Don’t Get Caught Out By Fake Real Estate Market Data
Just as there is plenty of fake news in the media around elections and celebrity gossip, there are plenty of misleading real estate market headlines too.
Falling for false market data may not only bankrupt you as a real estate investor, but can really hurt the local market and industry too. Here’s how to avoid that, and ensure you don’t get caught out.
The Danger Of Dead Weight
For wholesalers who are paying cash or using credit lines to buy properties with the hope of reselling, it only takes being stuck with one or two dead weight properties to really mess up your model and finances.
Instead of those deals being resold for lump sum profits in a couple of days, you may end up like all those crusty Craigslist ads that have been trying to sell the same properties for years.
During this time you’ll still be coming out of pocket for property taxes, insurance and have to risk further devaluation on a daily basis. This money has to come from your personal income or savings, or the profits on any other deals you do successfully wholesale. It can quickly eat away the profits on good deals you complete.
Looking at the bigger picture, if wholesalers have swamped a local market with tying up properties they don’t close on, or deadweight properties they are asking too much for, it can send signals to everyone else that the market has stalled. Days on market will appear very long, it could bring down values, and sellers will be more wary about who they contract with.
The Numbers Do Lie
Salespeople like to use numbers, because they appear factual and indisputable. In reality, the numbers lie all the time.
It’s not uncommon to see two contradicting new headlines on the direction on the market on the same day. Sometimes even from the same publication.
Numbers and statistics can be manipulated to tell just about any story the storyteller wants to spin.
Zillow was notorious for poor real estate data. It now appears they have stopped reporting on most statistics. Even the National Association of Realtors went back and restated several years of home sales data after the 2008 crisis became undeniable.
Realtors twist it all the time. With most preferring only to show the optimistic data, and hiding anything that may turn off their clients.
We’ve also recently seen a variety of big claims about new pending sales, home prices, and the traction in the housing market. Some of it may absolutely be true, in some places.
In other cases, few of those pending sales may actually close due to lenders changing their minds, tightening up and being too afraid to lend. While some properties may seem to sell fast, there may been many listings which have been on the market for 24 months or longer.
Perhaps most impactful, asking prices can be completely unrelated to actual closed sales prices and values. If you buy based on the crazy overpriced listings of a few people swinging for a lottery ticket sale, you might find the market thinks you are just as crazy.
How To Avoid A Glitch
The most obvious way to avoid this trap is to dig into the real data yourself. Know your market intimately.
Look at public records, know the neighbors who have actually sold, and have an appraiser you can pick up and call for questions 24/7. Look at how much properties are actually closing at, and any concessions which may impact the true net price and sold comps.
Having alternative exit strategies to avoid being stuck with a property is good. Like being able to offer it as a rent to own.
Savvy real estate wholesalers go even further by securing solid preorders and preselling deals before they even sign the buy side contract. Then they use transactional funding, so that they aren’t trying up any of their own capital in the deal.
