The Mystery of Selling Condos – SOLVED!

by April 24, 2009 • 17 comments

recessionIn order to sell anything, you have to create demand.  Not only do people have to know its available, but they need to have a desire for the product.  There must be a demand for the product you are trying to sell.

How do you create demand?  You have to create demand through scarcity.  People have to value your product and beleive that your product can’t be had anywhere else.  Now, there are tons of variables here, especially when if the product you are trying to sell is condos.  For instance, one has to consider not only price, but the quality of the resort.  One must consider the possibility of replication and whether they can get something of similar perceivable value for a lesser price in the same general area.

4 years ago, developers and sales teams created scarcity through having a unique product that wasn’t overly prevalent.  Of course, the frenzied market helped the sales stories along when buyers were turned away because developments were sold out.  Today, scarcity is created by offering a unique product that can’t be had anywhere else, or a product that is superior in quality.

For real estate today, how do you create scarcity with a surplus of inventory available?  You create scarcity through value.  If you want to sell real estate today, you have to be the best value on the market, with value being determined by a delicate balance of the quality of the product and its price. Of course, one has to keep in mind that as unique as a property may seem to the developer, sales agent, Realtor, etc., there is always something that is equally unique available on the market to most people.

Ok, so say you have found that sweet spot in the world of pricing.  Let’s throw a number out there, say, $250/foot – you are successfully selling your condos for $250 per square foot.  There’s not a frenzy, but you’ve got a steady stream of interested people and you actually have 10 or so contracts in the pipeline.  What should you do?  I mean, there’s demand, you don’t want to risk leaving money on the table right?  Maybe you should increase the price of the existing inventory just to be sure, right?  Wrong!

You’ve found something that works, you’ve done something right that has had a positive result.  What you were doing was successful.  At this point, if you change, then the result of that change will be different than the result of what you were already doing, and that’s bad.  The result of what you were already doing was that condos were selling, if that changes, then that means that condos are NOT selling – and that’s NOT good.

Here’s the kicker.  As soon as you raise the price, you lose the velocity that you had when the price is right, and quite possibly, sales may have halted all together.  The real problem comes in when all of a sudden, sales have stopped, you scratch your head, and all the while, prices are still coming down, week by week, month by month.  Not only that, but your credibility has been tarnished a little.  The buyers that were looking at your product aren’t that interested anymore, they are looking elsewhere to see if there’s a better deal (and there’s always a better deal, in this market).

Then, suddenly, it hits you.  You realize that when you raised the price, that’s when your velocity slowed, so you decide to put the prices back to where they were.  Condos aren’t selling at $250 a foot anymore.  Uh  oh, what’s that sweet spot now?  Well, it’s at $230 a foot, you just lost $20/foot AND time.  You disrupted your velocity and it’s going to be hard to get it back.  Things were starting to roll forward, increasing their pace, rapidly, but you stopped it wanting to maximize profit, but what happened?  You ended up losing more money, tarnished your credibility and wasted a lot of time, which equates to more money lost.

Hey, I’m no different then the next guy.  I don’t like to leave money on the table, but in order to survive in today’s market, you have to have your long-term glasses on.  You have to look into the future and realize that prices may still be falling, you have to expect that, you must anticipate that condo prices will not increase for the foreseeable future.

With that said, if you happen to find a price that results in sales, then you have to sell as many as you can as fast as you can.  A great lesson can be learned here from large-scale condo real estate auctions.  When the auctioneer finds the sweet spot in pricing, he doesn’t sell ten, then raise the price.  He knows that if he does, everyone will just leave.  If you find the sweet spot in price, you have to sell as many as you can as quick as possible and be glad its over.  Otherwise, you’ll be sitting on inventory that not only costs you money, but prevents you from making money too.

What’s the old adage?  If it ‘aint broken, don’t fix it.

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1 Ron April 24, 2009 at 5:54 pm

Jason, great job explaining what should be so simple. We recently sold our home because of a relocation. It sold in less then three days for $1500 more than asking. Your first thought is of course, “I wonder how much I left on the table?” But truthfully, if its a desirable location, nice home and priced fairly, there are buyers ready to act. So if you’re happy with the deal, on either side, move on.

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2 Concerned Owner April 25, 2009 at 8:49 am

From a non-realtors perspective I would think that there would be little hope of an increase in home/condo sales this year. I am excepting those speculators who move in on preceived bargains with the hope of renting them out until prices return to 07/08 levels when they can turn them over for a nice profit. While these may be ‘sales’ in the broadest of terms, they have little true effect on the market and are disparaged by some commentators who call such speculators ‘Vultures’.

The first signs of a recovery will probably NOT show up in real estate sales but in retailing then in the automotive area. Not much prior thought or planning goes into retail purchases (excepting electronics), a reasonable amount of planning goes into auto purchases and extensive planning goes into home/condo purchases, so I would expect that the (non-vulture) purchasing of real estate will only trend upward months after the first signs of the recovery appear in retailing and auto sales.

This is clearly a bad time to be a real estate salesman or broker and I doubt it will improve soon.

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3 Mike April 26, 2009 at 7:41 am

Moving condos has been dealt an unfiar blow by Fannie/Freddie since they don’t want to finance them any longer. When is the Florida legislative contingent in Washington going to wake up and realize that Condos are being discriminated against in the “stimulus” ( see “our money” )by Fannie/Freddie and do something about it!

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4 Larry April 26, 2009 at 9:31 am

We have the best deals on waterfront condos in the world, why don’t we let the world know? Have HGTV do a condo search in PCB and let people know this is the place to be. People with money are always looking for a bargin and we have a whole city full of them.

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5 Concerned Owner April 26, 2009 at 10:49 am

We have the best deals on waterfront condos in the world, why don’t we let the world know?

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1) Every condo on ANY coastline has at least the same deals we have in PCB and a lot of places like Dade and Broward have even better deals than here as their markets are worse than ours,

2) All the advertising in the world isn’t going to get people to spend money or commit themselves for 30 years in todays flawed economy.

2a) With very few exceptions banks are sitting on their funds despite getting their bailout funds from the government,

2b) Many people can’t take advantage of the low prices as they have little hope of selling what they are in now.

If they aren’t buying cars then they sure won’t buy condos.

Things WILL get worse before they get better.

Foreclosures were up 6 percent in Feb and 17 percent in March. Now that the temporary foreclosure freeze is over more foreclosures are in the pipeline. Our complex now has 10 in foreclosure out of 109 sold units, without any question we will have another half dozen this year.

Also retail sales are down 1.1 percent in March. The retail market will show signs of recovery BEFORE either a rise condo sales or even auto sales and there is no good news in retail. Marginal stores are gone or going and while construction in process is generally being completed, new starts are being put off.

I see no light at the end of the tunnel for 2009.

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6 Rob N April 26, 2009 at 7:21 pm

WOW.. Concerned seems to have me wanting to kill myself!

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7 Chris April 26, 2009 at 8:07 pm

“Concerned” is making a false assumption that demand for Cars is related to demand for condos. 90% of the people in the U.S. are in the market, at one time or another, to buy a car. Only 5% of the people in the U.S. are ever in the market to buy a condo. People who have enough money to buy a condo are buying cars without thinking twice.

Condo prices are being driven down by lending practices. They are artificially low because people who are capable of buying a condo are being shut-out by lenders. Artificially low prices means a boom is just waiting to happen. There are plenty of awesome deals in PCB right now. And no, I’m not a Realtor.

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8 Concerned Owner April 26, 2009 at 8:49 pm

There are plenty of awesome deals in PCB right now.
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Everywhere with a coast line has great deals on condos with nice views. The deals will be better later as the market gets worse and there will be better deals in the more urban areas than we will ever have here in NW Florida (Broward and Palm Beach for just one example as I lived there in a condo for 5+ years).

Let’s say you jump in on one of these great deals here in PCB, what are you going to do with it? Live in it or rent it out for 50-60% of what you could have rented it out for 2 years ago. If you are a speculator then you have to consider that your taxes, insurance, quarterly assessments and some utilities cost you money whether you live in it or rent it out or just leave it vacant. If you are not claiming it as your homestead you don’t get that tax break either.

What no one has yet mentioned (or perhaps I missed it) is what is going to happen to these condo associations when the quarterly dues are not being paid by those who are either being foreclosed on or are in bankruptcy, more still will be hanging on and cutting corners by putting those dues into the pile of bills that gets paid last.

You could grab one of those bargain basement condo prices and find you have bought into 1/250th of a condo assn that is going bankrupt. My own condo assn hasn’t cut any costs but 46 owners are behind on their condo assessments (out of 109 sold units).

You need to have more information than simply saying that “there are plenty of deals right now”, or as the realtors claim “now is the time to buy!” Do you know of any realtor who has ever said “No don’t buy now, wait until next year!”

The 06-07 real estate boom was artificial to start with, the market was overbuilt and over priced, even without the current problems it is not realistic to think we will be back at 06-07 prices even in the next 5+ years.

The only people who would benefit from buying today are people who intend to actually live in the property and can either pay cash for it or have the 20% down and a bank that will come through for them. And, Yes, some people do actually pay cash for condos, I did, although if I had waited 2 more years I would have saved $50K for the 3/2 I purchased.

Hopefully no readers will be moved by my comments to want to kill themselves, but if you do jump please don’t land on me.

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9 Bubba April 26, 2009 at 9:13 pm

I’m from out of state and have been looking / considering buying a 2/2 condo in PCB. However, like concerned, I’m worried about what happens when HOA dues are not paid by a sizeable portion of the property? Having previously lived in condo, I can envision these costs being passed on to association i.e. the remaining owners as an assessment. Anyone have any ideas on how this is currently being addressed?

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10 Bay County Owner April 26, 2009 at 11:22 pm

An interesting item about Florida condos which even mentions Panama City Beach can be found at: http://www.dailyfinance.com/2009/04/22/florida-real-estate-life-among-the-toxic-assets/

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11 Dennis Fuller April 27, 2009 at 8:38 am

One good thing about Florida condominiums is that Florida has a strong Condominium Act. Delinquent condomimium dues may cause severe disruptions in operations in the short term; however, the delinquencies don’t just go away and they earn interest until paid. A buyer of a condominium is joint and severally responsible, along with the prior owner, for any unpaid dues. The one exception is a lending institution that forecloses on a unit. If a lender forecloses, they owe dues like any other owner beginning on the date they take ownership plus dues for the prior six months before they took ownership or 1% of the mortgage, whichever is less. The main problem for condominium hoa’s is that lenders are taking a very long time to foreclose, much longer than six months.

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12 Terry April 27, 2009 at 10:56 am

This isn’t all that complex of a question and neither is the answer. Buy a place where the number of forclosures is low and read the Minute of the Annual General Meetings for the last couple of years and review the financial statements and ask how many units are currently in foreclosure and how many units are behind in their HOA fees. Look at the building and see if it’s in disrepair or if there’s any serious impending deficiencies.

That’s just a normal part of doing one’s due dilegence.

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13 Lori Duncan April 27, 2009 at 9:18 pm

Concerned,
I was going to remark to some degree on what you said about “…people who intend to actually live in the property…”. I’d live on the beach full time if I could!

It would behoove buyers to find out more about association fees (increases on the horizon) and any extra assessments in play. When we bought ours (I think ours is where yours is), we built into the deal that the seller would pay any assessments being charged. And they did. BUT! We did’nt know, or were not privy to the info, that even MORE assessments (for hurricane damages to the resort) were to be charged to current owners, whether they owned at the time of the hurricanes or not. So the sellers got out of paying those new assessments on our place. But I understand they bought a 2BR here so they really got hit. Ouch. Either the owners, resort and/or real estate agent didn’t know of the pending assessments that were in hiding, or someone knew, but kept it from us. So, here we are, increased assessments (quarterly) AND huge assessements to fit into our budget. Oh well, you can’t take it with you! 😉 Thank God we have been able to make those payments, besides the mortgage etc. And thanks to successful rental seasons. If not for our great guests, we’d be in a world of hurt. So we try to treat our guests like family. We pray people will keep coming to our place for vacation. We sure aren’t making any money, didn’t expect to. But at least we’re paying the bills. If we ever buy another vacation place, I hope it’s with cold hard cash!

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14 Don and Bubba April 28, 2009 at 9:26 am

Jason,
From a Realtor stand point, you nailed it! Thanks!

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15 Jim April 28, 2009 at 11:29 am

I got into the owning of a PCB condo from a rental one in PC, this was a year or so before the bottom fell out of the market with this recession we have.

I wish I had not made the switch, both from PC to PCB and also from renting to owning. 2 mistakes there. PC was nice and quiet whereas PCB is several times a year like someone kicked over a nest of ants. The owning v. renting is a real pain, much better to just rent and let others worry about the decline in value of the condo. I’m sure I could have gotten quite a knock down on the monthly rental at the PC condo.

Sometimes when you have these bright ideas it pays you just to go take a nap and hope you have forgotten about it when you wake up.

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16 Terry April 28, 2009 at 11:43 am

I own a couple of properties, although this is the first one I bought in this area, which is extremely far away from where I live (North Vancouver, B.C.) but when I bought it, I did so knowing I would have to hang onto it for at least 5 years. So on that level I’m not overly concerned how things go day in day out, or even on a year by year basis, as long as I can meet my financial obligations. Interesting to see what will happen once the new airport is up and running.

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17 Elaine L April 28, 2009 at 12:54 pm

Most condo foreclosures are the result of unhappy mortgage holders who made a bad investment decision. These are not primary residences in distress due to job loss or illness or predatory lending. Because the stigma of “foreclosure” is no longer as harsh to one’s reputation as in the past investors are just walking away from their own responsiblities and sticking the rest of us with the fallout. They keep their primary residence, fancy cars and continue to take luxury vacations.

Condo financing is difficult these days. If more than 15% of the HOA members are delinquent in dues the loan will not be approved. Also, if the lender considers the condo a condo/hotel the loan may not be approved. A 30 yr loan for a condo is hard to find, too.

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