Surviving the real estate downturn |

Surviving the real estate downturn

Bill Stirling
Inside Business
Aspen, CO Colorado

The Aspen Times recently reported that fractional share closings at The Residences at The Little Nell gave Pitkin County the strongest sales of any of the five surrounding counties. However, most of these closings were timeshare deals struck 300-500 days ago. These contracts had been negotiated in 2006 and 2007, when our market was still bubbling up. This is nice for the developer and brokers involved, but this is not a trend or some sign of our market sputtering up again. It was also mentioned that close to 80 of the buyers have terminated their purchase contracts, claiming the developer defaulted on their contractual terms; the developer is challenging those claims.

In the 35 years that I’ve been involved with the local real estate market, I’ve experienced the downturn of 1974-75, the worldwide recession and inflationary cycle of 1981-86, the collapse of both stock markets in 1980, the post-economic malaise after Sept. 11, 2001, and now perhaps the most disturbing global meltdown in the world’s history. The earlier economic challenges mostly deflated seller’s inflated expectations of what their properties were worth. This market is bound to drag prices down in more dramatic ways.

Prices have not yet fallen too much, but it must be noted that not much is selling. The ongoing economic meltdown is causing many buyers to sit on the sidelines. There is a lack of consumer confidence, and it is tougher to borrow money. Those buyers who have cash are not so willing to spend it, unless they see a really good deal.

Most economic forecasters have observed that the recession began in December 2008. Our local real estate market fell in dollar volume 46 percent in 2008, and the number of transactions dipped close to 50 percent as well. There are fewer buyers, and virtually every buyer is looking for value. After all, it is the first time in quite a while that our market could be described as a buyer’s market. As a local broker mentioned last week, some buyers are excited, because it might be the first time they can afford property in Aspen. Brokers like to describe buyers who are hunting for bargains as “bottom feeders.” This is presumably a derogatory term, but in fact my experience shows me that most buyers are seeking a good buy to protect the future of their investment.

Unfortunately, too many sellers are still playing a waiting game, hoping for prices back in 2006 and 2007. The sellers making deals are those who bought within the previous 12 months and need to generate capital, and those sellers who were hit particularly hard by the “climate change” in the financial markets. Until more sellers show a stronger inclination to negotiate 20-30 percent off their original listing prices, the stalemate will continue. Even a 30 percent drop from an inflated asking price may not be enough to reach the true market. A buyer should investigate the current listed price and look carefully at current comparable sales.

This is a tough time, but the Aspen market has been amazingly liquid, even in previously difficult times. If you bought four years ago or more and need to sell, be realistic with your pricing. You still have room to negotiate and see a realizable, considerable profit. Buyers are not just going to throw offers at over-inflated prices, reflective of days gone by. It will not be a doubling of your original investment, unless the purchase was made back in the 90s or earlier. If you can hold off on selling, do! If you do need to sell, set your price in line with the new market realities and be responsive to each and every offer. Since it is not easy to borrow money, be open to owner financing. Even if you carry back a note for 3 percent to 4 percent, this will still be triple what you might earn in any other money markets and enable a smart, qualified buyer to make a deal happen. Remember, however, that sticking to an inflated price and offering owner financing will not usually do the trick. This is no longer a market where a seller can sneer or turn up his nose at what he might perceive as a low-ball offer. The old rules of increasing prices, just to show a bold attitude, are no longer rules that apply to this situation.

We are working with qualified buyers, who are knowledgeable, patient and unafraid to submit assertive offers. A seller who ignores a lower than hoped for offer today will be madly searching for that same buyer in 12 months. However, they probably will not be around, as they will have already made a better deal on another property. Buyers should be careful not to offer too low and alienate a seller, who might have a good property at a fair market price. These are strange and interesting times, yet the principles of give and take, fairness and market knowledge will be important. Couple these principles with a hard working, intelligent broker, and buyers and sellers will both be well served.

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