Have you ever had that feeling that you should have hired a professional when you are that “Macho Man” fixing your plumbing, performing electrical work or landscaping your back yard, while at the same time knowing you are a novice, non-licensed individual, and telling your wife that “Everything will be O.K.?"

I have been doing this for years and it all came back to me recently while I was away for six weeks caring for my parents who are 84 and 89 years old in Atlanta Georgia. Upon returning home my wife had “professional” plumbers, electricians and landscapers redo our bathrooms, our yard, correct all of my electrical work and all of my plumbing work, etc.

When I asked her, “Gee, what is up with this?” Her reply was, “I am tired of living around this house like we are kids.” Hmmm... this caused me to think about what she said and finally, after overcoming my Macho attitudes, I guess begrudgingly, I had to admit she was right. After all, I had started redoing our bathroom 12 years ago and I just never got around to finishing it.

Why not hire a “professional” now that we can afford it? After all, we are no longer just kids out of college!

There is no difference when it comes to knowing what is really happening in Real Estate. I think it is a good thing that everyone who is interested in Real Estate find out as much as they can about the industry. If you are one of these individuals, this article is for you.

The Bias, Smoke & Mirrors

In any industry there is bias. Two of the most prominent bias is political and self-serving bias. The Real Estate Industry is no different than most other industries in their self-serving dissemination of what I believe is misleading information, including statistics, not only to its membership but worse, to the public.

I think almost every industry has a self-serving bias including publishers across the country and locally, such as the Honolulu Star-Advertiser.

The National Association of Realtors has this bias, which is passed onto the Honolulu Board of Realtors and subsequently passed to the newspapers who pick up the bias and who then add their own particular bias to the information being disseminated, which finally, reaches you. In the case of the Honolulu Star-Advertiser it is no different in their so-called reporting of Real Estate information, where the true motivation for printing these headlines and “articles” is to sell newspapers.

So with these types of headlines, what are you supposed to think? Is the market recovering, prices are going up? Is the market getting better? Are foreclosures becoming a thing of the past? The correct answer to these questions are: NO. But you have to admit, you are going to get a copy of the paper and read what is happening and you are going to have a tendency to believe it, are you not? After all, it is in print so it must be true.

Publications are only as good as the source of the information and much of the Hawaii or at least the Oahu Real Estate Market primary source of information comes from the Honolulu Board of Realtors.

The bottom line is this: Ask almost any Real Estate Agent, “How is the market doing?”

The answer you most likely will hear will be, “Oh, Wow, it is doing great and I have never seen a better time to buy.”

If you just take the question and the answer on its face value the answer is true. It might be true that right now it has never been a better time to buy but in what context? If you think it has never been a better time to buy because of interest rates, "Yes," this is correct. If the context is whether or not prices have ceased going down and we have hit the bottom of the market, then the answer is, “No, It is not a good time to buy.”

These are the nuances and “Smoke & Mirrors” you need to be aware of and if you are not somehow tied into the industry or have a Real Estate Agent that will give you the straight story then your choices are simple if you really want to know what is going on:

1. Get a Real Estate License and start Selling and Buying and learn what is really happening in the market through your own privileged access into the Multiple Listing Service where the true data lies.
    
2. Interview and meet a trained, knowledgeable Real Estate Agent and utilize 
   their experience and their access to the Multiple Listing System.

If You Really Want to Know What is Going On

Following are the most important things I have learned over the past 10+ years of attempting to understand and interpret Real Estate data in order to truly have a complete, true picture of market conditions while being able to see through the bias and the Smoke & Mirrors.

“I Sold This Property For Over the Listing Price In Just A Few Days” or
The Misdirection of the Honolulu Board of Realtors “List to Sell Percentages”

Above is a C.M.A. analysis that to have access to, you have to be a member of the Honolulu Board of Realtors and the M.L.S.

Take #3 for this example: Sold on 7/11/2011 for 101% of its Listing Price in 183 days. Let us pretend that if you had access to the information I have as a Realtor that you can do this investigation.

After further investigation, if you have access to the M.L.S. you would see from the above that this property was listed more than once. Initially you might believe that it sold at over asking price as per the information from the C.M.A. Note the “List Price” changes. When the property was listed 6/15/2010 at $1,750,000 the Listing Price or Asking Price was reduced to $1,050,000. When it was finally sold it sold for $1,060,000.

What are you to believe about the C.M.A. reports showing what properties sold for at Listing Price or over? I find this dissemination of information “not the real story” and these List to Sell Percentages are reported to everyone with access to the M.L.S. and these same percentages are reported in the news.

Last year the Honolulu Board of Realtors President was quoted in the Honolulu Star-Advertiser, "The List to Sell Percentages are going up which indicate the market is improving."

Wow. Really?

Days On Market (D.O.M.) or
How Long Has This Home Been On The Market?

Do you remember this C.M.A. from above? Let us look at the “DOM” column on the extreme right. The same home we discussed earlier is reported as sold in 183 days. Really? Is it not true that this home for that particular M.L.S. # was on the market for 183 days. This is true but what about the other M.L.S. numbers for this home? Should we not add the D.O.M. of all listings in order to get the true D.O.M.? You bet.

Here is another example:

Yes, this home sold in 23 days, was only listed once, was reported sold at 100% to List Price but…

Note the “List Price” reduction on 6/22/2011.

So how can you say it sold at 100% to Listing Price?

This is why you need to look at data like this:

According to this graph if we take all the price ranges in Kailua for Single Family Homes, The Honolulu Board of Realtors reported through their C.M.A. List to Sell percentages that 35% of all the listings sold were sold at or over 100% of the asking price. Upon the follow up investigation in our quest to see what is really going on we find this is simply not true. The correct percentage of homes sold at full price or more was only 16% and when these homes sold their average Days On Market (D.O.M.) was only 12 days! The Average D.O.M. reported for the entire amount of Single Family Homes sold in Kailua in July 2011 was 65 days.

Not only do you now know the truth you should also realize that pricing a home correctly is critical if you do not want to be on the market for months or never sell.

By Price Range

Here we see the Honolulu Board reported that 36% of all listings sold at full price or more for the $1,000,000-$1,499,999 price range but in reality 0% sold at full price or more and the year to date average for this price range selling at full price or more is 6% as of 7/31/11.

As for the accurate reporting of D.O.M. we now can see how this figure can be misleading if we do not take into account the number of times the same home is re-listed. But it gets even more misleading because The National Association of Realtors and subsequently the Honolulu Board of Realtors use the same method of measuring the D.O.M. They measure the amount of time it takes a home from the first day they are on the market until they receive an Accepted Offer and the home goes into Escrow.

I guess that is one way of measuring D.O.M. but I have a better way because if you use the method used by the N.A.R. and the Honolulu Board of Realtors then you are really only measuring the amount of time it takes for a home to receive an Accepted Offer of homes that are priced correctly.

Think about it. Why are we not measuring how long has been on the market?

Oahu Single Family Home D.O.M. July 2011
(Honolulu Board of Realtors Method)

 
Oahu Single Family Home D.O.M.
(How Long A Home Has Been On The Market Method)

Pretty Big Difference, Yes?

“What Critical Information Should I Be Aware Of?”

Once you are aware of the misleading information out there that has lead to misperceptions of the market conditions, following are what I deem as critical to know in evaluating Real Estate:

Months of Supply

You should first examine the Island as a whole and then delve into any particular area you want to know more about. Months of Supply tells us just how much inventory is For Sale at the current Average Rate of Sale. (Total Sales divided by the number of months, divided into the current inventory = Months of Supply or M.O.S.) This will help you determine whether or not it is a “Buyer’s Market or is it a “Seller’s” Market.

“What Are My Odds of Selling?”

Lets face it, each year there are so many homes that come onto the market and only so many that actually sell.

In July’s graph, above, we see that the inventory for sale was 1,725 and sales were 270. This is a percentage sold of 15%. I run the percentage sold each month and average the combined results. I think of it as the “Odds of Selling.”

On January 1st 2011 the inventory for sale was 1,119. As of July 31st, 2011 2,347 New Listings have come onto the market and Total Unit Sales Year to Date ending July 31st 2011 were 1,631.

Just considering the amount of New Listings vs. the Total Unit Sales Year to Date ending July 31st 2011 we see that the total sales equates to 69% of the New Listings. Of course the total sales may have included many of the homes in the original 1,119 homes for sale on January 1st 2011, but I think you get the point.

There are only so many homes that sell each year as compared to the Total Inventory For Sale.

What happens to the rest of them that did not sell? Most likely they turn into either Expired Listings or Withdrawn Listings.

Both Expired and Withdrawn Listings can and often do come back onto the market and sell but they all part of the total Recorded Sales.

The Price Range with the Highest Odds of Selling?

“What is So Important about What is In Escrow?”

What is In Escrow tells us where the market might be headed. We can obtain this information for all of an Island or any particular Neighborhood or even Condo Building.

In the graph above we can see the steady decline in the amount of homes going into Escrow for this price range. This means there will be less future recorded sales approximately 60 days from now (Average time of an Escrow).

Last But Not Least

If you are in the market to sell, important choices must be made in not only selecting the right price to sell but who do you pick to sell your home.

The number of Brokerages and Agents that do sell the most homes has nothing to do sales success. What is important to remember is that you want a Brokerage who knows not only how to sell quickly in this declining market, but will sell your home quickly and for the highest possible price.

Just How Many Homes Do Sell At 100%+ of Listing Price?

Between the year 2007 and 2010 the highest average number of times a particular Brokerage (which shall remain nameless) sold at Full Price Or More was 35%. That is it just 35% of all the listings of that Brokerage Sold at 100%+ of Listing Price. About the rest of them, does this mean 65% were priced wrong?

Well, I sure would not want to pick the guys who sold 0% at Full Price Or More!

This information can only be accessed through the M.L.S. and the Public has absolutely no way to get it other than to become a member or get an agent who can get it for them.

Yep, my wife was right, I should have just let the “Professionals” do all that stuff around the house I did when I was young, and let's say, less informed.

Now I know better…I could have gone to the beach the whole time and leave it to the guys who know what they are doing!

I truly enjoy Real Estate, even in these terrible economic times. What truly drives me is my ego to know more about what is going on in the market than the next guy and sharing this knowledge.

If you need help or have questions, I am here for you.

I wish you all the best and until next month…Live Life and do not get caught up in all the misleading and negative news!

Mike Gallagher, Broker