Forrest’s Blog

Are you a Winner at a Losing Game? 

You may be if you continue to take listings that you love, but at listing prices that will not love you in return.  Rascal Flatts certainly didn’t have over-priced listings in mind when releasing “Winner at a Losing Game”, but the lyrics sure capture the pain of not “dancing to the same beat”.  Seventy percent of April’s closings finally sold after causing seller’s and listing agents many months of time and money to get the desired results.

However, there is even more positive news in the numbers this month . . . but let’s first download and take a look at: April 2008 Resale Market Snapshot.

There are now properties coming on the market “in the selling zone” that are selling in a relative short timeframe while those “out of the selling zone” are just aging in MLS without selling.  Approximately 30% of April closings (those in the selling zone at listing) were under 90 days on the market with an average of 59 Days on Market.  That is up from 25% based on March closings. The remaining 70% suffered an average of 224 Days on Market (that’s nearly 8 months … definitely out of the selling zone).

Listing prices have now dropped over 12.3% in the past six months while closed sales are up over 103% since their low in December. April closed sales represent a 21% improvement over March; more importantly, this is the first month in 2008 that closing are up over the same month in 2007. Closed sales prices continue to decline bringing more buyers off the sidelines and into the market. At the same time overall inventory continues to decline. The average Cumulative Days on Market is dipped to 174 days while too many listings remain woefully overpriced.

Okay, let’s look at some more good news: Dowload the Under Contract Chart. This chart illustrates actual contract written on a monthly basis since January 2007.  The actual number are less important that the trend - which is showing a steep increase and is a leading indicator of future closings.

Stay Focused on  Price Reductions! Anyone “out of the selling zone” resisting a price change should view the following video: Crazy About Our Over Priced House

Remember the movie “Top Gun” with Tom Cruise?  

Maverick (Tom Cruise) is a real hot shot pilot flying in NO FEAR mode until he has a spin-out that kills his partner.  Most women will sooner remember that this is about the time Maverick “crashes and burns” in his attempts to have a relationship with Kelly McGillis.

That created a confidence problem that was difficult to overcome and he simply would not engage . . . at least until the script called for him to.  It’s fair to say that the media and all of the bad news from depressed home sales to mortgage fraud to foreclosures have created a similar confidence problem with the buying public.  Until the last few weeks very few have been willing to re-engage in the purchase of real estate.  This month’s numbers would suggest that more are engaging and closing.  Buyers may actually “Bring Back That Loving Feeling” to the Las Vegas Market once again.

There is some very positive news in the numbers this month . . . but let’s first download and take a look at:  March 2008 Resale Market Snapshot.

You can see from the attached pdf chart that the absorption rate has finally improved.  At 9% for March, that is nearly double the absorption rate of October and November 2007.  However, the market is now bi-modal, that is there is one thing going on with the properties that are selling and something quite different going on with those that aren’t.  There are now properties coming on the market “in the selling zone” that are selling in a relative short timeframe while those “out of the selling zone” are just aging in MLS without selling.  That’s why both the absorption rate and the Cumulative Days on Market are both up at the same time.  Let’s put it another way.  Approximately 25% of March closings (those in the selling zone at listing) were under 90 days on the market with an average of 57 Days on Market.  The remaining 75% suffered an average of 232 Days on Market (that’s nearly 8 months … definitely out of the selling zone).

Listing prices have now dropped over 11% in the past six months while closed sales are up over 67% since their low in December.  March closed sales represent a 38% improvement over February. Closed sales prices continue to decline bringing more buyers off the sidelines and into the market. At the same time overall inventory continues to decline. The average Cumulative Days on Market is now up around 186 days while too many listings remain woefully overpriced. 

We must remain focused on getting those critical Price Reductions! Anyone “out of the selling zone” resisting a price change should view the following video: Crazy About Our Over Priced House

Anyone who has kept up with my monthly Las Vegas Market updates realize that we remain in a maket with seriously over-priced residential resale homes.  Most sellers still do NOT understand that they must be willing to compete with bank-owned REO listing in their own neighborhood as well as comparable homes in subdivisions all over the Greater Las Vegas area.

So take this test on one of you own listings . . . just in its own subdivision.  Create a search on all listings in the subdivision  . . . one story, two story, the whole nine yards.  Then add the listing price per square foot field (LP/SqFt) to your results grid. [You’ll find the column manager at the top left of the screen; just click on the 12 dots next to the name of the grid.]  Now sort on the LP/SqFt column in asceding order.  Where is your listing?  Remember only six (6) out of 100 listings are selling each month.  Therefore, if there are 100 listings in the subdivision . . . your’s better be in the top 6 to really be in the selling zone.

Now let’s say that you have a listing that is out of the selling zone . . . and remarkably it receives an offer . . . albeit a low one.  The first “knee jerk” reaction of many sellers will be to reject the offer because they are offended with the offering price.  Why?  Because they are still focused on exaggerated prices from the past.  But perhaps we can offer the seller another perspective on pricing! 

Maybe it is time to educate some of these sellers by looking at their original purchase and sale in a manner similar to what an investor would do . . . but much simpler.  Yes, we are going back to the time value of money and a good financial calculator . . . but much simpler.  I realize that most of us do not really enjoy doing those calculations anyway . . . with all those extra buttons! 

I ran the numbers on an offer that was recently rejected by a seller and the results were astounding.  The seller just rejected an eleven percent (11%) annual return because they were fixated on a price they were never going to get.  But tell me . . . where can anyone realize an 11% annual return on an investment with pretty minimal risk . . . at least compared to the stock market.  We all know that a 4-6% annual return on real estate over a long period of time is good.  This is just one good way to re-focus a seller back into the selling zone.

I’ve put together a very simplistic spreadsheet that will help you will this analysis.  It contains two Investment Calculators [Download this excel file and save on your computer].  The first let’s you put in the original purchase date, purchase price, expected sale date . . . and then calculated an anticipated sale price base on a 6% annual return.  The second one asks for original purchase date, anticipated sale date, original purchase price, and expected sale price.  In turn it calculates the actual annual return as if this property had been an investment.

Try it out!  You may find some of the results very interesting.

Reminder: Daylight Savings Time - March 9th! We have seen a considerable increase in buyer activity this past two months.  Daylight savings time couldn’t come at a better time.  This is a real opportunity to conduct extended open houses and connect with those buyers.  Also, consider Friday afternoon open houses that go until dark.  I am convinced that this is the time each week that your brochures disappear from your brochure boxes!

There is mixed news in the numbers this month . . . but let’s first download and take a look at: February 2008 Resale Market Snapshot.

Listing prices dropped a mere 1.4 percent during February compared to 9.3 percent since September. The good news is that closed sales prices remained flat in February but has dropped 13 percent since September. Inventory dipped while the absorbtion rate rose to 6.3% . . . these best one month rate in months. The average Cumulative Days on Market still hangs around 180 days while listing remain woefully overpriced.

The Cost of Overpriced Listings:  Bob Thompson is the author the monthly Market Condition Report for Equity Title.  His studies clearly show that half of all homes listed in the Las Vegas market are priced outside the “Selling Zone”!  Those homes are not receiving offers . . . they’re not even being shown in many cases!  The result is that we are now only closing 40 homes per day on average in the Greater Las Vegas area.  This compares to 88 closing per day in 2006 and 125 closings per day in 2004.  What is this costing you?  More importantly, what it is costing your seller?

What Can We Do? First, the traditional CMA approach to market pricing does NOT work in this market.  It may be an indicator of what it might appraise for, but that may a totally different number than what it will sell for.  Bob’s research and my own observations support the notion that Las Vegas is a very efficient market.  That simply means that each area or subdivision will experience market valuation changes on their own schedule or in their own time.  One area may be performing poorly today . . . but will prosper later when other areas are under-performing.  The bargains and opportunities in the Las Vegas market is a constantly moving target.

From a practical standpoint this means that just developing a CMA in the subdivision of the prospective listing is not adequate . . . and may be financially fatal to you and your seller.  Let’s discuss two very intuitive examples.  If a buyer is interested in Anthem Country Club . . . is it possible that they would also check out Red Rock Country Club?  Of course, so your market analysis must determine if there are opportunities in the competing subdivision that could cost your seller showing and offer opportunities.  How about the age qualified buyer?  How many neighborhood choices do they have?  Well let’s see:  Sun City Summerlin, Sun City Anthem, Solera, Sienna, Sun City Aliente, and quite a few others.  If you are preparing a CMA for a Sun City Summerlin property . . . can you afford to ignore the vast competition in all other areas of Las Vegas, North Las Vegas and Henderson? 

Let’s Continue to Get Those Critical Price Reductions!  If there was ever a time for brutal honesty on listing prices . . . it is now!  I would urge each of you to review your listings in the context of this blog and make appointments with your sellers to take a look at their current listing prices with this perspective.  Don’t nibble away with insignificant price changes. Boldly price the property to sell!

Did you caucus last month? If not . . . you missed one of the most interesting days in recent Nevada history!  The utter lack of organization was actually refreshing as groups of neighbors came together to exercise one of their more profound voting rights.  It was truly memorable . . . and I’m certain that the next round of caucuses in Nevada will go much more smoothly!

There is some really good news in the numbers this month . . . but let’s first download and take a look at: January  2008 Resale Market Snapshot.

Listing prices dropped another 2.5 percent during January and nearly 8 percent since September.  On the otherhand, closed sales prices dropped 4.3% in January and nearly 13 percent since September.  Inventory held steady while the absorbtion rate nudged upward yet again. The average Cumulative Days on Market jumped to 180 days, but this is very good as we saw a lot of older inventory

Areas 303, 404, 504, & 606 had much better than average absorbtion rates in January despite the continued over-pricing in nearly all areas of Las Vegas. 

Again, I  would be remiss if I did not mention that we are once again seeing a large number of multiple offers being submitted on properties around and below $250,000! This is especially true for well priced REO listings right now . . . and something that every buyer should know before making an offer in and around this price point.  However, we are also seeing multiple offers on short sales . . . this was not happening previously.

Let’s Continue to Get Those Necessary Price Reductions!