{"id":144128,"date":"2022-08-08T12:52:26","date_gmt":"2022-08-08T18:52:26","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=144128"},"modified":"2023-08-08T14:20:49","modified_gmt":"2023-08-08T20:20:49","slug":"buyers-and-sellers-are-not-on-the-same-page","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/buyers-and-sellers-are-not-on-the-same-page","title":{"rendered":"Buyers and Sellers Are Not on the Same Page and It\u2019s Only Going To Get Worse"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm?e=BIGPOC7828159166&#038;light=false\" width=\"100%\"><\/iframe>  \n\n\n\n\n<p><span data-preserver-spaces=\"true\">This is not the first time we\u2019ve been here.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">In fact, it\u2019s the second time already in our short trek through this century.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">But we can learn from others&#8217; mistakes. You can learn from my mistakes. I\u2019ve entered my third decade as a real estate investor, and the pattern is all too familiar.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">What am I talking about?&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">I\u2019m talking about the potential of a real estate bubble bursting and the possibility of it ruining you and your investors.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">I experienced this myself in 2008. But I experienced it, through others, about 200 more times in recent years.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">As co-host of the&nbsp;<\/span><em><span data-preserver-spaces=\"true\">How to Lose Money<\/span><\/em><span data-preserver-spaces=\"true\">&nbsp;podcast, I interviewed over 230 successful entrepreneurs and investors on their harrowing experiences of loss and pain on their road to success. And many of those stories had something to do with the Great Financial Crisis.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">My Thesis<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">My BiggerPockets friends, we\u2019ve witnessed a doubling of retail mortgage rates, from about 3% to about 6%, in the past six months. Commercial interest rates have risen from about 3% to over 5%. Yet we are witnessing little to no cap rate expansion in most commercial sectors and little to no price softening in residential real estate. Why?&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">My thesis:<\/span><\/p>\n\n\n\n<p><em><span data-preserver-spaces=\"true\">When a cycle reaches its top and begins its descent, there is usually a lag time between reality and seller expectations. This lag time can lull optimistic buyers into a state of denial and tempt them to overpay for assets, causing them significant risk and potential financial ruin.&nbsp;<\/span><\/em><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">I\u2019ll demonstrate the likely reason for this lag time through an imaginary conversation between a seller and broker. Then I\u2019ll discuss some implications. Although this example is from the commercial realm, where I live, the concept applies equally to the residential realm where I spent over a decade.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">The Conversation<\/span><\/h2>\n\n\n\n<p><strong><span data-preserver-spaces=\"true\">Broker<\/span><\/strong><span data-preserver-spaces=\"true\">: I think I can get a buyer at $3 million for your property.&nbsp;<\/span><\/p>\n\n\n\n<p><strong><span data-preserver-spaces=\"true\">Seller<\/span><\/strong><span data-preserver-spaces=\"true\">: I\u2019m still holding out for $3.5 million. You told me I could get $3 million last year, and I told you I\u2019d wait a year to get my price. Are we there yet?<\/span><\/p>\n\n\n\n<p><strong><span data-preserver-spaces=\"true\">Broker<\/span><\/strong><span data-preserver-spaces=\"true\">: To the contrary. Interest rates have caused a pullback in buyers, and I don\u2019t think you can get your number.<\/span><\/p>\n\n\n\n<p><em><span data-preserver-spaces=\"true\">Some months pass\u2026&nbsp;<\/span><\/em><\/p>\n\n\n\n<p><strong><span data-preserver-spaces=\"true\">Seller<\/span><\/strong><span data-preserver-spaces=\"true\">: Well, okay, I will consider $3 million. Send that offer for $3 million over.<\/span><\/p>\n\n\n\n<p><strong><span data-preserver-spaces=\"true\">Broker<\/span><\/strong><span data-preserver-spaces=\"true\">: The market has continued to soften. It\u2019s likely I can only get you $2.5 million now\u2014if that. And it will probably get worse.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Based on this conversation, you can see how the disparity between the seller\u2019s and buyer\u2019s expectations could cause a time lag. I think we are in this time right now.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.wsj.com\/articles\/commercial-property-sales-slow-as-rising-interest-rates-sink-deals-11654594380\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">Wall Street Journal<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;reports a decline in transaction activity for the past quarter. My friends in residential investing report that while prices haven\u2019t softened much, there is a significant slowdown in buyer interest, translating to a lower number of offers for new listings.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">The Problem<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">The problem is the temptation to overpay for assets during this transitionary period. Many of you discovered real estate investing and BiggerPockets after the Great Recession. You\u2019ve only experienced rabid demand and ever-escalating values.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">For those who have bought and sold properties or invested passively, you\u2019ve probably experienced significant gains. You may be feeling brilliant, and you probably are. Seriously.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">But don\u2019t mistake your profitable track record for invincibility. The market has been your friend for many years. But this same market can be a cruel mistress when it turns on you.&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/a-dire-warning-for-real-estate-investors-dont-trust-the-market\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">You can\u2019t count on the market to create wealth<\/span><\/a><span data-preserver-spaces=\"true\">.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The rising tide has lifted all real estate boats for the past 12+ years. But don\u2019t forget Warren Buffett\u2019s&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/commercial-real-estate-investors-beware\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">haunting words<\/span><\/a><span data-preserver-spaces=\"true\">:<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">\u201cSomeday, the tide will go out. Then we\u2019ll see who\u2019s skinny dipping.\u201d&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Many of you have spent the past several years frustratedly chasing deals. You\u2019ve been outbid by insiders or speculators posing as investors. You may have scratched your head, as I have, about the high prices others paid. But you watched one after another make a hefty profit when they went to refinance or sell a few years later.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">It hurt to miss out, and you could have even thought, \u201cMaybe I was wrong. Perhaps it really is different this time. Maybe I need to jump at the next deal I can get.\u201d&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">But remember the words of Howard Marks: \u201cTrees don\u2019t grow to the sky.\u201d Herb Stein wryly quipped, \u201cIf something can\u2019t go on forever, it will eventually stop.\u201d&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/market-risk-is-skyrocketing\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">We\u2019re playing a game of musical chairs<\/span><\/a><span data-preserver-spaces=\"true\">, and someone will likely be chairless when the music stops.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">The vast dissemination of investing education, media, and real estate coaching, combined with the unprecedented influx of capital into our realm has caused this period to be one of the riskiest ever.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">If you\u2019ve finally got the opportunity you\u2019ve been waiting for\u2014the chance to acquire an asset that hasn\u2019t been outbid by dozens of other buyers, beware of what you are paying for. You may be buying into trouble.<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Don\u2019t be lulled by this time lag. Don\u2019t overpay for assets declining in potential cash flow and value due to interest rate hikes. Get off the crazy train.&nbsp;<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">The Clocks at Cinderella\u2019s Ball<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">We may be able to see the bubble forming. But we\u2019re not psychic. Nor are we entirely rational. So, we can\u2019t know exactly when the bubble will burst, nor how badly it will tank real estate values.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Value investing legend, Howard Marks, has written what I believe is the most helpful treatise ever penned to help you think clearly about this. It\u2019s called&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.amazon.com\/Mastering-Market-Cycle-Getting-Odds\/dp\/1328479250\/ref=sr_1_2?crid=2JF5OCGNEX8HC&amp;keywords=howard+marks&amp;qid=1658337471&amp;sprefix=howard+marks%2Caps%2C91&amp;sr=8-2\" target=\"_blank\" rel=\"noopener\"><em><span data-preserver-spaces=\"true\">Mastering the Market Cycle \u2013 Getting the Odds on Your Side<\/span><\/em><\/a><span data-preserver-spaces=\"true\">. Marks reminds us to think and act rationally based on the current signs of where we are in the cycle.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Howard has taught me this lesson when considering the current situation. Though we can\u2019t predict the timing and severity of cycle tops and bottoms, we can see clear signposts to gauge where we are today. And we can act appropriately for where we are in the cycle right now.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Warren Buffett likens the current overheated situation to dancing at Cinderella\u2019s Ball:<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">\u201cThe line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities, that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future, will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There\u2019s a problem, though: They are dancing in a room in which the clocks have no hands.\u201d<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">A Gift to the Rational Investor<\/span><\/h2>\n\n\n\n<p><span data-preserver-spaces=\"true\">We\u2019re in a very short window where we can see the writing on the wall. The signs are unmistakable. A logical look at what\u2019s happening should tell us to beware. This is a gift to those who are paying attention.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Don\u2019t be like Belshazzar, the ancient King of Babylon. History tells us that he boastfully paraded his wealth and success. But as a 2nd generation king, his victories were built on sand by the efforts of others.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">When warned in writing by a mysterious hand (the origin of \u201cthe handwriting on the wall\u201d), the king listened intently but apparently didn\u2019t renounce his ways. As a result, his kingdom was swiftly ripped from his hands.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">If you see the handwriting on the wall of your real estate investing world, you may want to pause and consider your next actions.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">Don\u2019t be optimistic with your underwriting. Don\u2019t mistake seller expectations for an accurate valuation for you and your investors. And remember one more quote from Mr. Buffett:&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">\u201cSuccessful people say \u2018no\u2019 a lot. The most successful people say \u2018no\u2019 almost all the time.\u201d&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">There\u2019s no shame in saying no. It may position you with the cash reserves and wisdom to capture a great deal when others run for the exits.&nbsp;<\/span><\/p>\n\n\n\n<p><span data-preserver-spaces=\"true\">There\u2019s nothing crazy about that.&nbsp;<\/span><\/p>\n\n\n\n<div id=\"hero-block_62ee867235a1c\" class=\"first:mt-0 hero-block py-4    has-background has-slate-300-background-color has-text-color has-slate-800-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-2\/3 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-slate-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Put Your House to Work<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px\">Discover why so many successful investors use the house hacking strategy\u2014and learn from a frugality expert who has \u201chacked\u201d his way toward financial freedom. Serial house hacker Craig Curelop lays out the in-depth details to make your first (or next) house hack a huge success.<\/p>\n\n\n\n<div id=button-custom-event-block_641384b1eb1d8 class='button-custom-event'>\n      <a href=\"https:\/\/store.biggerpockets.com\/products\/the-house-hacking-strategy?utm_source=blog&#038;utm_medium=marketing_block\" x-on:click=\"window.analytics.track(&#039;Blog Block | Publishing: House Hacking Book&#039;, {\n      referrer: &#039;https:\/\/www.biggerpockets.com\/blog\/buyers-and-sellers-are-not-on-the-same-page&#039;,\n    });\" class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Get Yours Now<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/3 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/HH_cover_mockup_01-e1679001015982.png\" alt=\"\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n\n<p><em><span data-preserver-spaces=\"true\">Editor\u2019s Note: This is the first in a multi-part series on real estate investing in these turbulent times. The author will provide an opposing perspective in his next post. Stay tuned!<\/span><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>This is not the first time we\u2019ve been here.&nbsp; In fact, it\u2019s the second time already in our short trek through this century.&nbsp; But we can learn from others&#8217; mistakes. [&hellip;]<\/p>\n","protected":false},"author":214608,"featured_media":144130,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[4433,7119],"tags":[],"class_list":["post-144128","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-opinion","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/144128","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/214608"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=144128"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/144128\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/144130"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=144128"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=144128"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=144128"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}