You Want the Truth in a Hot Real Estate Market?

 

 

 

“It depends on what the meaning of the word ‘is’, is.”

Former President Bill Clinton

 

“What is truth?” 

Pontius Pilate

 

I was talking to a client the other day when he mentioned buying a house to live in.  He was currently renting and wanted to find a place he could settle and begin to grow roots with his growing family.  He had owned houses before and was ready to get into the real estate ownership game again.

 

However, we discussed that buying a house in Charlotte (and probably across the country) is difficult now.  If a home for sale is priced competitively, it usually has multiple offers as soon as it goes on the market.  In addition, home prices have escalated.  Even with low interest rates that would keep his payment down, he didn’t want to overpay as he was afraid it would take a long time to see any capital appreciation.  It was a conundrum- Continue renting or buy?

 

There was another option he wanted to talk about.  He had found a nice house that was in a great area that he thought was priced right.  It had been languishing on the market for months and the only reason he could see that it hadn’t been snapped up was that it had a shared driveway.  So his question was, “Do people really hate shared driveways that much?”

 

I didn’t know.  At first take, sharing was good.  Sharing is caring.  How much time do we really spend in the driveway anyway?  Surely not enough to be priced $75K below the other nearby houses and not be under contract, right?  I never thought that much about sharing a driveway.  It would be a nice opportunity to know the neighbor better; maybe share cars occasionally if his was parked in front of mine (especially if his was nicer!). 

 

So what’s the true value of an independent driveway versus a shared one?  I told him I didn’t think it should matter that much. 

 

But… at the end of the day, it didn’t matter what I thought the truth was.  The truth was the market.  The truth was that in the midst of an extremely hot real estate market, this home with a shared driveway was not sold.  And I wasn’t sure why this fact would change in a colder real estate market.  Bell bottoms may come back into fashion, but I’m not sure about communal driveways on higher end homes.

 

One thing that I have to come to realize in real estate (and other goods) is that the market is rarely wrong.  It happens sometimes and the people who bank on it can make a killing (see multi-billionaire hedge fund manager, David Tepper, the owner of the Carolina Panthers).  But usually, the market is the economic truth- it’s efficient and self-corrects quickly. 

 

I had read something a broker wrote (if I remembered where I’d read it, I’d give him the shout-out) about pricing homes that are $500K or less in this hot market.  He said something to the effect that if the home was still on the market two weeks after it was listed for sale, the price needed to be reduced.  I’d largely extend this to the rental market as well.

 

A rental home may look like it is worth $2,000/month, but if it is marketed properly and there are no showings or takers, it’s not worth $2,000/month.  And let’s be clear, I’m not saying that, the market is.  

 

It’s hard to tell what the truth is sometimes.  But in real estate, the market is one of the biggest truth-tellers out there.

 

Happy Landlording!