“Hey, ask me why I’m the greatest comedian in the world,” my friend requested.
“Ok,” I replied. “Why are you the greatest …”
“Timing,” he shouted, interrupting.
Like good comedy, successful real estate buying is often the result of excellent timing.
One of my first real estate transactions involved a hard-nosed investor and a first-time condo buyer. The investor had the connections to find a great deal, the ability to negotiate extremely advantageous terms, and the fearlessness to obtain an aggressive rent. But when the tenants wouldn’t re-up, he sold it to a first-time homebuyer, who of course knew little about real estate, but had the good fortune to purchase the condo just before the market went on a run that doubled its value. As for buying real estate, seriously, who needs market knowledge, financial discipline or negotiating ability, when you have timing on your side?
Last year, I reviewed 11 years of Back Bay re-sales and the results also reflect the importance of timing in purchase decisions. The 200 condos I tracked had sold and re-sold less than two years later. Although real estate buying is not typically considered a good financial consideration for short-term ownership, I was surprised to find out that 82 percent of these super quick re-sales sold for at least 5 percent more than their original purchase price. One of the condos that didn’t get more, however, was 227 Marlborough St. #9. Why? Timing. The day this buyer closed on this “stunning, renovated penthouse duplex,” Sept. 15, 2008, the Dow closed at 11,532. The day they put it back on the market for re-sale, June 25, 2009, the Dow closed at 8,472. Bad timing led to bad times for this owner, whose condo lost $250,000 in value in just 17 months.
When involved in negotiation, many buyers try to time-stamp the value of a property for that day. As a former sales manager and active agent, I can’t tell you how many deals have failed to come together because a buyer would not increase their opinion of value by what in the scheme of things seems to be a nominal amount. The residential real estate landscape is littered with so many of these types of deals that Alec Baldwin’s character in “Glengarry Glen Ross” would have a field day.
In my 18 years in residential real estate, the extra $1 a day that it would cost a buyer to secure an additional $5,000 in financing has been as arduously defended as the one yard line at Gillette Stadium. So what does that historical reluctance to raise an opinion of value say about the timing of purchases in the current real estate market, a market where buyers aren’t just willing to up their offer by $5,000, but are enthusiastically offering hundreds of thousands of dollars more than the list price? It just might be saying: “Folks, seriously, did somebody spike the offer punch?”
A Record-Breaking Month
I have been reporting on extreme over-ask offers since March 2013 and can say with confidence that May 2014 was the most extreme over-ask month of them all. In May, I tracked 19 condo closings that garnered at least $100,000 more than the list price. That extreme offer transaction count is two to three times the monthly totals that we have recently experienced. And in Cambridge in May, 11 percent of condo closings went at least $100,000 more than asking. Folks, I don’t care how hot your market is, that’s an unfathomable ratio.
A little over a year ago, I publicly advised buyers to “box out the competition and bid as high over ask as you can.” Certainly, in retrospect, it looks like good advice. But today, I am advising more caution in making extreme bids. Why? Well, while in a joke there is a precise relationship between the set up and the punch line, I think in real estate timing and value has to be a little more loosely connected. To understand the real value, you can’t stay in the precise moment. The moment may stop you from going up $5,000 or make you go over ask by $100,000. The connection between timing and value is more like a Steven Wright joke, where it takes an additional few seconds to get it.
So what is good real estate timing? Is it when interest rates are low? Is it when prices are thought to be low? I don’t think so. Good timing has less to do with the characteristics of a particular market or moment and everything to do with the movement of time. Make an aggressive bid when the market is rolling in appreciation and your timing was perfect. Win a bidding war a few months before a financial meltdown and it’s a completely different timing story.
David Bates is a broker with William Raveis Real Estate and author of The Bates Real Estate Blog, www.BatesRealEstateReport.com, and a recently published e-book, “Context: Nine Key Condo Markets, 2.0.”
