Sullivan County Real Estate

When "Well Priced" Isn't

In the course of a week — checking out availability, setting up appointments, calling about new listings or just dropping in to shoot the bull — I talk with lots of listing agents. One recurrent topic is agents promoting a listing they think is very, or very very, well priced, followed by some head scratching about why it isn't moving.

At first glance, looking at the listing and the price from a historical perspective, I often agree "Yeah, that one's pretty well priced." But at second glance, I think "But maybe it isn't priced well enough to grab the attention of today's finicky, value-focused buyers."

For example, there's a 3 bedroom lakefront log home on 5 or so acres on a smaller non-motorboat lake that's been on the market for about 18 months. The price started around $700,000 and, after a few price reductions, is now priced at $499K. The drop to $499K happened last December. When it dropped under $500K, I thought it was pretty well priced and expected it to move pretty quickly. Seven months later, it's still available. I talked with an agent this week who's very familiar with the house, who engaged in the "Why hasn't it moved yet?" head scratching. I said that with everything the house offers, maybe buyers just don't see it as a great value. When I offered that maybe the house should be priced at $399,000, the agent replied, "No, that's just way too low." Is it? I'm sure that isn't what the seller wants to hear, but it may be what it takes to get a buyer to step up to the table.

With the pickup in buyer traffic over the past couple of months, we're accumulating a lot of information about what buyers perceive as good value, and what they're willing to pay. Those numbers, in some categories, may be well below the collective view among many Realtors about what constitutes "great value."

I traipse out lakefront houses as the poster child when I talk about this value gap. I use lakefront houses as an example because it's such a defined category, and typically a robust contributor to sales volume here. But since the beginning of the year, there have only been 3 direct lakefront home sales (outside of Chapin). The most expensive was a 1,500 sq. ft. house on 2.5 acres on Forestburgh Lake that closed last week for $399,000. (The total deal price on that one was actually $430,000, because the buyer also bought an adjacent non-lakefront lot with the house.) There was also an Emerald Green sale (on the smaller Treasure Lake there) at $320K and a little cottage on Mohican for $160K.

The shocking part of this? There hasn't been a closed lakefront sale outside of Chapin above $400,000 in 7 months! It's not that there aren't lakefront shoppers. They've been on the boards for the last couple of months. I've been out with at least a half a dozen lakefront buyers in the last 4 or 5 weeks, across a wide price spectrum — from cottage shoppers looking under $300,000, to buyers looking for a "faily sized" lakefront house in the $400K to $500K range, to a couple of higher end buyers looking for a nice, more privately set lakefront house in the $600's to $700's. None of them were motivated by what they saw to make an offer.

The price expectations for lakefront houses, as well as their responses to the houses I show them, are so consistent that I'm starting to wonder whether the entire category is overpriced by 20% to 25%. Of course, you may discount my opinion by saying "He's a buyer broker, so that's what I expect him to say." But I'm not saying it — the market is. They're not buying at the current asking prices. Collectively, Realtors seem to share a general opinion about what's well priced in this category, but the buyers aren't agreeing.

Should a house listed at $739,000 really be $599,000? One at $329,000 be dropped to $279,000? A $499,000 cut to $399,000? I'm not sure. But the longer we go without sales in an otherwise popular category, the harder it gets to support current pricing.

Seller Super Motivation Necessary for a Successful Sale?

I've blogged before about the only houses that are moving are ones where the seller, for one reason or another, is 'super motivated'. At least in the cases of the houses I'm selling, it's holding truer than you might imagine. Now that we're more than halfway through the year, I took a look at the 9 deals I've put together since January (both closed or in the contract process and moving to a closing.) 8 of the 9 deals have had some 'super motivator' on the seller side. I use the term 'super motivator' because it's broader than 'financial distress', which is only one of many possible super motivators.

Of the 9 houses, 8 were on the market for more than one year, and a couple for more than two. All 8 had significantly higher initial asking prices and had moved brokers at least once. Only 2 of the 9 would fit into a traditional "financial distress" category, both short sales with investors taking a loss.

The others all had super motivator factors that weren't financial, per se. Two houses were owned (and no longer used) by ill or elderly parents, and their maintenance and sale were being handled by their adult children. Two were second homes owned by people who had moved out of the New York area and had grown tired of hassling with them from a distance. Two were owned by sellers with changed family circumstances that necessitated the sale of their Sullivan County property. Only one of the nine was a transaction without what I would consider a super motivating factor on the seller side.

The common thread among the sellers that aren't motivated by financial distress is that they're just tired of hassling with the house. It's far more appealing to them to get rid of the house headache than hold out for another $25,000 or $50,000. They just don't want to go through another winter, particularly if there's no certainty that next spring they'll get a higher price.

When I look through the closed sales roster, as well as the list of houses in contract in the Sullivan MLS, it seems like the majority of properties that are closed or moving to a close involve some super-motivator on a seller side, whether it's purely financial or something else. They're motivated to make the deal even if, in some cases, they have to throw in the towel and take a loss.

The issue over the next few months is that the market has been clearing this inventory of "super motivated" houses. There are fewer and fewer on the market. Among newer listings, unless there is urgent financial distress, it takes time for sellers to get motivation. Even with estate sales, the initial objective is to get as money for the house as possible, and it can take months for the heirs to shift the objective to getting the house sold and the estate closed out.

These super-motivated sales are setting the price bar among buyers. If they see that there were 3 farmhouses similar to what they're looking for that sold between $240,000 and $260,000 in the past couple of months, they're not going to pay $300,000.

In looking at those 9 sales, and seeing that 8 had at least one "super motivating" factor, I'm beginning to question even showing houses without a super motivator. It's feels like wheel spinning. I get at least a dozen calls and emails every week from listing agents promoting a particular listing. Most of the agents talk about the beautiful this or lovely that and how I really need to come and take a look. But the only phrases that get me particularly mnotivated are "They're ready to sell", "The kids are ready to push the parents to take a deal," or "They've got to move the house before the fall." To make my short list, and get me all hot and bothered about a property, I need to hear some indication that there's a super-motivator in play.

The phrases that will drop a house to the bottom of my enthusiasm list faster than a leaden matzah ball? "Look, the seller doesn't have to sell" or "He's somewhat negotiable but he isn't going to give the house away."

Value Shopping at the Upper End

Last winter, the only real estate buyers seemed to be bottom end bargain hunters trolling for foreclosure and distress sale properties. This spring, we saw the return of some second home buyers looking for great values in the moderate range. Now it seems we're working our way up the food chain, with some value shoppers at the higher ranges of the market.

Over the past month, I've been out with 4 different buyers shopping in the "better" property categories, with budgets of $500,000 and up. I've chatted or emailed back and forth with another 4 or 5. A few clients I worked with in this range a year or two ago have resurfaced, looking to restart a home search. And I've talked with a few other agents who've seen their first $500,000 range buyers in almost a year.

While their price range and property expectations may be different than buyers in the moderate range, there is one very common thread from the lowest to the highest price ranges. The buyers are looking for great values. They're searching for those properties that have "ripened" on the market, with sellers primed to make a deal.

I've said for a few months now that the upper end, where buyer demand has been very soft this year, was the area where some of the best deals could be found, and that's playing out. In the past two weeks, I've put together two deals in the mid $400's on properties that possibly would have sold for as much as 50% more during the peak of the market. (Both properties have been on the market for 1 to 2 years, but at asking prices that overshot buyer price expectations.)

In the moderate range, there was an inventory of about 10 to 20 'good' houses with appeal for second home buyers that had been priced in the $275,000 to $350,000 range. Most of those houses had been on the market for a year or more, then hit the brick wall of the economic downturn. This spring, with those sellers very motivated to move their houses, they dropped asking prices into the $225,000 to $275,000 range just as moderate range buyers were trickling back looking for good values. The result was a sharp pickup in  buying activity right around $250,000.

The same dynamic is surfacing in the upper end. There is a small subset of "better" houses that have been on the market a while, where the sellers are motivated and are dropping their prices. This is matching up nicely with the trickling back of value shoppers at the upper end. They're looking for the great deals — houses that might have cost $700,000 two years ago that might be picked up today under $500,000. And when they find them, they are stepping up to the plate. I've put together two deals in this range in the last two weeks.

The problem in sustaining this upper end interest is that the inventory of 'great value' property in this segment, just like other lower priced segments, is limited. The attitude among almost every buyer over the past few months — whether they're looking for a little $100,000 cottage or a $500,000+ private getaway with acreage — is that they'll only consider houses they peceive as great deals. For example, I'm working with a couple of clients shopping for a nice, private lakefront home with 5 or so acres. Apart from a small log home at Timber Lake listed at $499,000, the rest of the available inventory ranges from $749,000 to $1.79M (outside of Chapin, which is higher.) I've shown most of that  entire inventory a number of times. None of the buyers I've shown those houses to have expressed repeat interest, much less make an offer. It's not because they don't like the houses or settings, or can't afford them. They just don't perceive them as great deals.

The Big Bank Problem

For the past 6 months I've been strongly encouraging my clients to select a local bank for their mortgage financing. From the litany of horror stories I'm hearing from other Realtors here about the big bank mortgage process ("process" is a generous term, "mess" would probably be more accurate), I've become even more emphatic about working with local lenders.

So what is the problem with the big lenders for home purchases here in Sullivan County, and why do I think the smaller, local lenders are better?

There are two main problems with the big lenders. First, in the aftermath of the loosey-goosey anything goes years, they've imposed such tight and inflexible underwriting guidelines that make it difficult, if not impossible, to get a loan approval in a low density rural area like Sullivan County. A large national lender, for example, may require that the valuation be supported by 3 comparable sales (within 20% square footage and similar age and style) that have closed within the past 90 days within a single school district or township. Those underwriting standards may work fine in a dense suburb like Levittown, but they don't work here. This is an example of the tightest criteria I've heard of, and aren't necessarily common to all national lenders or applicable in all situations. But even with somewhat more liberal criteria, a great value house can face a tough mortgage approval unless all the stars are lined up just right.

The second problem relates to the appraisal process itself, particularly in the wake of the "Home Valuation Code of Conduct" (HVCC) requirements from Fannie Mae and Freddie Mac that went into effect on May 1st. HVCC is well intentioned, and designed to eliminate any influence on the valuation (appraisal) process by those involved in the loan origination and sales process. One main purpose of HVCC is to shield appraisers from pressure to "bring in the value", and eliminate the fear that future appraisal assignments rest on that.

In order to meet the requirements of HVCC, most big lenders have farmed out the appraisal process to third party appraisal management companies (AMCs). The AMCs are generally large regional and national companies (with their own profit motive) that then take the appraisal orders from the lenders and assign them on a rotating basis to one of the independent appraisers who have agreed to do appraisals at the price offered by the AMC. The problem here is that the AMC doesn't necessarily look to give the appraisal assignment to the appraiser who is most qualified to do that particular appraisal, but rather one who will do it at the lowest cost. The appraiser may or may not 1) be based in Sullivan County, 2) have much experience with doing appraisals here and 3) be a member of the Sullivan MLS, which is the primary source of the most recent sales data. I've had appraisers sent from Dutchess and Westchester counties who didn't even know we had an MLS!

Some local appraisers, who have a very comprehensive understanding of this area, are also turning down AMC assignments because they can't make a living at it. An AMC may get paid, say, $325 by a lender for an appraisal, and then farm that out to an independent who they pay $200. Now, $200 may be plenty to do a good appraisal in a higher density suburban area, when the travel time between appraisal appointments is maybe 10 minutes and the latest sales data is publicly available online to the appraiser. But here in Sullivan, an appraisal can be much more time consuming and involved, and not just because of increased travel time. Because our county still doesn't offer online property transfer data, and the data available from third party vendors like First American is typically two to three months behind, it can take considerable effort to gather data on non-MLS sales. Also,  appraisals here often require lengthy narrative explanations to support the valuation, particularly when no comps are available that fit the lender's parameters.

And if an appraiser does go out on a limb to support broadening the parameters, what can they expect? Grief from a desk reviewer in some office six states away who couldn't find Sullivan County on a map if their life depended on it.

The end result of this is that the big lenders have set up huge, faceless bureaucracies that would make Orwell or Kafka proud. It seems that their primary purpose isn't to get people into houses, but to avoid any charge of influence or shady dealings at any cost.

By the way, if you do succeed in getting a mortgage approval from a big lender, don't think you're home free. Don't be surprised if next month, a week before you're scheduled to close, the lender does a desk review of the appraisal before issuing the final closing documents, and pulls the loan commitment. Or they ask for a second appraisal because a concession for a repair item is referenced in the contract.

NAR Existing Home Sales Data Up for 3rd Straight Month

The stock market sure liked the June Existing Home Sales Report issued this morning by NAR, the National Association of Realtors. (The DOW climbed past 9,000 today.) Nationally, seasonally adjusted existing home sales grew 3.6% over May, the third month in a row of sales growth.

In looking over the regional data, I was half expecting that all of the uptick could be attributed to the south and west (where foreclosure sales have pushed prices way down, and the lower prices stimulated demand), and here in the northeast we'd still be behind the eight ball and experiencing a sales drop. But June's seasonally adjusted sales numbers were up 2.5% over May (but still down 4.7% over June 2008.) On the price front, June's median sales price of $249,400 was off 5.9% from June, 2008, but up 10.8% from the 12 month low of $230.700 in March of this year.

This latest NAR report seems to the jiving with what I'm seeing, with a sales pick up from the mid-winter doldrums.

Callicoon Street Fair, Sat. July 25th

After catching my post about Riverfest, one of the organizers of the Callicoon Street Fair buttonholed me to remind me that the Callicoon Street Fair is also this coming weekend. It's this Saturday, July 25th in Callicoon from 10 to 4. The annual Street Fair is a more low key, down home event, with street vendors, music and food. So if you're in the area this Saturday, swing on by to Callicoon.

Riverfest Sunday July 26th in Narrowsburg

If you're here this coming weekend, mark your calendar to attend Riverfest, Sunday July 26th in Narrowsburg from 10 to 5. Riverfest, an annual celebration of arts, music and ecology, is one of the biggest and best summer events in the county. (More information.) A highlight of the day is the annual poster auction. Each year, the Delaware Valley Arts Alliance makes available a "blank" poster and invites local artists to fill it out in any way they'd like. Dozens of artists submit their finished posters that are auctioned off to benefit the Arts Alliance. (Click here to see some of this year's posters.) The posters are pretty fabulous, and competition for the best ones can be pretty fierce. The poster auction kicks off at noon but the festivities run all day.

Going, Going, Gone - Sub $250,000 is Moving

A few days ago I was making my set-up calls for some showings this weekend and for the coming week. Both parties I'm going out with are looking for that quiet and quaint country getaway — an older house with some charm, on a few acres, quiet country setting with 3 or more bedrooms priced around $250,000. For months, there have been a half dozen reliable standbys in this category to show clients, plus another another half dozen "second string" properties that are a bit quirkier. The market was so slow and these houses were so consistently available that sometimes I wondered why I even bothered to call to check.

So imagine my surprise, when calling to check on availability in the last week, to get the response on many of them that "There's an accepted offer." I was out with someone last Tuesday, and on the way to one of the houses (that had been on the market two years) I got a call from the listing agent saying that an offer had just come in, it was a good offer, but if my clients were interested in putting in an offer the seller would hold on accepting the offer on the table until the end of the day.

Rush to put in an offer? A possible bidding war? I checked my calendar. The year says "2009" not "2007".

But that's what's been happening recently in the sub-$250,000 range for houses with certain characteristics. Those characteristics? At least 3 bedrooms (smaller 2 bedroom places, even in good settings, are still lagging.) Classic or older style. On 3 or more acres with some privacy and not right on a major road. And generally more western county. (Here are 4 houses in this category that have recently gotten deals.)

The other common characteristics among those 4 houses is that they've been on the market for more than a year and started out with much higher asking prices. When their asking prices dropped into the "do a deal at less than $250K" hot zone, they started getting action.I have my eye on two others in this category that I expect will find buyers pretty soon (plus a couple that aren't in the MLS.)

As these houses move off-market, there hasn't been a lot of similar replacement inventory. Even moving into the low $300's, I'm not seeing much. Then there's a big leap to a selection of larger, more stylishly renovated farmhouses in the upper $300's to the low $500's. But most of the buyers I'm seeing have no interest in moving up to that price point. They're fine sticking with something modest as long as it fits within their $250,000 price point.

As a side note, I stopped in on Friday to visit with Chuck Petersheim of Catskill Farms (who builds those stylish repro farmhouses and cottages that start sub-$300K) He started 4 new houses in the last six weeks, and had just made a deal for the last one. He's now taking orders for future starts. We compared notes, and he's seeing the same pickup and buyer demographics — 30-somethings from the city looking for a moderately priced getaway with some charm and privacy.

This is a very interesting phenomenon. Sales right now in this range could probably be higher if there was more inventory. The interesting question is what impact this may have on prices. Will sub-$250K buyers (who generally present a pretty firm price ceiling) move up somewhat in price? And will a slightly higher price willingness among buyers eke out more inventory?

Sellers Shouldn't Show

Over the past few weeks, I've shown a number of properties where the owner has been present to personally handle the showing. I can understand the desire of an owner to show their own house. After all, they know the house and property better than anyone else. But in my experience, owner-led showings are usually less successful, and can actually hinder rather than help the sale of a house.

We Realtors wear a number of hats (including armchair psychologist, marriage counselor, dog sitter, child distracter and pond site finder, in addition to our more traditional roles as negotiator and problem solver.) But our top hat is being professional home showers. We do it all the time, and the best of us have a fine tuned sense of timing and flow, when to hold back, when to offer comments and suggestions, and when and how to redirect or counter misconceptions buyers may have. Most owners don't have that experience.

The biggest mistake most owners make when showing their own home is focusing on minutae and details. When a buyers first go into a house, a good real estate agent exercises a light touch, lets them get a feel for the place, roam around and soak it in, with a little nudging direction here and there.

Owners, on the other hand, are very proud of every thing they've done with the house, from upgrading the electric to installing a new boiler to lining a hall with built in bookcases to putting heat tape on the pipes. As they tour prospective buyers through the house, they're prone to point every one of those things out. Those items can be great to point out on a second or third pass, when they can help to fill out the picture of the home. But the first pass is about making an emotional connection. Without the emotional glue, there won't be a second or third pass. Nobody's bought a house because it has cedar closets. (One of the telltale signs of a new Realtor is a similar detail-focus. They're so eager, that they point out every little detail, like turntables in the kitchen cabinets and heated towel bars.) Pointing out some key details is fine, particularly if they point to a certain quality level, like Waterworks fixtures in the bathroom or an energy efficient geothermal heating plant. But cabinet turntables and double insulation in the attic shouldn't make the first pass feature list.

The other big drawback of an owner leading the showing is that the buyers are inhibited from talking frankly about the house. After an owner has just told you that his beloved and now-deceased wife picked out the purple tile in the bathroom and he laid it himself, it's really hard to say you hate the bathroom and want to rip it out. Owners take buyer comments or desires to make changes very personally, and sometimes practically get into a defensive posture with them. A case in point is gas fireplaces. Many city buyers want real wood burners, and I often have discussions with my clients about if and how a gas fireplace can be changed to a wood burner. But an owner will often get into a whole defense of their gas fireplace, pointing out how they're low maintenance, clean and efficient. But weekenders don't want clean and efficient, their dream is to cuddle up with a glass of wine in front of a crackling real wood fire.

Lastly, like it or not, the owner becomes part of the buyers' response to the house. Occasionally, that's an asset, particularly if the owner is a colorful character with  interesting stories about the house. But more often, it's a liability. The owner might not respond well to the buyer's children, or get very short if they touch anything. Sometimes an owner can be very controlling when they conduct the tour, which may rub the buyers the wrong way. Or they dismiss a buyer's concern as "nothing", leading the buyers to distrust the seller and wonder what they may be hiding. Worst of all, an owner may give off a subtle response to a buyer's race, ethnicity, religion or sexual orientation, which can be a real deal killer.

Realtors know that houses show best when they're a blank canvas, enabling buyers to paint their own picture. That's why listing agents regularly recommend that sellers pack away a lot of their personal memorabilia, like family photos, books that indicate a strong political or philosophical stance, or religious iconography. (Stuffed animal heads on the wall should also find a temporary home in the basement or garage.) The reason Realtors recommend this is so that potential buyers form their opinion about the house, not the owner.

So sellers, let us do what we do best. Show your house.

(One clarification. This commentary is about owner-led showings, not showings where the owner is home but makes themselves scarce. I often have showings where the owner sits on the deck or patio while I show the house. This can be great, because they're available as a resource if there are specific questions. But they let me or the listing agent guide the showing.)

Current Market Conditions Posted with June Data

Sorry it took so long to get this posted. I know I'm about a week later than usual. Chalk it up to being slammed busy for the past week. (This is my 6th day in a row with appointments.) I know the pundits on here shake their heads in disbelief that a Realtor in Sullivan County is actually busy, much less making deals. But I am, and so are a lot of other agents I'm talking to.

I just posted my latest Market Conditions Report with the latest sales figures through June. The overall picture is looking pretty good, or at least certainly better than the first few months of the year. Sales are up modestly, as is the median sales price. While some on here predicted that the median single family sales price would continue down, below $120,000 or even as low as $100,000, it's been moving back up for the last two months, and is now back above $140,000.

Check out the full Current Market Conditions Report and then drop on back and leave your comments on what you see happening in the market here.