Q&A: Paul Cooper, auctioneer
Today in the business section, we've got a Q&A with Paul R. Cooper, a vice president at Alex Cooper Auctioneers in Towson. You were all so interested to hear what he had to say in a blog Q&A a year ago that I thought you'd enjoy another conversation.
Last time, he said many home sellers weren't being realistic about asking prices. This time ... well, it's still a problem, he says. Here's the Q&A, with extra questions and answers that couldn't fit in the print edition:
Question: How’s the market for local home sellers?
Answer: It’s a challenging marketplace. But if you are priced correctly based on actual sales data, you stand a strong chance of selling your home in a short period.
Q: So sellers don’t have a handle on what their homes are worth. Why?
A: It’s sort of this analogy: If I had not looked at the stock market prices for the past six months, ... do I really know what my stock is worth? No. You need to look at current data to know what it’s worth. And you need to look at it in the context of, “Only three houses sold in the last six months and there’s 20 active [for sale].” Just because those three houses sold for $300,000 each doesn’t mean your house is worth $300,000. … If you’re patient, it may happen, but you need to beat out the rest of the marketplace in pricing your home.
Q: Does that mean we’re in a race to the bottom?
A: It’s just being realistic. Who knows where the bottom is. ... I think prices will still be coming down, but not as quickly, and I think you’re going to see accelerating volume. As long as there are 16,000 active [for-sale] listings in our area, I don’t see any pressure to push prices higher. When we were at the height of the market back in 2005, ... active listings were at a little over 6,000.
Q: What’s happened to prices?
A: I’m looking at the average and median sold prices for February 2010; I had to go back to April 2005 to find a comparable month. So you can probably say our prices right now are consistent with what they were in April 2005. ... By the way, the April 2005 average and median prices were approximately 20 percent higher than April 2004, so you can appreciate the tremendous run-up in the one-year period.
Q: Some have pointed to that and argued that prices still have a ways to fall. Do you agree?
A: There is a trend line you have to get back to, and the trend line is based on CPI increases. [The Consumer Price Index is a measure of inflation.] If CPI goes up 3 percent a year, … then theoretically real estate should only go up 3 percent a year. So when it goes up 20 percent in one year, it’s elevated off the trend line. It’s an accident waiting to happen. It’s just going to fall right back to the trend line eventually.
Q: Are we there yet?
A: We’re not, because we wouldn’t have 16,000 active listings if we were back to where we should be. February 2002 average sold price: $161,600. Median sold price: $131,900. ... So considering the fact that we’re sitting here right now at $271,000 for an average and $230,000 for a median shows we’re well above these numbers. A 68 percent increase in eight years in average sale prices.
Q: How are buyers reacting?
A: They’re making offers, and generally the offers are about 10 percent below the asking prices. That’s been the average. If you go back, traditionally it only used to be about 5 percent under asking prices.
Q: Is it good or bad that the federal government is such a huge part of the mortgage market these days?
A: At this point I think it’s a good idea, because I don’t know who wants to buy our mortgage bonds after what we did to the world. We stuck them with our mortgage bonds, and they’re suffering for it. If anyone got on the phone in New York trying to market collaterized mortgage obligations, they’ll probably get hung up on. ... So the government’s going to dictate what the standards are in down payments, the minimum credit scores. For those that do not have decent credit, I do not see any opportunity to get financing. ... I hear a lot of complaining from the real estate community about trying to get deals through. Certainly from mortgage brokers about how hard they have to work to make a deal work.
Q: What’s the difference between prospective home buyers today and at the peak in 2005 and early 2006?
A: At the peak, everyone’s perception was, “If I don’t buy now, the property’s going to be sold within a week and I’m going to have to pay higher prices, so I’d better act quickly.” There was a strong sense of urgency. ... Now, if you perceive property values [are] going down, you say to yourself, “Well, maybe I’ll wait, maybe it’ll be lower next month.” And certainly there’s a lot of inventory. But I do see that choice houses that are priced correctly are going quickly. When I say “choice,” something I could move in tomorrow with minimal work.
Q: Has the population of interested buyers fallen as far as the sales numbers would suggest?
A: I think there’s a lot of interested buyers, but they’re all looking for a good deal. ... At my open houses, I have an excellent number of prospective purchasers. So there are a lot of people looking for something that’s affordable and reasonably priced.
Q: Why aren’t more homes selling, then?
A: They’re overpriced. Plain and simple. Each marketplace, you can really dissect it. You can go down to specifics are far as neighborhoods. Certain neighborhoods are doing much better than other neighborhoods.
Q: Such as?
A: I spoke to a gentleman in Northwest Baltimore County near the Baltimore-Carroll County line. … I looked up statistics for $350,000 to $700,000 price range near the Prettyboy Reservoir. The last contract signed was September of ’09. With eight active listings. No pending sales. So I told him, ... “Unless you’re going to drop the price tremendously, it’s not going to happen.” There’s no buyers; there’s just no buyers there. One sale in six months? The last contract was six months ago? What that tells you, in the $350 to $700 price range, people are moving closer to maybe Westminster, Owings Mills, closer to urban centers, which is more convenient for shopping, employment. If I have $400,000 to spend, I may not need to be in that area. I may do much better moving closer to a major city. That’s what I mean about supply and demand. It really comes down to specific areas.
Q: What should sellers do to get their homes sold?
A: Just simply price them appropriately based on supply and demand in their immediate area. Don’t listen to reports about properties on a macro basis — about the region, about the country. You need specific data from your immediate area, maybe a mile radius or whatever you perceive your neighborhood to be.
Q: How often are sellers overpricing because they’re trying to get enough to pay off their mortgages?
A: That’s a major problem. I can’t tell you how many phone calls I have from people who tell me how much they owe on the property based on purchases in the past five years, and I tell them, “I’m sorry, you’re underwater. And unless you’re prepared to write a check at settlement, there’s nothing I can do.”
Q: Is anyone pulling out the checkbook?
A: No. Those are the people who say, “I don’t want to give it away.” Quote unquote. I say, “You’re not giving it away. It’s just the marketplace.” If I pay $40 a share for a stock and it’s now $20 a share, is $20 giving it away? No. The market is $20. … My choice is this: I can either hold on to that stock or sell that. Same applies to real estate. … Hopefully it’s going to go up. Not in the near future, not with 16,000 active listings. So I can either hold on or sell right now, take my losses and lick my wounds.
Q: What should prospective buyers do to avoid overpaying in a falling market?
A: Sometimes you have no choice but to buy in this point in the marketplace, but I would certainly look at sales data and go off of sales data to see what the most appropriate price is.
Q: What’s happening at foreclosure auctions these days?
A: Banks are discounting the properties tremendously. Banks do not want to own real estate, they really do not. So they’re anxious to discount it in order to bring about a result at sale time, or if they have to buy it back, they’re anxious to discount it and get it sold after they take title to the property. ... That has a negative effect in many neighborhoods. I’ve spoken to a number of people whose homes are competing with bank-owned properties on the market, and there’s nothing they can do. These bank-owned properties are probably a third less — priced a third less than theirs. I spoke to a gentlemen who wants $100,000 for his townhouse. One problem: I can buy comparable townhouses that are bank-owned for $60, $65,000. Why should I pay $100,000 for his?
Q: What about the commercial real estate market? Market watchers have said for several years that this would be the next shoe to drop.
A: Oh, it’s dropping big time. As far as commercial foreclosures, that’s accelerating quite a bit. And it’s going to probably continue to accelerate. I’ve spoken to attorneys, I’ve spoken to bankers, and they’re really trying to hold off. They don’t want to own this. They’ll do what they can. But an example, I have an office building coming up [for auction] — a major tenant just left. It was 80 percent leased; now you’re probably at 50 to 60 percent. Well, now you’re at negative cash flow, and they don’t have the check to write to the mortgage company.
Q: Are fewer people interested in buying commercial property?
A: The sales volume has gone down tremendously. ... The mortgage market fell apart in August, September of ’07, and then of course the financial marketplace fell apart in September of ’08. So the financing has deteriorated.
Q: What drives you up a wall in your job?
A: You try to educate people about the marketplace, and those who are in denial frankly can be frustrating. I know the market, I know how to analyze it, I have the data. When someone tells me, “No, I don’t believe it,” I say, “Well, what data do you have? What are you looking at?” [They say,] “I just know it’s worth more.”
Q: What about the people who say, “I believe it, but that means I’m stuck here?”A: That’s unfortunate. You feel bad for somebody in that situation. You have to have a strong degree of empathy in this job. You have to understand where the people are coming from. They made an investment that did not turn out well, and you have to understand their feelings. They’re really not happy right now. They’re upset and frustrated.