Do realtors inflate property prices?

I have been asked this question so many times recently, that I can not ignore it any longer and have to comment. There are already too many misconceptions of the real estate market and to have one more, that is somewhat preposterous, and which is believed by so many, should be cleared up once and for all.

My disclaimer first and foremost : These are my personal opinions which do not reflect the views of RE/MAX or CIREBA (Cayman Islands Real Estate Brokers Association).

We must first ask the question: Is it in a Realtors best interest to advise a client or vendor to place a property on the market at an over inflated price? Answer: NO, because Realtors are only paid when a property is SOLD. If the property is sitting on the market unsold, he does not get PAID. Trust me, it is hard enough merely surviving in this business, but to have to spend money marketing an over priced property out of your own pocket, and having a disgruntled client calling you every week to ask you why his/her property has not yet been sold and what are you doing about it, means that you are going to do everything to sell and that means ensuring it is priced right for the market.

Now after saying all this, I can see where this statement does hold some truth to it. Firstly, there are some inexperienced Realtors who do list properties strictly based on what the customer wants for the property. Sellers/vendors usually live in a different world from buyers. They are usually personally attached to their home, and with a lot of sweat and tears, have fixed it up exactly how they like it. The problem is that this emotional attachment means absolutely nothing to the purchaser. All Mr. Purchaser cares about, is that it is priced below the valuation given by the bank to secure the mortgage, and that he won't have to get a second job to pay the mortgage if either interest rates, gas, insurance or utilities increase.

Secondly, both inexperienced and some experienced Realtors take a listing at the higher price demanded by the vendor, because they need the business and they hope the vendor will come to their senses and drop the price after no activity is seen. Unfortunately that is usually never the case. The property stays on the market for six months to a year and then the vendor gets fed up and moves to another realtor, who will hopefully give him some better advice based on his past experience.

If a vendor approaches me on selling their property, the first question I ask is, have they had a recent valuation done on their property? Usually the answer is No. I then advise them to get one. Of course no one likes to spend the CI$650.00 or more that it costs to secure a valuation, so often I have to give them a price based on my knowledge of what has sold recently in the area allowing for the condition and size of the home etc, aka a comparative analysis. If they are not happy with the price, (usually they are not) and are persistent about how much their neighbour sold their property for two years ago, yet I find out that the neighbour's property was a lot nicer and the bathrooms for example had Jacuzzi tubs etc, I will either refuse to list the property, or if it is not too far off my estimate, I will insist that I will list it at their price for three months and if there is no activity, then they must drop the price or take it off the market. Needless to say, this means that the listings I have, always show in the end to have been priced correctly for the market and both vendor and buyer leave the transaction happy.

In conclusion, I can say that we Realtors don't have a lot of control over property prices here in Cayman, it is the vendor and the valuator who control the prices. No bank will finance a property without an independent valuation. If a home is selling for more than it is worth the bank will not finance the full amount and if the buyer wants to pay more for the property than it is worth then...well I won't comment on that. Our job as Realtors is, to market, present the property in the best possible light, and handle the communication and paperwork between buyer and seller.

ARE WE IN A BUYERS OR SELLERS MARKET ?

Ahh!! The old question of which market are we currently in has come up again. Well, I think without a doubt that we are in a BUYER'S MARKET .

Purchasers, it is time for anyone who has been sitting on the fence and thinking about buying real estate, to take action and move. You will get better deals in today's market, so it's time to negotiate prices AND BUY NOW!

Vendors, you need to understand that there are less purchasers out there at the moment. Interest rates are high, cost of living is higher and the stock market is doing extremely well.

According to The Washington Times, which quoted "2007 is going to be a very hot year for foreclosures sales. RealtyTrac.com the largest US base foreclosure database, reports that while foreclosures filed in December 2006 were 9 percent less than November, the numbers were up 35 percent in December year over year. "New foreclosure filings surpassed the 100,000 level for the fifth straight month, something we've not seen since we began issuing our foreclosure market report in January 2005,"

How does this reflect in the Cayman Islands you may ask? Well we all know the saying that "when the USA sneezes, We (the Cayman Islands) catches a cold". As 70-80% of Real Estate investors in Cayman hail from the USA. Why would an investor want to come here to invest when there are good deals in his own backyard?

Nervous investors have taken there cash and put it in the Stock Market, a clear indication seeing that the DOW is at an all time high. The savvy investors will be picking up steals in the USA and waiting for the market to turn around.

If you have priced your property to realize a monster return, you might have to re-think your investment strategy. If you can sit and wait it out, then do so, but take the property off the market. It is a common question from a potential purchaser to his realtor as to how many days the property has been on the market. The longer it has been on, the lower the offers will be. If you have to sell now, then look at a smaller return, lower the price to suit today's market and sell.