Sullivan County Real Estate

What's Up With Lakefront?

For the 8 years I've been reporting sales data, I've broken out "lakefront homes" as a subcategory. There have always been enough lakefront sales during each 3 month data sample to provide a reasonable guage of the lakefront market. But over the last six months, lakefront sales have been so low that I'm probably going to pull that subcategory for a while until it picks up.

How low? Since Jan. 1st, there have been only 3 sales categorized as "lakefront". Two of those, however, are only what I consider 'quasi lakefront' — one is on what could be considered more a large pond (or small lake, if you're charitable). A second is a split lakefront; the house sits down a lane off the lake and has a small lakefront parcel within walking distance for lake access. Only one, at Chapin, is actually direct lakefront. Looking through pending or in contract listings, I'm not seeing many set to close, either.

Over the past couple of months, I've gotten a lot of inquiries about lakefront houses. I gather the listings and send them out, but am not hearing back from a lot of folks to come up and take a look. One reason is certainly price, or at least a wide gap between what lakefront shoppers are looking to pay and what lakefront sellers are looking to get. The most common request I'm getting from lakefront shoppers is for a "small, modest lake cottage under $300,000". But we have very few lakefront properties on the market under $300,000, and they're almost all very small (one is 724 sq. ft.), or currently seasonal and would need some updating and winterization for year round use. If someone's looking for something lakefront with 3 or more bedrooms under $300,000, there's almost nothing.

Lakefront houses comprise a major sector of the second home market here. In 2007, there were 52 lakefront sales and in 2008 there were 32. Four months into 2009, and we've only had 3.

Preliminary Results for April

So is the market getting better? Continuing down? Wallowing somewhere in the middle? It's still a little early to have final sales results for April, but a preliminary look at the picture is "mixed". The good news is that the number of closed single family sales reported in the Sullivan MLS — 31 in April — was up from the 23 sales reported in March. Still well below the April peak of 55 in 2006, and under last year's 39 closed sales, but the closed sales number is showing an upward movement.

In the price front, the median sales price was $138,000, the same as last month, while the average continues to slide, down to a tepid $151,067 for the single month of April. (For the 3 month period ending April 30th, which is the measure I regularly track in my monthly Current Market Conditions Report, the average is showing as $179,388, but that includes a $1M+ sale at Chapin. With that sale excluded, the 3 month average drops for $161,263.) The drop in the average sales price points to continuing softness in the upper end of the market. In April, for example, the highest single family sales price was only $365,000. This seems to jive with that I'm finding with buyers I'm working with. They're more focussed on lower priced, less elaborate properties.

I expect to have the full Current Market Conditions Report out by the end of the week.

To Show or Not to Show?

A key factor when working with a buyer is their budget, what do they want to spend? I try to respect my clients' budget wishes, and am pretty upfront when I don't think a budget is sufficient for what they're looking for.

The question I face all the time is how far above that budget, in terms of asking prices, should I go when suggesting houses to see? Generally, I'll look 15% to 20% above a budget range, particularly if that will sweep in some houses that I think that will encompass some properties that the buyers may especially like. But that's risky, because it's a crap shoot as to whether those sellers will do a deal within the buyers' budget range.

Buyers often want to look at houses that are quite a bit above their budget range, believing that in this 'buyers market', sellers will take 60% or 70% of their asking price. But that's not really the case. Over the last three months, the average "bid-ask ratio" (the ratio between the closed sales price to the last asking price) was 90%. Of course, there were sales with lower bid-ask ratios. Of the 71 closed single family sales for the 3 months ending April 30th, one sold at 67% of asking price, and there were another 11 that closed between 70% and 80% of their asking price. That adds up to just 17% of the sales closing at less than 80% of their asking price. 35, or 50% of the total, closed at 90% or more of their asking price. (The average bid/ask ratio has hovered pretty closely to a range of 88% to 92% over the last six months.)

The odds are against a $300,000 buyer getting a house listed at $400,000 for $300,000. Possible? Maybe. Likely? No. A house listed at $349,000 for $300,000? Much more possible.

I seems that sellers pretty consistently set their asking prices about 10% above their "bottom line." If someone lists their house at $349,000, they're probably expecting to get a deal above $314,000. The number in their head may be higher than this, but it's unlikely much lower. If their "bottom line" number was under $300K, they would probably list it at $329,000, not $349,000.

The "90% of asking bottom line" isn't a hard and fast rule. As a buyer, if you end up holding in the counteroffer process at, say, 85% of the seller's asking price, that can be awful tempting to a seller who then faces the decision about whether they drop another 5% or risk waiting for another buyer willing to pay a little more. But holding at 75% pay be a little too far out of that tempt range.

Listing agents are always encouraging me to "please show the house, and if your clients like it, have them make an offer." And I hear over and over "the sellers are motivated." But I think there's often a breakdown in communication between the listing agent and the seller, and such entreaties are often more a function of wishful thinking on the part of the listing agent than any real indication of motivation on the part of the seller. If the seller were truly motivated to accept an offer well below their asking price, they probably would lower that asking price.

Part of the communication breakdown may be in the interpretation of the term "motivated". When I hear it, I think "20% or more." But I think it's often used when the listing agent perceives that the seller might agree to a deal at 10% below their asking price. For me, I see 90% of asking as just the normal course of business to get the deal done, and not any evidence of super-motivation on the part of the seller.

Caught up in the buyers' market psychology, and hearing all the "mnotivated sellers" and "make an offer" comments, I've been pushing the envelope of what I've been showing a bit higher, sometimes 25% or 30% over a client's budget. I've had this attitude that it's worth taking a look and making an offer. But the numbers aren't supporting that, and I'm beginning to question whether it's fair to buyers to set that expectation, even subsconsiously. Because when you see more expensive houses with "better" features, it can be difficult to pull back to more modest properties. So, do I show a $349,000 lake cottage to a buyer who's indicated their budget is $275,000, or a $435,000 renovated farmhouse to a buyer looking in the low $300's? It's a question I don't quite know how to answer.