Beware of Bidding Wars!

Not long ago, at the height of the spring market, the owner of 20 Partridge Hollow Road conducted a bidding war for his property. Several buyers bid, one won, the others lost. But one of the losers, frustrated at not getting what he wanted (a situation buyers in this price range rarely encounter) contacted the seller directly and offered to top the winning bid. The seller reneged on the first deal and accepted the loser’s offer. Not nice, perhaps, but certainly entirely legal – in real estate, no deal is final until both parties have signed a contract. But now the property has been returned to the market so I presume something went wrong. I wish no ill to the seller or his buyer (who is rumored to have forfeited a $700,000 deposit) but the original wining bidder could surely be excused some small measure of shadenfreude here at other’s discomfort. Morals of the story are one, curb your enthusiasm and, two, if you’re dealing with people who don’t like playing by the rules, don’t be too surprised if they walk. Good faith goes a long way in this business.

Market Conditions

I just reviewed this May 1- June 14th’s sales activities with the comparable period from last year and, all in all, I think sellers should be reassured. We’re not in any sort of boom but neither are we slumping. In essence, sales activity is just about where it was last year. A couple of exceptions: thirty-three houses went to contract for under a million dollars compared to twenty-five last year; sixteen went in the $1-$1.5 this year, thirty-three last; and ten went for $2-2.5 vs. only five last year. Other than that, there is not much difference. A total of one hundred ten houses went to contract in the past six weeks compared to one hundred nineteen last. Top price this year was $18.750 (asking – originally priced at $44,900,000!). Last year, $15,000,000 (from an original price of $25,000,000). Neither a bubble nor a bust, in my opinion. And as always, well-priced houses move quickly, pie-in-the-sky houses linger.

Case in Point

510 North Street was originally placed on the market September 30, 2002 for $11,500,000. After a long series of price reductions and a change in brokers it was finally marked down to $6,850,000 and was sold (by Diddle McCalister of Round Hill Partners – yeah, Diddle!) for $6,550,000. September ’02 to June ’05 is a long time to keep your house in showing condition, in my opinion.

Beechcroft Road

A friend of mine who lives on Beechcroft Road recently showed me three neighbors’ houses all of which are scheduled for or in the process of being replaced with larger homes. At least two of the projects are being done by the owners themselves, who have rented elsewhere for the duration. I think these are smart people. Beechcroft is a very nice street with a great location: far enough off North Street to escape the noise, close enough to town to be really convenient. In effect, the street’s value has grown past the houses originally placed there in the 1950s.

Where’s Herbie?

The retirement of Herbie Salamon from our police force removed the last traffic cop who was willing to yell at errant pedestrians. This is too bad, for a number of reasons. One is that I miss the street theatre – nothing more fun than watching Herb bark at breezy jaywalkers. Another reason is more serious – when I’m in a car and am directed to proceed across the Avenue by a cop, I don’t (or didn’t) expect to encounter any obstacles in my way, like mothers pushing their kids in strollers right into my path. But they do so now, without so much as a harsh word from the cop controlling the intersection. I really don’t want to run over a small child and I wish we’d get back to enforcing street crossing rules.

Do It Yourself

I see in the paper that the owner of a small house in Riverside sold it himself for $665,000.00. That move saved him from paying a real estate commission, but I wonder how pleased he’d be if he knew that his house was worth, at least in my opinion, somewhere close to $750,000? We’re hardly geniuses in this profession but what we can bring to the game is experience and knowledge. If you’re tempted to sell your house yourself, at least make a diligent effort to learn what comparable houses are selling for. Owners can over-price their property just like Realtors, and then the house will sit, unsold. But if you under-price the place, then, unlike what happens to a house exposed to the market on the Multiple Listing Service, someone will snatch it for a bargain price. And you’ll never know it.

Summer Market

69 new listings came on the market last week, 57 houses dropped their asking price and 26 listings went to contract. That’s pretty slow, compared with earlier in the year. But the market’s not quite dead – I hear that 272 Riverside Avenue, property that can be split into two lots, is going to sealed bids on Monday noon. Asking price was $3,000,000 and presumably it’s going to sell for more than that.

For Sale By Owner
I saw in the paper yesterday that 21 Thornhill Road, in Riverside, sold for $665,000. The seller did it himself, by God, and saved paying a commission. That’s nice, but his property was probably worth $750,000 for its land value alone. If so, then our seller saved $37,500, but lost the $47,500 extra a competent broker would have netted him. His choice, of course, but I think it was a bad one.

For What It’s Worth – June 17th

Caution: Geniuses at Work!

Our Legislature racked up a surplus of $700,000,000 this past year due to a recovering economy. Some people would interpret that as a sign that the tax rate was too high, and would advocate adjusting taxes so as to return the surplus to those who over-paid. “Some people” are not the folks in Hartford. They didn’t return any money. They didn’t hold spending at its current. Instead, they committed the entire surplus to brand new spending in the coming year and, not content with such small potatoes, whooped through another $700,000,000 in new taxes. Besides prolonging the “temporary” business profit surcharge, they reinstated the inheritance tax which had finally expired this past January and, while they were at it, jumped it to a whopping 16%. Sound scary? Does it seem that the lunatics have taken over the asylum? Well don’t worry, this is all aimed at those people Howard Dean’s labeled “Fat Cats” – rich, white Republicans who all look alike, to Dean and the yahoos in Hartford. Own a house in Greenwich? Have a life insurance policy? Then welcome to the ranks of Fat Cats. Next year, the “millionaire’s tax” – you’re one of them, too.

In a news story concerning the new business taxes a Verizon executive was quoted as saying that Connecticut is already one of the most expensive states in which to do business. If people can’t afford to run businesses here and can’t afford to die here, I wonder where the Legislature will find the wherewithal to fund all its magnificent new spending? Connecticut is rapidly becoming a kleptocracy, an oligarchy of thieves that preys on Fairfield County and treats it with contempt. I’d say that we deserved better but, since we keep returning these pirates to office, I suppose we don’t.

And Yet Another Einstein

Finished with ripping off citizens, our leaders turned their attention to another serious matter and banned the use of hand-held cell phones. Our own representative, Bill Nickerson, pressed to distinguish between the distraction caused by eating a Big Mac and speaking on a cell phone, pointed out that when you press a hamburger against your ear it is really messy, so the distraction won’t last as long. I have absolutely no doubt that Mr. Nickerson made this observation from personal experience but I do wish that he and his colleagues would at least occasionally depart from enacting laws based on anecdotal evidence and try using informed fact, instead.

We’ve all been annoyed at some idiot on a cell phone cutting us off or wandering across traffic lanes but every study that has looked at the matter has concluded that it is the distraction itself that causes accidents and not the source of that distraction. That is, arguing with your kids in the back seat, tuning your radio, even stuffing hamburger patties in your ear a la Nickerson are all equally likely to cause an accident as a hand-held phone. This is known. But knowledge and the Connecticut Legislature rarely intersect.

And Finally

Did you see that our friends in Hartford passed a law exempting their email from disclosure under the Freedom of Information Act? Did it in the dead of night, tacking it onto another bill. They claim it’s a service to their constituents who will now feel free to communicate personal problems to their representatives. Right.

Rant Over, Back to Real Estate

So much for the legislative summary (it’s been a slow week in this business). You ask (I do, anyway), what’s the best value on the market? Perhaps it’s Joan Epand’s listing at 20 Interlaken, off of Taconic Road. This is a 9,000 square foot contemporary on six acres of land that includes a separate lot of three acres, a pond with canoes racked and waiting on the shore, a guest/bath house with a huge fireplace (I’d be content living in just this structure alone) and a great pool. The house itself is of beautiful design and in very good condition so I’m a bit irked that it hasn’t sold – the Greenwich market just whacks contemporaries. Its price has been reduced from $5,999,999 to $4,300,000 – that’s the value of the two lots. You could sell off one lot and get yourself a terrific, huge house for just the price of the land it sits on. Free house – an unusual opportunity in this town.

Also On the Market

I liked Jim Foote’s listing at 24 St. Claire Avenue in Old Greenwich. It’s a six bedroom 1950’s house renovated ten years ago. Not the quality level you’d find in, say, Conyer’s Farm, but decent enough, and the resulting house is bright, airy and roomy. $2,695,000 – which I think is in the ballpark for this area and this house.

I-95

44 Riverside Avenue sold yesterday for $890,000, down from its original price of $1,290,000. Why? Because, although this was a very nice house, you could practically reach out your window and pat the tops of trucks rushing by on I-95. What I find impressive is not the low price but rather this demonstration that, at some price, anything in Riverside will sell, regardless of its location.

Price that puppy right!

510 North Street finally sold yesterday for $6,550,000. I’m sure the owners are relieved. They originally listed it, way back in September 2002, for $11,500,000. When they dumped their broker and priced it better (last asking price was $6,850,000), it sold. Quell surprise.

Revenge of the Buyers!
A few weeks back the owner of 20 Partidge Hollow Road conducted a bidding war for his property. One buyer won, others lost, but one of the losers called the owner directly and offered to top the winning bid. The owner accepted that offer and reneged on his deal with the winning bidder. Well, something must have gone wrong because the house has been returned to the market today. I don’t wish ill on the owner but the people who engaged in that bidding war in good faith surely must be feeling a certain smug satisfaction. And who can blame them if they hope that the house lingers all summer, now that the spring market has ebbed?

Market Conditions

I’ve just finished toting up the number of houses that went to contract between May 1 and June 14th of this year and comparing the result with last year’s sales activity during the same period. We’re about even. 110 went to contract this year vs. 119 last year. 33 under $1,000,000 in 05, 25 in ’04. 16 between 1 and 1.5 this year, 33 in ’04. All the other price ranges are just about equal for both years – 3 houses in the $6.0 – $7.0 range this year, 5 in ’04, 2 in the 8’s this year, 0 last year. Top price this year: $18.75 (last asking price-originally priced at $44,900,000). In ’04, $15,000, again down from an original asking price, in 2002, of $25,000,000.

So, if we’re not booming, we don’t seem to be cratering, either.

From a recent listing “FINE QLTY FINISHES ADDS TO THE IMPORTANCE OF THIS RESIDENCE THAT MUST BE SEEN TO BE APPRECIATED”. I have no idea how the quality of finishes adds to the “importance” of a house nor am I sure I want an important house but someone did – the house sold very quickly for more than $4,000,000.

Another sale that surprised me was 15 Rockland Place in Old Greenwich. Came on asking $1,075,000 which, given its location next to the Old Greenwich Gables, its limited space (1670 sq.ft., 3 bedrooms) seemed a bit high to me. Wrong! Sold in a bidding war for $1,260,000. Go figure.

More Follies
I found an interesting article on the web (click on “Link”, below) detailing what our legislature’s been doing with all our money. Not surprisingly, they’ve been busy spending it. When then Governor Weicker rammed through an income tax in 1991 (a flat 1.5%, in those days) the promise was that it would make for better financial planning. I guess it did. The budget that year (1992) was $7 billion. This year it’s $15.86 billion and counting, an increase that’s 2 1/2 X inflation. We have the highest paid state workers in the Union, and the most per capita. Yet our leaders “had no choice” but to raise taxes again. Sort of depressing.

Mischief Making

I’ve just heard on the radio that our “representatives” in Hartford have enacted a bill that will shield all of their email communications from the Freedom of Information Act. The purported basis for this is that it will free constituents from worrying about the public release of private information and allow them to write to their reps with less caution. Uh huh.

Fellow Writers

It’s probably bad form to attack fellow writers on the same paper, but Patricia McCormack is an editorial writer posing as a reporter, and I dislike it. I refer specifically to her latest article that claims that “oil company greed” is to blame for high gasoline prices in Greenwich. There are a number of alternatives which would explain the price discrepancy between Greenwich and, say, Stratford – higher real estate values come to mind, for instance – but the main point is that the word “greed” has no place in what purports to be a piece of objective reporting. If I denounce builder Steven Hatch as an unwashed vandal who tears down historical houses like a boy pulling wings off flies, fine; it’s an opinion piece. When McCormack writes, she does so as a reporter – that’s quite another thing, and she should curb her enthusiasm.

June 10th, 2005

For What It’s Worth

Rockfields

Sally Maloney of Greenwich Fine Properties has just listed the Stillman Rockefeller estate on Indian Spring Road, and it’s pretty neat. The house was built in 1929 and if it was ever updated I didn’t notice, but here’s your chance. Fourteen thousand square feet, seventeen bedrooms (including all the servants’ rooms), the place is practically a museum of Rockefeller family memorabilia. The oar used by Rockefeller to win the gold medal in the 1924 Olympics is mounted next to other winning blades, and there are photographs, paintings and other depictions of this family’s life spanning all of the last century and longer. The house itself seems to have been built by a high-rise construction company, with concrete between each floor and a steel endo-structure that should hold the place up for another five hundred years.

Which is what I hope is what happens. While the house is sorely in need of a massive renovation (a builder who is familiar with such projects estimated a total cost of $5,000,000) it is well worth the effort. All rooms but the servants’ quarters are beautifully scaled, with twelve-foot ceilings and large, but not daunting dimensions. The bedrooms all have fireplaces and three have sleeping porches to make up for the lack of air conditioning (and who needed that when you had summer places scattered about the country?). Interesting (to me, at least) the family bedrooms all connect to each other: in an era that saw the Lindberg kidnappings, the Rockefellers would make certain all the children were in bed and then set a security alarm to seal off the sleeping quarters. I suppose that the recent kidnapping of Eddie Lampert demonstrates that the world hasn’t gotten any safer. There are eleven acres (from an original fifty) of lawns and a series of secret gardens, a pool and adjoining bathhouse. It’s priced at $26,000,000, which gave me pause but at some price (high teens?) this place will make a magnificent home base for the next tycoon of this era. Of course if that’s you and you really have that kind of money at your disposal you’re probably also one of those people who doesn’t like to wait, so why not jump on it now?

Marking to Market

Julie Church’s listing at 47 Alpine Road was originally listed (in April, 2002) with another agent at $8,750,000. As construction progressed its price was increased, first to $9,250,000 and then to $9,750,000. With no sale, the builder dropped its price back to $8,750,000 again and then in a fit of pique increased it to $11,000,000. Even this strategy failed, surprisingly and 2004 saw, besides Julie as the new agent, a series of price reductions: $9,300,000; $8,500,000 and finally, $7,995,000. It sold last week for $7,250,000, a little more than three years after it was first offered for sale. That’s a pretty tortuous course just to determine the market price for a building project.

Selling It By The Pound

Or in this case, by the square foot. Using 47 Alpine as a model, let’s break down its costs and profits. Sales price was $7,250,000, of which approximately $5,000,000 reimbursed hard costs (land, $900,000 in 1999, construction costs of, say, $400 sq.ft. X 9,000, or $3,600,000, commissions of $362,500, state and local conveyance taxes, $82,625). Our builder is left with about $2,250,000 to pay for site development, carrying costs, architectural fees and profit. But did he earn much profit? I hope so – the point of this exercise is not to wish ill on a builder but rather to demonstrate the perils confronting builders of big houses. At $11,000,000, the builder would have received $1,200 for each of his house’s 9,000 square feet; when he sold it last week he got $800. Out of curiosity, I researched the selling price, per square foot, of twenty-six houses built in 2003 and later with a minimum size of 8,500 square feet. The average was $609, with only three houses fetching more than $800 (and none, excluding a house in Conyer’s Farm – different animal) reaching $900. For the sake of argument, if you pay $2,000,000 for land and incur $400 per square feet in construction costs, you’ll have to sell your project for $622 per foot just to get back where you started and, after adding site development costs etc. – figure a third more-you need $809 to stay in business. The averages say that you won’t get it. All of which, if I were a big box builder, would make me nervous.

Grade Inflation

I notice that those little yellow plastic caution signs parents place in their driveways now read “Alert, Children!” I used to threaten my own kids that I was going to put up the then-current sign, “Slow Children at Play” whenever they brought home a bad report card but I guess that no longer happens in Greenwich.

Summer Doldrums

Only nine new houses were added to the inventory yesterday, balanced by nine price reductions. The hot weather is upon us and the market is settling down for the summer. If you’re a buyer, this is a good time to shop for bargains. If you’re a seller, you have a choice: wit until September or be open to low offers.

Zoning by Litigation

An Old Greenwich couple, Sarah and Michael McNulty, have finally received approval from our P&Z to build their new house in Shorelands. This approval came not because the P&Z saw the error of its ways when they turned the couple down, repeatedly, over the years, but because the McNultys sued the town and then settled. I attended one of the P&Z hearings on the matter about a year ago and, as a former land-use lawyer, was appalled. The McNultys were fully within their rights to build the house they wanted but our commission turned them down based solely, it seemed, on neighborhood opposition. No one likes change and we all react badly when change is thrust upon us but the P&Z simply cannot base its decisions on who is for, and against a project – the law won’t permit it. Yet again and again our zoning decisions are founded on the commission’s personal predilictions or neighbor’s challenges. This results in law suits by aggrieved property owners – law suits which they win. Examples include the Starbucks in Cos Cob, the Whaba brother’s marina/condominium project in Byram and now, the McNultys. This is a stupid, and expensive way to manage land use. We as a town deserve better.

June 3rd, 2005
The Sky is Falling! Or is it?

Mainstream media is having a great time these days predicting the collapse of the housing “bubble”. The New York Times has run at least four stories on the subject,“Good Morning, America” has started off its day with that lede and even Mr. Greenspan has admitted to “a bit of froth” in the housing market. It certainly makes sense, from a news view, to play this story. A huge number of Americans own homes and, typically, it’s their most valuable asset, so a story that describes that asset as threatened is bound to make readers sit up and take notice.

But for another view, you might want to check out the Wall Street Journal’s article of May 27th which describes the plight of several home owners who tried to “time the market” by selling their house and renting a replacement until the prices dropped. They are now priced out of their home towns. Market timing is a great way to lose money on Wall Street; it’s an even more hopeless strategy when applied to residential properties in part because a house, while it can be a great investment, is primarily a place for you to shelter your family. You need one, rented or owned. If you don’t like the price of Home Depot’s stock don’t buy it and your life will remain unchanged. If you don’t like the price of housing you’re choice is limited to which street corner on which to place your cardboard box.

Which brings us back to the question, “is the sky really falling?” I think not, at least in this area. As I’ve noted before, one of the hallmarks, I think, of a bubble is the lack of market discipline. Do you remember when Palm Pilot was valued, for six long months, for more than its parent company? Thirty percent of something was worth more than sixty percent of the same thing. That’s “irrational exuberance” and that’s a bubble. And you could see it coming, if you looked. I don’t see that kind of blind euphoria in Greenwich, yet. Over-priced houses aren’t selling. Heck, even some well priced houses aren’t selling, and that’s because buyers are remaining cautious. They won’t over-pay for a muffler, or a house, because they aren’t counting on its price increasing wildly in the next year to bail them out.

Lucy Krasnor of Strategic Mortgage has culled average sales prices from our MLS data and her work should prove reassuring. Beginning in 1986, when the average house price was $650,000, that average has risen steadily and, mostly in a restrained fashion: 7.1% one year, 10.8% another, 4.2% another, and so forth. There are some notable exceptions, including 20000, the height of the tech boom, when prices gained 22.8%, 2001, which saw a drop of 10% and 2004, which witnessed a gain of 23.6%. The latter would, if continued, certainly give rise to the bubble theory but it is not continuing – prices seem to be flattening, which is good, long term. Greenwich has always seen its prices jump in certain periods — if memory serves, the same house on Bramble Lane that sold for $75,000 in 1972 sold two years later for $150,000—but then normalcy returns.

Another point to consider is how many houses are being bought at one price, torn down or renovated and then returned to market a few years later. The average price in Riverside, for instance, may have doubled recently, but a good number of those houses are brand new, much larger replacements for the buildings that preceded them. That skews the average. Would I want to be a spec-house builder of a $6,000,000 house right now? Absolutely not (and I especially wouldn’t want to be the guy who’s putting up, on spec, a 15,000 sq.ft. house on Langhorne Lane). But neither do I think that the market for well built, well priced houses is in danger of collapsing. It is especially important now to position your house intelligently and not saddle it with an “in my dreams” price. If you do that, you’ll shine out from your competition and sell your house quickly and easily. There are still buyers out there, and there will be, I hope, for the foreseeable future. Don’t let Good Morning America tell you otherwise.

But Price it Right

I have now spent three consecutive Tuesdays looking at houses that are, in my opinion, wildly over-priced. What a waste of time. Over-pricing your house in this thin market borders on stupidity (okay, it crosses that border). You don’t need to set a fire-sale price, but be aware of what’s out there and don’t delude yourself that your house is unique. For all its charms, there are other houses out there just as nice, and many of them are less expensive.