Guessing Game

Who can figure out this Real Estate market? I am seeing houses in this town sell for anywhere between $350 and $650 per square foot, and I cannot fully understand what accounts for that spread. It appears as though brand new homes are still able to command a premium, up to a certain square footage at which there are diminishing returns, meaning the price per square foot begins to slide because people do not want or need the excess space the home offers. Updated older homes that exude charm are also in demand, unless they are in a poor location. Friends just bought a lovely remodeled 1960’s home in a nice neighborhood on a flat ¼ acre lot for $360/sf. Granted, the street is a double yellow cut through between two busy roads, but it is generally a quiet neighborhood nonetheless. A tired but cute Cape Cod with deeded water access and a somewhat funky layout (MBR on ground floor, garage access though MBR sitting room, etc.) just sold for $400/sf. But a brand new house with a small (.11 acre) lot on a main road is in contract for somewhere in the neighborhood of $550/sf.

It comes down to this: there are not a lot of buyers out there, and those who are looking want value. If a house needs work, they want a discount. And so, our offer of over $425/sf for the house on our street was actually high. I keep thinking it is worth closer to $400/sf, but then the sales come through and begin to make me think otherwise. We wonder when they will come back to us, although my husband suspects that it would be too difficult for them to admit they were wrong. Of course, we would admit we were wrong too, and lower our offer. That should go over REALLY well. We are still hearing about “quiet layoffs” all around the New York area, and if the trend continues, Real Estate as a lagging indicator of the economy could continue to slide. No one can predict the bottom of the market – it is a guessing game. My guess is that the Real Estate market will keep us guessing!

(Taps)

The deal is dead. At least, for now. We went back and forth with the owners of the house, and before we submitted our “final offer”, we went to look at it again. Unfortunately (for them), it was a rainy day. The basement smelled musty, the gutters were showing their inadequacy, the rotting wood trim had nowhere to hide, and we decided that our most recent offer (we had increased our offer by $75K at this point) was as high as we could go. We began to feel scared about the daunting task we might be about to take on: fixing this neglected house. To be fair, the more anyone looks at any house, the more they will be able to find wrong with it. But when we first saw it, we had stars in our eyes, and the owners should have capitalized on that. There was a time, a few weeks ago, when we would have offered about $25-$50K more than where our final offer ended up. But as our enthusiasm waned, and our feet came back to earth, our desire to negotiate further dissipated as well. I guess that’s why they say, “Strike while the iron is hot”!

The real estate market in town is dead in general, so I would be surprised if they were able to drum up an offer at all between now and the end of the year. One of the sticking points in the negotiation was the closing date. They desired a January 15, 2011 date, while we had asked for March 31, 2011. We are not clear on why they were in such a hurry, considering that they HAD A BUYER WHO WAS WILLING TO PAY A LOT FOR THEIR HOUSE, but we stood our ground and, eventually, they gave in to our desired closing date. However, as far as price, we ended up being about $45,000 apart. Our final number was 10% below the asking price. Most houses here are trading at prices more than 10% below the final asking price, which is usually a reduced price to begin with. The other problem for them was that they agreed to a bum deal with their broker. She required them to have a contract signed on the private sale within one week after the Listing Date in order to avoid a brokerage commission. We received the owner’s final offer the day before the deadline, with a stipulation that we would need to have a contract signed by close of business the next day. Hilarious! Considering that we had not yet agreed to terms, and had not completed a professional inspection of the premises, signing a contract within 24 hours was a completely unreasonable expectation. In the end, the owners admitted that our offer was too low and that they felt they needed more time to test the market. I wrote back that we do understand (because we do – even though we know we are right! Ha!), and wished them the best of luck.

Since then, we have had several chance encounters with them on the street, and it has all been perfectly friendly and charming – there are no hard feelings at all. Unfortunately for them, it has rained for about six days straight, so there have been few (if any) showings of the property). Did I mention that one of my closest friends (a true BFF) lives across the street from them and has been spying regularly? She also offered to park an old beat-up pickup truck on her lawn and throw old beer cans around in order to make the neighborhood appear less than appealing to any potential YUPPIE buyers. What a pal!

What does the future hold? We heard last night from some friends on Wall Street that trading volume is slow – and that more layoffs are looming, even if not the 80,000 predicted by one fairly reliable analyst. Since this town’s real estate values are so closely tied to Wall Street wealth, I would say that’s bad news for anyone trying to sell a house. Will our neighbors get offers? Yes – it is a fabulous neighborhood with many amenities, and the house has good space. But they will get lowball offers, and will have to pay a broker 4% of the sale price. They will end up with less money in their pocket than if they had taken our deal. There is no doubt in my mind, they truly believe, or want to believe, that their house is worth more than it is truly worth. There is nothing wrong with that mentality, unless you are in a hurry to move, and you have no offers. We have not heard the last of them. It is really just a question of “when” we will hear from them again. We will see them on Halloween when my children go up to their door for some candy. And I wonder – will they offer us a trick, or a treat?