Q. Have you ever heard the term: “How much is a horse worth?”
A. What ever you can get for it!
It seems in this sellers market we are experiencing in Northern Colorado the last three years, this is how real estate values are being fabricated, yes fabricated. Similar to “How much is a horse worth?” Market prices being driven by huge demand and short supply. The “lets throw it out there and see who bites” mentality. I’m seeing between 9-11% increases in market “value” in as short a time as three to nine months in some neighborhoods. How is that even justifiable? Not so long ago, before the big melt down, four states stood out in the big bust. California, Arizona, Florida and Nevada. All of these real estate market prices peaked around 2006, then nose dived, according to the graph via macrobusiness.com.au. In April of 2005, I helped my wife with my Brother-In-Law’s Estate in Naples, FL when he passed unexpectedly. From April of 2005 to October 2005, working long distance on this estate liquidation, I watched market inventory almost double in the Naples/Fort Meyers area in six months time. Then almost double again the following six, from October 2005 to April 2006. With this first hand knowledge, I’d say the market peaked a bit sooner than 2006. My Brother-In-Law’s condo “valued”/appraised at 250K in the spring of 2005, sold for just under 150K in the spring of 2007. A two year nightmare and a loss of 100K in “value”, not counting waht we lost in carrying this burden to make sure his daughters, 9 and 11 at the time, were taken care of. A quote from a 2015 WSJ article: “But few lawmakers foresaw the ravages of the housing bust. Florida’s median condo price fell from a peak of $220,400 in 2006 to a nadir of $77,500 in 2011, according to Florida Realtors, the state’s realtor association. “Similar market “values” followed the roller coaster downwards in the other three states. I’ve watched these cycles in various parts of the country going back to 1978. Appraisers have the most difficult job in these artificial markets. They have to justify these perceived “property values” by using other recently sold properties. These “values” are and always will be opinions, nothing more, along with who is willing or desparate enough to pay the price. There are the tangible components of how one can calculate a properties value. Land, labor and material costs of building (including infrastructure, i,e roads, water, sewer, etc.), amenities, quality of construction, location, number and size of structures. Then some room for profit if one is a builder or has remodeled/updated a property. Then there is the intangible. The “Blue Sky” number added to the rest of the mix, which has no real justifiable components and in all reality is a number pulled out of thin air. This cycle just keeps repeating itself and I wonder why there is never a good fix for this idiocy put into action. How there are no real checks and balances instilled by lenders and underwriters to control these artificial market values. I see the same patterns all over again. It becomes risk vs reward, how much does one want it. National builders amass back into an area, the flyers, postcards, TV and social media ads for the “Simple How To make money flipping houses without using any of your own money in your spare time system” gimmick slick sales pitch people converge to hotel conference rooms across a city. The frenzy creates excitement for sellers and great anxiety for buyers. On top of that, the increase in the number of real estate agents/brokers expoldes and everyone positioning for market share creates and unrealistic business environment. Poorly guided new agents, their pressures on keeping the bills paid can make an individual justify “bending the rules” to make the commission. The potential for these kinds of scenarios amplifies and happens. This leaves a black mark on the industry as a whole. Great brokers, who retain thier ethics, honesty and values get lumped in with the rest, because in the minds of the masses, all real estate brokers are all bad and not to be trusted. And unfortunately, perception becomes reality.