This Real Estate Q& A appears in this weekend’s issue of The Sheet. Another big Blueasapalooza weekend….
Q: I’ve been watching the Mammoth real estate market and it appears Mammoth has become a true seller’s market this summer. So from your experience, what are the typical mistakes buyers make in this type of market?? We want to buy something but we’d like to avoid making a mistake…
A: Nobody likes making mistakes. But we’ve all made them, everyone does. The best thing we can do is learn from them. Even the most successful stock traders are only right a little more than half the time. There are things you have control over and many you don’t. But all investing has some basic rules and they apply in every type of market. So let’s take a look.
Mammoth looks like it is heading into a seller’s market once again. Definitely in the low-end of the condo and home market. But unlike much of Southern California we haven’t been in a seller’s market for over 10 years. We’ll know more as we march towards the end-of-the-year holidays. Observers of Mammoth real estate believe most of the market has been undervalued the past few years. But where it goes is anybody’s guess. There are simply too many global, national and regional dynamics.
True “mistakes” are often a byproduct of either bad timing or poor choices. It would be hard to imagine that right now is bad timing in the Mammoth market. Unless the volcano blows. The local market experienced a substantial foreclosure and short sale phase since 2009. And a few drought years. That drove values down. But values have been on a slow increase. A big winter and the Ski Area merger hype has brought new enthusiasm into the market.
Ironically, many current owners are seeing it as a good time to sell. Without their new listings the market would be really hurting for inventory. If the market moves up materially there are likely to be even more sellers. And coincidentally many of these new sellers purchased at the height of the last cycle and they are selling for considerably less than they purchased for. They are finally liquidating their “mistakes.”
So bad timing can be a crapshoot. Many buyers at the very peak of the last cycle were hitching their wagons to the hope that Starwood Capital and Barry Sternlicht were going to do some Heavenly magic here in Mammoth. It was a reasonable assumption. But the Great Recession came along. Obviously none of them saw it coming. And we even had great snow years in 2010 and 2011.
Besides bad timing the other serious mistake is making poor choices. These are things we have better control over. I have a saying that I repeat to myself quite often, “Just because it is for sale doesn’t mean you should buy it.” Some people need to follow the same advice. Or at least be real about what it is worth. Or what the ownership ramifications are. Heated real estate markets can bring out the worst in people. And some of the worst decision making.
Typical mistakes often come matched with personality types. Mammoth real estate buyers come in all “shapes and sizes” but some of the most fascinating characters and experiences come from the three primary types; the analytical, the emotional and the egotistical. Mammoth has plenty of analytical buyers. They are typically successful and can purchase a second (or third or fourth) home for a reason. They range from a variety professions and businesses. Some even get “analysis paralysis“ and never buy (we used to joke about asking for gas money). But analytical types don’t normally make the mistake of poor choices. And if they do they are small ones at best. It is the emotional and egotistical buyer that can get in trouble.
Emotional buyers in this market often purchase without seeing the big picture. They’ve had some very good times here in Mammoth (like exceptional skiing) and fall in love with a particular property they’ve seen or came across on the Internet. They fail to go though the process of an analytical. That’s where mistakes are often made. And since the Great Recession the egotistical buyer has almost vanished. They were great entertainment in the boom of the last cycle. They are bound to come again. Ultimately buying real estate in Mammoth should be an informed decision. But there are many ways of getting sidetracked.
Many years ago I wrote a column on incurable defects (it ran in the infamous 50-center). I said then that people can be staring at a gross incurable defect and they can’t recognize it, or don’t have the experience to recognize it. And once you own the property there isn’t anything you can do about it. The column went on to talk about these defects and their affect on the resale-ability (amongst other things). The column even said a “property can look great on a summer day, but how does it work after 400 inches of snow?” And today I can ask how does it work after 600 inches of snow?
So one of the BIG mistakes is not recognizing the incurable defects that will impact ownership in many ways, and maybe more importantly the ability to sell the property in the future. (As an aside, there are sellers in the summer of 2017 that are selling because they just experienced the winter of 2017. Their property might not be seriously damaged, but the experience was damaging enough.)
And “resale” is a funny thing. When the market is hot buyers rarely think about the resale potential, after all, everything is selling. But this can be one of the deadliest mistakes because when the market goes soft a hard-to-resell property will sit. And when the market is soft is exactly when the owner may want to (or need to) become a seller.
Sometimes these incurable defects are hidden by shiny objects like granite countertops and snazzy decor. Properties in updated or remodeled condition are often good sellers in the Mammoth market. Many out-of-town buyers don’t have the time or patience or inkling to do renovations. So they are especially attracted to the updated and “turn-key” properties.
But many times sellers will do the remodeling or updating to simply hide the true (incurable) defects of the property. After many years (or perhaps a short couple of years) of ownership they have become acutely aware of what the incurable defects are. But they know the improvements can add value AND get a sale. These types of properties have performed very well in the past 24 months. They will perform even better if the market heats up and values rise. This scenario is especially true right now because finding a contractor in Mammoth to do work is nearly impossible. So buyer beware.
One of the interesting “mistakes” in this market is when buyers purchase expensive homes in substandard locations. Spending ~$1million or more for a second home is not to be taken lightly unless you are arriving on your own Gulfstream V. But just because the improvements (the home) look like it should be worth that kind of money the location could be screaming something different. The real estate principle of regression is alive and well in Mammoth’s residential subdivisions. Condos too. And learning about it when you become a seller is the wrong time.
And sometimes buyers simply get impatient and concede to “live with” the defects. Until they really have to. In the end, not all Mammoth properties are the same.
There are other fundamental mistakes. Not having a physical inspection of the property is one, no matter how good the property looks. In heated markets some buyers waive the physical inspection rights to make themselves stand-out to the seller. That can have pitfalls for both buyer and seller. Lawyers love this stuff.
Another mistake is not fully understanding the state of any existing HOAs. Most Mammoth condos have substantial HOA operations and they are all in various states of financial and operational conditions. And some residential areas have active HOAs too. The documents passed in escrow will have plenty of insightful information. Buyers need to read and comprehend before completing the deal.
And then there is the “mistake” of buying into the hype. Mammoth has a history of not being able to recognize hype from reality. And hindsight sure helps. One could look back to 1999 and the sales at Juniper Springs Lodge. The promise of great rental income, a new Eagle base lodge, the gondola connection, etc, etc. Except for the plastic bubble tents not much has changed since then. That’s almost 20 years. The revenue production is finally up after years of struggling. Values have gone up and down. But today the values aren’t much more than what they were in 1999. And don’t add inflation to the calculation.
Or if you are nostalgic about hype you could go back to 1980 and the Lodestar property (now the Sierra Star golf course and infill projects). The plan was for a small narrow gauge railroad to service and connect the entire property. All like a mini Disneyland. Back then there were plans to bring the new gondola off of Chair 15 (Eagle Express) down into that area. Thirty-seven years later we are hearing it again (that is telling). We’ll believe it when we see it.
And years ago when everybody was saying Mammoth was going to become the “Aspen West”
I wrote a column titled “A Long Road To Aspen” that basically spelled out why Mammoth wouldn’t become anything like Aspen. And in many ways we’ve gone backwards since then. Now it is more like the long (downward?) road to be purchased by Aspen.
So Mammoth is likely to go into hyperdrive in the coming months. Having the right perspective will be critical. Patience and knowledge will be virtues. Enjoy the ride!