Common Errors of Predicting Market Sizes

Executives have two different types of investment war stories: those that are akin to the proverbial fish that get away and those that involve overestimating opportunities. An example of the first type is the situation where Blockbuster had the chance to purchase Netflix. For the second, look at Eddie Lampert buying Sears for over ten billion dollars and how it went bankrupt later.

We are just not good at conducting analyses for “size of the prize.” Under- and overestimation problems have a few errors in common. The first is confirmation bias. Every expert brings confirmation bias to the table. The next two mistakes could be considered sins of omission. They involve treating this purely as a theoretical math exercise. Consumer passion must be factored in lest the size of the prize is too low. But practical application must also be factored in lest the size of the prize is too high.

The first error is an integral part of this task’s most common approach, which is seeking out a comparable example or comp as an analogy. Investment bankers are fond of comps because they give a quick shorthand in examining potential EBITDA or earnings before interest, tax, depreciation, and amortization multiples about other transactions. For comparison, this is somewhat like what an agent of real estate does to assist in valuing your residence before you make a sale. But what happens, to follow the analogy, if the comps selected are single-family homes and the property in question is a luxury condo happening to be within the same zip code? This is, unfortunately, something that happens far more frequently than we realize.

Executives also experience confirmation bias. Some have powerful incentives to select a potential opportunity and throw darts at it, not only because the majority of acquisitions has an unfortunate habit of failing to pay back; they also have to integrate and deliver promised results. Other executives might overestimate the benefit of a brand new category as they are hoping to buy growth or seeking to cement their legacies fully.

As regards the second error, the misunderstanding of consumer passion typically forms the root cause of the reasons why an analysis for the size of the prize is too low. One way consumer passion is miscalculated is treating everything via an approach of problem and solution, which is rational but lacks an emphasis on the upsides from passion and emotion.

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The Winter Season May Be The Perfect Time To Buy A Home

Many parts of the country have struggled this winter season. During a recent polar vortex, parts of Minnesota saw temperatures that reached nearly 55 below with the wind chill factor. While that is extreme, even Florida saw unusual weather patterns in a land where sunshine abounds. So who in their right mind would want to shop for a house during these unsavory conditions?

It may not seem convenient, and it may be a bitterly cold journey, but there are some excellent bargains to be found during winter. Most people are thinking about survival and keeping warm rather than buying or selling a home. Here are some compelling reasons why buying a home in the cold season isn’t always bad.

There Is Less Competition

Finding your dream home can be devastating in an area where the real estate market is hot — nothing like putting in an application to find out that ten other people did the same thing. Have no fear; the winter weather keeps many buyers at home. So what might be a hot property in the summertime is anything but in the winter. Winter may give you a better chance of being a homeowner.

Sellers Are Motivated To Sell

Sellers know that many people don’t buy a home during the winter, so they are more willing to haggle on price and conditions. They may drop the price $5,000 in January, but they wouldn’t do that in June or July. It’s all about supply and demand. Most areas almost become buyers’ markets during the off-season. However, things rebound quickly when the temperatures increase. Forget subject-free offers; you can protect yourself with conditional offers when the demand has dropped.

There Are Incredible Price Deals

When determining price, it all comes down to how many homes are on the market, how quickly things are moving, and the home’s value. A house can be worth a million dollars, but if the market is flooded, and nothing is moving, then the seller may drop the price.

Motivated sellers usually take the payoff or just above it to get out from under a mortgage. This is especially true when someone has moved and has a second home they are paying on. While you may need to do some searching, finding a magnificent abode with a seller that is motivated may be your ticket to shaving thousands off the purchase price.

While buying during the winter requires a little more effort to brave the elements, it can be worth the effort. When you don’t have ten people vying for the same property, and there are homes not moving, it becomes a win-win for the buyer.

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Real Estate Brokers vs Real Estate Agents

Most homeowners and prospective homeowners will have to deal with a real estate professional at some point. But how do they know what type of professional to go with? On the flip side, real estate is also an attractive field to break into. Many people aspire to careers in real estate. No matter what is happening in the economy, it’s always either a buyer’s or seller’s market. That means real estate can be a great, stable place to build a career.

Whether you’re inside or outside the business, however, the terminology can get confusing. Terms like real estate agent, realtor, broker, and associate broker abound. What is the difference between all these categories? Which one should a first-time buyer deal with? And as far as career prospects, which are the best titles to aspire to?

Defining the Terms

Real estate brokers are licensed by the state. That means requirements can vary from place to place. In California, brokers must have a combination of work experience and college coursework to sit for the state exam. There is an exception for lawyers. They are permitted to sit the exam without taking additional college courses or doing work experience.

Real estate agents are a rung lower than brokers. Brokers can work for themselves, but typically, agents must work for brokers. Real estate agents must also be licensed. Their education generally is less intensive than that of a broker. Of course, there are sometimes exceptions to this.

A realtor is a member of a nationally recognized professional organization. Brokers and agents can both become realtors. Realtors have to abide by a code of ethics in addition to acquiring the training required by the state where they reside.

What Does it All Mean?

If you’re trying to get into the business, eager to buy or sell, research the laws in your state. Are agents allowed to represent both sides of the transaction? Do your friends have trusted brokers to recommend? When you look up brokerages, how detailed are their agents’ biographies?

Doing some research about the terms, in general, is a great idea. Learning what laws govern real estate transactions in your state is also an important step. Knowledge can safeguard you from being taken in by a less-than-honest real estate professional.

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Real Estate Investing 101

It seems as though people are always raving about the promise of real estate investing, making it appear as though it’s a no-lose opportunity. There is a risk to it, and many people do lose a great deal, which makes it on-par with other types of investing. There are a few ways, however, to lower those risks and prepare yourself for a more successful real estate investing experience.

Learn About Real Estate

It’s unwise to jump into any investment without preparation, yet too many people do just that with their first real estate investment. While you may be eager to get started, doing so without first learning about real estate and the markets almost guarantees you a bad experience. Pick up a few books, attend seminars and conferences, and participate in online workshops. Keep learning until your knowledge parallels your passion.

Trust Your Intuition

The knowledge you amass will be a good start, but it will only take you so far. One reason there will always be an element of risk in real estate investing is that you have to predict how each market will perform in the future. If you hone your intuitive skills, you may learn how to identify up and coming neighborhoods. In time, the experience will also help you identify the signs of an area on a decline. These talents, once you develop them, will help you boost your chances for success.

There’s No Such Thing as a Safe Bet

From the moment you buy an investment property, you begin losing money. First, the property is sitting vacant, which means you’re not earning anything. Second, your expenses will instantly start to build. From property taxes and insurance to repairs and renovations, you’ll have to continue putting money into the property before you can even list it for sale or lease. This means your risking those funds on the chance that the property will earn you a profit quickly. This isn’t a situation for the timid. If you don’t have the guts to take this kind of chance, perhaps you’re better suited for other types of investing.

Ultimately, you have to trust your instincts to know if you’re ready to launch a real estate investing career. As long as you leverage your finances carefully and take your time to choose wise investments, you can have a positive investing experience. Getting through that first investment will teach you how to apply the principles you have learned and provide you with the expertise to make your next project that much more successful.

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Tips for Buying & Selling At the Same Time

No matter the state of the market, buying a new home while simultaneously trying to sell your current residence is a stressful process. If the timing is off, you could find yourself with extra bills or no house to live in.

Identify the Market

There are two types of markets in real estate: a buyer’s market and a seller’s market. The difference is found by assessing supply and demand. If the supply is greater than the demand, that’s a buyer’s market; this means that there are more houses on the market than there are homebuyers. A buyer’s market is great for buying a home as you will likely find a residence for a lower price given the decreased demand.

The reverse—a greater demand for homes than there are homes available—is a seller’s market; this is the ideal time to sell your home as there are typically more buyers interested in a single property, often resulting in bidding wars that can prove more profitable.

If you were only conducting one transaction, you could wait for the ideal market before taking action, but attempting to buy and sell at the same time leads to some complications. If you are in a buyer’s market, you could make an offer for your prospective new home with a sale and a settlement contingency while also requesting an extended closing for your own home, giving you additional time to sell. In a seller’s market, you can request a rent-back agreement to allow yourself more time to find and buy a new home. Understanding the market fluctuation and how to best navigate this will help limit your stress.

Hire a Skilled Agent

Having a reputable, experienced real estate agent on your side will immensely help the process. They will be able to provide expertise regarding market fluctuation in addition to negotiation, strategy, and transition. It’s also important to be thorough in your search for the best suited and most qualified real estate agent in your area.

Know Your Financial Situation

Whether you plan to prioritize buying or to sell first, it is necessary for you to discuss with your family and financial advisor so that you are well aware of your financial capabilities. Identifying your home’s value as well as how much equity your home has are critical parts to this process. If you plan to buy before you sell, you should look into support options like contract contingencies and bridge loans to help ease the financial burden.

Trying to buy and sell homes simultaneously can certainly be stressful, but with the right preparation, research, and resources, you can limit the emotional strain as well as the financial stress that the process can entail.

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