New Year, New Mentality: The Low Ball

January 16, 2009

Residential

A Low Ball...Do You Swing At It?

A Low Ball...Will the Buyer Swing at It?

It’s hard to believe that last year was only two weeks ago. On the first day of 2009, I had five e-mails in my inbox that read something like this, “I have a strong desire to purchase a home this year. When can we get started?” In my seven years in the business with seven New Year’s Days, my inbox on January 1st usually contained a dozen or so well wishes for the new year but rarely a sincere interest in starting a home search immediately!

As I read through each of these e-mails, I couldn’t help but imagine that these buyers woke-up, jumped out of bed, and immediately penned this year’s resolutions. My mental picture of their lists looked like this:

  1. Go to the gym!
  2. De-clutter by selling all excess junk on Craigslist
  3. Enter every penny spent into Quicken
  4. Contact my Realtor about buying in this “New Market”

Shortly after completing their lists, they must have booted up their computers and either e-mailed me (if they knew me already) or searched for homes on Sudler Sotheby’s website and found me through one of my listings.

Each e-mail I received included a laundry list of wants and needs, and concluded with, “I am a serious buyer and I am going to low-ball. If you want to work with me, you need to know that upfront!” Since I have spent the last four months on the receiving-end of low ball offers, I have accepted that this is the scope of the market, and so I agreed to help these buyers with their home searches.

Let’s Look Back

So, what is this “New Market” mentality that today’s real estate buyer has adopted? What has prompted them to start their searches earlier than the usual Spring Market*? Well, to understand buyers’ mentality, let’s take a quick look at stats from the past eight years?they tell an interesting story:

2000 ? 2005: Real estate consumers experienced a rapid appreciation in the value of their home or investment properties. According to statistics found on the Chicago Association of REALTORS® website, neighborhoods like Lakeview experienced an average increase of 21% in condo values, South Loop 30%, West Loop 21%, and Bucktown 39%. Buyers who struck gold timed their purchase and sale ideally and, in some cases, depending on “product,” reaped a 50% or more profit on their purchase.  The real money-making years meant buying before 2003 and selling in 2005 or 2006.  Most experts agree that 2006 was, in most cases, the height of the market.

So, what has happened since the height of the market? Statistically, those same neighborhoods listed above experienced the following appreciated condo values between 2005 – 2008:

  • Lakeview: 7% appreciation since 2005; 3% appreciation from 2007 to 2008
  • South Loop: 30% appreciation since 2005; 25% appreciation from 2007 to 2008 because of the large volume of new construction condos in the million-dollar-plus range that were delivered in 2008 (which means that they most likely went under contract in 2006/2007)
  • West Bucktown: 4% appreciation since 2005; .03 appreciation from 2007 to 2008
  • West Loop: 1% appreciation since 2005; 0% appreciation from 2007-2008

From my personal experience, I found 2007 to be a tough year for bringing deals together, as most sellers were not accepting that prices had not escalated 3% or more per year. Because buyers were told that it was a “buyer?s market,” they were not very open to negotiation. By 2008 there was a level of acceptance by the seller that appreciation had slowed and properties hadn?t escalated in value as they had in ’05 and ’06. As a result, buyers were buying and sellers were selling because all parties agreed on market value.

The New Market Mentality?

This year is a whole new ball of wax.  Buyers are thinking short sales and foreclosures, and taking advantage of buyers who have to sell. They are thinking depreciation and buying at prices prior to the “boom.” Their logic: “I don?t know where the market is going, and in these uncertain times, I can?t risk buying too high.” What is too high? Prices at or above sale prices for units that closed within the past 3?6 months? Buyers don’t want to see comparables dating a year back to justify a seller?s price; they want to see recent comps only. This is all quite different from 2008?s Spring Market.

Advice for Sellers In The New Market

What does this mean for owners who want to sell? It means you’ll have to accept the fact that properties have not appreciated much in the past two years. You are going to have to look at the most recent sales and price yourself accordingly. You will need to evaluate the feedback and the number of showings relative to market time, and you’ll need to adjust your price to meet the market. If you don?t have to sell, this isn?t the time to test the market aggressively. Consult with your real estate agent about accurate pricing strategies to meet the market demand. There still is such a thing as receiving multiple offers when your price is acceptable to market value.

There’s a whole new buyer out there. Buyers are strong and savvy, with money to put down, great credit, and the mentality to “find a deal.” If you’re selling, you may have to take a “hit” on your desired profit, but if you turn around and buy, you can also take advantage of this New Market!

In my next post, I will address the points to consider when selling your home vs. renting your home if taking a “hit” is a tough pill to swallow.

And by-the-way, the one offer that has been accepted so far was a relocation. The company that owns the property was eager to unload and my buyer was able to take advantage of it!

* Spring Market is the time of year in Chicago when most real estate transactions take place. It usually begins after Super Bowl Sunday and ends shortly after Memorial Weekend.

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About Catherine Brennan

Catherine Brennan is a seasoned real estate agent with over six years experience in closing hundreds of transactions and developing a network of satisfied clients. Because she values customer service above all else, she teamed-up with Nancy Gaspadarek to create the G and B Real Estate Team. Catherine has lived in the city of Chicago since 1990. She is a member of the Lakeview Chamber of Commerce, a volunteer for the Friends of Blaine and Umoja which both focus on enhancing child education. She enjoys investing in real estate and golfing when she can. You can visit Catherine's web site or reach her directly at 312.613.8022 or catherine@gandbteam.com

View all posts by Catherine Brennan

4 Responses to “New Year, New Mentality: The Low Ball”

  1. Katie Anderson Says:

    This is such a fabulous article. My hope is that all seller’s get the opportunity to read it. They may find that their property would move much faster if they read and listened. Thank you Catherine.

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