Do Sellers and Buyers Need to "Age"?

I'm sending a curious phenomenon. I don't know if it's really true or not, because my sampling universe is small. It seems as though the deals that are being done, at least in the second home market where I tend to focus, are happening between sellers who've had their houses on the market for quite a while, and buyers who've been looking for a while as well.

As I mentioned in a previous post below, I've called on a number of houses in the past couple of weeks to arrange showings to find out they've recently gone into deals. Quite a few of those houses have been on the market a long time, some more than a year. Initial asking prices were often far higher than current asking prices, 60% higher in some cases. Many have had more than one listing agent in their time on market, indicating that the seller may have had the belief that the "problem" was their agent, and not their price. Over the course of their time on market, they've probably gotten feedback that their price was too high, and possibly also gotten a number of offers that telegraphed to them what buyers felt about their price.

Finally, they brought their price into a "recommended" range that appealed to buyers, and voila! They have an offer and make a deal. It can be long and arduous process, and along the way the sellers continue to write out big checks for property taxes, insurance, snow plowing, utilities and maintenance. In the end, the desire to just sell the house trumps holding out for a few extra thousand dollars.

New sellers, in contrast, have a very different mindset. They may have high price expectations that haven't been tempered by the hassle of having their house on the market, picking up and making the beds for weekend after weekend of showings. Or the brutal feedback that their house isn't even generating showings because of the price.

There's a mirror process on the buyer side. New buyers often come looking with very high house expectations (and, in this market, low price ones.) New buyers have a list of "must haves".  Among second home buyers that usually includes privacy, charm, views and water. Lakefront buyers, for example, almost all want that "On Golden Pond" lakefront setting, with privacy and woods along with lake. Yes, that's available here, but generally at higher price points. It can take shoppers a while of looking here and elsewhere to settle in to the trade offs involved between price and property.

New shoppers also have a tendency to view every property as overpriced. Part of that stems from internet shopping before actually going to look at houses. There are 3 or 4 older style "farmhouses" under $150,000 that look adorable on the web that I get asked about regularly. One is on a main road with the gas pipeline behind it, another is across from a town bar and a third is in such poor condition that there are cautions about walking in the house because of rotted floor supports. Buyers sometimes have to go through those houses to form their own opinion that they may not be the houses they've been dreaming about.

Likewise, new shoppers often believe that a lot of new inventory comes on the market every week. When I first start working with clients, they often want to come up every weekend or every other weekend to see what's new. They're surprised when sometimes I tell them there hasn't been anything new in the category they're looking at, and often there will be only one or two new listings of interest.

Over a period of time buyers start formulating a "mind map" of houses, prices and areas. They start to understand the relationship between distance (from the city) and price, and the impact that factors like privacy, house style, condition and area have on value. Often they ask about a house they saw earlier, and are stunned that it's sold or under contract.

Buyers who are further along in this shopping process are generally more ready to actually pull the trigger and buy. They have a better handle on relative values, and can spot a value to take advantage of it.

Negotiations between buyers and sellers who have "aged" have a different tone than Beaujolais nouveau buyers and sellers. The primary motivation for a seller who's had their house on the market for a while (and has indicated motivation by regularly lowering their asking price) is to sell the house. There's less ego involved with the price they get, and they've usually made piece with taking a smaller profit or even a loss. For buyers who've been looking for a while, their motivation is to buy a house. They're not as tied up with getting the deal of the century; they just want to get a good house at a good price.

Among "aged" buyers and sellers, there's flexibility to make the deal, and less gauntlet throwing and ultimatums. Brand new buyers, for example, often take a hard line stance, making a single low offer and telling the sellers it's 'take it or leave it'. If the seller doesn't take it, they're ready to move on to the next house, in the belief that there will be a next house that they like as well or better with a seller who will take their price.

Comments

[keith]

Hi, I grew up in Grahamsville and moved out in 1982. I currently live in the DC area. Like many who moved away, I use the internet to "keep my finger on the pulse" of my roots. I've been "auditing" this blog for the past few months. My dad still lives on South Hill in Grahamsville and I drive up for a long weekend every five or six weeks. Cut to the chase. My drive takes me through the western side of Sullivan County and I had a couple observations taken from recent drives. First, there are a LOT of houses for sale on that side of the county (between Narrowsburg and Jeffersonville). The stuff just ain't movin. On the drive up this past weekend I saw a "sign of the times." I'm 5 miles from Jeffersonville, it's a little before 5AM Friday morn, I come up behind a pickup truck with a ladder on the roof. I followed this guy through Jeff and Liberty then into Grahamsville. I made the right hand turn onto Rt. 42 and that truck kept on going toward Ellenville. It was then 5:30AM so whatever construction project that guy was headed must have been at least another hour away, possibly Kingston or beyond. He must make that miserable drive 5 times a week. Ya gotta do what ya gotta do.

[henry]

"Aged" buyers/sellers may be more "reasonable" in negotiations. They also may be more confident in acting in a market that is changing rapidly. Further, on the seller side, aged sellers may have had the emotional time necessary to deal with selling at price that is less than a few years ago (whether at a loss, small profit or large profit).

The bigger news to me is the lack of volume, and the key is bridging the large bid/ask gap behind this lack of volume. In looking at closed deals, it seems that you are likely selecting for factors (like "aged" participants) that make a deal more likely. Such factors likely include:
* Aged buyers/sellers
* Forced sellers, including foreclosure, death and divorce.
* Homes that are priced to market or have had multiple price cuts to get there.
* "Forced" buyers. Thinking about the subset of buyers whose utility function is such that they would rationally choose to buy now, even if they believed that prices are likely to be cheaper (say 10%) in a year. These buyers may be so wealthy that a loss is not material, or they may highly value owning a piece of dirt this year.
* Lower priced homes where lower interest rates on non-jumbo loans and other incentives have a greater relative effect on affordability.
* Buyers that have down-shifted their price range... such that overpaying by 10% is less in dollar terms.

[Ghost of housing and land boom]

It's actually called "house marinating". Sellers have been ageing their homes like a fine steak in hopes it will sell for unrealistic prices. But savy buyers are enjoying those delicious cheap marinated houses now.

[Bix]

"Brand new buyers, for example, often take a hard line stance, making a single low offer and telling the sellers it's 'take it or leave it'."

That reminds me a bit of my attitude many years ago, when I was looking for a house on Long Island in the early 90s real estate bust. But the difference is that on Long Island there were plenty of reasonably good houses. In Sullivan the pickings are much leaner. But yes, I can see that psychology coming to grips here.

[Rod]

As Bix says, the variable up here is a lack of nice houses, which complicates the picture for a serious buyer. So a serious buyer gets worn down by visiting crap houses, and might be a bit more inclined to jump when a good deal (not just a 'great deal') presents itself, possibly more ready than logic or facts suggest.

[Bix]

Yes, exactly. Sure, there are a lot of terrific, well-priced houses on paper, but when you actually visit them.... yecch.

Last spring I was fixating on a house outside of Callicoon that seemed to have everything! Nice sized land, big house, stream out back, priced in the high 100s. The agent wouldn't even show it to me, the house was such a wreck. Another house down the road was better, but it had no privacy and was on a main road.

See, that's why I tend to be underwhelmed by all the numbers that some people post here now and then. Macro statistics aren't worth a damn thing in Sullivan County. You have to go out and actually see the houses, and it becomes immediately apparent which ones are bad or overpriced (just about all), and which ones make sense. And believe me, the ones that are sanely priced go fast.