I heard last night of a $5 million offer made on a newly-constructed house that has been on the market forever (which I define as more than a year). I was first astonished that anyone is bidding $5 million for anything right now, and then further astonished when I learned that the builder’s counter-offer amounted to, in effect, “take a hike”. My personal suspicion is that that builder will be crawling, not hiking, soon, but he obviously is in no financial distress and can afford to wait for his price, or thinks he can.
I have been advising buyers to focus on new construction because builders are so financially vulnerable, but this is a good reminder that not all builders are in bad shape and won’t accept 80% offers. It’s also a reminder to both buyers and sellers that there are buyers out there. If you’re considering buying a house, don’t assume that you’re the only game in town. And if you’re a seller, realize that no one wants your house if they don’t see it as priced low enough to save them from another 12 month decline in prices. Adjust your behavior accordingly.
“this is a good reminder that not all builders are in bad shape and won’t accept 80% offers”
You seem to be missing the word “yet” after the word “offers”.
The math I did back-of-the-envelope shows it increases the cost of a builder’s house 5%, every 6 months it stays on the market. So, this builder’s cost is at least 10% greater, and will soon be 20% greater.
If he got an offer that was 80% of asking (so $5 mil on a $6.25 asking), then I believe he is a lousy businessman.
Home sales have slowed to a crawl, and he has missed the opportunity cost of $5 mil in his hand(invested at just 5%, $250K/year) for the “two in the bush” of $6.25.
If it cost him, say, $5.5 to build the house and he himself is financing 80% of it, that’s
$5.5 mil x 80% = $4.4 mil borrowed
$4.4 mil x 6% interest rate = $264,000/year
Toss in some maintenance, say he is at $300,000 per year.
So he is -$300,000 already, right, being as it’s been on the market for a year. He is now headed into his second year of -$300,000.
$600,000 tossed away.
If he WOULD accept, say, 95% ($6 mil), that means he is -$600,000, and -$250,000 that he COULD be earning (PLUS the $300K cost doesn’t go away) because he doesn’t want to “lose” $1.25 mil that he “maybe” could get – years from now?
He is a fool. Tell him to get a spreadsheet and put away the brochures for the Bahamas.
part of the reason Greenwich and NYC house / apartment prices have not come down as much as other cities or national avg is that obviously people here have larger assets accumulated BUT that $ will run out or dangerously lower and decisions will take place at the kitchen table mid year when Mr. Unemployed Financial Services worker or Mr. Employed but hasn’t seen a bonus in 2 years gets more nervous of not finding a new job or worries about depleting cash / assets. The high inventory level this Spring will shock some and if I was selling my house I’d price it to sell and hope.