Thursday, September 13, 2018

The First Two Weeks

There seems to be a persistent practice in real estate of "testing the market" with a price higher than what the agent believes that the property will bring at closing.  Sometimes there is an agreement that the price will be lowered after some stated period, often thirty days.  Agents often feel that sellers become wedded, however, to the original listing price, and forget completely that they were told that a lower price would be more in line with market expectations.

While testing the market might seem like a reasonable course of action, especially if there is a clear understanding up front that the price will be lowered in x days if not enough action, or an offer, is generated, those of us in the industry should know better. We now have access to all kinds of information that tells us who looks at a listing, when they search, and how (with what device).  We know popular hours, phrasing that captures attention, and click-through rates by property.  We can see whether they looked at it, saved it, forwarded it, or contacted us about it.  Administrators like me get a copy of every email inquiry sent to an agent on certain search engines and platforms.

And what do we know from all of that?  We know the power of the new.  Overwhelmingly, the greatest interest in a property comes in the first two weeks after it gets listed, whether it is commercial or residential, and no matter the price or location.  Some properties clearly generate more activity than others, but always get the most attention early.  Sometimes that is because prospective buyers have signed up for notification alerts, so that a new listing will show up in their emails.  Many times it is because the buyers themselves look on a regular basis, and click on anything that they haven't seen before.  The end result is the same:  They gravitate toward the newest entries.

So it's easy to see the problem with testing the market.  Your property gets the most exposure and the greatest number of views at the original price, which is higher than the agent, and perhaps even the seller, thinks is the true selling price.  Agents often talk about how much higher the likelihood is of securing a buyer in the first two weeks after the listing comes onto the market, but, in order to secure the listing, they also often sabotage that chance, by using the most useful marketing time to expose the property at the wrong price.

We know that buyers today know a lot, and often as much as agents or sellers, about the value of properties, through comparisons of available inventory, and market knowledge gained online and elsewhere.  They aren't going to overpay, and many aren't going to potentially waste their time making offers that will be refused.  They concentrate instead on properties that are listed at compelling prices, which suggest that they will sell quickly.  That motivates buyers to make speedy offers, at prices near, at, or above the listing price, especially if they see that there is a lot of activity at open houses, or with showings.  It's better to accept the reality that buyers know value, than to think that serving up higher-priced listings will change their minds about the correct price.

If there is one takeaway from this, it should be that sellers need to ask agents this question:  What price do you believe that my property will close for in the end?  Then list as close to that number as possible.  And enjoy the attention your property will receive.

Wednesday, September 5, 2018

Current Absorption Rates

Explanation of absorption rate: The rate at which available homes are sold in a specific real estate market during a given time period. If you look at the number for Westbrook you can say “If market conditions do not change and if no new listings come on the market it will take 4.5 months for the current inventory to sell at the current pace of the market. A balanced market’s absorption rate is typically between 5 - 7 months.”

Tuesday, September 4, 2018

Finally a Market in Balance?

There have been some very positive reports about sales in our region recently. I have written about some of the reasons for the Shoreline’s improvement, like the time that’s passed since Hurricanes Irene and Sandy, but the broader market appears to be healthier also. When discussing the Shoreline, I made the point that prices had come down to where the value proposition for many people was just too compelling to wait longer, and that it stacked up well against other places where second homes are also popular. That also seems true in the non-waterfront sector. There are two factors that stand out: one is that inventory has moved, leaving less supply for the same, or increasing, demand; and two, that prices are often more realistic than they were a few years ago.

SMART MLS, our local MLS service, recently published a shocking statistic. Its records show that only 16% of listings entered into the system sell! That number may soon be going up, though, if demand continues to improve; however, it illustrates what happens when sellers price their properties too high. Buyers don’t feel compelled to act, and other sellers follow that lead and also overprice, leading to even more sluggishness in sales, while buyers hang around until prices fall. That dynamic has been playing out in our area, unfortunately, for many years. While it has always been true that a portion of the inventory is overpriced, that rate has accelerated as demand, units, and median sales prices all fell. It becomes a vicious cycle, and owners who need to sell begin to do what we call “chasing the market down”. That means that they start high and keep lowering the offering price, until they ultimately end up closing at a lower number than if they had priced correctly to start. The recent news that sales are more robust and inventory thinned out makes me think that prices are realistic, or more realistic than they were when people could still fixate on what they paid for the house ten or fifteen years ago (a period during which values have overall declined).

Like any other cycle, a good boost can start the opposite effect, where competitive prices lead to more sales, which leads to lower inventories, which leads to higher prices, which leads to more listings, and finally again to more sales. No one could be happier than we will be, if that’s where our market is headed this fall!

Friday, August 24, 2018

Is the Shoreline Recovering?

For the past few years, we've had a glut of Shoreline properties in the higher price ranges.  Some towns had as much as a five-year supply.  Lately, there have been many sales reported over a  million dollars.  The latest big news, the sale of Rogers Island  in the Thimbles for $21.5 million dollars, has prompted us to wonder whether there is a broader recovery going on.

Hurricanes Irene and Sandy, coming back to back in 2011 and 2012, left many people with a fear of waterfront properties.  One hurricane is a wake-up call for preparation, but two caused many to rethink risk.  Even with global warming, we all know that, statistically, hurricanes will not occur every year.  We also know that many houses are better built and higher up than homes used to be.  And, of course, it's now been 6 years since Sandy hit, and the lure of the Sound is greater again, or so it appears.

The price adjustments that resulted from the cost, or lack of availability, of flood insurance have remained to this day, but the activity, and the interest, in direct waterfront seems higher this year than for the past few.  In addition to risk factors abating, there are also other causes.  Lots of people have made lots of money in the stock market, and are looking for other places to deploy it.  Aging boomers want homesteads where their families want to gather, and may also be splitting time between the Northeast and a warmer location, so a vacation home here makes good sense.  We are in the midst of a great generational wealth shift, so that adds to the likelihood of increased demand.

Perhaps the final factor is that prices have come down, and, especially compared to the Hamptons and other similar locations, the Connecticut shore properties seem like a bargain--and, often, they are.  Particularly for people in Fairfield County, we are closer than other choices, and flexible work schedules and venues make for easier access by road.

So, if you've been watching, and considering a move to the Shoreline, the time has come to act, before you are beaten to the punch by others.  Consider this fair warning!

Monday, August 6, 2018

Current Absorption Rates

Explanation of absorption rate: The rate at which available homes are sold in a specific real estate market during a given time period. If you look at the number for Madison you can say “If market conditions do not change and if no new listings come on the market it will take 5.5 months for the current inventory to sell at the current pace of the market. A balanced market’s absorption rate is typically between 5 - 7 months.”