Being Realistic about Statistics

If ever there was a sure fire phrase to put most people to sleep, it is the title of this article. We just do not like numbers. Maybe that's why we accept other people's interpertation of the numbers without looking at them for ourselves. The statistics concerning the current state of the real estate market is a good example.

The real estate market is, like politics, all about local conditions. The "market" in California, New York, etc is different from the market in Tennessee where I hang my hat. But the comments about statistics are generally the same.

A simple example, admittedly extreme, might illustrate my point. In my younger days, I was making $10,000 as an engineer. My total debt including car was $3,000. So my debt to earnings was 30%. The next year my debt was $6,000, a 100% increase! If that were the end of the numbers, I am sure my financial reputation would have suffered a bit.

But that's not the whole story. I got married, incurred ring and honeymoon expense, got a raise to $12,500 and my bride was a teacher making $6,000 a year. We were now making 18,500. Pretty smart if you ask me! Our debt to earnings ratio went up to 32% or a total of a 6.7% gain.

What does that have to do with real estate, you ask. In our part of the world, the headlines shout, "Real Estate in a slump! Home inventory increases dramatically. Prices increase slightly by 3.5%". I am sure you have seen similiar headlines.

Here's the story behind the numbers. The average home price is around $350,000, so an increase of 3.5% means the homeowner saw the average price increase by $12,250 in one year, not bad I suspect. The days on the market number, which the homeowner truly cares about, went from 56 days to 76 days, a 36% increase. So the media reports the two figures as "a 36% increase in the time a home stays on the market and only a 3.5% increase in prices", must be a slump.

But for those living in the Real World, this is the reality. The number of days on the market for homes increased by 20 days, about 3 weeks. In return for that 3 weeks, the homeowner got $12,500 more for their home than they would have last year. Seems an acceptable trade off to me.

I've Got to Get a Deal!

My wife loves a deal. I am convinced she would shop for a deal on anything regardless of the amount of money we made. The other day I got a quote for some repairs on the house. Her first response was, "Don't you think that is too high?" Mind you she has no idea whether it is too high, too low or just right. She wants a deal!

I say this because it reminded me of a situation with a young couple several years ago. We found the perfect home for the growing family in a great neighborhood for children with friendly neighbors. After searching for months, we happened on this neighborhood as we were looking at a subdivison close by.

The wife loved it at first sight. It had everything a young mother and wife could hope for in a new home. It even had a small office for her to use in her profession as a graphic artist doing freelance work. The husband loved it's already perfect landscaping. It had a small Koi pond and a well maintained bed of roses which he loved to grow. The garage openned in the back and had lots of space. A basketball goal was already installed for he and his buddies.

The price of the house was a bit high but in their price range. They were putting 30% down and had already been approved for enough to cover the difference. Their household income could cover the payments with no problem.

As we talked about an offer, it quickly became obvious I was going be required to do more than just write the contract and count my commissions. He wanted a Deal! He related a story to me about the way he buys automobiles. He tells the dealer what he will pay and if the dealer can't or won't meet the price he walks away. He was proud of having gotten his cars at "his price" and not the dealers.

He insisted we offer the sellers $15,000 under the listed price and require them to pay the title insurance (In our part of the world, the buyer normally pays for title insurance.), provide a home warranty, be responsible for $6,000 worth of repairs, replace the carpet and throw in the refrigerator and deep freezer. It was with a heavy heart, I delivered the offer to the seller's agent.

As exprected, after the sellers had a good laugh, they made a counter offer. And we countered the counter. I won't go into the details but the sellers gave us most of what we wanted, but would not budge from their offer to drop the price by $7,500 leaving us with a $7,500 difference. Unbeliveably, my buyer would not budge. It was the principle of the thing. He had set the price just like he did when buying a car and he was going to walk away!

And he did walk away from their dream home because he couldn't get a deal! For the difference in house payments of $47.40 (6.5 interest over 30 years), he was not going to get the home both he and his wife wanted and loved. And it wasn't because of the money, he could well afford it, he just wanted a deal. By the way, I found them a another home, not as nice, at more money than the first one but I was sure on the front end that he could get a deal on this one.

I'm not sure of the moral of the story except to encourage buyers to first know their financial limits and their financial capablities and secondly, within their financial limits, select a house that will be their home using all their senses including their emotions and feelings. A home is your secure place where the world is forbidden to enter without permission. Make it a place you can relax and be refreshed. Sometimes that feeling costs an extra $47.40 a month, but it is worth it!