They're rolling back prices!
The great thing about selling real estate isn't that you get to cheat widows and orphans. No, the great thing about real estate is that you get to learn something new every day.
For instance, I thought I knew all the ways a homebuyer could shoot himself in the foot while trying to "get a good deal" or "not pay too much". Some buyers obsess over the former and have nightmares about the latter, and these extremes send them off on many a tangent and down many a slippery slope.
Of course, it is possible to get a good deal, and I do my best to get my buyers that good deal. But for some buyers, "good deal" means "screaming deal", and screaming deals are not to be had in the traditionally high-demand area where I work. Screaming deals might be found in low-demand areas, the ones that aren't the first choice of any buyer, but then, are they screaming deals or just discount merchandise on the sale rack?
And it is possible to pay too much for a home, although it's rare. Successful home buyers are much smarter than most people, especially unsuccessful home buyers, think. It's been my experience that only real estate agents consistently pay too much, and we can discuss this after class if you like.
But the great thing about real estate is that every day is a brand new day, and last week an agent told me about clients who've been using 2004 sales prices to make offers on Palo Alto homes. The drawback to this innovative approach to establishing market value is that 2006 Palo Alto sales prices are about 20 percent higher than 2004 prices. So 20 percent is a mighty deep discount to ask a seller to take, especially in a full-blown seller's market. A 20 percent discount is a discount that makes these buyers' offers easy to reject. Maybe "reject" isn't the right word. How about "get out of here and never darken my door again"?
But there's a kernel of genius here, as there so often is in apparent madness. Obviously these buyers think that Palo Alto home prices will drop to 2004 levels. Obviously these buyers "know" that all that appreciation between 2004 and 2006 was just fluff. Obviously these buyers plan to be well-positioned when prices "inevitably" recede to "rational" levels. Obviously these buyers are taking a page from skeet shooting and leading their target.
But why stop at rolling back prices to 2004? Why not roll them back to 1994? Or even 1894?
When I heard this I guessed correctly that these clients live in Fremont. Lucky guess? No, it's just that I've worked with clients who've tried to buy in Palo Alto but ended up in Fremont because "it's just as good as Palo Alto" and a much more "rational" market that's a whole lot cheaper. Translated, "it's just as good" seems to mean "I got tired of losing out on Palo Alto homes because there were twenty offers and I offered less than list price anyway because I refuse to get suckered into paying too much and for some reason this never happens in Fremont."
Fremont is what economists would call an "acceptable substitute". I don't mean to pick on Fremont, because undoubtedly it's a wonderful city. In fact, a Palo Alto police detective tells me that Fremont has a terrific PD. But if Fremont is "just as good as Palo Alto", then why is the Fremont-Palo Alto buyer traffic so one-way? Why are so many people trying to leave Fremont for Palo Alto, but not vice versa?
This year Fremont real estate is sluggish, while entry-level Palo Alto is just as hot as it was in 2000. Why so much demand for Palo Alto? I think it's partly because people in Fremont, and the better parts of San Jose, and all those other so-called acceptable substitutes, see real estate slowing down in their own neighborhoods. "Aha", they think, "now I can finally get that screaming deal in Palo Alto!" But they forget that the reason they want to live in Palo Alto is because it isn't Fremont or the better parts of San Jose. And they forget, or don't know, that they're part of a trend.
In other words, Palo Alto is the Olympics of home buying. Many are called, few reach the medal stand. And in homebuying, coming in second doesn't get you a medal.
Let's return to these innovative buyers. I'd really like to justify their behavior. They hold extremely responsible jobs with a highly-regarded Palo Alto institution. They have years of higher education. I guess I just like it better when things make sense.
So the other day I asked an appraiser if Fremont homes were selling at 2004 prices. She laughed. "No, prices haven't gone down there. They just haven't gone up."
It's always lonely when you're ahead of the curve.