One of our clients went under contract on a $3 million condo at the end of September 2021. For a variety of reasons, we had a delayed closing, and the property finally closed the second week of January 2022. From the time my clients went under contract at a purchase price of $3 million to the time the property closed the condo appreciated by $600,000. Yes, you are reading that correctly, it was $600,000 in four months. You see, similar condos in the same building complex, with the same square footage, the same number of bedrooms and baths, came on the market and sold for $600,000 more than my client’s unit. To say that my client was thrilled to find out he had gained $600,000 in equity would be an understatement. You might be asking yourself, how can that possibly happen? And, this story has all the makings of a real estate bubble. Well, it’s not a real estate bubble here in Hawai`i and I’ll tell you exactly how that situation occurred.
Let’s use an example of a $2 million condo in Mauna Lani Resort. The property comes on the market and within days there are 4 to 6 offers. More than half of those offers are all cash AND going to be over asking price. Why? Because demand continues to far exceed supply and never more so than here in the Islands. This is mostly because we have very little to no new construction and buyers must wait for a seller to put their property on the market. If we had 15 new resale properties come active on the market in a 24-hour period, that would be an extremely busy day. Low inventory is happening all around the country and the United States is about 4 million homes behind in production and demand. This low inventory is exacerbated here on the island to a 10 multiple. This is one of the primary reasons why you will not have a real estate bubble in Hawai`i. If you’d like to read the other reasons why there will be no bubble, please go to our website hawaiiteam.com and click on the blog or click here: https://thehawaiiteam.com/this-is-not-a-bubble/
Now back to our story about the condo listed for $2 million. There are 4 to 6 offers and most are over the asking price. Let’s say for this example that the winning bid is $100,000 over asking price, which would not be unusual. The condo goes into escrow and closes for $2.1 million. Now what happens is a NEW BAR has been set. Meaning that the most current comp is now $2.1 million for a two-bed, two-bath 1,500-square-foot condo.
Now, all the other sellers in the condo development understand the market conditions and are watching each other’s moves. They all see that a two-bedroom 1,500 square-foot condo recently sold for 2.1 million and are saying, “I can’t believe it”; so, they start thinking about putting their property on the market. The next seller, “Joe,” says to himself, “if Bill got $2.1 million in this market (that’s the bar that was just set) then I’m going to list my unit at $2.25 million.” Bill lists his unit for $125,000 dollars higher than the last bar that was set just 30 days early. Lo and behold, Bill gets 4 to 6 offers and most of them are over asking price. Bill’s property sells for $2.3 million, $75,000 over asking price and Wala, in 60 days the market for a two bed, two-bath, 1,500-square-foot condo appreciated $300,000.
That’s how appreciation happens so fast here in the Islands. Now this is probably true in the city where you live. However, I’m sure it’s not to this extreme. Chris and I are always urging our potential buyers to pull the trigger now and get the property under contract. A delay or a hesitation on your part for even 30 days means you’re going to be paying a lot more money for the same unit. It also means you’re going to be putting that money in someone else’s pocket when you could be putting it into your pocket in the form of equity. Chris and I would not steer you wrong. We are looking for you to make a wise and profitable purchase and say, “those guys (Dan and Chris) just made me a lot of money!”
Happy house hunting.
$600,000 in Four Months
