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.

Comments

[David Knudsen]

Another factor to keep in mind is that sellers are chasing a very limited universe of buyers. I've written a few times about the market picking up in the last couple of months, but that pickup is from an extremely low level of interest and activity over the winter. To put it in perspective, during the peak of the market, there were as many as 90 closed sales during a single month reported in the Sullivan MLS (with most months during the peak running in the 70 to 80 range.) In contrast, July is looking pretty good for this year, because we just passed 30 sales for the month and we might close out the month with somewhere between 35 and 38. That's less than 50% of peak volume!

[Harold]

Today, it's not about what the seller wants; it's about what the buyer can afford to spend. And if you cant come to terms then you just walk away.

[David Knudsen]

Harold, in the second home market I don't quite agree. Most of the buyers I work with can 'afford' more than they're willing to spend. Only a few of the folks I've worked with in the last six months have had a firm affordability ceiling based on available cash for a down payment and their ability to qualify for a mortgage. For the rest, I'm not saying they should spend more even if they can afford it. But there's definitely a wary conservatism among buyers, and they've pulled back their price ranges.

[Aunt Minnie]

Time out Dave.

It's 2009 - "The New Frugality" - people in the city are getting laid off...some of there primary homes are under water or have negative equity - uncertainity about making discretionary purchases...a wait and see attitude.

Yes?

Your clients might be able to 'afford' more than they can spend - but will they in 2009?

I don't believe so.

Maybe they will in mid - 2010 as the smoke clears and some of the hardcore seller's get soft and we see home median prices fall another 10% to 15% from where they are now in Sullivan.

And please don't mention the stock market.

Many of these same folks dumped their stocks and mutual funds back in March of 2009 at the worst possible time to put it into cash at .25% and now they are kicking themselves since the benchmarks equity averages are up between 25 to 40% since then!

They're heads are spinning and they are confused.

Aunt Minnie

[Rod]

David - perhaps a good way to get to the bottom of this pricing conundrum is to look at what lakefronts were selling in 2002/2003 - prior to Chapin Estate confusing the market place with rapidly escalating lakefront properties, which no one was ever able to emulate, much to their chagrin. Kenoza Lake, Bethel Farms, Tamazian, Rio all created business models based on Chapin's lake front sales success, and have been more or less unable to attract buyers at $350k+ for lakefront parcels.

What was land and homes in Timber Lake, Black Lake and the other lakes selling for in 2003? That may inform you of where these houses will end up.

[Monte]

================================
July 1 - 31 2009

Homes SOLD - Sullivan County, NY

39

Median Price:

$130,000

Range:

$22,000 ---- $ 430,000

====================================

[David Knudsen]

Monte, my number doesn't quite jive with your's. I think the reason is that when you pull sales from the MLS, you're pulling all residential, which includes seasonals and coop bungalows. I always pull just single family, which excludes seasonals, coop bungalows and 2 families. Neither is incorrect, just not apples to apples. For July, so far I show 36 single family closed sales in the Sullivan MLS with a median sales price of $151,250. I expect another couple of late month sales will be reported through in the next couple of days.

[Wendell Smith]

This is what I have as data.

Closed sales in the months of May, June and July 2008 versus May, June and July 2009.

Finding the medians closed prices per those months.

Then adding the medians and dividing my three.

We have excluded:

Orange
Ulster
Delaware
Pennsylvania
Seasonals

===============
2008

May 2008
35
Median: 155k

June 2008
39
Median: 195k

July 2008
40
Median: 160k

Average for three months - 2008:
$170,000

------------------------

2009

May 2009
28
Median: 142.5k

June 2008
35
Median: 150k

July 2008
42
Median: 127.5k

Average for three months - 2009:
$140,000

====================

CLOSING SOLD NUMBERS:

Off (-17.6%) YTD

~Wendell Smith
forex.com

[forex]

Quoteth by Rod:

"David - perhaps a good way to get to the bottom of this pricing conundrum is to look at what lakefronts were selling in 2002/2003 - prior to Chapin Estate confusing the market place with rapidly escalating lakefront properties, which no one was ever able to emulate, much to their chagrin. Kenoza Lake, Bethel Farms, Tamazian, Rio all created business models based on Chapin's lake front sales success, and have been more or less unable to attract buyers at $350k+ for lakefront parcels.

What was land and homes in Timber Lake, Black Lake and the other lakes selling for in 2003? That may inform you of where these houses will end up."

Posted by: Rod | July 31, 2009 at 08:47 AM
===============

Rod,
Taking a quick look at Timber Estates in Yulan, New York which was developed and subdivided by McKean in the early 1990's.

Vacant _lakefront_ lots at Timber were sold at approximately $70,000 in the time period in the mid to late 1990's.

One of the same lots purchased for 70k in the mid 1990's transferred at the peak in 2007-2008 for $275,000!

Not so sure they could get sell that land for anywhere near that price now - two years later.

Vacant lots with lakerights at Timber were sold at $25,000 in the mid 1990's.

Furthermore, you really can't compare Timber with Chapin. The latter was/is a large (in area) deep (well, used to be) reservoir - the other was a man-made smaller impoundment.

You can compare for yourself on google earth.

Timber Estates lots had the same price points as Weiden Lake lots (aka Swamp Pond) in Tusten developed a few years later prior to 9/11.

~Forex.

[Rod]

So buy a lake front at Timber ($100k) and build a $270k house (1800 sq ft at $150/sqft) and have a house lake package for well under $400k. That might help determine lake pricing going forward.

It's hard to remember that when Chapin started pricing lakefront at $250k for 5 acres, everyone thought they were crazy. The fact that they sold out at ever-increasing prices created a financial trap for lots of other lakefront speculators.