Sorry, I Can't Help You At That Price

Recently I've been engaged in a not-so-pleasant tug of war with potential buyers. I've gotten quite a few emails or calls over the past few weeks from potential buyers who are very specific about what they're looking for, and even more specific about what they're willing to pay for it. Now, that's not so uncommon. What is different is that the "what they're willing to pay for it" is so low, and they're so confident that's the right price.

A few days ago I got an email from someone I've been casually communicating with for months. She's looking for a good lakefront house on a nice, large lake --- with an absolute firm price cap of $350,000. The tone of the email was "We're savvy buyers and we know there are lakefront houses on the market in this price range and certainly more to come with the slowing market." With a firm price ceiling of $350,000, a buyer's target price is more likely $300,000 to $325,000. Now, I'm pretty familiar with Sullivan County inventory, particularly lakefront, and I'm not seeing any good lakefront houses with asking prices in that range, or even somewhat higher that are likely to sell in the low $300's. That's now to say that in 6 months or a year we won't see that - I don't have a crystal ball. But right now I don't. Yes, there are a few 'lakefront' houses on the market in the low $300's here. But they're listed at that price because they're have some factor that's less appealing, or they're on a lake that's less attractive. But this buyer is absolutely convinced that $350,000 is the absolute market value for a good lakefront house here.

I don't believe this particular potential buyer has been to Sullivan County, or seen our different lakes. They're internet shopping, and forming their opinions. But anyone who knows our lakes knows that Amber, Weiden or Mohican are VERY different than Wolf or York or Tennanah. A house at Wolf Lake would likely sell for 50% more than a similar house at Amber Lake. Just like a 2 bedroom coop in Chelsea is more expensive than a 2 BR coop in Riverdale.

I emailed them back and said, "Sorry, I just can't help you at that price." Now, there are some interesting lakefront houses that are priced from $400K to $450K that might sell for slightly under $400K. But I don't think they'll sell for under $350K. Should I send them the listings with a come-on that maybe we can get one for under $350K, spend my time and gas running them around to look at them?

Another potential buyer recently emailed me a property listed at close to $1M. He'd done a calculation, based on square footage and cost per acre, and said that he thought the house should be priced at no more than $550,000 - and would I please email him some similar properties for him to consider that I think should sell for that $550,000. Now, I do think the property he sent, which is listed at $975,000, is priced somewhat high. I personally think it should sell in a range of $750,000 to $800,000, based on the view (pretty fabulous), setting (very private) and house (4,000 sq. ft., quality construction.)

But that potential buyer had somehow determined that house wasn't worth any more than $550,000.

These are extreme examples, but I've had a number of contacts with potential buyers lately that are similar in tone. Basically, they've decided what they want and what they want to pay for it with little or no 'boots on the ground' experience with this market. Many have never even been to Sullivan County, and have no idea of the difference between Woodbourne and Jeffersonville or between Mohican Lake and Swinging Bridge.

Where are people coming up with these value numbers? If I called a broker in the city and said I wanted to buy a one bedroom in Chelsea for a maximum of $250,000, they'd hang up on me. If there's a severe market turn in the city over the next couple of years, that might be realistic in a couple of years, but it isn't now. Anyway, real estate doesn't rise or fall in huge increments in 24 hours like the stock market. In a slowing market, a one bedroom in Chelsea listed for $600,000 might go for $550,000 or even $525,000, but it will take time for that to drop to $400,000 or less, if it drops there at all. Likewise, a modest $400,000 lakefront house might sell for $375,000 or $360,000, but not likely at $300,000 or $325,000.

I'm used to working with people who have budgets, and helping them understand the trade-offs. Commonly I hear from potential second home buyers who are looking for a charming farmhouse around $200,000. Now, when you search on the internet, you'll find a bunch of them here in Sullivan County, priced from, say, $175K to $225K. But in that range, they're often are 'locationally challenged' --- on a busier road, in a village or with close neighbors --- or have low ceiling heights (common to many older farmhouses, but the kiss of death to value.) I try to be honest about the downsides and tradeoffs of the houses people find on the internet and email me. Sometimes I feel like a crumudgeon and a Scrooge, but I've been out with hundreds of people over the years and think I have a pretty good idea of what a lot of people, particularly second home buyers from the city, are looking for.

Particularly when buyers are on a tighter budget, my job is to help them understand and prioritize the inevitable trade-offs -  privacy, house style, quiet location, whatever. I was out with someone earlier this week who gravitated - on the internet - to houses in classic styles with 'charm'. But in her price range, most of those were 'locationally challenged'. Before she came up, I told her I'd like to include a few other houses in different settings that might be in a style she didn't necesssarily resonate with, but the settings might be more appealing to her. We even swung by a couple of vinyl sided ranches. At the end of the day she had a real good grasp of the trade-offs. I didn't show her more expensive houses to get her to up her budget, but rather a range of options within her budget. As she was leaving to drive back to the city she said "I understand that in my budget range I have to make trade offs. But what I'm really excited about is how much I saw that I really liked, and places I might not even have considered."

I felt great. I'd really done my job, and she'd let me do it. She may or may not buy a house right now but ultimately I think she will. Its so different than those folks who have something so set in their mind, in terms of house and price, and don't let me do my job.

Lately, I've been emailing them back and saying "Sorry, I just can't help you at that price." Because I realize I'm in this business to help people find houses, not just deals. If all you're looking for is a deal (and don't get me wrong, I'm pretty good at sniffing them out), then I'm probably not the guy for you.   

Comments

[Tony Ritter]

{DK}
"I don't believe this particular potential buyer has been to Sullivan County, or seen our different lakes. They're internet shopping, and forming their opinions. But anyone who knows our lakes knows that Amber, Weiden or Mohican are VERY different than Wolf or York or Tennanah. A house at Wolf Lake would likely sell for 50% more than a similar house at Amber Lake. Just like a 2 bedroom coop in Chelsea is more expensive than a 2 BR coop in Riverdale."

===================

Good post.

However, I'd take exception to your reference to Weiden Lake.

Weiden Lake, which is about a five minute drive to Narrowsburg, the Delaware River and the 7,000 acre Ten Mile River NYC Boy Scout Preserve was part of the 2,000 acre Weiden tract that was subdivided by Sumner in 1999-2000. It's roughly two hours NW of Manhattan.

There were about 100 lots.

The lots ranged from 3 acres all the way up to 100 acres!

Some were on the water - most were not - but all property owners at Weiden had lakerights.

Within the deed restrictions (no further subdivision of a parcel, no commercial, no doublewides/trailers) they all afforded the parcel holder lakerights via two common areas. Further, the developer had written very good convenants into the deed and constructed an excellent road that is now maintained by the town.

There is an active homeowners association with a board of directors.

Two commom areas with landscaping, docks and pavillions (for weddings, meetings, etc.) were built.

The parcels were priced right back in 2000 - and they sold out within a year - mostly to folks from New Jersey and Long Island.

Of the 100 original lots, maybe 25% of the total development now has homes. Contemporaries, logs, cedars, etc. - a few modulars - all very nice and most in excess of 2,200 square feet.

Weiden is a very good development that was timed {pre 9/11} and priced {5/6 acre lots from 25 to 40k} right along with featuring the natural attributes of the area.

In a way, it was kind of like one of Chuck's first forays up here at Fox Lake - also around the same time - 2000 - I believe it was called - Tusten Farms? What a beautiful site!

Not, obviously, in scale - but more - how the builder / developer used the natural features of the topo and land and built their development around that.

I wish I had more resale lots at Weiden since I've been fortunate to have listed and sold five vacant lots in the past year and a half - even as this market slowed.

Weiden Lake.

No loud motorboats or jetskis.

Just kaykaks, canoes and non-powered water craft.

There's very good fishing too - and wildlife: bald eagles, blue heron, and red tailed hawks - and the funny thing is - not many second homeowners are ever on the lake!

For your viewers that are unfamiliar with Weiden, the following video clip of a new waterfront parcel hopefully will give them an idea of "our Walden Pond" (of the late 1800's) - in Narrowsburg.

At:
http://www.ilovethecatskills.com/waters.htm

Kindest regards,
Tony Ritter
in Narrowsburg, NY

[Steve]

We've has some wildly low-balled offers on our farmhouse. It's a bit locationally challenged, I admit, but it's also historic and has a lot of character. The offers have been ridiculously low. I think the media has played a part in stating it's a buyer's market and that means prices have plummeted and sellers are desperate.

Not so. Sellers are not so desperate and a buyer's market means that there's lots to choose from, not necessarily that the bargains they think are available are out there.

As an attorney, you always get people who think that something should cost X dollars or that they want Y done and only have X dollars. I steer clear of these clients, because they are the ones that will likely never be happy with the results and grimace when they pay for it (if at all).

[JM]

Reality is that the media portrayal of the housing market has helped slow down the market without too much change in pricing here in New York. Sellers have refused to lower prices b/c they have Not needed to sell. They can afford 1-3 years "on the market". How many people do you hear say"I don't need to sell"? However, that is all about to change. In the coming months AND YEARS ahead, global macro-economic conditions already underway will force many sellers to sell at fire-sale prices (30-50% below today). You will hear, "I need to sell". It will not be sudden and will be a combination of actual nominal fall in prices and inflation adjusted of everything else which is a relative fall in real estate prices. Hyperinflation, weak US dollar, china by our balls and the american consumer maxed out will cause the worst economic recession since the 1930's. That lakefront will not sell past 250K in 2 years (nominally in today's dollar worth or past 350 inflation adjusted). There are still dumb buyers out there overspending but that will deflate away with the hot air in the coming years. The low ball offers are here to stay. When sellers need to sell, they will sell. In the meantime, nothing sells.

[David Knudsen]

Steve, I don't agree that its all the media's fault. Certainly they're a big player, but when sellers were counting their dollars on the way to the bank if they sold during the run up, they didn't say, "Hey its all because of the media." I think part of the doldrums right now rest squarely on the shoulders of buyers and sellers both. Buyers, because they think prices are in some kind of post-apocalyptic freefall, and sellers because they think that they're entitled to get what the house might have gotten had the market continued its upwards trend.

JM, that's one rather pessimistic view of the future. I tend to be more optimistic. But you are right, that the "WE don't need to sell" refrain is a temporary one. If they don't have to sell but aren't using the house, the monthly outflow of cash and the hassle of dealing with something they aren't using will start to take its toll.

[the ghost of tom fry]

"It's a bit locationally challenged."--Steve

Hey, that's wonderful. I don't recall seeing that phrase in: Through the Looking Glass.

[Steve]

David:

I don't mean to say it's all the media's fault, I only say that it's played a part. I certainly don't have this problem with my property in the City where the buyers and sellers are different.

As for the my comment "a bit locationally challenged" - it is, in a word, the Catskills after all.

[JM]

Everyone says I am pessimistic! haha... my family can't stand it!

I am trying to be a realist. Pessimism/optimism is when one has some sort of control over it.
I have no control over the macro-economic data. Just read it daily. It is not good.
The stock market has been kept afloat by the 'plunge protection team', an underground gov't sponsored network of banks and infrastructure to prevent stock market deflation and plunges. It was formed after 1987 by Reagan. That's the only reason why we haven't had an equity crash this year. This 'sub-prime' mess is no different than the "Savings and Loan" mess of 1985-1987 housing bubble. The difference is that the artificially kept low interest rates via china giving us US dollars out the wazoo for cheap, made a tremendous asset bubble in housing. What is particularly stressfull is that housing began recessing BEFORE interest rates rose, change in unemployment, decline in economy, etc...This is undprecidented. Now, with the US dollar collapsing triggering hyperinflation, the economy must recess in growth. Gas is rising b/c oil is denominated in dollars on earth. Dollar falls, ya need more dollar to buy that same amount of oil. Japan went through this in the 1990's for 12 years until 2004: Housing DEFLATION. Imagine that! If we don't see 12 years, I do think we will see 6-8 years of housing deflation. After all, it took 8 years after the S&L crisis of 1987-89 before housing appreciation started again. Anyone, I mean ANYONE who sees this as a temporary "housing slump" and not as an outright housing recession is not well educated, including realtors who should know their profession better than me. I am a doctor and I know where healthcare is going and I can tell you that it is NOT GOING in ANY GOOD DIRECTION. If healthcare falls in the USA, you might as well emigrate to another country b/c that is the only sector of this economy with a mild growth factor for now.

[David Knudsen]

When I use the term 'locationally challenged', it usually refers to a house that's on a busier main road, across from a run down mobile home, or wedged in between a couple of other houses. I don't think the Catskills as a whole region suffer from that label. So, it is that your house just simply is in Sullivan County, or is it on a major road? (And yes, some of the connectors, like County Road 114 between Fosterdale and Cochecton count as 'Main Roads'). There's a beautifully redone Craftsman-era house on Route 52 just outside of Kenoza Lake that's been on the market for a couple of years for $349,000, then $339,000 but it didn't sell to my knowledge, even though people loved the house. But at that price point, they didn't love the location. I'm drawing a broad brush stroke here, but I think you'll find that houses on main roads here have a price cap of about $250,000 no matter how fabulous they are (unless they have some commercial potential, like on 17B on the way to Bethel Woods). That's why for years I've cautioned people who become enamored of big old houses on main roads and want to buy them (because they're cheap) and renovate them. A main road location caps ultimate value. If someone dumps a lot of money into a big old classic house on a main road, and then can't sell it for $350,000 or $400,000, that's more a function of being a bad investment, not a bad market.

[geoff]

Do you think Wolf Lake lakefront properties are 50% higher than Mohican Lake lakefront properties? That's quite a difference.