Trust Alan Greenspan to kill the mood. When the Federal Reserve chairman hinted in congressional testimony earlier this week that the Fed would probably raise interest rates in the near future, some homeowners began to worry that the heady days of high real-estate values might be coming to an end. An interest-rate hike, some have said, could be the pin that finally pricks the tremendous real-estate bubble–if indeed it is a bubble–that has defied expectations by simply refusing to pop.
But, as real-estate guru Barbara Corcoran sees it, there’s no need for homeowners to panic, yet. Corcoran says that while concerns about an interest-rate hike might motivate more people to sell their homes in the short term because the “cheap money” is still around, underlying indicators don’t indicate a drop in the housing market any time soon. She knows what she’s talking about: as the founder of the Corcoran Group, the New York City real-estate giant with more than $4 billion in revenues, Corcoran has established herself as one the country’s premier experts on how to sell a home. In an interview with NEWSWEEK’s Jonathan Darman, Corcoran talked about the future of the market and, of course, dished out a few tips for buyers and sellers alike.
NEWSWEEK: Why is the real-estate market so hot right now?
Barbara Corcoran: It’s very simple. The main reason is we just don’t have enough product to go around. And the question is: why do we have so many buyers? I think one of the main things is the war in Iraq. I know that sounds wacky, but people are so mistrustful of everything right now–they’re mistrustful of the government, they’re mistrustful of the stock market, [of] Corporate America–that they feel confident in something they can feel and touch. Plus you get the little added benefit of living there.
Has the perceived economic turnaround had anything to do with it?
Sure. More recently, the little bit of increase in consumer confidence has added more fuel. The stock market doing well has added more fuel again–that’s kind of a double-edged sword, good news and bad news for the housing market. But people just are feeling very comfortable about buying in real estate. They almost feel like they can’t lose.
Is that right?
No, of course not. Real estate is always cyclical, why would it change now? Yet people seem to think that the sky is the limit. There’s a lot of sloppiness in the market about what people are buying. Even the dogs look charming, people are overbidding on them. This is the kind of market where all sins are forgiven.
So what are Greenspan’s comments going to do to the market?
The reaction is always the same. Each reaction is always more sales. Every single time. The reason that’s always the immediate reaction is because the fence-sitters get off the fence and the stalled sellers finally list their homes thinking now might be their last chance. So you get increased activity in the short term.
That must have already been happening to a certain extent. Interest rates have been low for so long, people selling their homes recently must have been anticipating a hike.
Yes, definitely, there’s nothing better to motivate anybody to do anything than to tell them there might be an ending. So as long as we’ve had cheap money and, as unreasonable as it might seem that people would think it would last forever, everybody who got that last mortgage, bought that last house, thinks that they just might have gotten it under the gate. It’s a great motivator, thinking you might miss this cheap-money market. I think it’s one of the two legs supporting the market, creating this frenzy.
But long term, should we expect the bubble to burst sometime soon?
Initially, there was so much conversation about the bubble bursting because it was so fast and furious, and that causes concern with anyone because people mistrust anything that’s too good, too long. But you need real indicators that something is going to cease and desist. There are a couple of signs that I’m always looking for and I haven’t seen them. One is how much people negotiate on the price: that’s remained at less than 3 percent for almost five years now. In 1987, when we really did have a bubble that was fueled by the investor market before the tax changes came in, the negotiability swing in that market was almost 10 percent, and yet people considered it a phenomenal market. Now we’re seeing a tight, tight spread that’s almost nonexistent.
What are other good indicators about the future of the market?
The other two great indicators are Web-site visits. I watch the Web-site visits mostly because I always find that what happens on the Web dictates what’s going to happen for us in sales three or four months out–and the Web-site visits keep going up. The last thing, of course, is open houses. It’s kind of like Web-site visits, people feel like they can go in and peek and it’s noncommittal. It’s the first place people tippy-toe in. Now we’ve had open houses banned in many of the buildings in New York because the traffic is too disrupting [for] the people living there.
So if the market isn’t going to go down any time soon, what should buyers who are intimidated by the current prices do?
Two things. First of all, people like to buy in packs, that’s just human nature. The best time to buy is when nobody’s out there, that’s when you get the deals. But very few people have the courage for that. So the first thing a buyer has to do is really size up why they’re moving. Is it really [the time] to move? Is it really the only vehicle they can put their money in? Give it a little thought, because you get swept up in the frenzy–just like the technology thing, the California gold rush.
The other very cautionary word is, assuming you want to buy, to really buy the best you can within your price category. See the negatives as true negatives that are really going to get ugly when the market goes the other way, if, unfortunately, you’re on the market when the market is soft. People very often don’t control when they have to buy or when they have to sell if there’s a life change.
What should buyers remember when figuring out financing?
Shop on the mortgage rates. There are so many–the mortgage industry has gotten so complicated and is so confusing for people. Plan wisely and really try to size up the best deal for yourself.
Is it tough to manage expectations in this market? With prices this high, buyers probably are going to be pretty disappointed with what they can get for their money.
In a way, we’re at a better place on that because people always expect more than they can get, and people are always unrealistic. But with the market the way it is and with so much hoopla over the buying frenzy, people are coming in expecting the worst–they’re coming in already educated. The media is doing a broker’s bad-guy job for them. However, the best thing that brokers are doing right now, and they’re crazy if they don’t, is warning you will probably lose the first two to three homes you fall in love with to an overbid. The other very key advice is, expect to overbid and get ready for it. Get all your tools in order.
What are those tools?
One, of course, is financing so you can go in as an all-cash buyer. It’s a dirty word right now to say “contingent on financing” because there’s always another buyer who’s going to say, “I don’t need financing.” Whether he’s financed it or not, he’s got the mortgage in place. The other thing is already picking out your attorney. So many deals are lost in that “accepted offer” phase on a Tuesday to a Wednesday afternoon when another overbid comes in, even though the seller swore they wouldn’t entertain another overbid. Having an attorney wrap up the deal is key on that. You’re best off assuming you’ll be a loser and try to find a way to become a winner.
Let’s look at things from the seller’s point of view. If I’m trying to determine asking price taking the current market psychology into account, what should I do?
Intentionally underprice the home. Get three competitive appraisals from brokers that feel fiercely competitive with one another … chances are the person who gives you the lowest price is the real price (the honest broker often loses the listing by telling the truth), and then price it 5 percent or so cheaper than what the lowest estimate was. That’s a scary proposition for a lot of sellers but the savvy seller is really doing it and winning by doing it because there’s nothing sexier in the marketplace than a house that is underpriced, everybody charges at the listing. There’s really no downside because–unless it’s a secret listing and no one knows about it, which doesn’t happen in a multiple-listing market–the market erases the error immediately.
What about the opposite, what if I’m selling my house and it’s languishing in this market. What am I doing wrong?
It’s probably not merchandised, number one. Chances are you have closets of stuff, too much furniture … Psychologically, when people walk in what they want to do is picture themselves living there. People who don’t spend a few dollars [to prepare their homes], whether it be $5,000 or $10,000 or even $30,000, depending on the price point, are out of their minds. So if your home is languishing on the market the only reason it’s languishing is, for what it is, it’s overpriced. You might be able to leave it at that price point if you make it a better sell.
There’s been some talk about more and more people selling their own homes and leaving brokers out so they don’t have to pay the broker fee. Have you noticed that at all?
The commission is attacked more often than not. The reason for that is the sellers truly feel that they could put their own ad in the paper, run their own open house and get competitive bids on the home. So their logic is, “Why would I need the broker?” The broker has to vehemently defend their commission. The best defense for that, which works most of the time is … they convince the seller that they could drive more traffic through the home, which is definitely the case. It’s the traffic that determines the higher price. The more people want it the better the price.
What have the past couple of years been like for brokers?
They’ve never made as much money. That’s the good news. The bad news is they’ve never worked in a market with more uncertainty.
