When fear rules…

By Mike Balzotti

…Stock markets crash, real estate values plunge. A self-fulfilling prophecy runs it’s course. For sure there are very real factors in the local, national and international markets that are cause for serious concern. In today’s real estate market a major correction in the post 2005 real estate boom is well underway. It is reinforced by the near collapse of credit markets where wholesale restructuring of a system run amuck will surely grab headlines for some time to come.

In listening to the experts in portfolio management the word is don’t panic. Panic selling will only guarantee that you’ll lose even more. Why? Because by cashing in your chips for fear of greater losses you’ll miss the inevitable pendulum swing back up. Savvy financial advisors site the historical ebb and flow of bull and bear markets, where sharp loses are inevitably followed by sharp gains. It is nearly impossible to second-guess the highs and lows—invariably, by the time you know which side of the equation you’re on, it’s too late. You missed it. The winning formula is staying the coarse with proper diversification, or so the experts say.

In real estate we see much the same dynamics. The feeding frenzy of 2005 was in hindsight the top of the market. However in 2006 and 2007, even as inventories of available homes began to skyrocket, sellers kept asking higher and higher prices. This resulted in buyers holding back until the perception fully shifted to a ‘buyers market’. The point is that the shear weight of unsold and rising inventory with fewer and fewer sales foretold that prices would have to adjust. And adjust they did and are.

Now what? Like the stock market, the crystal ball is murky and no one can predict when and where ‘the bottom’ will be. However, we can site predictive trends. An emerging trend is that as home price have fallen, bargain hunters have come into the market and reversed slumping sales. In fact we see that sales have been trending up all year, tracking at about 2001 / 2002 levels (record years at the time). This inverse relationship between prices softening and sales increasing suggests a time of equilibrium in the not too distant future.

The equivalent of having a balanced stock investment portfolio in real estate is to buy location and buy long term. Historically the better locations hold value and appreciate better over time. The aforementioned leading indicator of the increasing pace of sales relative to the amount of inventory is something you can look at in specific markets and price points. In other words, when comparing similar properties in different locations, the shorter the average days on market at any given price point, the better the prospects for both buyers and sellers over time.

As to whether right now is the right time for YOU to buy (or sell) there can be no knee-jerk answer. Everyone’s situation is unique. However, the general rule is, again, like the stock market, history would strongly suggest you can buy with confidence if it’s at least a 3 to 5 year decision. History does tend to repeat itself.

Case in point—over the last 20 years we have seen real estate values increase an average of about 5% per year. The costs of purchasing and selling are about 10%. So, it takes at least 3 years of average appreciation to build additional equity even in ‘normal’ times. As to the question of whether buying now in a soft market may only see home values continue to erode, this is yet another reason why a buyer should be thinking it’s at least 3 to 5 year decision, maybe longer.

However, in spite of the downside risk, there are other compensating benefits to purchasing in today’s market—terrific selection, soft prices and historically low interest rates. For example, for every 1 percent increase in interest rates on an 80% mortgage, the effective cost of the property goes up about 8%. This is because of what the difference in payment would amortize.

Bottom line, fear need not rule. If you have a desire or need to purchase a home and plan on being in that home for at least several years you may well look back with that 20-20 hindsight and pat yourself on the back for making a very timely decision. On the other hand, if you are not in a position to stay the coarse you may do well sitting out this ‘correction’.

When disaster strikes close to home

By John N. Vatistas

How many of us take things for granted? I know I sometimes do. My house. My city. My neighbors. My friends.  My business. Life in general.

We really do have it easy. Access to supermarkets filled with food. Pharmacies filled with medication. Utilities companies that makes our live flow with the necessary power to live comfortably.

Our entire life is surrounded by order built over the tentacles of time. What we, who take things for granted forget, is how fast all of that order can come crashing down. How all these things that we depend for life can so quickly disappear.

Then we wonder who we really are. What we’re made of. What’s really important.

The other day, a massive monsoon happened here in Phoenix.It happens from time to time, but I’ve never seen one this bad. The desert rose up and reminded us who really is boss.

100 mile an hour winds. 100,000 people without power.

Like so many of my neighbors, my home was down for close to 48 hours with no power. In the big scheme of things it may not seem like much but when the temperature outside is in triple digits you realize that man’s attempt to conquer nature can sometimes be quite the folly.

We were forced to leave our home and seek shelter elsewhere. Either a hotel with power or with family outside the damage zone.

It was depressing being without a home. I felt lost. Unsettled. I couldn’t think clearly since I wasn’t able to sleep without air conditioning and it was sweltering. I kept thinking the power would come back on soon. It didn’t.

The next day, the power was still out. Without electricity, there was no TV or radio. No cell service. No Internet. No voice of authority telling us what was happening. No order.

For me, being in the real estate business, it had a grounding effect. Today my industry is ripe with monsoons that occur daily as families just like mine are losing their for a whole host of reasons. For those who are enduring it, it’s not a 2-day affair without power. For them, it’s a life changing ordeal. One that can last a lifetime.

Home. A place that is all yours. Where you step inside, close the doors and shut out all the ills of the world. When that’s taken away from you, albeit a day or two or forever, you realize that real estate isn’t all about grinding a seller over the last penny, how much commissions my Realtor made or what my loan officer charged me in fees. None of that is really important. Not in the grand scheme.

What is important, what really only ever matters is how much for granted we take the simple pleasures for. Like family. Like comfort. Like home.

The media has made the word “home” a four-letter word.  Going through this whole mess, my “home” was all I could think about and how much it really means to kick off my shoes, flick on a light switch, love my family and enjoy the simple pleasures of life.

This event changed my perspective that in reality should have been changed long ago. But sometimes, I guess, disaster needs to strike home to make you fully appreciate what’s at stake. And what loss is really like. And how nothing should ever be taken for granted.

The Fine Art of Collecting

Things are nice, but experiences enrich you for life

BY JOHN N. VATISTAS

Not that I don't place value on things, but things have baggage. They require storage. And they're fragile. They aren't usually shared. And their value is measured by others. At any time, they could be lost, damaged or stolen.

Not experiences. While priceless, they require no security. They can't be broken, removed or stolen. And they're with you always. Ready to be shared with anyone at a moment's notice.
I have many things, but I value my experiences most.

Over the last few weeks, my collection grew exponentially when my firm, Equitable Sotheby's Real Estate, merged with Russ Lyon Realty forming the largest Sotheby's International Franchise in the world. As experiences go, this was a big one. It's shared by many internally. And affects a greater population externally. That's a feat few collections can ever achieve. 

While driving from Flagstaff the other day, I dusted off a collectable experience - one from years ago that might be my most cherished. It was about when I was buying my first home. My agent, a strong, matriarchal woman, lead the transaction. My agent was ripe with confidence. When the deal was completed and I was handed the keys, something transpired that I don't believe she was even aware of. Honestly, I was not either until years later.

Like many of you, I took real estate people for granted. I knew little about the process and even less about what makes a deal. I just figured they're all the same. But over the years, as I invested, bought and sold, my perspective changed. As I built companies (insurance, title, mortgage) I became aware. When you work with great agents, you learn that they aren't only in the real estate business. They're in the experience business.

As a collector, I wanted to share this with others. Equitable began with the idea of creating great experiences for fellow homeowners through the things I can control. Like assembling the best agents. And building stunning office environments designed to transcend the typical real estate experience. And appointed with the most progressive technology. And crafting the most elegant marketing material.
I spared no expense. Took no short cuts. After all, I had no intention of shortchanging this experience for anyone -- not for myself, the agents and definitely not for our clients. After all, this is something we all share in.

And that's why I brought Sotheby's International Realty to Phoenix. It's the prize of my collection. For me, it embodies all that I experienced from my first transaction on forward to today. It now extends outward, shared by many others who include Jim Lyon, Todd Gillenwater and all of the great Russ Lyon Realty agents who have merged with me to make this all possible - a merger of a third generation, 60-year-old tradition of real estate excellence with a 260-year-old renowned international brand of distinction.

Collections are special; they're timeless. Each piece, a representation of the best of its breed. I believe that's what we are doing here. What we've created is not for every agent. It's different and requires savvy associates with a very special commitment to unrivaled, “white glove” standards many agents are not willing to make for themselves or their clients.

It takes something special to be part of a collection. It requires one to place more value on the experience than on things.

Mastery is the art of creating distinctions. The fine art of real estate is full of nuance, refining the mundane with skill and discretion. It is about artfully uniting extraordinary properties with extraordinary lives.

We're doing something different. Russ Lyon Sotheby's International Realty. We're taking the experience to a whole new level - inviting, savvy, discrete and refined. And you're invited.

What you should know about Internet Marketing

Every month millions of fingertips tap on keyboards querying homes. They belong to people eager to find their needle in the worldwide haystack of listings.

BY JOHN N. VATISTAS

Your home could be that needle, But it must be sharp To stand out from all the other dull needles.

Eighty percent of real estate buyers begin their search online. An overwhelming number of them start on REALTOR.com. But that's not the end of the road, it’s just the beginning. There are dozens of other sites your agent could be leveraging your listings on, such as Google, Craigslist, Hotpads, Live Deal, Oodle, Trulia, Vast, Zillow, Propsmart and more. There are unique services that can syndicate your home to all of the aforementioned sites, including postlets.com and threewide.com.

If your agent is posting your home on their Web site go to www.alexa.com. Click Ranking and type their URL into the search bar and discover where on the Web they rank. Let's be realistic. If your agent's entire marketing plan is built off of their traffic make sure they have sizeable traffic. Same holds true for their brokerage.

In today's market, you need to be associated with a Web site that brings as many international eyeballs to the table as possible.  Increasingly, our international friends are finding it a bargain to buy property in Arizona.  Make sure your property is on an international real estate Web site.

Does your home have its own domain name such as 123mainstreet.com? You can get yours on godaddy.com or have your agent buy it on VREO, Ala Mode or V-Flyer and build an entire Web site around your home. Then you can syndicate this site to all the sites mentioned above.

Speaking of Web sites built around homes, realestateshows.com offers great software to create elegant slideshows for your home.  Better yet, TourFactory.com is another effective way of showcasing your home on the Internet.  Having the right online tour can significantly increase your chances for finding the perfect buyer. 

Are the hits to your site being tracked? They should be. Google analytics or visistat.com can do that easily. 

Crazyegg.com or clickdensity.com can help your agent monitor all of the pages on your property site or your agent's site to learn which pages people like to visit and which pages they don't. By clearing up things on the site people don't bother with, the site becomes much more user-friendly. By clearing the clutter, there is more room to showcase great content such as your home.

Your property can easily be published in a blog or monthly newsletter online through companies like VerticalResponse.com, Wordpress.com, or Typepad.com.

Flickr.com, Snapfish.com or Photobucket.com are other great ways to update home photos through the Web.

Has your agent shot video of your home? The Web is an amazing place to post video for the world to see.  Wellcomemat.com or Turnhere.com are great options. 

Great marketing is all about doing things differently and making something stand out from everything else. Today, buyers are moved by the outstanding. By the special. By the things that stand out. Make your home stand out, market it wisely and price it right and you'll be on the road to wherever your next real estate dreams are taking you.

Get On The Train

Our ‘crystal ball’ is about as murky as anyone else’s when it comes to predicting the future. However, we can site trends and dispense some of the ‘urban legends’ when it comes to homes sales in the Valley.

For example, most folks are inclined to believe that our residential home market is seasonally driven. That couldn’t be farther from the truth. While we do see closing pick up somewhat in March, April and May from transactions written in January and February, the increased activity from the beginning of the year continues well into the summer months and then trending down for the balance of the year to about January and February levels. This trend has been the case since at least 2001.

Translating this into unit sales we find that from 2001 to present day projections for 2007, the number of resale homes has been roughly between 60,000 and 80,000, with the well-known spike of investor / speculator-driven sales hitting a high mark of 104,725 in 2005. The aforementioned ‘investor / speculator’ factor has been pegged at about 25% of sales, which explains the differential.

It is a well established fact that the market is soft, but even here there are some contradictory facts to reconcile. The most glaring fact is that in spite of all the talk of “market correction” and “price corrections” the properties that are selling are in many instances continuing to sell at record prices.

The real story this year (continuing from last year) is the record rise in the number of homes for sale. Resale inventory now is in excess of 50,000 units Valley-wide. So, while monthly sales numbers are tracking at about the average for the last 6 years, the sheer weight of ever increasing inventory has driven us to a 10 month supply of homes.

As real estate professionals, we find ourselves most often fielding the concerns of buyers who in spite of their need, hesitate, afraid of paying too much—particularly with all the talk of bursting bubbles! At the same time we are getting calls from the ‘big money’ folks that seem to understand that the opportunity is now. What is the basis for their optimism?

To answer this question we simply have to go from the street level concerns to the macro-economics of our market place. The local economy is robust and the growth in population continues unabated. People have to have a place to live. Real estate at its most fundamental level is ‘shelter’. Knowing this, we can be optimistic that historic trends will continue and our housing market will fully recover over time. The best recent example we can give is how buyers couldn’t sign purchase contracts fast enough in 2005. However, hindsight shows us that the rapid appreciation train everyone was trying to get on had already left the station. Similarly, we might now suggest that 2 years from now folks will look back at 2007 and wish they had taken advantage of the incredible buying opportunity with so many great choices (high inventory), while interest rates remained at historic lows.

So, if you have a need to buy, perhaps you should do what the smart money is doing…buy now…get on the train!

By Dominic Scappaticci
CEO and Designated Broker
Russ Lyon Sotheby's International Realty

Buy Now or Buy Later – Why the Conventional Wisdom is Wrong!

In 2005 everyone was buying real estate at a frenzied pace not knowing the market had already peaked. It was over. At that time, residential real estate values Valley-wide appreciated an average of 47%, causing “sticker-shock” for would-be buyers. If the average appreciation in the Valley is typically 5% a year, we were seeing nearly 10 years of appreciation in just one year.

A message to today’s buyers: If you are a potential buyer, ‘sitting on the fence,’ waiting for the bubble to burst you could be making a mistake. The media has sensationalized the market slow down creating fear that it will continue. However, the fundamentals of the local economy are strong with approximately 12,000 people moving here every month. While interest rates are still historically low and there is a healthy inventory of homes competing for attention, now may be your opportunity. Remember, the best homes will always sell relatively quickly. In fact, those that are priced correctly and adjusting to the current market are highly in demand.

A message to today’s sellers: Value is not intrinsic, it is market driven. In other words, to make the assumption that last year’s prices have set a benchmark for today’s market value may be a mistake. The fact is that if you have to adjust 2005’s hyper-inflated prices by 10-20%, you have still done very well by historical standards. When homes are being absorbed at a slower rate (more homes for sale than willing buyers) you would do well to price competitively now, rather than run the risk of ‘chasing the market down.’ Many homes simply will not sell because sellers are holding on to last year’s prices. You also want to avoid the perception of being ‘market worn’ -- being on the market longer than the average for your location.

A message to today’s buyers and sellers: The idiosyncrasies of the various markets require an expert to know where the strengths and weaknesses are. See a professional Realtor® who specializes in your area of interest and you will do well in this market, or any market for that matter.

The fundamental flaw in the conventional wisdom is the notion that the current market conditions will continue. Savvy folks know that the real estate market, like all markets, will ebb and flow; rise and adjust. The good news in residential real estate is that over time, real estate generally appreciates and represents not only shelter, but an outstanding investment in lifestyle, building equity as well as the well known tax benefits.

We are fortunate to be in ‘The Valley of the Sun’ where the demographic shift from north to south will continue to favor our real estate market for years to come.

By Dominic Scappaticci
CEO and Designated Broker
Russ Lyon Sotheby's International Realty

The Housing Crisis is Over…

Well, not so sure about that. Yet that was the eye-catching title of a very recent article in the Wall Street Journal.  The main argument in the article was that inventories—particularly in new homes sales are dropping, signaling a shift in the market and suggesting prices will not continue to drop as much as many observers have predicted.

There was yet another somewhat positive report (at least for the Northeast Valley—Paradise Valley, Scottsdale, Carefree / Cave Creek and Fountain Hills) from the W.P. Carey School of Business at ASU. They site only a 3% drop in home prices compared with over 10% in the Southeast Valley.

What is certainly true is that as the inventory of homes for sale drops and the number of monthly sales increases we can anticipate better ahead. But it hasn’t really happened here yet.  Sales are seasonally up, but the inventory still remains at near record levels.

What is also true is that well priced / well positioned (compared to the competition) homes are selling for market value. The sustaining thing about the home market is that there’s always a need to buy or sell. We deal in shelter! We also pride ourselves in knowing what works and what doesn’t. Let us know if you need an in-depth evaluation.

By Mike Balzotti
Executive Vice President
Russ Lyon Sotheby's International Realty

How to Sell Today…

Given the current market conditions, sellers would do well to be grounded in some sobering facts. In my last article, I reviewed the challenge faced by sellers pricing at 2005 levels; trying to cash in on unrealistic expectations and exorbitant profits. This speculative attitude has lead to an oversupply of homes on the market.

Fact: While residential real estate in many market segments has appreciated, the ‘real’ story is that there is nearly a nine month supply of available inventory Valley wide. This underscores the fact that this is now a “buyer’s market,” as has been widely reported.  What this means to sellers ‘today’ is that pricing against the competition is more important than ever to effectively sell your home.

Problem: For the motivated seller in today’s market, it is customary to price their home against recently sold comparable properties. However using this method in a buyer’s market may lead to disappointment, as only the best one out of every nine properties on the market will sell in any given month. If your property isn’t perceived as the best available (price, condition, location, etc.) at the time, it will be overlooked, thus accruing days on market. In real estate, we like to say “time is of the essence,” but the reality is that time is the enemy. Properties that aren’t selling are perceived as “market-worn”; begging for low offers. This explains why new properties receive the most attention by agents and clients alike, and if well-priced, will sell very quickly. Contrary to popular opinion, even in today’s market, these well-priced, “hot” properties can still receive multiple offers. There always will be a demand for the next best property.

Solution: Be objective. How? Get your REALTOR® to physically show you the competition you are up against. Keep in mind, having the most amenities doesn’t necessarily translate into getting the highest price. Use those amenities to stand out from your competition rather than pricing yourself out of the game. Again, remember time is the enemy. You must be perceived as exceptional to sell in today’s market. 

Offer more for less. Be the exceptional property. This is not just a function of price relative to location, size and amenities, but also condition. Perspective purchasers will disproportionately discount homes for perceived needed improvements. For example, it is when carpets are worn, sellers often offer a carpet allowance in lieu of replacing it themselves. While the seller may view this as a benefit, buyers may perceive the home to be a “fixer-upper,” thus discounting the price more than the cost of the carpet. By contrast, homes that are clean, clutter-free and well-maintained will stand out from the crowd. Good REALTORS® today know how to get the biggest bang for the buck through proper home staging. Now more than ever, you don’t get a second chance to make a first impression.

Obviously, no seller wants to leave money on the table. The point here is that ironically, testing the market through overpricing can actually create a loss. Through very careful competitive positioning, today’s motivated seller can still achieve a timely sale with these strategic solutions in mind.

By Dominic Scappaticci
CEO and Designated Broker
Russ Lyon Sotheby's International Realty

Keeping Perspective

Recent news: 8.0 Earthquake Levels Entire Village in Peru; Powerful Typhoon Threatens Taiwan; Hurricane Dean Tears through Caribbean; and ah yes, Mortgage Pinch Causes Domino Effect of Pain. However, the world is not ending and home ownership will continue to be something that pretty much everyone wants.

To be sure, the housing market locally is currently being threaten by higher interest rates and tighter credit requirements—the ‘domino effect’ caused by the crisis in the sub-prime markets. At least for the near term this compounds the problems for the glut of homes on the market. Buyers, afraid of paying too much are now getting an unexpected surprise—what perhaps they hoped to gain in waiting for softening prices they now just lost in the effective increase in acquisition cost because of the higher interest rates.

This is a bit of an ‘I told you so’, as we have warned of this possibility in prior articles. However, we didn’t anticipate that the increase in foreclosures from bad lending policies would result in a credit crisis that would hit so hard and so fast. Still, it is a time to get a perspective: rates are well below the double digits many of us got accustomed to in the 80’s and the fundamental demand for housing in the Valley continues to be robust, as record numbers of newcomers continue to migrate south. Most recently the Feds have stepped in—injecting more funds; more liquidity, to buoy up lenders. This may be a temporary reprieve and something else to factor in if you are a buyer with ‘sticker shock’ over sudden increased rates.

Even so, because of the compounding effect of higher interest rates on top of a record number of homes for sale, we might now expect to see some price declines in average sales prices—something that really hasn’t happened in spite of the over-supply.

Buyers and sellers—what you can do: We are seeing the use of discount points to help offset the consequence of higher interest rates for buyers. Discount points are like pre-paid interest. A 1% discount point equals 1% of the loan amount. 2 to 3 discount points can typically buy the interest rate down 1%. A seller offering to pay discount points to lower the buyer’s interest rate may be offering an incentive worth much more in actual dollars than the equivalent price reduction.

If you’re a buyer or a seller you would be well advised to explore the discount points option as a strategy to mitigate the bad news in the mortgage markets. We also think it would be good for everyone to see this blip in the real estate radar screen for what it is. Keep perspective—the sky in not falling…yet!

By Dominic Scappaticci
CEO and Designated Broker
Russ Lyon Sotheby's International Realty

 

Thinking Globally

It’s not enough to think local when it comes to real estate

BY JOHN N. VATISTAS

Look over yonder to the north, south, east and west - Just over the borders.
You might not see them but they're there. And actually, depending where you
live and work, they have already arrived.

The international buyer

If only the real estate industry could have its own weather vane. Its own compass. If only real estate could place its ears to the ground and listen to the rumblings of the future rather than have their sights set in the ether of the past.

If only real estate could speak clearly to today's consumer. And shed its vintage
dialect. If only real estate could silence itself for a moment and look beyond its own reflection and its own repetitive chant, it might notice the foreign grains of opportunity ready to be culled and baked into an entirely new business opportunity.

There was once a time when that opportunity was localized. When people moved close to where they grew up and used the same agents their parents did. Agents who lived in the community. Who knew the community. From the inside. Agents whose sole specialty was those few square blocks or miles they farmed.

But during the past decade, much has changed. Fueled by employment opportunities, better ways of life, the Internet and investment opportunities, relocation has dominated real estate activity. Markets shifted as the real estate consumer’s needs shifted, but only a handful of real estate professionals and companies shifted with them.

The reason is simple — they didn't need to. During these past 10 years, homes sold before yard signs stabbed the dirt. As the real estate market sizzled like the rubber soles of a Doc Martens shoe on blacktop during August in downtown Phoenix, agents and brokerages didn't see any reason to shift or change. Many took too much credit for their own success and never thought beyond the reality that maybe one day, their real estate lotto would end. 

And that's where we are today — in a cooled marketplace where skills, vision and foresight seem like lost arts while fear, confusion, panic and paralysis grip our industry. And they undoubtedly seep out into the marketplace and to buyers and sellers.   

Many in our market have seemingly run out of options. Despite Thomas Friedman's depiction of our flattened, global marketplace in his best-selling book “The World is Flat,” many working agents and brokers today continue to remain steadfastly entrenched inside their local comfort zone, with global blinders and finding themselves unable to attract or locate the vast array of new opportunities that
reside outside of their borders and well outside their perception.

They are buried in the past, encased in Styrofoam peanuts postmarked 1995 and completely disconnected from the nuances that are real estate today.

If you can't cook, maybe it's time to get out of the kitchen

Today's real estate consumer demands more. It's not enough to simply list homes for sale in the local MLS, send “Just Listed” cards to local neighbors, and then wait for magic to happen. And it's simply not enough to present yourself online with a tactically blind Web site that looks like a relic from the last century.

Sellers know it. Buyers know it. The press knows it. And a handful of top-tier real estate companies knows it. One of the things they know is how hot the foreign markets are. They know where the buyers are, where they come from and what destinations in America they are targeting.

According to a recent study conducted by the National Association of Realtors, Canadian buyers made up 11 percent of all foreign buyers in 2006, a number that has no doubt increased this year. Incredibly, 47 percent of these Canadian buyers paid cash. Moreover, the Canadian dollar, long the second child of North American currencies, is now worth more than its American counterpart.

Mexico is providing another significant — if counterintuitive — stream of potential buyers. While much is written about Americans buying second homes in Mexico, few articles have noted the increasing number of affluent buyers from below the border looking north to the Valley.

The bottom line is that we live in a global economy. Opportunity is knocking from outside our borders in profound and astute ways. Some are looking at the market and see no yonder. Not to the north, the south, the east or the west.

Others are already there

Cultivating.
Building.
And thinking globally.