The Island of Misfit Toys

I just returned from a rather?unique business trip to the Island of Misfit Toys. Remember that place? From Rudolph the Red-Nosed Reindeer.

I was greeted by none other than Hermey, the elf who wanted to be a dentist. Yes, the same guy who is still living the dream on that charming island, working to make sure every misfit toy gets a shot at a home (or a new owner). He graciously took me on a tour of the island’s real estate ‘misfits’ and it was an interesting experience.

The first stop on my tour was the?"For Sale, Maybe"?properties. We see these beautiful, well-maintained apartment buildings that seem to have just one issue...the asking price. It is a trend lately, and it is not unique to the Island. You may have come across them in this market...properties that are technically “for sale,” but only if someone is willing to meet the seller’s inflated expectations.

Hermey took me through one of them, a 8-unit apartment building in a prime location. A lovely place, but the asking price was $2.49 million. Now, this is Rochester, NY, not Manhattan. At $300,000 plus per unit, I had to double-check the listing to make sure it was not a typo. Sadly, it was not. Probably just another "For Sale maybe" property.

But Hermey was not done. He led me to another property with $100,000 in annual rents, listed at $1.5 million. Not too long ago, properties were valued at around 6 times annual rents, meaning this place would have been listed in the ballpark of $600,000. At the $1.5 million price, the net return would likely drop to just 2%. And with mortgage rates at around 7%, the math definitely does not work! A risky investment for any buyer and, quite frankly, a tough sell in today’s market.

Next, Hermey took me to meet some of the buyers who are still operating with a mindset from “the good old days” of real estate. You know the type; the ones who think you can make an offer way below asking price and still get the deal.

I had a long conversation with one such buyer. “I’m definitely in the market,” he said, with conviction. “I just want to find something off-market and make an offer.” Unfortunately, in today’s market, off-market deals are very competitive. When they do pop up, they are often sold at or above the asking price with multiple offers. In other words, lowball offers are not getting you anywhere.

Hermey didn’t seem too bothered by the buyer's optimism. He was more concerned about the next stop on our tour.

As we continued, Hermey introduced me to a group of property inspectors. Once upon a time, getting an inspection was almost a requirement after making an offer. Now, many buyers are skipping the inspection entirely in an effort to make their offers stand out in this competitive market.

While I would not recommend skipping an inspection entirely (unless you’ve done enough of them to know the signs yourself), it is clear that more buyers are willing to take the risk. Major issues like roofing, windows, and furnaces are often easy enough to spot on your first walk-through. Still, things like possible mold or potential foundation problems are better left to the experts. It’s a tough call, but in this market, buyers are doing what they can to stay competitive.

Finally, we made our way to meet the group of?public listings—those properties listed on the MLS (Multiple Listing Service). More brokers are skipping the MLS in favor of private sales. With so many buyers chasing so few listings, apartment buildings that are priced right tend to sell?very?quickly, sometimes without ever seeing the light of day on the MLS. If you are looking for a property, you may need to consider other avenues. With demand so high, listings are snapped up within days if priced competitively.

As my tour with Hermey came to a close, we bumped into some other familiar faces on the Island.?Yukon?Cornelius?gave me a hearty handshake, and?Charlie in the Box?seemed delighted to meet a visitor. And just as we were about to leave, we ran into?Buddy the Elf?on his way to meet his dad. Classic Buddy. Smiling as usual. I am told smiling is his favorite!

I hope your holiday season is filled with joy, laughter, and a?few?less overpriced real estate listings. Happy Holidays!