A number of recent commenters have highlighted a handful of very low priced sales, or sales well below recent "market value". Quite a few recent sales that fit into that "eye-popping deal" category have been distress sales (foreclosures or short sales) or involve a super motivated seller (that could be an estate, a builder or investor looking to cut their losses and get out of a property, or a relocation company looking to move inventory off their books.) And quite a few of the houses currently in contract and scheduled to close soon that I know of fit that bill — the Parsons spec house foreclosures above Callicoon, a log sided foreclosure on 5 acres on Decker Road near Glen Spey, an adorable mid-century ranch near Barryville, also a foreclosure, a relocation home near Jeffersonville and a couple of estate sales. There are a few other properties I'm aware of that are close to deals, where the sellers' economic circumstances are dictating a quick sale and the likely price will be well below "market".
The result about labeling all of these sales as "below market" is that, as more and more occur, they define the market — and form a body of appraisal comps that can't be dismissed. Non-distressed "market rate" sellers, suffer, but they're also a contributor to the problem. If non-distress sellers cling to unrealistically high price expectations, their properties don't sell, and the appraisal pool is more and more defined by distress properties. Sellers need to take a hard look at their asking prices, and move them into more appealing ranges to appeal to buyers. That doesn't mean they have to necessarily move down to distress sale prices, but they can't be wildly off of those ranges.
This is exactly what's happened in markets like Florida, where distress sale pricing is largely defining the market. In many parts of Florida, if a house isn't a short sale or a foreclosure, it's a tough sell. It's too early to tell if that dynamic is taking hold here, but recent sales indicate it could be gaining momentum.
Knudsen:
"The result about labeling all of these sales as "below market" is that, as more and more occur, ===>they define the marketthat can't be dismissed<===."
---------------
Amen to that baby.
The houses (2-3 BR / 2 Bath on 3+ semi-private acres with amentities) that are fetching in the 120's will define this market for 2009...and you can mention that to the sellers and their agents.
Robinson Caruso
Posted by: robinson | March 11, 2009 at 01:51 PM
There was nothing "private" about either of the houses that sold recently in the 120s. The most recent example, south of White Sulfur Springs, was about 50 feet from the house to the north of it, unobstructed by anything, and most of the acreage was wetland.
These houses that fetch 120s will define the market only if buyers are only interested in houses that weren't worth significantly more than that a year or two ago.
Posted by: Bix | March 11, 2009 at 02:08 PM
Bix,
For someone who just purchased in Sullivan County for less than a year - here's a tip - local appraisers and bank underwriters will use the low 100's median as the standard going forward this year as well as those comments from the SC MLS prez until the market is proven wrong and we see more sales and higher prices.
RC
Posted by: RC | March 11, 2009 at 02:46 PM
RC: And those sales are going to have to come from deals where the buyer is putting up considerably more than the typical 10 or 20%. Not a good thing in an steep recession.
Posted by: cfranch | March 11, 2009 at 04:21 PM
The next question: "Given this background, what should a buyer do?"
The obvious answer is to wait. In time, seller asking prices will come down. Plus, there is the advantage of not making a major financial commitment in the midst of an economic collapse.
But what if you really would rather buy sooner and can't stomach/afford throwing money away on a bubblicious purchase price? Building relationships with local agents (like Dave) is one good way to find motivated sellers. Another strategy that is becoming common in places like the hamptons and Manhattan is to place a large number of bids (5-10+) far below pre-Lehman pricing, and then to pick from the best counter offers. It is a reverse bidding war, and is not predatory (as oft described) in my view. The buyer is providing liquidity in an illiquid and frozen market, and getting an appropriate discount given the risk in the market today. The good news for the seller is that he/she can invest the proceeds at post Lehman pricing (whether in other real estate or in financial assets like stocks).
For me, my interest is in high end SC waterfront... though I will almost surely buy in manhattan next. If I was still focused on a summer place, I would look at lakehouses within 100 miles of nyc (300+ as per query on lakehouse.com) and oceanfront places in the same radius. I would spend a week visiting all the places that look interesting online, and then submit non-binding offers on 10-20 (including ones with ASKING prices up to double my budget)... and go from there. Obviously, given the number of offers, local agents would be helpful. Also, I would be doing less due diligence upfront given the number of offers. Still, the offers are non-binding, so I could always back out. I would only be trying to find the motivated sellers with significant home equity in this first pass.
What would this mean for Dave's "benchmark" (3br, 2 bath house on 1/4 acre on swinging bridge lake that would have sold for $560K at its bubblicious peak, that is likely still being listed at $560K (or more) and where the last comp from June 2008 is 495K)? I would guess that it is worth no more than 400K now... as almost any high end place commutable from manhattan is down at least 20% post Lehman... though, admittedly, it is hard to say with precision as there are no comps. Where would my bid be? I would bid so that I could bump to 350K if I loved the place... and lower if I just liked it. Obviously, many/most sellers would be insulted by a sub 350K bid on such a place. But, it may be just be the best bid that a seller sees for many years, and the buyer just needs ONE seller to hit the bid. Plus, there is little for a buyer to lose. If he/she gets a fair price to compensate for the risk of buying today, then great. If not, then he/she ends up waiting for asking prices to adjust to the current market reality. Further, the buyer may get a call in three to six months when the seller is finally ready to accept reality and sell. Of course, the price may be even lower then.
This multiple bid strategy is becoming more and more common... as you can track by following realtor complaints. Funny that realtors did not complain when buyers were competing in bidding wars. Now it is the sellers' turn.
I expect the practice to come to SC soon.
Posted by: henry | March 11, 2009 at 08:43 PM
Here is an article that I posted previously on the topic....
WSJ: "The Hamptons Half-Price Sale: Prices for opulent weekend homes are slashed, but still fail to attract bidders"
"Welcome to the new Hamptons, where the boom's sunny days and Champagne nights have given way to foreclosure notices and sales at discounts of 25% to 30% and more. Some buyers are making offers of 50 cents on the dollar, and less. Brokers speak of the "Lehman houses" -- homes that used to belong to employees of the fallen Wall Street firm -- or "Madoff homes" -- those owned by clients of the Manhattan financier implicated in a Ponzi scheme. Summer rentals are languishing. "For rent" signs have begun to appear in the windows of some boutiques on Southhampton and East Hampton's tony shopping streets."
"At Prudential's Bridgehampton office, Broker Lynda Ireland spends much of her time now dealing with offers from individuals she calls "investors." "They are putting $1 million to $1.5 million offers on homes that are $3 million to $4 million," the 25-year Hamptons resident says."
http://online.wsj.com/article/SB123509132607428443.html
Posted by: henry | March 11, 2009 at 08:50 PM
The multiple bid strategy isn't coming to Sullivan, it's here. I've used it a few times over the last 6 months, when a client is interested in more than one house but can't decide.
Henry, the one problem with your approach is that you'd be hard pressed to find 5 or 6 houses you liked sufficiently well to cast such a wide net. And while there might not be a lot to lose for the buyer with such a strategy --- write offer after offer — there is something to lose for me. Time and effort.
Posted by: David Knudsen | March 12, 2009 at 09:58 AM
RC, I've been through the same appraisal process, and I have a copy of my appraisal report, which is a great document all buyers should get. Appraisers base their assessments on comparables, which relate to *similar* sold houses as nearby as possible. General housing price medians are absolutely not part of the equation.
That doesn't mean that the appraisal process is easy, and in fact, as I've posted previously, it is a major obtstacle because of the low volume of purchases. But let's not introduce red herrings and keep in mind the actual problem, which is lack of comparable properties within a few months of the closing.
Posted by: Bix | March 12, 2009 at 10:57 AM
I am a little unusual in that I like a wide range of places, have a big budget and could devote the time to be systematic if I felt the urge. I definitely think that I would find 10-20 places in my 100 mile "summer home" radius (including places like the hamptons) if I really felt the need to buy in the next few months. That said, you are right. Given ask prices (too high and falling every deal), I see no reason to ramp up my search. These days, I look at places in Manhattan (my focus now) as I have time. I put in two bids in january at ~40% below peak (but still at a reasonable premium to renting). One was rejected outright, and the other was topped by a tiny amount.
You are also correct that local agents are the loser in the process... as it generates a lot "false" activity. Agents end up doing a lot more work for a lot less deals.
Unfortunately, as a buyer, I will pursue the best strategy for me (not a third party). I see no problem with buyers "testing" the market, just as sellers have done in recent years. That said, the question is somewhat mute... as I know the manhattan market segments that interest me better than almost any agent, and have represented myself (with support from a very good lawyer) in the bids that I have placed. It is much easier in manhattan given the greater transparency in the market.
Posted by: henry | March 12, 2009 at 11:11 AM
Bix,
For someone who just purchased in Sullivan County for less than a year - here's a tip - local appraisers and bank underwriters will use ___recent compariables [size, age, acreage, location, amenities, etc.] from the past three months or so which are now in the low 100's___ as the standard going forward this year as well as those comments from the SC MLS prez until the market is proven wrong and we see more sales and higher prices.
RC
Posted by: Texas Tea | March 12, 2009 at 11:51 AM
That transparency you talk about largely comes from ACRIS, the city's property database. You can see the sales by building. There is, by the way, no real systemwide MLS in Manhattan. Which is the point I've made here a number of times. That people who want comprehensive property sales information should be directing those requests to the county.
Regarding Manhattan, it's easier to go 'on your own' not just because of the apparent transparency, but because of the density and volume. In any mid-size or larger building, there are likely a number of recorded sales over the past six to twelve months. If you have a rough idea of the layouts and square footage of the lines, yon can calculate the sales price per square foot. Sure, there are some subjective factors — renovated versus unrenovated, back versus front of building, lower floor versus higher floor, but not that many. For the apartment I bought in the Bronx, I knew exactly what the per square foot costs were in the building, and bid accordingly.
Country property is much more subjective. A 1,000 sq. ft. lakefront house at Mohican might sell for $200,000, or $200 per square foot. Does that mean that a 1,000 sq. ft. lakefront house at Wolf should also sell for $200,000? Doubtful. If you're interested in a house at Wolf, it's very unlikely that there will be 4 or 5 comps to help establish value. That's where subjective judgement comes in. And there are a lot of factors that contribute to the value of a lakefront house beyond which lake it's on, the square footage and number of bedrooms and baths. Is the lakefront a gentle slope to the lake, or a drop off (gentle slope is generally preferred.) If the house is small, would expansion be possible (many smaller lakefront houses can't be expanded because of limits on septic expansion)? The formulas only go so far. By the way, appraisers who are familiar with the county do that these factors into consideration.
Buyers fall broadly into two camps — left brain quantitative types, and right brain qualitative types. I've worked with both, but probably have a higher proportion of the quantitative types because they resonate with all the numbers and statistics I post. A lot of the quantitative types have a hard time ceding any control. The initial phase of our relationship can be pretty rocky, because I'm kind of a control freak, too. Sometimes I get an email from someone (who I haven't had any prior contact with) saying, "Here are 10 houses. We're coming up Saturday and would like to see them." Often a lot of them are dogs but they look great from the listing photos. Sometimes folks will narrow down the list based on my comments, sometimes not. Sometimes I just need to do a dog run, even though I know there probably isn't a bat in hell chance they'll like them.
With quantitative types, there is sometimes a testing phase. They'll scour the interest looking for hidden deals or something they think I've withheld from them for some reason. Now, I encourage internet shopping by my clients, because everything they email gives me more information about what catches their fancy, and sometimes they do find things I don't know about. There's a subtle point where that initial testing shifts to a collaboration, and we begin trusting each other. Not to be too mushy about it, but it's quite a lovely thing when that happens. (I'm sure some of my type A clients will read this and go 'mushy, mushy, yucky, yucky').
But sometimes it doesn't happen. There are some buyers who prefer finding properties on their own, resist any suggestions, and harbor a belief that if they go from broker to broker to broker, and scour Craiglist and FSBO sites they're going to find that one hidden bargain. They believe that Realtors are pesky nuisances with little more utility than unlocking the front door. To be honest, I don't work well with this type of buyer, and rarely take them on as a client.
Working in collaboration with quantitative-focused clients can be challenging, but fun. While they trust me, they still want "proof". They want to know why I think one property is worth more or less than another one. They want comps, lots of comps, and sometimes pump them into elaborate spreadsheets that they slice and dice. We look at purchase prices and appreciation rates. Sometimes we'll do an informal mini-appraisal exercise. At times, I've taken them out on drive bys of comps, so they can better understand the qualitative factors influencing my value judgements that might not fit into a spreadsheet.
For the truly quantitative, though, it can be very frustrating when all of the slicing and dicing doesn't result in a single value number, and getting the house comes down to negotiation that involves mucky human stuff like emotions, and how much a spouse or partner loves the woodwork or the french doors or the cows grazing in the field next door.
Posted by: David Knudsen | March 12, 2009 at 12:51 PM
Texas Tea, not entirely true. The comp window depends on the lender and their underwriting standards, and whether a loan is conventional/conforming or requires PMI. It also depends on the responsiveness of the comps (which means how closely they hew to the target property, in terms of location, house style, size and setting).
Posted by: David Knudsen | March 12, 2009 at 12:57 PM
I've never seen the 3-month comp rule used by any local bank - so I'm not sure where Texas Tea is pulling his facts from.
Posted by: Rod | March 12, 2009 at 04:27 PM
Rod, the reason for the three to four month comp window is because prices have fallen drastically and there are more foreclosures than in recent history that are selling for under 100k in Sullivan.
Mortgage officers and their underwriters have standing orders to be accountable for their loans.
Case in point - a recent sale:
Town of Highland / Eldred-Yulan vic.
3 BR / 1 Bath
Half Acre
Fair to Good Cond.
1 Car Garage
SOLD for: ***$75,000*** (sold for about 25% off the offering price)
=================================
Prior Sale Data for this Property:
$132,500 - 4/2006
$88,900 - 7/2004
=================================
Rod, that's an incredible 43% off the 2006 price!
rose
Posted by: rose | March 12, 2009 at 06:05 PM
David,
I totally agree with your points regarding the differences between Manhattan and SC... as well as the differences between lakes. Also, it was not my intention to diminish the value of your insights and/or service in any way.
Posted by: henry | March 12, 2009 at 06:27 PM
More misleading data by B. - whoops, I mean Rose. Any house that sold in '06 for $132,000 is not much of a house, in terms of what most readers would be interested in. Here's one - a house that sold for $232k, is now listed in foreclosure for $75k. See my point? Are you going to argue with facts? - a house that sold for $232k in 2005 is now selling for $75k. End of World. End of Sullivan County real estate.
B. - why no links to Bloomsburg, WSJ, Times, Financial Times over the last couple of days? How about a link to stories about Citi turning a profit?
Because that would undermine B's goal - to injure Sullivan County homeowners.
In reality, I would venture the median x2 is about where the current market comfort zone is for 2nd homes- and this would have held true during the boom as well when the median ranged from $160k-190k.
Posted by: Rod | March 13, 2009 at 07:47 AM
Rod...please read:
[Pull Quote]
http://www.recordonline.com/apps/pbcs.dll/article?AID=/20090310/BIZ/903100320
"Sullivan's median fell 27.1 percent to $111,750, as the county's Board of Realtors reported just 14 homes sold, down by half from last year's paltry sum of 28."
"Sullivan's once-booming second-home market has ground to a halt, said Michele Tsaptsinos, president of the Sullivan County Multiple Listing Service."
"'The banks are not lending on second homes right now, or they're asking for a huge down payment,' Tsaptsinos said."
"The combination of lower prices and near-record-low interest rates has been trumped by fear on the part of buyers and lenders."
========================
Posted by: rose | March 13, 2009 at 08:43 AM
I find amusing this effort, embodied in Dave's post leading this thread, to portray the recent spate of low-price sales as aberational. The thesis is that the market really isn't as bad as these sales imply because the exceptional economic circumstances of the sellers distinguishes these sales from so-called "market-rate" transactions. The logic escapes me, however. Does anyone dispute the proposition that EVERY seller wants to obtain the highest price possible? If you agree with that, you have to ask, then why didn't these sellers insist on higher prices. And the obvious answer is: The market won't pay higher prices. Which means these ARE "market-rate" transactions. And that becomes all the more clear when you consider the small number of higher-priced sales in the monthly or quarterly nose-count of sales. Can you explain away these scary "distress" sales by arguing that the sellers sold too quickly? If so, tell, how many days on the market was the Old Hunter Road house? Frankly what seems to be happening on this subject is an desperate effort by real estate professionals to counter a perception that second-home prices in SC have collapsed SEVERELY. It is a perception, unfortunately, that is actually substantiated by real transactions, and facts are stubborn things. Beyond all this, I'm not entirely sure why real estate professionals are so terrified by the reality of collapsing prices. I should think this would draw at least some buyers, and a smaller commission on a so-called "distress" sale is better than no commission on a "market rate" non-sale.
Posted by: ar | March 13, 2009 at 08:59 AM
Rod and b should be happy.
Rod, be happy you have a home up there even though you overpaod for it by 30-40%
b, be happy prices are falling like never before and you will eventually have something up there at half the price of Rod's.
Just all be happy!
Posted by: Lady Yellow | March 13, 2009 at 10:16 AM
Here is something to be happy about!
http://www.bloomberg.com/apps/news?pid=20601087&sid=aFPHiiinVQpA&refer=home
Posted by: Rod's ex | March 13, 2009 at 10:38 AM
The only problem with your logic ar is the fact that the homes that do not support your argument are not used as examples.
Another angle is that regardless of what the buyers and sellers agree on for the price of a home, Sullivan County's available inventory of better looking homes has increased, which, when the economy as a whole stabilizes, will prove to be a good thing. Anyone who has looked for a home up here knows how depressing it can be.
Posted by: Rod | March 14, 2009 at 08:28 AM
ar, I don't think my original post is a "desperate effort by real estate professionals to counter a perception that second-home prices in SC have collapsed SEVERELY." Far from it. These transactions are sales that other sellers need to take into account when setting their own prices.
What is somewhat aberrational is that most recent activity is occurring between two very small groups. On the buyer side, there are far fewer buyers than a year ago, and most of those are looking for super bargains. I've written a few times that I don't believe that price alone will be sufficient to stimulate the market in any substantial way in the current economic environment. It could provide more choice to the super bargain shoppers, but I don't think it would significantly enlarge the group of buyers. In many ways it's very similar to the stock market. If someone pulled out to all-cash, even a good stock could be a super bargain at $5 isn't enough to get them to come back in. They're going to stay on the sidelines.
On the seller side, the group of sellers who are super-motivated to offer super-bargain prices to entice the bargain hunters is also small. Those are the foreclosure owners, investors, short sellers and estate sellers I talk about. More discretionary sellers are just holding.
So, in effect, you have this very small group trading. The volume is very low because both groups are quite small, and the intersection of those groups — the place to make a deal — is even smaller.
The buyer group is unlikely to enlarge substantially until there is more consumer confidence and stability in the wider economy. There price expectations, though, will likely be far lower than current seller "market rate" offering prices, although possibly higher than the super bargain hunter "make me an offer I can't refuse" prices. And sellers are going to have to adapt to that. I expect it will be a fairly long and excruciating process.
Posted by: David Knudsen | March 14, 2009 at 10:18 AM
Yes, I have yet to see amazing prices on houses that don't have some kind of major disability, in terms of location, layout, privacy etc. There is really very little market at all. That's what I keep explaining to my friend who wants to buy raw land here. Yes, you read the headlines and think that there are bargains galore. Not necessarily.
Posted by: Bix | March 14, 2009 at 10:47 AM
Dave,
Could you explain how a house that sold for $132,500 only three years ago in the town of Highland near Eldred just sold for $75,000?
Granted, the bank probably wanted to get this property off their books at any price but it's startling to think that any bank would even underwrite a property for that amount only three years ago.
And, believe me, this is not the only one in Western Sullivan that is being cut by 25% to 50% from the original purchase price and / or note that sold in 2004 through 2007.
If the buyers dig deep there are a few gems and there will be more in 2009.
Just like the stock market you mention in your post above.
GE at $9.00?
Winston Reynolds
-------------------------
I understand it was a foreclosure but if this is
Case in point - a recent sale:
Town of Highland / Eldred-Yulan vic.
3 BR / 1 Bath
Half Acre
Fair to Good Cond.
1 Car Garage
SOLD for: ***$75,000*** (sold for about 25% off the offering price)
=================================
Prior Sale Data for this Property:
$132,500 - 4/2006
Posted by: winston reynolds | March 14, 2009 at 11:44 AM
Winston, Winston, Winston, you're not with the program: These are outliers, wild cards, freaks of nature, acts of God -- surely not reflective of the state of the housing market in Sullivan County.
Posted by: ar | March 14, 2009 at 12:04 PM
Uh...o.k.
Thanks ar.
That clear's it all up.
:-)
Reg (not THE Reg)
Posted by: Reg | March 14, 2009 at 12:12 PM
I guess the question is how much foreclosures are going to drive prices in Sullivan Co. My understanding is that they aren't a major factor so far, but if they do, this is going to really drive down real estate prices for every living soul.
By the way, yesterday I drove past the house south of White Sulfur Springs that just sold for peanuts (122K if memory serves me right). It's a cute enough house, but just fifty feet or so from the house to the north, with no privacy, and in a neighborhood that had a distinctly suburban feel. The wetland that it adjoins, by the way, appears to be the spring that the town is named after.
Posted by: Bix | March 15, 2009 at 11:23 AM
Explanation? It's a crappy house that the bank got stuck with and wanted to get rid of. End of story. The previous owners — who were foreclosed on — may well have paid too much for it in 2006. Yet again, this type of sale has been posted here as some example of the collapse of the Sullivan County real estate market.
I gotta tell you, I'm getting tired of this. B or Rose or winston, or whoever he or she is (who is apparently a Realtor, because of access to current MLS data) drags up these poster children of real estate devastation. Which are certainly factual, but about as "Fair and balanced" as Fox News. Did he or she also post the $450,000 sale on Australia Road, 2,200 sq. ft. on 10 acres, that closed on Friday? Or the $1,040,000 sale at Chapin that closed on March 2nd? Of course not, because they don't make the same great 'sound bites' that these $75,000 and $122,500 sales do. But they sure get you all hot and bothered, and want to slice and dice them ad infinitum. I, for one, am tired of responding to these individual sales postings, trying to explain why a house may have sold at a bargain price.
Posted by: David Knudsen | March 15, 2009 at 09:23 PM
I'm not troubled by people posting even misleading information on sales prices, as long as it doesn't impact the market. I'm assuming posts on a message board couldn't possibly have that effect.
What I don't understand is why a realtor would have such a bias that the sky is falling.
See, that's what happens when there is lack of transparency. In stocks, lack of transparency is most troublesome in thin markets, over-the-counter stocks and pink sheets. Sullivan County's real estate market reminds me a bit of stocks like that, which trade "by invitation only."
This is such a frozen market, and the county is so heterogeneous. Yesterday I drove through Fallsburg and vicinity. I was on a different planet than the western part of the county. Even Liberty looked upbeat by comparison.
Posted by: Bix | March 15, 2009 at 10:33 PM
Well, for every sale at Chapin these days there's seems to be about twenty or more foreclosures. Correct?
The market weighting, if not towards foreclosures per se, are certainly towards properties that are selling for less than 125k in the first quarter of 2009 - and that's down considerably from a year ago this time and also from the last quarter of 2008.
I'm all for transparency - wish there was more of it.
And waht better place than on a buyer's board?
By the way, that's a good sale - no doubt about it - the one on Australian selling for $450,000.
The only problem is that the seller paid $625,000 for it three years ago -and has recently sold it about 28% off their purchase price of 2006.
That fact makes for lower bank appraisals (450k) for similar upscale properties going forward into 2006 and should be a sign for those that have similar homes on the market to wake up and reduce their offering prices.
Over and out.
B.
Posted by: b. | March 16, 2009 at 08:45 AM