 Market Report: July 2005
A Few Modest Notes on Being A Crafty Buyer by Jim Scott
Bring me a good deal. If I had a nickel for every time I have heard this, well you know the rest. I know that there are occasions when a property is offered for sale at a price that seems attractive and in fact is. Looking for these occasional jewels can be a rewarding and profitable experience. Astute investors avoid this time consuming process. They create profit from properties that may not readily appear to be value purchases. This buyer can recognize and assess property differently than most people. He or she exercises a rigid discipline when going through the analysis and mechanics of the purchase. A good deal is made in the front end of a transaction not during the ownership and sale.
When evaluating a purchase the buyer, whether for personal use or investment, must decide on the objectives of the purchase. Most purchases are done by owner-users. Commonly it is believed that if one occupies a single-family residence for a period of ten or more years the actual purchase price is of little importance. Recognizing that homes are often purchased from the heart, clever sellers and agents often profit on that very point. Having a maximum price set prior to entering negotiations is the key--even if you absolutely must have the property. Maintaining negotiating and price discipline can be achieved by potential owner-users, particularly in this market. There is no bad California real estate, only bad prices.
You Will Be OK in Five Years
Two decades ago I heard those words above after overpaying for a property. It was one way more experienced broker’s gentle way of letting me know I paid too much. Fortunately for me (and many others) inflation makes us winners in the long run. No matter how many mistakes you make at purchase, time will generally work in your favor. Job and population growth and limited land supplies mean property will always appreciate in the coastal belts. Real estate in cities that have population and job issues, for example Detroit, will have stagnating or declining values. I recognize that San Diego’s price history has bred a certain contempt for price discipline. The object is to buy the property; price becomes secondary. This was fine recently, but the landscape is changing and new rules have to be followed. Inflation will be your friend until his ugly cousin, high interest rates, comes to sleep on your couch. You can even survive an even uglier relation, stagflation, a combination of inflation and a stagnant economy.
The Discipline of Buying
Leave your emotions at the door. A good agent should help here—often the art of selling takes over and your ally can become your enemy. Set a price target and do not budge in spite of entreaties to the contrary. Everyone in the transaction, except you, has the end objective of closing the sale. You are alone at that critical moment, absent a really good agent, and need to keep your emotions in check. I have dealt with the best of buyers in my twenty-three years in this business. All of these stars had one trait in common; they stood their ground at price and deal points in spite of my best, and always well-intentioned entreaties.
The Role of Agent
Most agents have as their first priority the making of the sale. This conflicts with the goal of the buyer. Be aware of this problem but recognize the agent can bring value to the transaction.
Use the agent as knowledge resource, that is where they can add value to your deal. Look for an agent that does not need the sale to make his or her car payment. This is even more critical today as the number of agents has exploded at exactly the same time that sales volume has fallen off the cliff. The decision about which agent to use is critical in the perilous times ahead. This I know to be absolutely true; the market is and will continue to change. The past is not prologue and the Summer and Spring numbers do not bode well for the next few months. Never has a skilled and experienced agent been more necessary. Find a guy that can say no.
Click here to see Jim's past Market Reports. You can also download Jim's 26 page research paper on San Diego County apartments.
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