Deals are Tough

I had a very pleasant, laid back week after the frenzy of the Memorial Day weekend. When I have a breather, I often travel around the county previewing new listings, which also gives me the opportunity to stop by offices and chat with colleagues. Quite a few agents, particularly in the western parts of Sullivan, confirmed my recent experience that they've been very busy the past few weeks showing property.

But the other piece that I'm picking up is that being busy isn't necessarily translating into making deals. One refrain I heard repeatedly, from more than one agent, is that buyers are making offers but they've been unable to bring the buyers and sellers together to make a deal. Some of the tales I heard were of buyers and sellers being very far apart, with little likelihood of bringing the parties to a meeting of the minds. But I also heard of a number of cases where the gap, after a few rounds of counteroffers, was much narrower — 8%, 5% or even less — and a deal couldn't be struck.

The psychology of those narrow-gap stalemates is very intriguing to me. When the parties are that close, it's seldom really about the money. A $10,000 gap between a buyer at $190,000 and a seller at $200,000 translates into about $54 a month in additional monthly mortgage payment. It's more about buyers and sellers recognizing each other's position. Buyers want acknowledgement that it's a buyers market, and they expect to "win" — which means essentially that the seller accepts their final offer, not them accepting the seller's final offer.

On the other hand, the seller may be taking a loss, and they want some acknowledgement of their financial pain and sacrifice. (Even if they aren't taking a hard dollar loss, in the seller's mind they may be taking a 'virtual' loss over what they could have sold their house for a year or two ago — and may exhibit the same behavior.) The buyer accepting the seller's "final" offer provides that acknowledgement.

Another perception gap is between sellers who think that the buyers are "stealing the house" and getting a great deal with their latest counter, and buyers who believe that they're taking a big risk. In buying a house today, any house, buyers want a deal to compensate them for assuming the risk of any further market downturn. The reality of that may or may not be real, but the perception of it certainly is.

That tried-and-true stalemate breaker, "let's split the difference", isn't necessarily successful. A lot of buyers I've worked with in the last few months have a number, and when they reach that number, they're done. Once they've put that number on the table, whether they're 3% apart or 15% apart, that's their final offer. I'm not sensing a whole lot of "house love" that might motivate them to go above that number. There's a widespread attitude among buyers that if they don't get this house at the price they want to pay, another one they like just as well will come along. That may nor may not be true, but it is a pervasive feeling, and one that sellers need to be attentive to.

Another factor contributing to the difficulty in putting deals together is that right now there isn't a lot of recent sales history to guide pricing. I'm sure that the brokers advising sellers are having as much difficulty with this as I am with many buyers. In some market segments, where there has been some sales traction, notably that mid to low $200's range for second homes, and for some new construction 'primary' style homes. But I'm working with some clients in other market segments where it's much more a shot in the dark, where values are more a function of hunch and emotion than solid sales data.

Comments

[Rampe]

You bet.

The gap is widening.

The seller's may watch CNBC, read the WSJ and know that unemployment may go over 9% next Friday [see: http://www.bloomberg.com/apps/news?pid=20601087&sid=aSc829RcWzSc&refer=home] when the data is released next week - however when it comes to their home in the country they remain ignorant (or is it arrogant?).

The gap will begin to narrow this winter - at the worst possible time (for the sellers!).

Oh well.

May 2009 closing numbers for Sullivan County:

SOLD - 23 homes

Range: $38,000 to $485,000

Median Price: $121,000

Volume is way down and the median crawls lower.

These were for deal that were inked in the January - April 2009 time period. Many months after Lehman.

Not a good sign looking forward.

Eat your greens,
Rampe

[David Knudsen]

Rampe (et. al., since you post under different names), do you get up in the morning and eat crumudgeon cakes for breakfast?

First point, you can't have your cake and eat it too. A few weeks ago, after I posted that I was seeing some stabilization in prices in my 3 month data samples, you countered that with the small number of sales, my data was suspect. But now, you post the single month sales for May with 21 data points and draw the conclusion that "the median crawls lower."

Also, I've finally figured out why are numbers differ, apart from the fact that I pull all sales reported in the Sullivan MLS and you put in a Sullivan County filter. I filter for "single family" — which is how I've been pulling data for eight years now. It appears that you don't filter for that, and are including residential sales categorized as condos, townhouses and seasonals, as well. I've excluded those because of two factors here --- Grandview Palace condos which can sell at very low prices and many of which are just hotel rooms with kitchenettes, and bungalows, which are usually listed seasonally, are typically very cheap, and don't own the land they sit on fee simple (they're often coop type arrangements.)

That being said, I'm finding that the median single family sales price has remained relatively flat for the past 4 months. Here are the numbers for the 3 month periods ending:
Feb. $138K
Mar. $132K
Apr. $135K
May. $134K (Preliminary)
In looking at single month sales for April and May, as well as houses in contract, I think the median is going to hover in this range for the next couple of months.

The average sales price, on the other hand, is another matter. It continues to slide, and may well slip into the $150K range in the coming months. This is very consistent with my observations since the beginning of the year that the upper end of the market is very, very soft. Higher priced sales pull the average up, and since April 1, there haven't been any closed sales above $500K. The action in this market is clearly in the budget/affordable to moderate range, not in the upper moderate to upper end.

[Rod]

Sales browsing activity is way up.

[Nick]

This is off topic but I'd be very curious to hear David's thoughts on the recent major upheaval in mortgage rates.. ie what this guy's talking about:

http://www.fieldcheckgroup.com/2009/05/28/5-28-potential-consequences-of-55-mortgage-rates/
http://www.fieldcheckgroup.com/2009/05/29/5-29-the-day-after-the-interest-rate-spike/

[ar]

So take this median and tell me this: What can you actually buy for $135,000 in SC? Don't send me to listing sites because from everything I've read, asking prices are meaningless. I'd love to see pics, etc. showing closed sales at about $135,000; that would give the abstract numbers some concrete meaning. I don't see anything on Dave's "What Houses Cost" page that go for that low.

[David Knudsen]

ar, you can't buy much in the 'second home' sector of the market for $135K. Possibly a year round (not seasonal) cottage in Smallwood, a 2 bedroom ranch or cape on an acre or two, or a smaller in town house in Jeff, Narrowsburg or Callicoon. The $125 to $135 sales range in the last 3 months included a house on Bridge Street in Narrowsburg, a double-wide mobile on 11 acres on Dahlia Road, a 2BR 1940's ranch on 11 acres in White Sulphur (that was actually more about 3 acres, as 8 of the acres were wetlands). The house in Narrowsburg is on Bridge Street, the main road into Narrowsburg, next to a commercial building. It was a foreclosure sale, and at $134,900, it was a good deal for the amount of space. But the location probably wouldn't be everyone's cup of tea if they're looking for a 'country getaway'. There was also a newer construction house on 1 acre on Old Route 17 near Roscoe that went for $135,500. Also a pretty good deal, but it's appeal to a second home buyer was limited by road noise from Route 17 (the house is located between Old Route 17 and Route 17.)

My colleagues and I regularly show houses in this price range, or would reasonably sell in this range. Usually it's a lot of wheel spinning. We work mostly with second home buyers, and many lower priced houses, while seemingly appealing on the web, have compromises they don't want to accept. Often the biggest drawback is setting, either on a main road or picking up road noise from a nearby main road. Another is location. There can be great prices around Liberty, Fallsburg, Monticello or Hurleyville, but when second home buyers start exploring the county, many prefer to relate more to the hamlets and villages in west county.

The freequent implication by many commenters on here is that our goal is to push buyers into higher priced properties. But that's not the case. My 2 colleagues and I at Catskills Buyer Agency right now have deals going at $60K, $125K and $152K. We've worked with hundreds and hundreds of buyers over the years, and from a quick conversation can usually get a good bead on what they're looking for. Countless times, the properties we show at the lower end of a category elicit responses like, "We really want something ... on a quieter road, not as close to the road, not so close to the neighbors, with more privacy, with more charm, in better condition, in a different area, with less road noise, etc. etc. etc."

That response isn't universal. We sometimes have clients who say they don't care if they're on a main road, as long as they have a nice back yard. Frankly, that makes our job easier, because there are often more houses to show --- that are typically larger, in better condition and with more "charm" than houses in the same price range not on busier roads.

We don't control the dreams of our clients. All we can do is try to match them with the best options that approximate those dreams.

Agreed, I do need to redo my "What Houses Cost Here" page to reflect current pricing. My "What Houses Cost" page tries to illustrate the likely prices for houses that most approximate what buyers are generally looking for in different categories. So when I talk about what a buyer can reasonably expect to pay for a smaller farmhouse on a few acres, I'm not focussing on houses on main roads, because that's generally not what a "cute little farmhouse on a few acres with some privacy" shopper is looking for.