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Example of gap in expectations between buyers and sellers

 
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admin
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Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston

PostPosted: Thu Feb 15, 2007 3:29 pm GMT    Post subject: Example of gap in expectations between buyers and sellers Reply with quote

The following was submitted yesterday via the Boston Bubble News suggestion box:
Quote:


URL: http://boston.craigslist.org/gbs/rfs/276936153.html
Description: Seller Prices home >$120K over assessment, reduces price $1K, then expects "serious offers"


While that description by itself probably would have been too narrow of a topic for the news list, it does provide an interesting example of psychology on both sides of the equation. On the one hand, the seller is expecting a huge premium on a newly purchased home, possibly because he saw that this was the norm over the past few years and possibly because he feels like he earned the premium by improving the property. On the other hand, the (possibly) prospective buyer who submitted the item looks at the numbers and is put off by the perceived audacity of someone who would anchor the negotiations much higher than the numbers would suggest and preemptively dismiss lower offers based on external data as not serious.

The Zillow entry for the house indicates that it was purchased 9 months ago for $375,000, had an assessed value of $328,400 in 2006, and currently has a "Zestimate" of $372,233. The asking price is $458,000, which is 39% above the assessed valued and actually a little greater than the $120K that the submitter indicated. However, the ad for the property does indicate that the seller made several improvements: "brand new fully applianced kitchen," "brand new bathroom," and "entire interior freshly painted."

Are the improvements worth $130K or alternatively $83K if you use the seller's purchase price as a basis? To the seller, they seem to be, especially since so many others made out like bandits reselling homes with much less effort. To the prospective buyer, they are easily overlooked. This may be a good example of why the market is effectively at a standstill at present.

Note: I did not see anything in the ad or elsewhere that indicated a reduction of asking price. The submitter may have been basing that statement on additional information.

- admin
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Eti22
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PostPosted: Thu Feb 15, 2007 6:18 pm GMT    Post subject: 2 bedroom for $450K Reply with quote

Goshh, almost half a million for a 2 bedroom house, great. Good thing they do not ask for an arm and a leg on top of it.
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Looker
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PostPosted: Thu Feb 15, 2007 7:59 pm GMT    Post subject: I suggeste the post here's why Reply with quote

This seller has been advertising on Craigslist for months at $459K.

Months ago he "threatened" in his ads that there was a deadline of one week before he was to turn it over to a RE agent whereupon he claims that the price would have gone up.

That never happened.

He then reduces the price by $1,000 and expects buyers to come with "serious" offers.

My point is that why does this seller feel entitled to a "serious" offer when he prices at an unserious price and reduces it a even more unserious amount?

BTW the property is <1000 sq ft.
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wait
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PostPosted: Thu Feb 15, 2007 9:08 pm GMT    Post subject: another anecdote Reply with quote

These are the people who are still euphoric from the halcyon aughts. A friend of a friend is a S. End flipper who has seen the light. He's just sold (after a 9 month listing) 25% below what he could have gotten a year ago for a comparable property. He admitted to me that he expects this will be the norm now, but probably won't change his prices too much initially. Tough to break a habit, until it starts to harm you.
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AgentGrn



Joined: 28 Sep 2006
Posts: 82

PostPosted: Thu Feb 15, 2007 10:15 pm GMT    Post subject: Hence why I'm waiting to buy. Reply with quote

Based on the selling price, I'd put that house at about $200k overvalued.

Since you mentioned Zillow, I popped it in and looked at the Zestimate.

For the 2/5/2006 update, it listed a drop of $18,662 over the last 30 days. This is less than the price of my new (to me) car. The peak Zestimate is $442,957. The 10-year graph has it at $158k.

It's definitely not time to buy. Smile
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El
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PostPosted: Fri Feb 16, 2007 5:27 am GMT    Post subject: helping sellers see the light Reply with quote

As a buyer in today's market, I feel a responsibilty to inform sellers on the "right" price. It's a given that most sellers now are still in denial about correct real estate values. There's a natural tendency for them to believe we're still in 2005 Smile I've waited through the high points of this market when sellers were robbing the banks and making out like bandits. For starters my base offers are typically 20-30% below list price, we have to consider realistic appreciation levels for the next 5 years. Just hoping other buyers are doing due diligence before making offers......together we can help sellers see the light.
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slateberry51
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PostPosted: Fri Feb 16, 2007 2:04 pm GMT    Post subject: Buyer-seller gap almost a quantifiable phenomenon Reply with quote

When home values are rapidly rising, the distance between asking price and offer amount shrinks; in some cases, such as the early part of this decade, it can be negative (offers higher than asking price). Sellers have no problem accepting this situation and sales proceed, inventory clears, reinforcing the trend.

But the other side of the coin occurs when home values are falling: the spread between asking prices and offers grows. to the point that sellers can't accept the spread, even though it is a natural consequence of the numbers and data. The seller's unwillingness to accept these seemingly low offers causes sales to choke up, and inventory builds, reinforcing the trend.

I tracked 74 houses in my town that were for sale in the last six months of 2006. Only 21, or 28% sold. (According to Karl Case, even in a bad market you would expect more like 70% of the inventory to clear in 6 months). The remaining 72% were those sellers that could not accept the spread between their asking price and the offers they were getting. Of those that did not sell, 34 houses, or 64%, pulled off the market for the dreary winter selling season. When these sellers (who in a normal year would have sold their houses by now) put their houses back on the market in the spring, along with the normal flow of houses coming up for sale this spring, there is going to be an incredible glut of inventory. They will wish they had accepted one of those 2006 offers that seemed "insulting." The real insult is coming this spring, and it is caused by sellers unwillingness to accept market conditions and what are now reasonable offers--not by buyer "stubborness".

I wish I had access to original asking prices, selling prices, and market appreciation rates for the Boston area for the past few years. I would not be surprised if the numbers charted out into a neat function.
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RMG
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PostPosted: Fri Feb 16, 2007 7:21 pm GMT    Post subject: Phantom Bidding Reply with quote

These sellers think they are in a bidding war with potential homebuyers. They are not. Many, like me, simply won't buy until this market becomes reasonable and I'm not going to get sucked into buying a house that's way over-priced just because the idiot seller did.

I will rent another year if I have to.

Until I see some real price drops, I'm not going to buy. These sellers are in a bidding war with themselves.
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Fri Feb 16, 2007 9:35 pm GMT    Post subject: Reply with quote

You are right. There is perception and reality. The reality is that sellers are nervous. They don't want buyers to know that they have them over a barrel. Instead of playing defense some play offense. Usually buyers are younger and older listing agents and sellers know that they can get away with playing the Jedi mind trick on the younger buyers. If they catch a whiff that you love the place they'll say things like "Oh we're having an open house". They're trying to put fear into you, fear of your competition (other buyers). If they try this, and many will, just say "Great, that buys us some time too, we're going to go out and check out some new listings and see a few that dropped into our price range recently". And then seriously do it, you'll find out that the best way to discipline yourself is to be fully aware of what is available and exploring your options is a great way to keep from getting too excited about one property. You'll find out that there is always another good deal, so don't feel bad if you lose out. My wife and I lost out on a bunch and ended up with the nicest house we ever looked at to buy.
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PostPosted: Sat Feb 17, 2007 3:31 am GMT    Post subject: Reply with quote

"They're trying to put fear into you, fear of your competition (other buyers). "

This is so true...I'm currently renting for a few months in southwest florida, ground zero, or at least one ground zero. My partner and I would like to buy a second home down here. My father who believes passionately in the "they're not making any more land (especially on the water)" theory of real estate, has even offered to subsidize us to the tune of 50k....But it's just impossible...One realtor we were talking to, "warned" me, that I needed to act now (this was last November) because after the holidays the sellers would be getting much tougher...It's laughable. I said to her, "let 'em"

The coverage of the real estate market down here is pathetic YOu wouldn't think it possible, but somehow the local paper managed to write their story on the numbers just out on the price declines all over the country, including a whopping 18 percent down here in the Sarasota area, in such a way that you'd think it was all good news...There was the obligatory D. Lereah quote and much was made of the fact that in a neighboring county, sales were down only 3 percent from the previous years 4th quarter...

It seems obvious to me that, assuming you can even trust that number, there was some pent up demand and when prices came down sufficiently some houses sold..Big deal. We're staying on the island of Venice, and since arriving last November, we've not see one house sell down here...Not one instance of a "for sale" sign replaced by a "sold" sign, or even a "sale pending"..

It's ugly down here, and going to get much worse. It's tempting to take the old man up on his offer, but had we taken his advice last year, that 50k would have been up in smoke.
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Sat Feb 17, 2007 3:48 am GMT    Post subject: Reply with quote

I just helped my cousin in a negotiation on the coast of Florida. He got approx. 28% off of asking price. I'm told that you can just about ask whatever you want down there. I think I just read somewhere that the Sarasota area had the steepest declines in the nation. They have some weird "homesteading" tax laws that create a lot of screwy and unfair property assessments and property tax scenarios. Essentially they try to get the snowbirds to pay more in taxes than the natives and full time residents. The snowbirds drove up prices with all their dirty northern money Smile Like many places, Florida has some awesome people, but you also hear that they have many sharks and fly-by-nights.

This is another issue that could weigh on the prices of Massachusetts housing. Because we are the first to feel the real price declines along with one or two areas, the rest of the country could feel our pain a year or so out. If this is the case it will provide a greater case for younger people to find a better life elsewhere. If Florida becomes a cheaper alternative, some of those babyboomers will get out of Massachusetts while the gettingis good.
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PostPosted: Sat Feb 17, 2007 12:55 pm GMT    Post subject: Reply with quote

I'd say the greatest damage in this area was caused by speculators (we'll not dignify them by calling it investing)...At the height of the insanity in 04 and 05 flippers were everywhere...Finally in 05 some of the smarter, more forward thinking developers who were becoming increasingly nervous that the party was being spoiled by these guys, even went so far as to try banning them by writing residency requirements into purchase and sales agreements....When the bottom started to fall out, these guys got a share of the blame, but of course that's ridiculous.

Even the older condos down here along the beaches seem to be half empty, and it's the height of snowbird season.
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mgg



Joined: 04 Jun 2007
Posts: 4

PostPosted: Mon Jun 04, 2007 8:28 pm GMT    Post subject: Reply with quote

I have a similar experience actually. Recently, I found a beautiful 2 bedroom condo in Somerville. It's about 1000 sq feet and in a good location. Asking price was $399k which I thought was ridiculous. Sure enough I looked on zillow and saw that the estimated price was $355k which is still over-priced in my opinion, but much more in line with what it should be (I think $340k is probably fair). Furthermore I learned that the sellers are a young couple who bought the place in July of 2004, which was probably the worst time to buy. They paid $375k and it appears they put in a bit of money to renovate the kitchen (granite counter tops and new appliances but nothing terribly extravagant). I learned that they originally listed it in April for $419k and then again for $409. Now it's down to $399k and it still needs to come down some more. It's sad to see another great condo that is just going to sit there until sellers finally pull their heads out of their asses and realize no one is going to pay those kinds of prices anymore.
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AgentGrn



Joined: 28 Sep 2006
Posts: 82

PostPosted: Tue Jun 05, 2007 3:29 pm GMT    Post subject: Reply with quote

Nobody should have paid those kinds of prices in the first place.
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