As Phoenix area homebuyers look to cash in the winning lottery tickets in their hot little hands, it is worth noting that there is such a thing as biting off more than you can chew. While market analysts and laypersons alike point to avarice as the primary machination that brought our economy to its current state, buyers need to be watchful that they don't get clobbered by the same pendulum that threatens to come careening back their direction. As our populace accumulated far more Real property than it could actually afford at the height of the market, buyers today encounter a few substantial risks of their own. First and foremost is the uncertainty of the status of the product they wish to buy at a deep discount.
This past fall, I was looking at a really sharp mid-century modern condo conversion project in downtown Phoenix. Prices had come down considerably from their start point, and there were only a couple of occupied units amongst the 40 or so the development had in total. We knew the opportunity existed to command a terrific bargain. As a matter of fact, my jaw hit the floor when the developer later called me directly with an incredible offer on the unit my client found most appealing. She loved the unit, I loved the price. We were salivating.
And we passed.
I smelled trouble. If the builder was willing to basically give the unit away to my client, what would prevent him from drastically cutting prices even further for future buyers? The complex simply had "declining values" written all over it. More to the point, however, I was concerned with the overall stability of the development. I didn't want my client to move into a ghost town regardless of the price.
As it happens, our fears were well founded. The complex, aside from the couple of units that sold a year ago, is now in the hands of the bank. Lost to foreclosure, lord knows what will happen to the common grounds, let alone the individual units. The poor occupants who jumped too eagerly must now worry that they will soon have squatters for neighbors and that their values and personal enjoyment of their homes will be further decimated. As it stands, the prices on the units are now about 50% lower than the smoking deal we were offered back in the fall and declining as I type this.
I have seen too many builders pull out of developments, leaving the inhabitants with vacant lots and plummeting values for neighbors. I'm not talking about mom & pop builders, either. We're seeing formerly vibrant national builders circle the drain.
The long and the short of it is that you must protect yourself in this market by keeping an eye on more than the bottom line. There are tremendous opportunities out there, but you must be dilligent in assessing the full situation. Be aware of the risks you run when pushing for that little extra something in terms of price. It's not always just about finding the cheapest thing that you can.
Even in this market, if it sounds too good to be true, it most likely is.
There are resources at a buyer's disposal that can help you ascertain the stability of a builder or project. I implore you to use them. A good place to start is the Arizona Department of Real Estate, which features a list of home builders that are in financial trouble, tagged with mechanic liens or currently undergoing bankruptcy processes.
By all means, use the current market to your advantage in commanding a great deal, just make sure that you are getting what you think you are stealing.
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Ray & Paul Slaybaugh - Serving Scottsdale Since 1974
(And Not Above Exploiting the Cuteness of Small Children for Your Business)