For What It’s Worth – Friday, May 6
A Turning Tide?
No guaranteed wisdom here (readers will have long since discovered that for themselves) but I was doing some calculations recently regarding a new listing and concluded that end-users may be beginning to gain an advantage over builders. 9 Swan Terrace, the house in question, is a terrific-looking house sitting high on a site at the end of a dead end. It’s an over-sized lot which would permit something like 6,900 square feet of house. But it makes no commercial sense to build that sized house. At, say $300 a sq.foot, a builder would have $2,070,000 just in construction costs. Add the asking price of $1,299,000 and you’re up to $3,370,000 before you’ve even begun looking for your profit. You’d have to get well over $4,000,000 for the finished product to make the project worth your time and Swan terrace, for all it’s charm, is almost certainly not ready to support that kind of price.
18 Pintail, a very nice house (6,568 sq.ft.) just one street over, sold instantly last fall for its full asking price of $2,850,000, and, adjusting for inflation in the housing market, I’d place a new house on Swan Terrace at around $3,100,000, today – a tad higher six months from now, when construction would be finished. Now, a builder can probably cut his costs down from $300 a square foot but at some point the loss in quality will affect the sales price, so there’s a bottom here.
So what will happen with Swan? I haven’t been inside it as of this writing but if it’s in decent shape (and it looks to be, from the outside) I think a young family will snap it up at its asking price. If it isn’t, then the builders will have an opportunity at a lower price. But for the first time in a long time, I think land values have climbed higher than the existing market for new homes can justify; good news for families looking for homes, bad news for the trades.
And To Make that Point
I just reviewed what’s currently for sale in the new construction market. There are Sixty-one new houses for sale. Nine are priced from $1,100,000 (Byram) to $3,000,000. Twenty-four are between $3,000,000—$4,999,999 and twenty-eight range from $5,000,000 – $22,500,000 (asking, anyway). New construction in Riverside and Old Greenwich seems to be in the $3,500,000 area, while the higher end properties are mostly in the mid and back country. That’s a lot of inventory. And, with the average house in Riverside and Old Greenwich now selling for $2,000,000, either new construction in those neighborhoods is going to slow or we’ll soon be seeing new houses there with asking prices of $5,500,000. I don’t think there’s a market for those.
The rather parochial world of real estate agents was abuzz last week over a brokerage firm’s ad praising itself at the expense of all others. Personally, I think that a quiet advertisement in the classifieds seeking a copy editor would have been more judicious than spreading a deep, desperate need for such help across two pages of print.
Whatever. The real point is this: as everyone in this financially-sophisticated town already knows, there are lies, damn lies, and statistics. Our real estate firms tend to limit themselves to use of statistics. But statistics are not always what they appear. For instance, and to quote Bishop Berkeley’s famous conundrum, if a woodsman fells a tree in a forest and receives no pay, has he made a sound? Put another way, if a $12,000,000 house is purchased by a relocation company and the listing agency receives nothing, has it really “sold’ anything? Or if an agent sells her $7,000,000 home directly and neither charges nor collects a commission, has the brokerage firm where she parks her license received anything of value? Should these selling prices be added to the firm’s “sold” statistic? Twice? (the listing firm is also shown as the selling firm so as to be credited with both sides of the non-paying transaction).
What about time on market? If a house is initially priced at $8,500,000 and lingers on the market for years before finally selling for $4,000,000, should its time on market be described as four years, or the mere thirty-nine days from its last re-listing? Or how about statistics of “asking to selling price” ratios, which are often cited by firms when pitching their services. Typically, these show a great ratio of around 95%, but that’s because they’re using the last asking price, not the original. If they did, there are a lot of houses out there that would show a ratio of less than 50%.
I am not singling out one particular firm here. There’s a lot of funny stuff submitted to our MLS board by a lot of individuals, all in name of gaming the statistics. It’s a very competitive market down here in the trenches and people do what they think they have to do to gain an edge. I merely mean to suggest that you take all these numbers with a large helping of salt.