Don't Discard the First Offer

 In this current market of low inventory and motivated buyers, many properties have been going on deposit quickly.  The national average, I read recently, is 22 days from listing to contract. In that kind of environment, even in the traditional "off" season of the late fall, people can wonder about whether to take the first offer they get.  They often think that they either listed the property for too little, didn't get enough exposure to the market to turn up the most avid bidders, or should wait for more offers, to stimulate a bidding war.

The answers to those potential strategies would be no, no, and no.  The first offer is often the best one.  That's because people are very well versed in the inventory available when they are looking.  They know when the right property comes along, and they frequently jump at the chance to take it off the block with a good offer out of the box.  Secondly, the information flow now, between search parameter feeds and instant posting of new listings, means that the time to get something fully exposed to potential buyers has dropped dramatically.  Those most interested in buying soon are watching closely.  Sometimes, I'm surprised that they may tell me about a new listing Pearce has!  Finally, bidding wars are great, but we should always remember what people say about the stock market:  Bears do well.  Bulls do well.  Pigs get slaughtered.  Don't be greedy.  If an early offer meets or exceeds what you expected to get for your property, grab it.  It's time to sell and move on.  Bidding wars may, in fact, result in a higher price if they occur.  However, they can also turn buyers off, who can feel they are being used, and drop out. The chance of losing everyone isn't worth the chance of finding someone who will overpay to beat out others.  

At this time of year especially, time is fleeting, and taking an early offer means that sellers can turn around and buy something else before the end of the year.  Supply gets thinner as the holidays approach, for many reasons--weather, time, difficulty of showings, and the inevitable decisions to wait until spring.  The sooner you buy, the more choice you have.

This is not an equivocal message.  If you have a number in mind, and it's a rational one, don't ignore an offer that comes close to meeting it, or meets it.  Moving forward when interest rates are this low makes more difference than the last couple of thousand in the price could ever do.  

The Return of Multiple Offers

Though we are sadly aware that prices are still falling in Connecticut, even as they keep rising just about everywhere else, we see signs of hope in the return of the multiple offer.  Well-priced homes, especially during the spring "rush", attract lots of attention, and can go for higher prices if they can spark a bidding war.  Bidding wars are great for sellers, while they are nerve-wracking and often frustrating for buyers.  It doesn't mean that houses will sell for more than they are worth (and, in any case, financing contingencies would mitigate against that), but they do stop bottom-fishers from getting exceptional bargains from avid sellers.  Nor does it mean that the home was priced too low, as sellers may inevitably think.

Their appearance in our market should alert buyers, however, that putting in really low offers on homes that haven't sold, or even new listings, on the theory that "nothing is selling", can really backfire.  Make a fair offer, and be prepared for the fact that you may not be the only buyers in the picture.  Think about what it's worth to you, and make the highest offer that you would be unhappy to hear that someone else paid; i.e., the price that you would have paid, had you known that you could get it for that amount.  And be glad that your taste is shared by others, because that will help you when you go to sell it someday!

Real Estate, The Fed, and You

The Chairwoman of the Federal Reserve has been making serious noises about raising the cost of funds, and causing interest rates to rise at long last.  Although the timing is not certain, it does seem clear that rising rates should start by the middle of this year.  Obviously, that is big news for real estate, since mortgage rates direct affect sales of properties; as the cost of monthly ownership goes up, people can afford to pay less for the home or building, and the number of people who can qualify at all goes down. Clearly, although there are broad signs of economic improvement across most of the country, the Fed is worried about disturbing the fragile real estate recovery, and rightly so.  However, rates have been so low for so long that there seems to be no other alternative, so the question is simply when it will happen.


The funny thing about the effect of rising mortgage rates on real estate is that buyers don't seem to be spurred by talk of rising rates.  Until rates actually go up--then they rush to act.  Therefore, in a way, rates going up will help us, since our problem locally is that languishing prices have caused buyers to hesitate and dither, since they don't seem to be worried that anything they are considering will get sold while they are on hold.  Once they see the consequences of having waited, they begin to feel some urgency.  And that causes bidding wars, competition, and, ultimately, rising prices.  The buyers then face a double whammy, of rising mortgage costs and increased sales prices.  So why don't they act before this begins to happen?  Only specialists in consumer behavior know!

Mixed Signals

The latest issue of the Commercial Record illustrates our current problem for sellers and buyers.  If you look at New Haven county for June, the most recent month available, compared to the same month last year, sales are down by 12% and prices for the whole county are up by almost 6%.  If you look just at the shoreline towns and add Woodbridge, to try to capture the higher end of the market, sales are slightly up and prices are down.  Go figure. 

I guess the lesson as a whole is that we can't pay too much attention to what we read in the national press.  Connecticut is following its own, slower, path to recovery.  Our listors at the high end of the market are beginning to accept that there seems to be a ceiling on prices for luxury homes, and that no one can say what a given home is "worth".  We can predict that it won't sell for what the seller thinks it should, given what money is in the house and what the condition is, but we can't find examples that will pinpoint the exact price.  We can't even promise that it will sell at a lower price, nor can we swear that we're not "making a market" by lowering prices, causing low prices to slip lower.  What can we say?  We can tell buyers that it's a great time to buy direct waterfront, or properties over a million dollars.

In other submarkets, the picture is murkier.  The numbers of months of supply in houses has declined, and is now in the range of a balanced market.  That should mean that neither seller or buyer has an advantage.  But, depending upon where you are, and the type of house you have, you could find a bidding war or few showings, with maybe a lowball offer.  However, the only way to test the market is to put the property on at a "fair" price and see. 

There is a bump every fall, when buyers try to close and move before the end of the year, and, this season, it may tell the final tale of 2013.  Let's see what happens.  We do know this--mortgage rates, over the long run, matter much more than a few thousand dollars here or there in the sales price.  So buyers should definitely act, because interest rates have already gone up about 15% from their lowest point, and will likely rise further after the elections.  Time is fleeting--carpe diem!

Sales Around the Country This Spring

It's always interesting for me to visit with my friends from other large independent companies around the country, especially when the market is changing rapidly.  I just got back last night from Charlotte, and the mood from other places is almost giddy.  The feeling nationally is that market activity will be back within 10% of normal levels by the end of this year.  That's a big improvement from the projections we heard only last fall, when most experts thought that historical norms of housing turnover would not return before 2015.

Now the commonly heard complaint is lack of inventory.  There simply aren't enough properties for sale to meet the demand. The average number of months of inventory seems to be about three.  Well-priced, well-maintained homes in many areas get multiple offers--sometimes dozens--within a few days or weeks of being listed.  Once they go under contract, the problem that arises is that appraisals have been lagging, as they always do, so there are issues with mortgages.  In some cases, sellers and their agents are going back to the highest bidder and telling them that they need to release all the contingencies, including mortgage, or they will proceed to the next offer. New construction is hot everywhere.

Here in Connecticut, we're recovering slowly.  (Maybe that's why they call us the Land of Steady Habits?)  We have just over eight months of inventory overall in our county, with some towns much higher than that.  Guilford, for example, has 17 months' supply.  Our supply of million dollar homes will last several years.  So, for us, the report from other places tells us what the future will be like.  And it will be great.  However, if you are a buyer, my advice is to buy right now!

Bidding Wars in Phoenix

Everyone knows that certain parts of the country--the ones that were growing quickly--took the biggest hit in the recent downturn.  Arizona and Nevada, along with Florida, are always mentioned as places with thousands of homes for sale at drastically reduced prices.  Now, things are changing, even in those states.  Today's New York Times has an article about the return of bidding wars to Phoenix.  The story points out that this is not necessarily because prices would have risen on their own, but because the supply is finally drying up, and there is more demand for what's left.  That sounds like a normal explanation of supply and demand to me!

Prices in high-end neighborhoods in and around Phoenix are still dropping, but many of the foreclosures in harder-hit areas have moved through the system, leaving homebuyers with little to choose from.  Even new construction, which is finally picking up, cannot keep up with the pace of demand.  One suburban home, a foreclosed property, had 84 offers before the bank closed off further ones.  This illustrates how a glut of short sales and foreclosures can hold down prices, and what can happen when the flow of such properties ends.  

More Confirmation on Pricing

The lead article in yesterday's New York Times Real Estate section confirmed yet again what real estate practitioners know, but are often unable to convey persuasively to others. It gave examples of sellers who priced their units aggressively in today's market, and kept lowering the prices without success. It contrasted that with sellers who priced so as to seem to be a "good deal", and told about the bidding wars that have been taking place in such cases.

Underlying this phenomenon is a change in the marketplace from the past: Now buyers, who get more information through the Internet and by looking at more places before buying, are more educated about prices than they used to be. They can tell when something is priced to sell, and they know that they have to move quickly. They also know that, often, there will be multiple offers; therefore, if they want to get the property, they may have to bid over the asking price.

This has happened to us so many times that we can all attest to its effectiveness. We cannot, however, seem to convince sellers that they will actually receive higher offers by pricing the property lower. It's not unlike the psychology of pricing store items at sale prices, to stimulate demand and encourage prompt purchases. Of course, the seller can always reject an offer, if it does not meet his or her specifications. The point is to get offers, particularly to get enough offers to assure that fair market value is established.

Separating oneself from the pack is key in this market. Unfortunately for our business, pricing aggressively does that!