Don’t Buy a Home From Gordon Gekko

August 28, 2006 |

In 1987, Oliver Stone co-wrote and directed a very good film entitled, "Wall Street", if you haven’t seen it, I would recommend renting it.  One of the main characters in the film is played by Michael Douglas.  His name is Gordon Gekko.  Gekko is pretty much your average slimy corporate raider who loves to pillage, plunder and make money any way he can, legal or otherwise. 

One of the most famous lines in the film comes from Gekko, who stands before a group of corporate shareholders at an annual meeting and declares,

"greed, for lack of a better word, is good. Greed is right, greed works.
Greed clarifies, cuts through, and captures the essence of the
evolutionary spirit." 

The fact that Gekko ignores in the film is that greed has a dark side.  Greed can be both a positive and negative motivation.  I believe that it is greed that is holding back many real estate markets in the country, the Charlottesville area included.

Anyone who has been paying any attention at all knows that the real estate market in most areas has cooled off.  There are those out there that talked of the bursting of the real estate bubble, likening the current real estate market to the ".com" stock debacle of the 90’s.  The difference between the real estate market of today, and the .com’s of yesterday, is that the real estate market is much more of a true free market.  When it comes to publicly traded companies, there are a lot of interests at play.  Capital investors, boards of directors, shareholders, customers, etc.  When it comes to real estate, it really boils down to only two parties, the seller and the buyer.  There is little or no interference from outside parties when it comes to price.  The seller chooses a price, and the buyer decides if that price is acceptable or not.  The two parties then must come to an agreement.  It is free-market economics in its most basic form.  That is why I love it.

What does this system have to do with greed and the market slowdown?  It is quite simple.  The market will continue to be slow, and prices will continue to fall, for as long as sellers choose to be greedy.  In many areas, there is no shortage of buyers.  I know this to be true in the Charlottesville area.  I am working with numerous buyers right now.  The issue in many of these markets is that the sellers have tried to set the prices too high.  Greed– pure and simple. 

Buyers are either unwilling or unable to pay those prices.  Prices will continue to fall until they reach a point that buyers are willing to accept.  It is just that simple.  I have actually spoken with people who, when told what the market value of their home is, reply with, "I don’t want to give the house away."  The way that sounds to me is, "I need to sell, but I am a greedy SOB, and my profit won’t be as much as I want."  The bottom line is sellers aren’t giving homes away, homes are going to sell for their market value.  Whether or not they agree with that value doesn’t matter.   Like I said before, the free market is cold.  The market doesn’t care what you think. 

The longer that sellers try to hold on to the prices of last year and the year before, the longer the homes will sit.  Buyers have made it very apparent that they are either unwilling or unable to pay those prices.  Sellers must adjust their expectations, or be willing to suffer the consequences of not selling their homes.  The red-hot market of 2004-2005 is GONE.  The sooner that sellers are able to accept this fact, the faster the prices will stabilize.  Granted, sellers may not like the level at which the prices stabilize, but stabilization is better for everyone. 

REALTORS have some responsibility in this whole affair as well.  As I have pointed out in previous posts, REALTORS must be willing to tell sellers the difficult truth about home values and the situation of our current market.  REALTORS must also be willing to turn down the listings of those sellers who refuse to acknowledge reality.  The only way to stabilize the market is to have properties on the market that are accurately priced.  I know this is true because I watch the MLS and see that there are some homes out there that sell in days or weeks, not months.  These homes sell in a shorter time frame because they are accurately priced for the market.  While I firmly believe that the demand is sufficient, it doesn’t look this way because the supply is artificially high. 

It is in the nature of free markets to find an equilibrium between supply and demand.  The real estate market is no different.  In fact, it is probably better at doing so than most other market sectors of the economy.  The rub lies in the price.  As long as the Gordon Gekkos of the world are setting the prices, the path to that equilibrium will be needlessly long and arduous. 

Posted by Daniel | Filed Under Affordability, Albemarle, Charlottesville, Finance, Fluvanna, Industry Issues, Selling 

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