Would you believe me if I told you that the only way to be successful in this crazy sellers market we’re in is to suspend disbelief?
Cam Dunlap here with some unique and maybe even anxiety-producing thoughts for you today. But it’s super important.
We live in interesting times, somewhat troubling in fact, but I’m confident we’ll get through them.
I’m continually amazed to see how much money people are spending right now to improve upon their hard assets or to acquire hard assets…certainly, real estate is among them.
If you just look at the price of well, anything, it’s up.
A non-real estate example is I just sold a boat I had. I had it cleaned up, detailed, and then listed it online.
I expected to be shocked by the response to my advertising and, well, I certainly was. I had people fighting over it, bidding it up and it sold in a matter of a couple hours.
When Sellers Rule…Buyers Drool
It’s a good time to be a seller of pretty much anything, and it’s not such a good time to be a buyer of pretty much anything. :/
What that means to you and me as real estate investors is that we’ve got to be smarter…
- in how we source our information
- in how we utilize that information
- in how we communicate with sellers, because people do business with people they like and who they believe understand them
There are all sorts of ways that we can continue to win in this extreme sellers market, until things get a little bit more back to normal — although, I wonder what that normal will look like. With the federal moratoriums now ended, one by expiration and the other by supreme court ruling against POTUS, things are going to change.
Our New “Abnormal”
During the pandemic, everybody was saying, “Oh, it’s our new normal.” and it became the most overused cliche ever.
I’m not sure we’ve even really discovered what our new normal is (yet). I think it’s a moving target and none of us knows what it really looks like.
I do believe that we will get back to a place that’s somewhat like it used to be before the pandemic, but I also think it’ll be significantly different as well.
We’ve Got To Be Smarter…
And we’ve got to be willing to pay the price. What that means is, it may be hard for you to believe what a house will be worth after repairs with values where they are today. For many of us, we just can’t, don’t or won’t believe it.
I have been suggesting for several months now that we have no choice but to suspend that disbelief.
We have to train ourselves to stop thinking we know what houses are worth based on outdated knowledge and trust the current comps. We’re literally in what’s called “price discovery” where we’re way beyond old values, in uncharted territory, and are discovering what’s possible.
Remember that value is, for all intents and purposes, equal to what a buyer is willing to pay. Not what we think it is or should be.
In Comps We Trust
The comparables speak, they don’t lie… and the market truly is what it is, and it doesn’t appear that it’s going to change any time soon, without another black swan event.
Covid certainly qualified as a black swan event and look what it triggered. I think it may take another one, a different kind of one, to jerk us out of this place we’re in. It’s hard to say though because a huge underlying driver is a very significant housing shortage which is particularly acute at the entry level. This will persist.
I learned a harsh lesson due to an unwillingness to suspend disbelief. Leading up to the crash of 2008 — I was buying and selling houses in South Florida, and at that time, prices had gotten to a place where I just couldn’t believe it…
I would look at the comps, come up with my after repair value (ARV) and literally say to myself, “No way. There is absolutely no way that house is going to be worth that much. So (and this is the mistake I made) I’m going to run the numbers, and then I’m going to adjust my after repair value down to a place that I think makes sense (based on outdated numbers and beliefs), which is significantly less than what the comps are telling me.”
Look, you could have said to me 2 + 2 = 4, but I was convinced that 2 + 2 = 3. It was that asinine, and it cost me a lot of deals. It cost me big in unrealized earnings or profits. So in other words, there was a TON of money I never made because I was too stupid or stubborn to suspend disbelief and trust the comps.
When You Suspend Disbelief, You’ll Do Deals In This Sellers Market.
I’m dwelling on this a bit because I want to make sure you understand that when I say we’ve got to suspend disbelief, I mean it.
If you’re still thinking, “Dang, I can’t believe this house is going to sell for $500k after repairs, I would have guessed it’d be more like $325k,” and you adjust your ARV down, you’re doing it wrong… and the worst part is you WILL be outbid by the competition. The competition that is willing to suspend disbelief.
So, believe it. The numbers don’t lie and this sellers market IS that crazy.
The solution is simple and doable.
We’ve got to suspend disbelief. Starting now.
I’d like to hear your thoughts on the current sellers market. Have you struggled to suspend disbelief? Let me know in the comments!