Thoughts on Real Estate Marketing…

Today Bankrate ran an article about homes that the rich and famous are trying unsuccessfully to sell. Some of the homes have been on the market for years with no takers.

Of course, there’s not a huge market for homes in the multi-million dollar range, but it made me think about the profits that some homeowners are still expecting today.

According to the article, Barry Manilow purchased his home for $3 Million in 1999. Then he put it on the market for $10.9 Million in 2009. Now he’s dropped the price to a paltry $7.9 Million and it still isn’t selling.

Is that price realistic?

No, not if you look at the “traditional” (pre-bubble) appreciation.

We used to believe that on average a home would appreciate 5% per year. If we applied that figure to a $3 Million price tag, that home today “should” be worth $5.4 Million. But of course, he’s still looking at what it was “worth” just before the bubble burst.

So he probably feels like he’ll be losing money if he sells at $7.9 Million.

Another example in the article was the Pierce Bronson home – purchased as a foreclosure for $600,000 in 1996 and now on the market for $3.5 Million. I’m going assume he got a really good deal because it was a foreclosure, and the home was worth an even Million. According to my calculations of 5% per year gain, it would now be worth $2.08 Million.

Of course, that 5% rate is only an average – a number that used to be thrown out to tell buyers the value of purchasing a home. In the years from 1980 to 1990 the appreciation was much higher, and then it dropped between 1990 to 2000.

If you’re interested in housing history, I found a wonderful site showing the median price of homes in each state from 1940 through 2000. When you read it you’ll understand why your Grandmother is shocked at today’s prices – even AFTER the bubble burst. Check the Historical Census of Housing Tables for an interesting read.

According to this chart, the median home price in the U.S. in 2000 was $119,600. I didn’t find anything official, but according to a USA Today article, the national median price in the third quarter of 2010 was $177,900.

So – prices are still up. Just not up as much.

Photo courtesy of Dreamstine.