For decades, the way of predicting markets has been done the same; look at what the trend is over a given period, determine the average then apply that average to the future. Depending on the amount of data used; sales price, size of property, days on market, etc. these predictions can seem relatively adequate. However, what if predictions could be made more accurate? Wouldn’t that allow you, as a property owner or buyer, have more assurance the value of a given property was correct and how to prepare for what was coming in the future? If you answered ‘yes’ to either of these questions, continue reading…
The Traditional Way
As each year passes those that are top producers get closer to retirement and a new wave of realtors have their eyes set on becoming the next top producer(s). The up and comers promote the latest gadgets to help you with the selling/buying process while the seasoned vets argue they know the market and have a better sense of it than anyone else. The common denominator with both is the way they analyze markets and how they come up with their predictions of where the market is headed. Because they use similar data, often from the same source, and analyze it in similar ways their predictions are often similar. When they’re right everyone’s happy. When they’re wrong the explanation of ‘You can’t account for all variables.’ is often cited. Could it be they left something out or maybe didn’t consider things outside of the traditional data?
Understanding the Variables
Since the 07’/’08 credit crisis the appraisal process and the way it is handled has changed. Whether this is a good thing or bad thing is outside the scope of this article, but, understanding how this process works, how it has changed over the years and how it affects your ability to buy/sell is of the utmost importance. Many of the better realtors understand this and take it upon themselves to learn the process of how lenders determine value. For example, if there has not been a third-row home sell in the past 90 days but there have been 2 second row homes and 1 fourth row home sell within that time frame, using the sold properties is what the appraiser often works with. This may seem like an apple to orange comparison but knowing how to turn it into an apple to apple comparison is what separates the good realtor from the better realtor. This know-how would include, but not be limited to, equalizing the properties. Criteria to equalize would include the year built and depreciation percentage on an annual basis, size and value of price per square foot (appraiser value NOT builder value) for that particular area, weighing updating vs non-updated and the value an appraiser would give each (again NOT the retail value), plus a number of other things. Even knowing how to do this does not always yield a better prediction of the future than the traditional way. In fact, it may even come out to the same prediction as the traditional analysis.
The Prism
Depending on how you look through a prism you will see one of two things 1) light as we normally see it or 2) refracted light and all eight wonderful colors. To the naked eye the beauty of eight colors are hidden, but if you know how to adjust your perspective and look where others haven’t, you are given an eye-opening experience.
The same is true in real estate market forecasting. While many are busy looking at the light in the traditional sense; i.e. looking at the trends of the past in order to predict the future, in my opinion that is only one half of the equation. Not only do I look at what everyone else is looking at (what's selling and why?) I also look at what's not there (what's not selling and why?) Hilton Head Island and Bluffton real estate have always sold in waves, meaning a certain segment of the market will sell extremely well for a given period of time; often 9-12 months, while other segments remain idle. As the sales and values of the current market segment (or wave) go up the stagnant market prices remain stable. After a period of time the stagnant market begins to appeal to buyers (because the prices did not increase as the others have) and that market begins to pick up; catch its wave, as the other market slows down (it's wave comes to shore). Knowing both sides; what is selling (what you can see) as well as what is NOT selling (what you can't normally see unless you're looking for it) is imperative to predicting what's going to happen.
Let me give you another example, in 2014 & 2015 the high end market on Hilton Head Island was selling very well. I was one of the few that predicted that would slow down in 2016 and caught a lot of grief over it; many said I was being negative, but that market came to a screeching halt in early 2016. However, in late 2016 I also predicted that market would pick up in early 2017 (which it did) and would slowly improve as the year went on (which it's done). Much to the chagrin of my competitors and their predictions, or lack of.
I don't have a crystal ball but what I do have is a burning desire to make sure all my clients have all the information they need to allow them to be better prepared for what 's coming. If you're selling a property I can guide you on where the markets headed so you know whether to take an offer because the future of your market segment is going to slow down and now is the time to get out, or hold out for longer because the market will be increasing and holding on for a while longer will yield you more money.
f you're a buyer, I guide you on whether you should pay a little more now, because that market is about to go up, or if its going to decrease, you hold firm on your negotiations because you know that markets going to stall, at least for the near future. Either way I don't mind doing that extra work and doing things uniquely and differently because it has helped everyone of my clients in the past and I'm sure i'ts going to help everyone in the future. If nothing else , it will help you retain two of your most valuable assets: TIME & MONEY.
The Traditional Way
As each year passes those that are top producers get closer to retirement and a new wave of realtors have their eyes set on becoming the next top producer(s). The up and comers promote the latest gadgets to help you with the selling/buying process while the seasoned vets argue they know the market and have a better sense of it than anyone else. The common denominator with both is the way they analyze markets and how they come up with their predictions of where the market is headed. Because they use similar data, often from the same source, and analyze it in similar ways their predictions are often similar. When they’re right everyone’s happy. When they’re wrong the explanation of ‘You can’t account for all variables.’ is often cited. Could it be they left something out or maybe didn’t consider things outside of the traditional data?
Understanding the Variables
Since the 07’/’08 credit crisis the appraisal process and the way it is handled has changed. Whether this is a good thing or bad thing is outside the scope of this article, but, understanding how this process works, how it has changed over the years and how it affects your ability to buy/sell is of the utmost importance. Many of the better realtors understand this and take it upon themselves to learn the process of how lenders determine value. For example, if there has not been a third-row home sell in the past 90 days but there have been 2 second row homes and 1 fourth row home sell within that time frame, using the sold properties is what the appraiser often works with. This may seem like an apple to orange comparison but knowing how to turn it into an apple to apple comparison is what separates the good realtor from the better realtor. This know-how would include, but not be limited to, equalizing the properties. Criteria to equalize would include the year built and depreciation percentage on an annual basis, size and value of price per square foot (appraiser value NOT builder value) for that particular area, weighing updating vs non-updated and the value an appraiser would give each (again NOT the retail value), plus a number of other things. Even knowing how to do this does not always yield a better prediction of the future than the traditional way. In fact, it may even come out to the same prediction as the traditional analysis.
The Prism
Depending on how you look through a prism you will see one of two things 1) light as we normally see it or 2) refracted light and all eight wonderful colors. To the naked eye the beauty of eight colors are hidden, but if you know how to adjust your perspective and look where others haven’t, you are given an eye-opening experience.
The same is true in real estate market forecasting. While many are busy looking at the light in the traditional sense; i.e. looking at the trends of the past in order to predict the future, in my opinion that is only one half of the equation. Not only do I look at what everyone else is looking at (what's selling and why?) I also look at what's not there (what's not selling and why?) Hilton Head Island and Bluffton real estate have always sold in waves, meaning a certain segment of the market will sell extremely well for a given period of time; often 9-12 months, while other segments remain idle. As the sales and values of the current market segment (or wave) go up the stagnant market prices remain stable. After a period of time the stagnant market begins to appeal to buyers (because the prices did not increase as the others have) and that market begins to pick up; catch its wave, as the other market slows down (it's wave comes to shore). Knowing both sides; what is selling (what you can see) as well as what is NOT selling (what you can't normally see unless you're looking for it) is imperative to predicting what's going to happen.
Let me give you another example, in 2014 & 2015 the high end market on Hilton Head Island was selling very well. I was one of the few that predicted that would slow down in 2016 and caught a lot of grief over it; many said I was being negative, but that market came to a screeching halt in early 2016. However, in late 2016 I also predicted that market would pick up in early 2017 (which it did) and would slowly improve as the year went on (which it's done). Much to the chagrin of my competitors and their predictions, or lack of.
I don't have a crystal ball but what I do have is a burning desire to make sure all my clients have all the information they need to allow them to be better prepared for what 's coming. If you're selling a property I can guide you on where the markets headed so you know whether to take an offer because the future of your market segment is going to slow down and now is the time to get out, or hold out for longer because the market will be increasing and holding on for a while longer will yield you more money.
f you're a buyer, I guide you on whether you should pay a little more now, because that market is about to go up, or if its going to decrease, you hold firm on your negotiations because you know that markets going to stall, at least for the near future. Either way I don't mind doing that extra work and doing things uniquely and differently because it has helped everyone of my clients in the past and I'm sure i'ts going to help everyone in the future. If nothing else , it will help you retain two of your most valuable assets: TIME & MONEY.
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