negotiation itself is
the glue that makes the deal go down as
both sides feel they've worked hard to
get what they wanted from the other
person. So
you need to get your people out of their
state of indifference over buying and
selling. Observe what's going on in your
market, gather important statistics and
data on where you see the trend going,
and present this information to your
people as a report on where their market
is now headed. When you're able to show
people where things are moving to based
on solid, verifiable evidence, they're
more likely to agree with you, and
they're more likely to take action. While
keeping this in mind, one of my coaching
clients recently ran a report on how
many investment properties had sold
year-to-date in the first six months of
last year vs. in the first six months of
this year in his own territory. And the
results from the report indicated that
the number of closed transactions
decreased a full 50% in his area when
compared with what happened year-to-date
last year. And now with this
information, along with other
information and trends he's put
together, he's making a case to his
owners that they should sell now or be
prepared to wait for years before
they'll ever see these prices again. This
is the kind of action you need to take
during transitioning times like these.
Determine where the market is headed,
make a compelling case with data,
statistics, and information that's
completely verifiable, and compel your
people to take action.
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