Expert answer:read article and answer question
Expert answer:Read the article and answer the question within one page. Hint: back to 2005, If homeowners had exit
strategy, then in 2009, how did they get benefits from that defined exit
strategy?
swot_real_estate_exercise_010712_student_mba.doc
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Real Estate Intervention Assignment
Group Number: _______________
Real estate expert Mike Aubrey is a strategist! His objective is always to sell the house. He
believes that ineffective sellers need a “reality check” or to realistically assess their situations.
The purpose of this assignment is to identify/apply strategic concepts discussed in this class
within the show’s context. The assigned episode is no longer available online, so it is
summarized below. (If you are interested in viewing current episodes, click on the following
link: http://www.hgtv.com/hgtv176/videos/index.html .)
The following scenario is based on the Real Estate Intervention episode Movin’ On Up, aired
November 12, 2009 (Season 2, Number 6):
Meet Michael and Karen Austin. They live in Baltimore, Maryland. The Austins purchased
their home (a two-bedroom bungalow) in 2005 at the height of the real estate market. The
original owners listed the home for $114,000. Due to a bidding war, the Austins paid a $7,000
premium, or they purchased the home for $121,000. Their plan was to buy, renovate, sell, and
double their investment! The market was unbelievable, and others had successfully
implemented this strategy in the past.
Currently, it is 2009, and two things have happened: The real estate market is depressed, and
the Austins have outgrown the property due to two unplanned pregnancies. Now the Austins
have two small children—Ethan and Caleb. They are desperate to move and find a larger home
in an area with a better school district for the children. They listed the bungalow for $155,000
because of home improvements and the outstanding loan on the home. They currently owe
$147,000 on the property. Home improvements or upgrades include an upgraded kitchen with
granite countertops, custom cabinets, and stainless steel appliances. Additionally, the Austins
have finished the basement and added crown molding and recessed lighting to the home. The
Austins thought their home would be ideal for first-time or single homebuyers as well as senior
citizens downsizing. The property includes a large back yard, perfect for entertaining or
gardening. However, the home has been on the market for months, and the Austins have not
received any offers.
Mike Aubrey is trying to help the homeowners sell their home in a depressed real estate
market. Mike uses a three-step method. First, he tours the home to evaluate it. Second, he
obtains information from recent homebuyers in the area. Third, he takes the sellers (i.e.,
Austins) to view other homes (i.e., comparables) selling in the area. During his tour of the
Austin’s home, he noted it was small (less than 1200 square feet), painted boldly in some areas
(e.g., red in the kitchen and faux painting in the bathroom), cluttered, unfinished upstairs, and
overpriced. (Larger homes with three bedrooms were selling for less nearby.) Additionally,
the home did not present well. The colors and decor would only appeal to a small group, and it
is important to appeal to as broad a base as possible when selling real estate. Mike’s assistant,
Sabrina Soto, interviewed a recent homebuyer (Judith Godsey) in the area regarding the criteria
for her purchase. She was an older woman, and she said that she did not purchase a home in
the Austin’s neighborhood because the homes were small and the neighborhood was too busy.
The Austins viewed other homes in the area and found other sellers were offering much more
for less money. Mike discussed his findings with the Austins. He indicated their home was
overpriced and that they had unrealistic expectations. He told them that they needed to
consider market factors, such as the weak economy and the demand for larger homes. (Sales
are more robust for homes with three bedrooms.) Although Mike was unable to find direct
comparables (because the Austins had priced themselves out of their market), he found a twobedroom home without upgrades for $90,000, a three-bedroom home without upgrades (except
for the windows) for $139,000, and a three-bedroom home with upgrades for $169,000. Based
on an analysis of the market, Mike indicated the Austins had three options: (1) Drop the price
to $139,000 to strategically position the home and sell it. (2) Rent the home. (3) Stay in the
home and wait for the market to improve. (A higher price would cause them to compete with
three-bedroom homes.) If they chose to stay in the market and sell, they also needed to stage or
present the home more effectively.
The Austins rejected the proposed price reduction because of their outstanding loan and the
effort they had put into the house to make the upgrades. Mike assured them that the sales price
of the home had nothing to do with the amount they owed the bank! They were also surprised
to learn that “sweat equity” did not always translate into sales dollars. The Austins were
frustrated by the thought of having to bring $8,000 + closing costs to the table to sell their
home. They decided to consider the alternatives.
After studying the market more (and verifying two-bedroom homes sold for $89,000 to
$120,000), the Austins decided to pursue the rental option; they placed their home in a
government program that offers rental assistance to low-income individuals—Section 8. The
government offers additional assistance to Section 8 renters who desire home ownership. The
Austins hope the tenant will purchase the home after the one-year trial period through the
government’s assistance program for first-time homebuyers.
Per Stephen Covey, effective people/managers begin with the end in mind; that is, exit
strategies should be kept in mind when starting/developing a business (executing a businesslevel strategy). How would the homeowners have benefited from a defined exit strategy?
Hint: back to 2005, If homeowners had exit strategy, then in 2009, how did they get benefits
from that defined exit strategy?
…
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