Friday, October 3, 2014

A $3 Million Price Reduction? No Way!

There may not be a bigger example of how warped our Real Estate market has become than this Houston area mansion being put back on the market for $3,000,000 LESS than an earlier list price. Everyone's Real Estate market. Not only the Houston area, especially when you realize that properties are selling better in that region than many other parts of the country.

Granted, the vast majority of us (myself included) are not a part of the multi-million dollar mansion portion of home sales. You don't have to be. The problem is that stories such as this one impact home sellers (and potential sellers) in EVERY price range.

The story goes that former Houston Astros star Jeff Bagwell has listed a mansion he owns in the Houston area for $12 million. His property reportedly renovated in 2009 and as of now is approximately 20 years old. The seven bathrooms, 2-bedroom guest house, and multiple fireplaces are each very impressive. Of course, a potential buyer is likely to be impressed because of the opportunity to purchase from a local sports legend as well.

However, there is more to this story. This very same property was listed earlier on for approximately one full year back in 2012, but did not sell. It was listed for $15 million, which is 20% more than its new asking price.

I'm sure that the realty agents involved in this are jumping for joy at the publicity this listing has generated. Star power. A much lower price. Wonderful amenities. But is this really positive publicity?

Sorry, but it is actions like this that are killing thousands of home owners regardless of their price range.

They are starting out by telling everyone that this home is valued at $3,000,000 LESS than it was only a couple of years ago when no one purchased it. Not exactly a glowing endorsement.

If this specific property has "lost" $3,000,000 of value in two years, why would it be a good investment?

Let's face it. A buyer/investor with at least $12,000,000 to spend on a property knows a thing or two about investments. Clearly, at this new asking price, and with it being public knowledge that the home did not sell two years ago, it is extremely unlikely that Bagwell will receive any offers close enough to the $12 million figure.

Even if an offer came in at $11,500,000, and it was accepted, the result would be that this luxurious property would have sold for well above 20% of its original asking price.

For what reason? What has gone wrong with this property that caused it to be devalued by so much? Why should an investor consider this listing? How much work does it need? How could someone make such a huge investment with the demonstrated possibility the property could be worth $200,000 LESS in two more years?

Let's remove a "0". This is the equivalent of a seller with a home previously listed for $150,000 and now listing it two years later for $120,000. You would most likely wonder what went wrong with that property as well.

Chances are that nothing is "wrong" with it.

This is what needs to be addressed. Sellers and agents need to stop putting out messages that properties are not worth as much as they used to be and are a risky investment.

Some local appraisers will see this (Bagwell) listing and start to devalue other properties within the same region. Potential buyers will see the story and compile their buying strategy with an eye toward making offers which are 20% less because this is how they see the area's property values going.

Bagwell's neighbors are now losing potentially hundreds of thousands of dollars in value on their properties, when nothing is "wrong" with them.

Please keep this in mind when pricing your home or your listings. If you feel the property has lost 20% of its earlier value, keep it to yourself.