You Can’t Outrace the Sunset

Let’s start with two basic assumptions. First, that the Earth is round. Second, that the Earth spins on its axis counterclockwise causing darkness to fall upon the land in an east-to-west direction on a daily basis.

If we’re already in disagreement, it’s probably best that you stop right here.

For the rest of you who view sunset as inevitable, the basic reality is you can’t outrace the sunset. You can anticipate sunset coming and start racing to the west as fast as you can but at some point the sunset is going to catch up to you. It’s the way of the world.

Many buyers these days expect the Phoenix real estate market to decline another “x” percent. (“X” because the number varies widely depending on who you talk to.) Whether they’re right or wrong, I can’t say. I retired my crystal ball years ago when working as a stockbroker since it was right less often than the Magic 8 ball sitting next to it.

Because of this belief, many decide to fashion their purchase offers based on the decline that they’re expecting to see. They see a survey predicting an 8 percent drop, so they want to make sure their purchase is at least 8 percent below current market so they won’t be impacted by the decline.

They’re trying to outrace the sunset.

Let’s say that their offer is accepted at 8 percent current market value, seemingly giving them that buffer for the decline they see as inevitable. What is market value? Not a static figure, not by a long stretch. Market value simply is the price at which a buyer’s willing to buy and a seller’s willing to sell.

So they purchase this home for 8 percent under the previous sales and current asking prices. We’ll call this property A. When a different seller (or a lender) puts their home on the market the very next day, what are they going to use as a comparable sale? This purchase. And what will they do with their own list price in a declining market if they’re smart? List their homes at or just below the previous sale for property A.

For the sake of argument, we’ll say this new listing goes on the market at the same price at which property A sold. So rather than anticipating the decline, the offer on property A has hastened the very decline that the buyer was worried about in the first place.

This isn’t to say that a buyer shouldn’t be judicious with their offer and try to get the best deal possible. But attempting to outrun a decline you believe to be inevitable by offering that much less and speeding the process is as fruitless as trying to outrun the sun.

[tags]Phoenix real estate[/tags]

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