Real Estate Physics

Real Estate Physics

There are certain principles that we hold to be unalienable truths.  A unit of mass at rest will stay at rest.  A unit of mass in motion will stay in motion.  These are basic rules of physics.  If A happens, we know B to be true.  Unfortunately, the laws of physics will never apply to real estate transactions.

When buying a home, an individual will feel it is their obligation to negotiate the price.  Regardless of whether it is a buyer’s or seller’s market, a buyer will always search to see what room there is for negotiation.  Other than automotive sales, it is the only industry where it is an accepted norm to haggle on the price.

The funny part, though, is this same logic does not apply when they turn around years later and try to sell.  The same person that felt the home they were buying was overpriced at purchase will then  try to top the market for the highest possible value when they try to sell it.  Additionally, they will often get indignant when someone new attempts to haggle and offer a lower price.

Why does this happen?  Why does the mass at rest not stay at rest?  Why must we feel the boulder should roll uphill when we find ourselves as the ones now forced to push it?  I find the answer to be as simple as personal attachment.  As opposed to other retail purchases such as televisions and appliances, we find ourselves exceptionally attached to our homes.  It is like a pet.  It is a reflection of ourselves.  We have poured our souls into them.  Many celebrated life events occur there.  Our kids are born and raised there.  We improve our homes to reflect our changing personal circumstances.  Get a raise, redo the kitchen.  Your child graduates high school or college, throw a party.  You become empty nesters and have the home alone for just you and your spouse?  Well, that’s a story for a different web site.  Anyway, people tend to treat their homes as if it is a business for sale instead of an asset for sale.  They feel there is a degree of personal goodwill that has value above and beyond the sticks and bricks that should be readily apparent to every buyer that comes through the door.

Unfortunately for the seller, there is no extraneous goodwill in the sale of real estate.  George Washington did not sleep in your home.  Neither did Bill Clinton.  In fact, the day someone decides to sell their home, they need to realize that it stops being their home.  Whether they like it or not, they need to look at their residence through a very dispassionate lens.  They need to stage the house to make it acceptable and attractive to the greatest number of buyers.  Paint the exterior a more neutral color.  Get rid of the kids’ height markings on the laundry room door.  Clean out the garage.  Personal memories need to be boxed up.  No one is buying someone else’s nostalgia.

This, though, is easier said than done.  The emotional detachment you displayed for your purchase is difficult to accept on your sale.  Human nature does not have the same principles as physics.  If it did, though, we may all find it easier to buy and sell homes.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

 

Mother Nature Big

Mother Nature Big

OK Florida developers.  This blog is for you.  Now is the time to reap what you sow.  You have never had a better opportunity to blow away your sales targets with out of town buyers.  Savvy developers know how to follow up on a major advertising campaign.  Offer incentives, giveaways, throw a party.  The point is to get customers through the door while your product is fresh on their minds. 

 

So, what are you all waiting for?  Mother Nature just put your marketing campaigns in bright lights, brought you mainstream to the entire country.  She gave you a first class, “A” rated advertisement for the sunnier climes.  And she did not just advertise up north where it is historically cold.  She even gave you a front page spread in the mid-south and all points in between, like the Carolinas and Georgia, where snow is as common as sundresses in January.  And what are you doing about it?  NOTHING.  Sure, you may be giving lip service about how the bad weather will cause people to move.  You may even take out a regional newspaper ad or put something on the radio or TV. 

 

Big deal.  Think bigger.  Think Mother Nature Big.  You need to not only roll out the red carpet, you need to paint the major highways red.  Physically red, using big cans of paint, directing them where to go.  Show them the path the whole way down south.  Free meals at every Denny’s and Cracker Barrel along the way if you buy a home right now.  Send a plane.  In fact, send a fleet of planes.  Let people know their flights are waiting on the tarmac.  First come, first served.  Free flights.  Hand out floral shirts and plaid shorts and tell them they look good.  Black socks, sunglasses and big hats too.  Let them know that never ending sunshine awaits.  Pay no attention to those who say they are afraid of hurricanes.  Really?  It seems like their recent winters of discontent have been on par with our stormy summers.  The last time I checked, the hurricanes played no favorites along the east coast, either.  Just ask those from New Jersey who are still feeling the effects from Hurricane Sandy.  Send buses.  Reroute trains.  It can be the mother of all parties.  Pour lots of fruity drinks with little umbrellas in them.  Put orange slices on the highballs.  Let them know they can grow those same oranges in their backyards.  Have a bonfire party.  Let them bring all their winter coats to throw on the fire.  It can be the world’s largest weenie roast.  Tell them to forget the Yankees and the Cubs.  The Tampa Rays have been better anyway.  They don’t have to worry about how bad their hometown football teams are, either.  We have three mediocre pro football teams right here that they can lament over.  You want winning football?  Follow the state’s college programs.  We even have two pro hockey teams.  Give them nice warm sweaters to wear to the games to ward off the chill from the ice.  Whatever it takes.  This is your chance.  Think big.  Mother Nature Big.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

 

A not so perfect world

A not so perfect world

In a perfect world, a home will always be built on time and to a 100% quality standard.  Unfortunately, we do not live in a perfect world.  Forced to sometimes choose between a stated delivery schedule and meeting a defined quality standard, what would you do?

You may have a contract that states an anticipated delivery date.  While the date is written as a soft timeframe with more disclaimers than you care to remember, a buyer will look at that date as cast in stone.  That date, while still qualified, is then most likely reinforced by the builder during his conversations with the buyer.  Additionally, the buyer will probably be making arrangements based on that closing date, scheduling moving trucks, furniture delivery and family gatherings.  On a positive note, you can probably get away with changing the delivery date up to 30 - 45 days prior to the estimated closing without causing too much heartache.  After that, you may have a real problem on your hands and you may have to consider eating the cost of accommodations and storage expenses to reduce the inconvenience to your buyer.

On the quality side, you may find yourself in a bind if the home will be completed on time, but it does not meet the fit and finish standards that your buyer is expecting at the delivery of their home.  A buyer should always expect the same level of quality in their own home that they see in the model homes.  You also want to minimize quality issues to reduce the level of warranty work that needs to be done to a home right after closing.  No one wants to have to perform quality repairs after delivery with residents living in the home.

The question, though, was what will you do if you are forced to choose?  My choice would be to maintain quality over delivery.  You may be able to make up for the inconvenience of a delayed close by taking a monetary hit to resolve the timing inconvenience.  However, you can rarely, if ever, recover from a lapse in quality.  First, if there are issues at closing, I guarantee you that the buyer will subsequently find a dozen more perceived deficiencies with the home whether they truly exist or not.  You have already planted the seed for poor quality in their heads and they will be looking for reasons to reinforce their negative perceptions.  Second, they will absolutely tell all their friends about how disappointed they are in the quality of their home and how they have lost faith in you as a builder.  If you are late in delivery, you can go over the top to work to make it up to them.  If the quality is poor, they will always feel like they are living in a substandard home.

Neither option is good.  Life, though, is not always fair and there will be times when you have to make difficult decisions.  My decision is to always err on the side of quality.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

An elephant never forgets

An elephant never forgets

With the real estate industry seeming to be on a bumpy road to recovery, I would like to focus some attention on the trades.  You know, those individuals that make everyone else look good by being the groups that are truly responsible for the quality and increasingly energy efficient housing that is rising like a phoenix from the ashes of the housing crash.

The problem is, there are fewer sub-contractors out there that are able to take credit for this work than had been present five or ten years ago.  It seems that when housing starts decreased, so did the trade base.  However, unlike the housing rebound, the trades have been slow to ramp up and join the party.  Whether that is because they are waiting to see if this rebound is sustainable, or whether individuals have chosen to pursue other career paths does not really matter.  The fact is that there are presently more seats at the homebuilding party than there are participants ready to sit at the table.

Obviously, this has resulted in a bargaining position shift between the builders and the trades.  Where trades had previously needed to sharpen their pencils to the breaking point just to stay in business, they now have the ability to not only raise prices, but to also pick and choose those builders that they want to do business with.  And, make no mistake about it, the trades have long memories about who treated them right and with respect when times were tough and who did not.

So, what does this mean?  As with any economic imbalance, there is a window of opportunity at present where the trades have the ability to raise prices and demand more favorable payment terms.  This will, in turn, trickle down to higher home prices, and, possibly, a bit of a slowdown in the short term housing recovery.  However, it will also result in growth among the sub-contractors as existing businesses grow and new business pop up.  The lure of expansion and rising profits will bring costs down and create a more stable trade base equilibrium over time. 

The main question is how long will this take and what will be the fall out.  It is possible that homebuilders that had squeezed their trades in the past will find their expansion objectives derailed by lack of a currently consistent trade base.  Conversely, those builders that have had, and presently show, a willingness to work more favorably with the trades, may find themselves better positioned to garner the attention and services of a presently limited base of sub-contractors. 

They say that times of growth are times of opportunity.  I say that those that recognize growth to be a team effort will be the ones that reap the true rewards of a recovery.  In truth, the homebuilders that are the quickest to recognize and react to those who hold the leverage during this time of sub-contractor imbalance will most likely be the ones that best position themselves for a steady rebound.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328