Wednesday, March 04, 2015

Market Knowledge - Realtors HATE This!

by Osman Parvez

This past weekend, I negotiated on a $2.2 MM deal for an international buyer and held two separate discussions with private sellers in the $1.4 to $2.5MM range.  

Everyone was concerned with the same thing. 


Question: "What about private sales?  Am I missing out on something?"
Answer: Certain brokers would like you to believe that private, off-market sales are a big portion of the Boulder real estate market. This myth gives them undue leverage.  

Don't believe the hype.  

The vast majority of transactions are conducted by professional, full time real estate agents with properties that are publicly listed on the MLS. Private transactions are a tiny fraction of sales. This is particularly true at the high end.  

Yes, even in this seller's market.

Question: How do you know?    
Answer: I obsessively analyze the Boulder real estate market from top to bottom. It's how I advise my buyers and sellers on property selection and due diligence. I don't rely on hand waving and happy talk. I don't rely on Zillow (which admits to an 8% median error rate).   Even the MLS is not enough, by itself. 

To quote my favorite real estate investor, "sophisticated transactions require deep market knowledge." If you want to understand the market, you have to roll up your sleeves and dig deep. There is no shortcut.  
  
Take a look at the following chart: 




  
Fact: 96% of transactions above $1MM were handled by Realtors on the MLS in 2014.  

Yes, private sales are a real thing and you can't ignore them. Just don't base your entire buying or selling strategy on 4% of the market.  

To produce the chart above, I analyzed all sales above $1MM in Boulder during 2014. I removed multi-family income properties, commercial, industrial, churches, land, open space acquisitions, and family transfers (usually divorce or trust).   

In 2014, there were only nine private arms length transactions above $1MM. 

Fact: 10x more homes sold between $1MM and $2MM than sold for $2MM or more.    

If you're shopping for a home in the $1MM to $2MM range, you have lots of options. Nearly 200 sold last year alone. Don't feel pressured to buy a subpar asset.  

If you're shopping above $2MM in Boulder, you're wading into thinly traded, illiquid asset territory. Nearly as many $2MM+ listings failed as sold during 2014. Double down on the your valuation analysis, your marketing plan, and buyers... I strongly recommend caution with transactions that are not on the open market. 

Choose your adviser carefully.   If you'd like to review my bio, CLICK HERE.   You can also reach me at 303.746.6896.

image: Michelle Tribe


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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

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