January 2010

Forewarned, forearmed

     We learn from our mistakes more than we do from our successes.  If that old axiom is true, those of us considering the purchase of a home in a golf community, or any real estate for that matter, are both older and wiser than we were a decade ago.

     Certainly those who rushed to catch the buying wave in the early part of the decade might have pondered a little longer the laws of gravity as they applied to home prices.  With prices now having retreated to early 2000s levels, is now time to spring for that home in a golf community, assuming you have some equity?  And what does the last decade teach us about searching for a home in this new one?

      Life is full of lessons, and those of the past decade should last us a lifetime.  Here are a few brutal truths and lessons learned, and how they might inform our real estate buying and selling behaviors in the coming years.

Brutal Truth:  Home prices in the south suffer less than in the north

    I am not a demographer, nor do I play one in this newsletter.  But you don’t need a degree in statistics to understand that most people prefer to live out their active days in warmer climates, and that businesses prefer to operate free of unionized employees.  Those desires are best satisfied south of the Mason-Dixon Line, and as the economy recovers –- as at some point it must –- the strong migration north to south will commence anew, and with vigor.
     The simple law of supply and demand governs real estate prices.  The southward migration pattern will create an oversupply in the north, continuing to tamp down prices there, especially if more and more businesses relocate south.  Given the overall migration patterns, when prices recover in the north they will lag the recovery in the south (generally speaking).  My readers are exhausted from me making this point but, over time, the gap between prices of comparable properties north and south will widen, eroding buying power for those who hang on waiting for their homes in New England, the mid-Atlantic states and much of the Midwest to rebound.
    Consider also that cost of living rates in most areas of the south are substantially less than in most areas of the north.  For example, a couple considering a move from, say, Boston, to the lovely Aiken, SC, area would save about 31% on cost of living expenses, according to a chart compiled from census research and local Chamber of Commerce data that is published in Where to Retire magazine.  If that couple is spending, for example, $80,000 annually in Boston on housing and typical goods and services, they will save about $25,000 a year by moving to Aiken (count on similar savings in many other parts of the south).  If the couple owns a home in Boston worth $600,000, it would have to appreciate 4% annually to match the cost of living savings.

Lessons:  Of course, those without much equity in their homes are hard pressed to relocate.  But fear is governing the selling and buying choices of those millions of couples who bought their homes in the late 1990s, saw appreciations considerably greater than the losses of the last four years, and have enough equity to realize their dreams of a home on a golf course or wherever they desire.  For those waiting for prices up north to snap back in order to purchase a home in the south –- which is likely to appreciate faster -– the wait could be forever.

Brutal Truth:  Golf communities don't lie, but they don't tell all either

    Virtually every article you will read online or in magazines about individual golf communities is a promotion, paid for by the community’s developers or owners.  This does not mean that what is written is inaccurate, but don’t count on hearing about comparatively high fees, or the problems they had maintaining their greens last year, or how the homeowner’s association has cut back on landscaping.  This reality of the marketplace is why I founded Home On The Course LLC, five years ago; to provide objective, unbiased information about golf communities.
    Always consider the source, and assume nothing.  For example, when Resort Living magazine wrote a few years ago that The Cliffs communities provided “the most comprehensive club membership” program, that may have been factually correct but it was offered as an objective opinion by a magazine that appeared to be editorial in nature.  Ever the skeptic, I dug deeper and found that The Cliffs own marketing firm at the time was the publisher of Resort Living, a clever (and expensive) bit of marketing, but a deception nevertheless.  
    Where to Retire magazine, which you can find on the magazine racks in bookstores, appears to be a helpful source of information about retirement communities.  Some of its information, especially its cost of living chart, does provide data you can use, but most of Where to Retire’s articles -– all written with a positive gloss -- are about communities that just happen to advertise in the magazine.
     Most home shoppers these days are using online resources to search for homes or to gather information.  I often use them myself for specific information about golf communities.  Some, such as GolfCourseHome.net, are extremely helpful in providing price ranges for properties, names of the golf course designers, and other details about the many communities the site promotes.  They are paid an annual fee for this, and therefore they will never bite the hands that feed them.  All the communities they promote sound like paradise.  Although I am envious about their stream of income, unbiased information about communities, warts and all, is more helpful to those about to plow much of their net worth into a home. 

Lessons:  You have very few objective allies in searching for a golf community home.  Most developer’s agents are trustworthy, but never forget they work for the developer, not you as a purchaser.  And the tougher the times, the harder the agent is going to work to sell you something.  A good buyer’s real estate agent ultimately may be your best friend in the process.  (Note:  I have developed an excellent network of professional and trustworthy agents in the southern U.S.; and where I don’t, I interview aggressively to make sure they are experienced and qualified).  A good agent will care that you buy something, but she/he won’t care where you buy, as long as it suits your needs.  As for the online sites that promote golf communities, use them to gather data. Then call me for comparative information.

Brutal Truth:  License to sell doesn’t make an agent a professional

    In the first part of last decade, with the housing market booming, a flood of people joined the real estate industry.  A real estate license seemed like a license to print money for those struggling in less than inspiring jobs.  Why work at the local Jiffy Lube or McDonalds when, for just $400 for a real estate licensing class, a few hours of studying and class attendance, and a couple hundred dollars more for the license, you could list your mother’s house, your friend’s house, their friends’ houses and a few others and make out just fine.  Trust me, with a little bit of study and near-perfect attendance at classes, virtually anyone can pass the real estate exam; I did on my first try, so how tough can it be?  
    The real estate industry was inundated in the late ‘90s and into the 2000s with inexperienced agents who were short on relationship building and long on shortcuts to sales.  One favorite tactic was to convince a seller his home was worth less than it actually was in order to produce a quick sale.  The opposite tactic was to inflate the ego of the homeowner with an inflated value just to secure the listing.  Many of those houses languished as more realistically priced homes in the neighborhood sold.
    Experienced agents shared their anger with me as they saw their profession’s reputation erode because of the interlopers.  Many agents unhappy with their brokers for signing up the newbies went out and earned their own broker’s licenses and opened up their own firms.
    Today, of course, as the realities of the market put a premium on street smarts and professional experience, many of the arrivistes of the early 2000s have returned to the general population.  "The part time or unmotivated agents have all left the building," writes The Real Estate Bloggers.com web site.  Maybe not all; I read a number of real estate blogs, and it is clear not all the naifs have left the building.  Overwhelmingly, most real estate agents are professionals, but beware some of the hangers on.

Lessons:   Interview at least three experienced real estate agents before you choose one to list your home or to represent you as a “buyer’s agent.”  On the buyer’s side, make sure the agent you choose has experience with properties in the local planned communities.  (Note:  I can help you identify the best agents in most areas of the southern U.S.).  If you are listing your home, ask for each agent you interview to provide you the price at which they would list, and then hire the agent whose estimate falls in the middle.  (That estimate protects you from an agent trying for a quick scale with a lowball figure or another trying to impress you with how much your home is worth by suggesting a higher than market figure.)  And if you decide to do a favor for your friend or neighbor whose kid just got his real estate license, be prepared to subsidize his learning experience with your own lost time and money.

Coming in February:  More brutal truths and lessons learned...