Lake Mag Interview: The Uncensored Director’s Cut
Lake Martin Magazine interviewed me a couple of weeks ago about the effect of the drought on the Lake Martin real estate market, and general trends affecting buyers, sellers, and realtors. They included it in an article called “Special Report: The Water Issue” in the November 2007 issue. I thought Nikki Reeves and Kenneth Boone did a good job of covering a huge topic.
While they didn’t publish the entire interview, they did use a couple of nuggets, and managed to add in a compliment to me. Here’s the entire interview, with the parts that Lake Magazine used highlighted in yellow:
Lake Magazine: Has the lake level affected your individual/company’s business this year in comparison to previous years? Has it done so in a positive/negative way?
John Coley: While I personally have been fortunate to have a better year in 2007 than 2006, I can’t say that for the real estate market as a whole. Through August, the number of waterfront closings per year was down 35%, from 346 to 226. I can’t help but think that a portion of that is due to the low lake level. I don’t think that it’s a majority of the culprit, though. I think the major blame for a slower market still lies at the feet of sellers who have overpriced their offerings. From 2000 to 2006 sellers became accustomed to 30% gains in value per year, and priced in 07 accordingly. The facts have shown that there was little or no value gain in 07 from 06, and some sellers have not figured that out yet. Case in point is the auction in July 07 at Harbor Pointe. They sold 25 condos in one day even though the water was extremely low, so you can’t blame it on the level. They sold them because the prices were low enough for buyers to accept.
LM: Do you think the drought will be a positive thing for the lake market - in terms of rebalancing a surplus of property and real estate agents?
JC: This is kind of a philosophical question. I think it is part of the natural free market cycle of business, so I don’t think it’s “positive” or “negative.” It’s just natural, so deal with it. Is a forest fire a “positive” experience for wild turkeys? Well, if you’re the turkey that gets burned up, no. But if you survive it and the forest in general grows more healthy because of the fire, then maybe it’s “positive” for you.
On the practical side, I do think that the lake will follow the national trend of less people joining the real estate profession over the next two years or so. The same thing happened in the tech stock boom of the late 1990s. Lots of people quit their jobs to be “day traders” or they did it on the side. The stock market crashed, and they went back to their old jobs.
There will always be room in the market for good, honest, hardworking real estate agents. In a slower market, there is less incentive for those who are half hearted or not dedicated to join up. The same rule applies in any profession. In the minds of the average American, real estate agents have a pretty low image, so I doubt we’ll see any “Farm Aid” style benefit concerts for starving Realtors.
LM: What benefits are there for buyers in the coming months? Sellers?
JC: Buyers - I think it’s a buyers’ market in every category (condos, lots, homes), so they have the benefit of buying at good prices. The only way they can benefit, though, is to actually buy. If they sit around and try to perfectly time the “bottom” - then they may miss out. Study after study shows that most “experts,” much less the average joe cannot accurately predict the perfect bottom of any market. In fact, once the public realizes that a market is on an upswing, sellers have started to gain momentum again.
Sellers - I have talked to several people that are now considering upgrading their homes to take advantage of the buyers’ market. I think another benefit is that if they price their property correctly, and either the water comes up next spring or interest rates tick down a half point, they could have some pressure relieved. The last buyers’ market in 1999 and 2000 lasted for a couple of years, if that, then it took off and ran for 7. Sellers can be confident that, if they price it right, stage it properly, and market it hard, their home will still sell. It might take longer, but a good agent can get it done.
LM: Is there a silver lining to the drought for the area’s real estate market?
JC: If Alabama Power is successful in their efforts to raise the winter level water pool to 483 or 485 as opposed to 480, that would be great. If this drought gives them the evidence they need to make the case, it will be worth it.
And if there are fewer real estate agents around, maybe there will be fewer agents’ mugshots grinning at you from signs, magazines, and mail outs. Ha!!
LM: What are your predictions/plans for 2008?
JC: If this severe drought continues, I think it will become a major, rather than minor negative effect on waterfront sales. The question in the minds of the buyer that’s new to the market, is “will it ever come back?” Veteran buyers realize we’re in an 80 year anomaly and it hasn’t bothered them that much. But 2 or 3 years straight of less than full pool conditions will start to take a heavy toll. Personally I think that is highly unlikely if you look at the rain patterns over the last 50 years. But it’s a remote possibility.
I think that most sellers will not be very negotiable in Jan 08 - Mar 08, gambling that the water will come up. They will figure, “hey, I’ve waited this long, why not wait a little longer.” I think more buyers will start to wake up and realize that the time to buy is now. For so long I heard from buyers that said “call me when that market is not so crazy.” I’m calling them now.
LM: Anything else you think needs to be included.
JC: Feel free to quote from these related posts:
Nobel Winners in Economics Say Buy Now on Lake Martin
This Man’s to Blame For the Slow Lake Martin Market
6 Crucial Changes Coming to Lake Martin Real Estate
To Predict Lake Martin Real Estate, Look West
Thanks again for the mention, Lake Mag!! (all photos in this post were taken by Kenneth Boone / Lake Magazine – Lake Martin Issue, November, 2007)
Click here for the entire Lake Magazine Article.
Nobel Winners In Economics Say Buy Now On Lake Martin
The winners of the 2007 Nobel Prize in Economics, are advising buyers to act now on Lake Martin.
OK, OK, maybe Leonid Hurwicz, Eric Maskin, and Roger Myerson haven’t come right out and literally said that, but a quick review of their work should tell you that they would advise it. Their work laid the foundation for mechanism design theory, which attempts to explain how sellers and buyers allocate resources in the real world.
Our old friend Adam Smith describes the theoretical world of free market capitalism, where buyers and sellers have perfect information. If a seller has 100 widgets, he sells exactly 100 for his lowest price and has no one asking for more. Exactly 100 buyers show up and buy them at their highest price, and no one walks away empty handed.
In the real world, however, information is not perfect. Sellers don’t know buyers’ top number. Buyers
don’t know how bad a seller needs the money. Let’s say a butcher has 20 people show up for his 15 steaks, and 5 people go home mad because of the shortage. The butcher should have raised his price to the point that he had 15 and only 15 buyers. Classic shortage strategy. Or, what if it’s the opposite? Say the butcher has so many unsold steaks that he may be forced to throw out meat. That’s called a surplus. So the butcher should lower his price and sell the steaks rather than trashing them. If steak loving buyers realized that he was dropping prices, they should get off their duffs and get down to the grocery. Simple, right? Easily applied to Lake Martin real estate, right?
FACT:
There is a surplus of Lake Martin waterfront property right now. At current buying rates, it will take 25 months to sell it all. That, my friends, is a surplus.
SURPLUS STRATEGY:
If you’re trying to sell your Lake Martin real estate, you should get realistic about prices. I am beginning to see this happen. There are very few sellers still out there that think that it’s still a booming sellers’ market. But have they learned the lesson enough to look in the mirror and lower prices on their own waterfront homes or lots? They all say “I know the market has cooled off, but…”
BuyersLake Martin buyers need to come to the table. All through 2006, the only thing I heard from reticent buyers was “call me when this crazy market slows down, I’ll buy then.” Well, I’m calling. It’s slow. Sellers are hurting. Are you going to wait until it takes off again to buy? Don’t say I didn’t warn you.
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To Predict Lake Martin Real Estate Market Cycle - Look West
Most Lake Martin real estate observers now recognize that the sellers’ market is over, because all real estate is local. In fact, we are in a buyers’ market. For those who are in doubt - a buyers’ market means that the buyers have the advantage - IT’S A GOOD TIME TO BUY.
Market forces in real estate shift back and forth like any other market in free nations. We can learn about what might happen in Lake Martin by looking at other markets - like one of the most high end markets in the nation - Silicon Valley.
Recently I came across an excellent post by Patrick Kapowich on his blog - Silicon Valley Broker. He covers some excellent points about different parts of the real estate market cycle. We at Lake Martin would do well to read and learn.
I love his first sentence describing the changes in ’Cycle One of a Buyer’s Market’ - he says (talking to
buyers) - “Listing Agents return your calls.” Hilarious, but true! Great work, Pat.
6 Crucial Changes Coming To Lake Martin Real Estate
As the Lake Martin real estate market shifts to a buyers’ market, away from sellers, what does this mean? If you are about to sell or buy waterfront property, how can you use this to your advantage? What changes can we expect? We can guess a few possibilities from studying other markets around the nation that have been experiencing this phenomenon for a longer period of time. I’m not saying that all of these will happen, but they are strong possibilities:
1. More pizazz from sellers - there are 5 times as many waterfront properties for sale now as there were in 2005. More competition means Lake Martin sellers need to do more to get noticed and get paid. Some examples:
a. more pictures - too easy not to do it
b. home staging- a must
c. talking homes - look for a sign on the home that says “tune in to FM XX.X for more info” where a commercial is played over and over
d. text message info for homes - like the talking homes above, they have a “for more info text #12345″ rider on the sign
2. Builder incentives to buyers - Builders who have extra spec homes sitting unsold are always among 
the first to slash prices. Some Lake Martin builders have already started doing some of the below:
a. free TVs
b. free boat storage
c. pay for first 3 months’ mortgage payments - haven’t seen this one yet, but just wait
d. extra commissions (above the 6%) to the realtor that brings the buyer. As a buyer, you need to ask your realtor if such an incentive exists. Not that that would affect your agent’s impartiality, of course……..
3. Less downward pressure on realtor commissions - A buyers’ market exposes the pretenders from the listing agents that really know how to market. If the sellers feel that they can pay the popular 6% in commission and have their waterfront home sell, instead of languish unsold for a year, they are less likely to go for the cheapest “low bidder.” In the Lake Martin sellers’ market up to 2005, sellers had so much influence they could almost name their commission. Not so now.
4. Proliferation of buyers’ agents? Since buyers hold the cards on Lake Martin now, many agents may shift their marketing focus to buyers. Some agents may even pitch themselves as exclusive buyers’ agents, refusing to list homes for sellers. In extreme buyers’ markets in other locations, they even go so far as to advertising that they will give part of their commission as a rebate back to the buyer. Could this happen at Lake Martin? It’s possible, but doubtful, I think.
5. Reduction in effective FSBOs - FSBO or For Sale By Owner - (pronounced FIZZ-bo) - again, in a sellers’ market, it was a lot easier for Lake Martin waterfront sellers to go it alone. Stick a sign in the yard, and get twelve offers tomorrow, right? Now that there is more supply out there for sale, it’s a lot harder to get it done, even for agents. See #1 and #3 above.
6. No change in BUDDY-BOs - I define “buddy bo” as sales by owners directly to that buddy or relative 
that told them “hey - if you ever sell that house on Lake Martin, let me know.” OK, so it’s not a change. But maybe the lack of change is crucial. These type sales are not as dependent on market conditions so I really don’t see a huge change here.
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2007 Is Russell Lands’ 2nd Best Year On Lake Martin
This year has been good to Lake Martin developer Russell Lands.
Broker Steve Arnberg was interviewed by the Opelika – Auburn News recently about the sales trends on Lake Martin. Arnberg said that, while low water levels on Lake Martin had affected sales, this year was still strong enough to qualify as their second best.
Arnberg is quoted as saying “It’s not as good as last year and we can’t necessarily say why, but (sales) are as good as the year before.”
I assume that means that Russell Lands has sold about the same amount of Lake Martin waterfront property this year as they did in 2005, but not as much as they did in 2006.
My questions on this:
1. What do you mean by Lake Martin “sales?” Does he mean the dollar value of total sales? Or the number of waterfront lots or homes sold?
2. Why can’t he “say why?” I have already written in earlier posts about the number of Lake Martin waterfront sales declining in 2007, and that I think it is mostly related to over pricing by sellers. Does he disagree, or has he not figured that out?
3. Why doesn’t Russell Lands publish its sales figures for Lake Martin? The entire Lake Martin 
market is down 35% from last year, yet Russell Lands is having its second best year. How? I realize that they sell plenty of waterfront lots that they don’t publish in the MLS. For instance, when they opened Phase III in The Ridge, they sold lots to buyers themselves, so the data doesn’t come through our MLS. I affirm their right to do that. It’s very possible that they sold so many of their new Ridge lots that they are having their second best year ever. So why not publish, or at least mention in this interview, what they mean by “second best year?”
Russell Lands is far and away the biggest developer on Lake Martin. Naturally, as they own one half of the 700+ miles of shoreline. I’m not so nosy to think that they should tell us every penny that they spend and make. They are a private company. But, I do think it would be helpful if they gave general sales totals in number of properties sold and dollar value thereof. For instance, they could say that they have sold 40 of 100 lots in the new phase of The Ridge at an average price of $600,000. It would shed more light on the reality of the Lake Martin real estate market, and therefore benefit them, as they are this market’s biggest landowner.
This Man’s To Blame For Slow Lake Martin Market
The Lake Martin real estate market has slowed way down - it’s no longer a sellers’ market. Who is responsible?
One man - Adam Smith.
In 1776 Smith established himself as one of the most influential economic philosophers when he penned Wealth Of Nations. He described the natural economic forces that have existed since the caveman wanted to trade his neighbor one rock for two bones. OK, so maybe he’s not responsible for the slowdown, but he was the man who so eloquently described what is - Supply and Demand.
That’s right - the Lake Martin real estate market has slowed down because of simple supply and demand. Not because of the drought. Not because of the Army Corps of Engineers, not Alabama Power, not Russell Lands. Mr. Smith’s omnipresent Invisible Hand has suppressed the number of waterfront closings. In the 12 months before August 1, 2005, there were 386 waterfront closings. In the 12 months before August 1, 2006, there were 346. In the last 12 months, that number is down to 226. Looking back, the summer of ‘05 was the peak. Face it. There are fewer waterfront closings this summer. But why? In a free market, the more accurate question to ask is always ..
What has affected supply and demand?
SUPPLY:
Easy explanation here. Waterfront property has been on an unprecedented run since 1999. Prices have skyrocketed. Whether we’re talking waterfront property or widgets, more people are willing to sell at higher prices. While supply will always be fixed (Lake Martin ain’t gettin no bigger), the quantity supplied this summer is higher than in 2005. At the peak of the sellers’ market in 2005, there were only 126 waterfront properties for sale. Right now we have 603. Per se, that might not contribute to a slowdown, but when taken in conjunction with…..
DEMAND:
As inseparable as yin and yang, you must consider both supply and demand in any free market evaluation. 
So where are all the Lake Martin buyers? Anyone could tell you that they must be scared away by the increase in prices since 1999, but is it a true downward demand shift? Are fewer buyers interested in Lake martin waterfront property now? Or is it simply a decrease in quantity demanded?
Has the drought, low lake levels, and high prices removed buyers from the market? Is that why there is a surplus? I think not. Anecdotally, I am talking to more buyers now than I was in 2005. Buyers that I talk to are not phased by the low lake level. They understand that it is a 50 year anomaly. Sure, I think that the drought has affected it some, by removing potential buyers out of the pipeline before they ever talk to realtors. But I don’t think it has affected demand that much. So I don’t think we’re experiencing a demand shift.
I think the Lake Martin buyers are still out there. There are still plenty of folks who want waterfront real estate, but they want it at lower prices. Case in point: the condo auction at Harbor Pointe. 20 waterfront condos were sold in three hours, when in the previous 12 months, only 34 had sold on all of Lake Martin. Why? Price. The exact same condos that were listed on the mls at $420,000 sold at the auction for about $250,000. This jives with my anecdotal evidence - from talking with buyers. Plenty of people want to own Lake Martin real estate, but not at a crazy price. This extends across all market segments - lots, condos, deeded lot homes, and leased lot homes.
SO WHAT?
So what does this mean? It means that buyers can exert their influence more strongly, by seeking out better values with research. Don’t expect prices to return to the 1990s. But buyers can find decent buys if they know how to research and if they let a good realtor help them. Click here if you need help.
Lake Martin waterfront sellers need to get realistic. Don’t price things based on what you wish you could get - check the numbers on sold comparables. Hire a good realtor (read: me) that will aggressively market your property - and it will still sell, trust me.
Related Posts:
Proof Of End Of Selllers’ Market On Lake Martin
Proof Of End Of Sellers’ Market On Lake Martin
What is the real estate market like on Lake Martin right now? I own waterfront property, should I sell? I want to buy Lake Martin waterfront property, but is it still a crazy market?
These are questions I hear constantly. Both potential buyers and sellers of Lake Martin real estate want to know if changing conditions will benefit them. To be sure, the water is way down, and so are the numbers of real estate transactions. I will cover cause and effect in a later post. But for now, let’s just focus on one question:
Is Lake Martin still a sellers’ market?
If you talk to 10 people, you get 10 different answers, ranging from Pollyanna agents who still think it’s a sellers’ market to Chicken Little bubble barkers who act like property owners are literally throwing money into Lake Martin each time the water drops an inch. What’s the truth? When I approach the question, I treat it like every other issue about Lake Martin real estate:
1. Break it down by market segments. What are you talking about, here? Waterfront or non-waterfront? Condos? Lots? Leased lot homes or deeded homes? Homes above a million? What? (Below I will only talk about waterfront property.)
2. Look at the numbers. As I have said before, you have to be careful when interpreting statistics in our market. It is relatively small in transaction number (when comparing to large cities like Atlanta). But, to make a market opinion, you must look at market statistics, so I try to consider a year of data at a time. The goal is to take emotion - and agenda - out of the equation. Just the facts, ma’am.
3. Apply Common Sense. Just as you don’t want to be ruled by emotion or anecdotal 
evidence, you also don’t want to let the misapplication of statistics throw you off course. There is no magic statistic or rule of thumb to proclaim a market a buyers’ or sellers’ market. You have to use your common sense to test the statistics versus your everyday observations.
MY TAKE ON THE DIFFERENT TYPES OF LAKE MARTIN WATERFRONT PROPERTY:
1. LOTS - Right now on Lake Martin there are 113 waterfront lots for sale. 13 have sold in the past 12 months. That means we have about 113 months of inventory, or it would take almost 10 years to sell at this pace. On its face, that figure suggests an extreme buyer’s market. I do think this is a buyer’s market, but, like condos, I think that if sellers were more realistic on price, most of these would get snapped up pretty quickly. Everyone wants a lot. But, I think many sellers have incorrectly priced assuming the market rose by 35% over 2006. My call - Buyers’ Market.
2. CONDOS - There are 112 waterfront condos for sale and only 34 have sold in the past twelve months. That’s 38 months’ worth of inventory - i.e. at this current buying rate, it would take over three years to sell all of the condos currently for sale. That doesn’t count any that are under construction or might come on the market in the future. The recent condo auction at Harbor Pointe taught us - there are buyers out there, but they are at lower prices. This segment was by far the easiest to judge. My call - Buyers’ Market.
3. DEEDED LOT HOMES UNDER $1 Million - In rural Alabama, it’s hard to call a $400,000 home a “starter home” with a straight face. But that is about the price point of the lower end of the deeded lot single family home on Lake Martin right now. In the deeded lot homes priced under $1 million, in the last 12 months, 120 have sold, or 10 a month. 249 are for sale now. So we have about 25 months’ inventory. But looking at this inventory, if a few sellers got realistic and dropped their prices, I think they would sell pretty well. If homes in this segment are priced right, and are “good ones,” they sell in 45 days. But because there are many that are overpriced and have been sitting on the market, I really can’t say that it is still a sellers’ market. My call - Balanced.
4. DEEDED LOT HOMES OVER $1 Million - This segment is harder to compare with prior years, because the rate of increase on investment has meant that many homes are now worth $1 million whereas in prior years they would be at $750k. To be fair, you really would need to compare homes over $1 mill today with homes over $750k in 2005. Right now, there are 66 for sale. 17 have closed in the past year, or about 1.5 a month. So we have about 44 months, or almost 4 years’ worth of inventory. Most of these are new construction spec houses being sold by builders. They are getting aggressive - dropping prices and adding incentives. My call - Buyers’ Market
5. LEASED LOT HOMES - 15 have sold in the past year, and right now there are 15 for sale. So there are 12 months’ inventory. I had one listed, we priced it aggressively, and it sold in 81 days, which is about the average time in a balanced market. Looking at the inventory, I think some are better values than others, so if they adjusted prices they might sell more rapidly. My call - Balanced.
Are you considering buying Lake Martin waterfront property right now? Why don’t you let me help you find what you need? I can help you sort through the above 5 segments FOR FREE. Sellers pay the real estate commission. I can help you with any Lake Martin waterfront property, regardless of who has it listed. An average real estate agent won’t help you much. A good realtor will save you money and time.
Results Of Waterfront Condo Auction - Harbor Pointe - Lake Martin
Lake Martin waterfront condo buyers flock to the condo auction at Harbor Pointe in Stillwaters.
Roebuck Auctions held an auction at Harbor Pointe Marina in Stillwaters last Saturday, July 7, 2007. The bidding started at 11:07 AM, selling 20 units in the Harbor Pointe Condo development. Chris Boden, representative of Roebuck Auctions, stated he thought the auction went very well. He estimated that there were about 500 people in attendance and about half were registered bidders. Boden confirmed that all 20 condos were sold and are under contract to close in thirty days.
Boden went on to say that the boat slips were not auctioned that morning. They were pulled from the auction due to a “legal snafu” that the sellers were currently working out. He said that 24 slips are still available, and they would be offered for sale first to the auction high bidders, then to existing Harbor Pointe owners. Boden also said that some boats were sold, but since he worked on the real estate side, he didn’t really know the details on how that all turned out.
Lake Martin Voice roving correspondent Kirk Wascom had this report:
“I went to the Harbor Pointe Auction at Harbor Pointe Marina this past Saturday. There was obviously a lot of interest given there were 300 other folks in attendance as well.
The first condo sold for $385,000 and the last one went for $235,000, not including the 10% fee to be added. They auctioned the condos on a buyer’s choice. The first condo sold allowed the buyer to choose his/her choice of the 20 available waterfront condos. The first one sold and chosen by the buyer would have been the one I would have chosen.
Although I attended the auction more out of curiosity and genuine interest, I did take my checkbook and a letter of guarantee from bank. During my registration they asked me for my letter of bank guarantee. However, a buddy of mine who also attended the auction was not asked to present one. We registered at different times. I guess it’s like buying alcohol; sometimes you’re carded and other times you’re not.
In my opinion, I think those who were the high bidders and who got their choice of a condo got a good deal at a fair value. It was all a win-win position for both sides. Due to the number of buyers at the auction there was no way anybody was going to get a condo for some low bid price of $75,000 - $100,000.”
Thanks Kirk, for that report, and for the inspiration for this series of posts.
Does anyone else out there have a subject they would like to see covered by the Lake Martin Voice? Speak up! And watch out, you may be drafted into action like Kirk…..
Related Posts:
More Info – Harbor Pointe Condo Auction – Lake Martin
Lake Martin Voice Auction Post Linked By The Wall Street Journal
6 Questions To Ask At A Lake Martin Auction
6 Questions To Ask At An Auction On Lake Martin
25 waterfront condos are being auctioned at Harbor Pointe in Stillwaters on July 7th. Five of those will be absolute. This auction follows on the heels of one earlier this spring. Is this a sign of the times on Lake Martin? Does this signal an end to the seller’s market? Are auctions a way to get a good deal on Lake Martin property?
Like any real estate transaction, every auction is unique. The person that does the homework will either come out of it with a fair price or avoid paying too much.
What questions should buyers ask before attending an auction at Lake Martin?
research comes in the picture. How well do you know the Lake Martin market? Or Stillwaters? Or Harbor Pointe? If the lake properties have been for sale recently, the listing prices can give you an idea of the seller’s expectations.