A BUYER’S MARKET

Well, we all knew it was coming and those of us in the industry kept saying year after year “how long is this going to last?” The real estate market has always been a cyclical market and for more than a decade— yes I said decade— sellers have enjoyed a thriving seller’s market. The law of supply and demand was on the seller’s side, huge demand and limited supply. Sellers could just about name their price, terms and conditions which were usually “as is” and if the buyer didn’t take it there was another buyer that would and that was just the way it was; “a seller’s market.” The way “it was” not the way “it is.” Unless you’ve been vacationing on another planet, you’re experiencing the changing of the tide to a buyer’s market. All those buyers that just paid the price, terms and whatever conditions to purchase the property are now the ones naming the price and are actually able to have some of their own terms and conditions. Now compound this with what’s going on or should I say what’s “not going on” with lenders. These are very uncertain times, which is an understatement while traditional long term lending institutions are collapsing all around us, often right in the middle of a transaction. Buyers with all cash are king to sellers who need to sell. Sellers need to adjust that the cycle has changed.

In relating the cycle to Santa Monica and the Westside, know that while this still remains a prime location, we are not immune to what’s going on and must be realistic when pricing our buildings to sell in accordance with the current market. Prices have gone down and may continue to go down even further however the values are still here.

Values vary depending upon the location, lot size, square footage, mix of the units, the gross income, and amenities. It’s very challenging to compare buildings to recent sales as it’s no secret that there have not been many recent sales. Sales that closed last year are not comparable to the market now unless they occurred toward the very end of the year and again there are just not that many to compare. We always look at the available inventory of comparable buildings and the reality is that much of the inventory on the current market is just overpriced and is not selling. We consistently recommend to sellers that it can do more harm than good to overprice your property and may ultimately result in an even lower sales price than what could have been achieved if the property was priced to sell at the beginning of marketing the property for sale. Here’s a specific scenario where we provided a detailed accurate fair market analysis; the seller listed at a higher price than we recommended with another broker, the price is now reduced to the price we originally suggested, the seller lost valuable time and money in a decreasing economy with the property still sitting on the market.

We recently experienced a property newly exposed to the market which obtained a high offer from an exchange cash buyer. The seller still reminiscing in yesterday’s market thought the offer was too low and passed on the offer. This was followed by a few more offers considerably lower and you can probably guess the future outcome that the property may eventually end up selling for a much lower price than the first offer. It’s really important to be realistic; remember after over a decade of having a seller’s market who knows how long a buyer’s market cycle will last and will prices continue to drop?

I don’t have the answer to this question. I’m not sure that anyone does. I will share with you that many very strong solid buyers are on the sideline with cash and anticipating that prices will drop even further. After three decades of being in this business and experiencing several cycles I’m comfortable enough to tell you that I just don’t know, but what I do know is that each investor must do what is right in their own personal cycle.

It’s prudent to have a fair market analysis of your building that’s realistic provided by a broker that’s experienced in this specific arena. Planning your exit strategy is not a bad idea. All successful businesses need to take inventory regularly and evaluate the value of the current stock and trade. As apartment owners we need to do the same. Of course, while we all want to be sellers in a seller’s market and buyers in a buyer’s market, the two usually don’t exit during the same cycle. We welcome the opportunity to provide you with an honest realistic market evaluation in relation to the current market and also guide you to take into consideration your own personal season and cycle. While many things have changed, this is still a service business and we’re still here to provide you with what you’re accustomed to having; honest ethical service.

Speaking of being of service, I want to welcome back our new president Wesley Wellman and thank our outgoing President Carl Lambert (yes, I do know him personally) for continuing to be of service to this organization and our landlord community. Both Wes and Carl are examples of giving back who have shown me the importance of being of service just because it’s the right thing to do. I thank both of you for all that you continually do (and Carl I’m really looking forward to having you at home more but somehow I just know you’ll still be doing what you do best; helping others.)