Are prices dropping?

Well of course they are, but a salutary effect of new houses coming on that are priced intelligently is that they’re forcing owners of old, stale listings to do a reality check. Some owners are stubborn, of course and sit in their unsold homes scowling, “nobody’s gonna steal my house!”

Other owners are getting the drift. Just to cite two examples, 11 Mountain Wood, priced at $6.250 million three brokers and three years ago, is currently asking $3.3 million. It still hasn’t sold, but an agent won’t feel like a complete fool showing the place now.

34 Sheffield Way

The sellers of 34 Sheffield Way, off Round Hill, paid $3,475,750 for the place in 2004, paid Hobbs what must have been a fortune to renovate it and put it back up for sale in 2005 for $5.395 million, where it didn’t sell. Five years later it’s down to what they paid for it: $3.495, so all of that renovation is tossed in free. The house may or may not be to your liking, but the price is certainly reasonable.

And so it goes. If this keeps up, we’ll have a vibrant market again, I hope.

Irrational exuberance

The Wall Street journal reviews “Priceless”, today, a book about, natch, pricing and the tricks used to befuddle consumers. Or, put more nicely, why “psychology counts as much as logic in many simple economic decisions.” Lots of interesting examples (Skippy Peanut Butter, for instance, put an indentation in its jar, cutting volume 9% to avoid a price increase that would scare off shoppers) and I recommend the entire review or heck, order the book itself.

For the purpose of this column, however, I found this paragraph illuminating, if not exactly unexpected:

Whatever the pain of an irrationally expensive breakfast, it pales in comparison with buying an over-priced house. To avoid that mistake, however, a buyer may need to cover up the price tag and appraise the house without being influenced by the seller’s number. In one experiment, a group of licensed real estate agents were shown a house and told that it had been listed for $119,900. When asked to estimate a reasonable purchase price, their average was $111,454. When a different group of agents was told that the listing price for exactly the same house was $149,900, their average estimate was $127,318. The agents had subconsciously used the listing price as a reference point for their appraisals—even though they knew it was irrelevant.

That’s kind of what I try to do here: take away the price tag and try to give readers a chance to make a logical, sound decision. Not that I’m infallible, but those asking prices are almost always wrong.

A cautionary tale

I know a very nice young couple who are thinking of listing their house in another town and have received conflicting advice. Their agent wants them to shave 10% off what they paid for it four years ago, while others tell them to list it at at least what they paid for it. I’m with their agent on this and in fact I’d recommend taking another 5% off from that. Here’s a sad tale showing why:

52 Fairfield Road, a good house on a somewhat tricky curve, sold for $2.4 million in March 2006. In March, 2007, the buyers tried reselling it for $2.9 and, having lost momentum with that kind of overpricing, rode it down through a couple of price drops until it expired, unsold. It’s back on today, this time at $2.150 million. That’s a good price and I hope they get it, but I suspect they’d have sold their house for more and moved on sooner had they priced it more realistically to begin with.

In this market, the only buyers are bargain hunters. Pricing your house for what you paid for it says, in effect, that you are determined not to take a hit , and that scares bargain hunters off – they wantyou to take a hit –   that’s how they know they’re getting a bargain. Harsh, but don’t forget, you’ll be doing exactly the same thing to whoever is selling the next house you want.

Waiting for your price

22 Sundance

The owners of this house on Sundance Rd listed it for $1.895 million in April, 2005, kept it on the market for a year with a couple of price reductions and then let it expire, no doubt hoping that they’d get their price in a few years when the market had climbed higher. Well it’s back on today, asking $1.399. And frankly, that seems high.

The reality show, from Tucson

My pal in Tucson. John Schneider, has some advice for his sellers that you can apply here in Greenwich:

It doesn’t matter what you paid, or what you put into it, or what you’d like to get for it,

If you want to sell it, the only thing that matters is what buyers are willing to pay for it.

Click on the link for a graphic example.

Pricing houses in a down market

127 Sound beach

This 1920 house was bought for $1.220 million in 2002. I liked it then and haven’t seen it since but it’s back on today asking $2.1 million after the owners have added a new kitchen, central air, new baths, etc. That doesn’t strike me as a bad price at all. The house’s driveway is on Wesskum Wood, so you avoid the hassle of entering Sound Beach Avenue, and nice as the house was eight years ago (and it really was), a new kitchen and baths would have been welcome. But will buyers go for this price? I hope so, because I think it’s a good one, and if it doesn’t fetch close to its asking price, we’re really dropping down there. But maybe we are, so who knows?

And here’s another poser:

31 N. Porchuck Rd

This house on North Porchuck was built and sold in August 2007 for $7,850,000. The new owners added a pool and then had to place it back up for sale this year. Being no fools, they listed it for $6.995 million, as close to a million dollar write-down as makes no never mind (especially if you add in the price of the new pool). It’s a beautiful house, with great views of a pond, terrific lawns, a wonderful layout and even a walk-out basement that’s twice the size and twice as comfortable as my own house. It would be absolutely perfect for  clients of mine but I know that they’re waiting for the right bargain and, these days, $1 million off isn’t considered a bargain. I don’t blame my clients or fault them for being unreasonable – we are turning up bargains, and if they settle for something not quite as perfect but $4 million less well, that’s a large bulk of dollars to offer comfort and consolation for not getting exactly what they want.

And like so many buyers today, mine are in no hurry – they don’t have to buy a house. It’s a tad frustrating though, because it wasn’t long ago I could have told them with assurance that they wouldn’t find a house as good as this one at its price, ever. Now I can’t say that.

But it is a great house and if you do have to buy, or are willing to pay to get exactly what you want, this one is worth seeing.

California falls into the sea

From Minnesota Peg comes this cheery link: Southern California home prices fall to 2002 levels. Gee, things must be improving out there.

As an aside, I recently got a call from an appraiser who is redoing a 2007 appraisal on land in one of our less popular areas. How much did I think prices had fallen there from 2007? I said, “20%, minimum.” “Oh,” said the appraiser, “I was thinking 45%”. “Go for it,” said I.

My first estimate was me being kind. My affirmation of 45% was me being realistic. Someone’s in for bad news and he can blame me. But I don’t want to hear from LA homeowners – their problems are their own.

The big secret

As I was leaving an open house today (boy, those are getting fraught these days) a real estate agent with a huge amount of experience and wisdom said to me, “This thing has has to be priced at X (25% lower than its asking price). I agreed – if anything, she was being too generous, but she, unlike me, doesn’t blog and keeps her opinions to herself. But her words demonstrate what I’ve said here before: agents on top of their game know an over-priced piece of erhumph when we see one – everyone knows it, we just haven’t said so before. But we didn’t sell them to our clients at that price, either. The Greenwich Board has kept an illusion going for years by showing a “sell to ask” ratio of around 96% but wouldn’t disclose that they used the last asking price, not the first. So houses would come on, sit for a good long while, drop down to the realm of what passed for reasonableness and move off the market at 15%-25% below their first price. I complained, in print, about this bit of chicanery many times to no effect – the realtors like it that way.

What’s (almost) funny now is that sellers and their agents are still trying out ridiculous prices, I guess in the hope that some sucker will bite. That’s not happening these days – it’s hard enough to convince a buyer that a certain price is a good one even after four price reductions, so my advice is that this is not the market to continue that practice. But they keep on. I can’t remember how many houses I’ve seen recently that were truly priced to sell, but if I could, I’m sure I wouldn’t need more than the fingers on one hand to count them.

My Ally in Tucson

We’ve never met, but Blogger and fellow real estate agent John Schneider is on the same page I am. Sellers out there are doing the same thing ours are doing here in Greenwich, with the same result. No sales.

Here’s his latest posting, which I include in its entirety just to make sure you read it:

We have this pricing pattern going on here in the Foothills, and it goes like this.

The homes that get listed for sale are priced a lot higher than the homes that are going under contract and selling. And we can’t seem to break the pattern. You see what’s happening is, lower price homes are selling pretty well but, very few higher priced homes are selling. And still a lot of higher priced homes keep getting listed for sale. And they’re really starting to pile up.

For example, in just the last 5 days,

23 homes were listed for sale, and they averaged $221/sf, average list price was $695,461, median list was $569,000

and the 11 homes that went under contract averaged $191/sf, average list price was $500,527, median list was $449,000

and just 1 sold, so there’s not much there to work with but, if you must know, it sold for $280,000, or a measly $159/sf.

And I realize that I’ve beat this drum to death, but still, it shows no sign of stopping, and I think one reason for that is that some people still don’t get it.

WoW-wee, here’s an example from real life.
I’ve been working with some buyers, and one of the homes we found that interested them is priced at around a million.

And after the showing, the listing agent called me to see ‘how it went’. It went good, I said, nice house, lovely lemon trees, but I’m curious, how’d you arrive at your price.

Well, in August a house up here sold for blah-blah-blah and…
August, August was, in August – that’s history book stuff, has nothing to do with now, and by the way, you had to go all the way back to August for a comp.

Well, uh,

I told her that just for the fun of it, I’d book ended her list price by $125k – so from the $800’s to over a million. And in that price range, guess what, there are 52 homes for sale. And guess how many have sold in the last 3 1/2 months. She wouldn’t guess, so I told her. 0, none, nothing has sold. That’s the market.

So please, tell me again, how did you arrive at your price.

see my web site thefoothillsToday.com
to search for and learn more about Tucson Foothills Homes

Back here in Greenwich, it’s Broker Open House Thursday and in preparation I’ve been reviewing new listings. They might just as well be in Tucson.

Pushing the envelope

Looking through the nine new listings announced today I’m impressed with the resilient optimism shown by so many sellers. We’ve got one house, two-years-old, in western Greenwich and asking almost $3.5 million. I’m sure it’s a great house but I would have thought this was not the right time to try for that sales level in that neighborhood. Shows what I know.

Some of the other listings might actually have been considered bargains a year or two ago but I don’t think they will now.

And reviewing the open house list for tomorrow, I continue to see houses that are, at least in my opinion, laughably overpriced and were so even in a stronger market. But these things used to sell, despite my own flawed judgment so again, what do I know? I went through last year’s sales book, distributed last week, from the cheapest sale to the most expensive and, while there were a number of houses that only sold after millions of dollars had been cut off their price, there were many that sold at or close to their listing price and even a few that went in price wars, even after the market had crumbled. One of these I wrote about last week – the new owner, winner of a bidding war, has put it back on the market for less than he paid for it and will be lucky to even approach his desired price.

Since none of the houses sold last year are worth that much now, I wonder what agents told their clients that convinced them to enter bidding wars? I mean, everyone knew that the market was plunging as early as January, 2008, didn’t they?

25% off, but what was the right price to start with?

418 Riversville Rd

This is a perfectly good 1960 house, 6,777 sq.ft., updated in 1991 on 4 acres, with a pool. It was first listed at $3.495 million in 2006 and when it expired 6 months later, was passed to another broker who raised it $5,000 to an even $3,500,000 – I suppose odd figures aren’t his strong suit. He had the place for 18 months and also couldn’t sell it. Then again, the seller never dropped his price, which didn’t help. Yesterday it came back with its 3rd broker and now priced at $2.650 million. That’s about 25% less than its original listing price but the place was never worth what it was asking, so how much of this new price reflects a drop in the market and how much is merely a reflection on the over-pricing at the beginning? My personal opinion is that the new price is what the old price should have been. The 1991 “update” was fifteen years old back in 2006 and it showed its age. Of course, if $2.650 would have been the right price back then, what’s the house worth now? We may find out.

The new pricing

Back from the open house tour – mixed results. I really liked the listing I mentioned yesterday, 18 West Way, direct waterfront with terrific views  in Lucas Point. Perfect downsizer, but can “downsizer” and “$4,250,000” co-exist in the same sentence? Beats me. It occurs to me that, these days, Greenwich homeowners can downsize simply by staying in their present house. The house itself won’t get smaller but the price sure will!

I saw another house priced at about $1.5 million and while I know that nearly identical houses on the same street sold for about that much last year, I looked at its split levels, tiny bedrooms, heard the noise from the highway and drove away thinking, “$950”. That’s just a gut reaction, of course, with no data to back it up, but we don’t really have any useful data right now so gut reaction may be as much as we have to value a house. I did try one reader’s suggestion that I use the 70% appraised value the town gave 5 years ago and, using that yardstick, $1.050 million is the right price. $950 is a lot closer to that number than the asking price. So we’ll see. I overheard one agent setting up an appointment to show the place so I may be all wet on this. Nothing would please the owner and his neighbors more, I’m sure. And nothing would surprise me least.

You can never be too obvious

Because there are people out there who refuse, absolutely refuse, to accept reality. I recently advised a friend on a price opinion he was preparing and between the two of us, came up with a brutal, but honest price that would get the job done.

I asked my friend how it had gone, already knowing the answer and sure enough, the happy homeowner had made his decision on “two things: price and marketing”. By price, of course, he meant, whoever promised him the highest price and by marketing he meant a promised schedule of newspaper ads. Ha ha ha.

Buyers have moved to the Internet. Not a single buyer in New jersey is going to see your wonderful quarter page ad in Greenwich Time and, sadly, most Greenwich residents are locked into their existing homes and couldn’t  buy your place even if they wanted to. Besides, they’ve moved to the Internet too.

And price? Going with the agent who offers the highest listing price is so breathtakingly stupid that I assured my friend that he was far better off without adding this moron to his client roll. Suppose you had some GE stock to unload. If one broker told you that he could move it at its current price of $12.50 and another told you that he, like you and unlike the rest of his competitors, could see the “real” value hidden in your particular shares and would advise offering them for sale at $75, which broker would you choose? (No peeking, Mad Monkey).  Broker number two has just told you that he’s a liar who will tell you anything you want to hear if it will get him your listing. And if you’re dumb enough to reward him for that, then you deserve to sit in your unsold house for a long, long time. Which you will.

Here’s an idea for pricing your house

L. Gordon Crovitz of The Wall Street Journal has an interesting column today on what’s wrong with our banking system and, maybe, how to fix it. You should read the whole thing (it’s not lengthy) but here’s a part that caught my eye:

We’re now more than $1 trillion in taxpayer bailouts into the credit crisis, and the one enduring certainty is uncertainty. There is uncertainty about what caused the problem, uncertainty that either Wall Street or Washington knows what to do, and uncertainty about financial models that measured risk until they didn’t. Markets thrive when information flows freely, and they seize up when uncertainty replaces understanding.

 So we should cheer a growing consensus that it’s time to address the information gaps that caused the financial mess. The best-known unknown is the continuing mystery of the true value of the bad mortgage-backed and other assets held by banks whose collapse sparked the credit crisis. Addressing this basic issue was the original purpose last fall of the $700 billion government bailout program, but the Troubled Asset Relief Program didn’t live up to its name, leaving the size of toxic debts unquantified.

Plan B is to go back to Plan A. Regulators urge using new bailout funds to return to the original goal of discovering the true value of these securities. “A continuing barrier to private investment in financial institutions is the large quantity of troubled, hard-to-value assets that remain on institutions’ balance sheets,” Federal Reserve Chairman Ben Bernanke said in a London speech earlier this month. “The presence of these assets significantly increases uncertainty about the underlying value of these institutions and may inhibit both new private investment and new lending.”

Banks can’t resume lending because they don’t know how unsound they are. Private investors can’t know how bad bank debt is, so they hesitate to invest in banks. There are echoes from the experience in Japan, where the collapse of a real-estate bubble in the 1980s became a drag on the economy for years as regulators put off the day of reckoning of the full losses.

That’s pretty much what’s freezing our housing market: uncertainty. Agents and appraisers may know what a house is worth, today (if you can extrapolate from such a tiny pool of recent sales), but we have no better idea than Barak Obama what it will be worth next year (yes, even the Obama can’t predict the future). Sellers know what they paid for their house and are certain that it must be worth at least that much and buyers are waiting to see what the future brings. As Krovitz says, this lack of information causes hesitation.

A suggestion for resolving the banking situation is to mark down all the bad loans to zero, wipe out all shareholders and start anew. That’s too drastic a remedy for our residential market, I hope, and I’m not suggesting that we all set our prices down to zero and see what bids come in. But it might be a good idea to ignore what you paid for your house and concentrate instead on what value it still offers. There’s shelter value, there’s a Greenwich premium – I agree with Mad Monkey on this latter element; we just disagree on how much to value it – and there are those few scattered sales to provide some guidance. If your mortgage balance is high and your equity low, there’s also the pain factor to consider, but that pain will only increase during the year if prices continue to plummet. In a way, the banking mess is an easier problem to fix.