Archive for the 'Selling' Category
Multi Family Property in Distress
I had some downtime last night, so I decided to look through the MLS to see how the multi family markets are holding up in the current environment. Although multi family properties can be found throughout the region, they make up a small fraction of the overall residential market in most towns. I started by identifying the towns in which they represent a meaningful portion of the housing stock, which makes the data more interesting and relevant. I settled on Hartford, New Britain, New Haven, and Waterbury as the focus of the research.
All data was pulled from the CT MLS and reviewed and compiled manually. “Distressed” property to me means that either a bank already owns the property or the sale will require lender approval because it is a Short Sale. This analysis does not include properties going through foreclosure if they are not listed in the MLS because there is no central data source which collects that information. And when I say “reviewed manually” that means me going through every single MLS listing for that type of property and counting it manually. The MLS does not require agents to enter in the owner, nor does it require us to enter in a Short Sale, although those data fields do exist. Some agents fill in the information, but most do not, so the easiest way to gather the data is just to look through and manually count. It is not fun, but is doable while sitting on a couch on Tuesday night, watching TV. I counted a property as Distressed if the owner was listed as Corporate or a bank, if the Short Sale field said Yes, or if anywhere in the listing description or agent remarks it said that the sale needed lender approval, was bank owned, or was a short sale.
Here’s what I found. Remember, data from the MLS is deemed reliable, but not guaranteed. My ability to count correctly while watching House Hunters is deemed fairly reliable, but also not guaranteed…
Some Observations…
1. The levels of distress among multi family properties is consistently above 20%, and in some cases above 30%. In absolute terms, these numbers are higher than we have seen in previous years and show that the Connecticut’s cities have felt some of the impact of the “housing crisis.”
2. The levels of distress among multi family properties is generally higher than among single families. Unfortunately, the data does not give any clues as to why multi families have become distressed at a higher rate. There are many factors that play into a property owner’s decision to default, but the most likely explanation is that investors took on too much debt to buy marginally profitable properties in hopes of continued price appreciation.
3. Inventory levels vary between the towns. This suggests that there are more buyers shopping in New Haven, where the multi family inventory is 7.3 months, versus Hartford. The other side of the coin is that there may be more opportunities for buyers right now in Hartford.
Connecticut is experiencing distress in its multi family markets, and seeing it at a higher rate than the single family properties in the same markets. This creates opportunities for buyers with cash, whether they are looking for investment properties or plan to live in one of the units themselves. Next month’s market statistics post will include updated data for distress in the single family markets of our usual towns.
Thoughts on Pricing Homes
Suppose a home came onto the market late one afternoon, received an offer that evening, and went under contract a day later. Is this a good outcome for the seller? At first glance it seems like it probably is - they resolved their uncertainty quickly, and by accepting right away they presumably got an attractive price.
But maybe the fact that the first offer came in immediately suggests that the home is underpriced. And maybe all the other showings that are quickly scheduled for the following days supports that there is a lot of interest in the home. The seller may be missing an opportunity to let the market develop over a few days as the various buyers submit their best offers.
I’m a little mystified right now because this situation isn’t a hypothetical. One of the submarkets that I follow closely has very little inventory and a lot of interest from buyers. Recently I was able to get one of my buyers into a property before it went under contract, but even though I, and other agents, had other showings scheduled for the next few days, the sellers accepted the offer that was put forth the first day the property was on the market, within about 36 hours after the it was available for showings. Based on clients’ schedules, sometimes it is impossible to get all interested parties into a property on the first day.
Until the final selling price is known (after the property closes) it’s difficult to say for sure if the sellers maximized the home’s value. But unless the buyer put in a “Godfather offer,” an offer you cannot refuse, I suspect that the sellers may have done better for themselves by putting a hard deadline on showings a few days out, collecting offers and evaluating them all at the same time after everyone had an opportunity to bid.
In general, I see three common strategies for pricing homes.
1. Overprice and Hope to Find an Uneducated Buyer. This happens a lot, and for a variety of reasons. Most of the time the seller is convinced that their home is worth a certain amount and does not listen to any sort of analysis. There is always an agent that will take their listing no matter how unreasonable the price. Sometimes the strategy works, but more often the home sits on the market for a long time and doesn’t sell. When the seller is finally willing to listen to other opinions, their listing has become stale and they end up selling for less than they would have if the property had been priced properly from the beginning.
2. Price it Fairly. My preferred strategy is to look at the market conditions and the abundant data to try to set a competitive price that is neither too high nor too low. Homes priced well sell relatively quickly, and close to the asking price. The supply and demand dynamics of the submarket will determine how quickly the property sells.
3. Underprice for a Quick Sale. A variation on this final strategy is what I saw recently. Pricing a home on the low side allows it to compare favorably to its competition, generating immediate interest. The seller always has the option to accept any individual offer (if it is attractive enough), but may be best served by creating an auction environment by leaving the property on the market for a few days. For example, if an underpriced home is listed on a Wednesday afternoon, then they could start allowing showings immediately but give buyers a Sunday afternoon deadline (after an open house has also been held) for their highest and best offer. This would allow sufficient time for all interested parties to respond, yet not drag the process out unnecessarily.
The key variable in each of these strategies is knowing how your home is priced. Which strategy are you actually pursuing? And how do you maximize price based on your specific pricing strategy? These are scenarios you should discuss with your agent to make sure you’re not leaving money on the table.
Home Pricing Strategy for the Internet
You’re ready to sell your house and you’ve met with your agent to go over their pricing recommendation and marketing plan. The agent feels your house would be competitive in the market if it was priced anywhere between $290,000 and $300,000. So what do you choose as a listing price? There are lots of options, but the most popular choices in this situation would most likely be $299,000 or $299,900 or $300,000.
One aspect of pricing that most people don’t think about is how the price you choose affects the number of people that find your home through their internet searches. For example, let’s say you choose to price your home at $299,000 or $299,900. You want the psychological advantage of pricing your house just under $300,000, without much downside to you. There is an issue with this strategy when it comes to most real estate website searches though.
Pretend you’re a buyer. Most real estate websites use drop down menus to allow you to choose your price range when doing a property search. The values in the drop down menus are static (you can’t change them) and typically in increments of $10,000, $25,000, or $50,000. If I’m a buyer searching for homes up to $300,000, it’s perfectly fine if you price your house at $299,000 or $299,900. I’ll see the result. But what if I’m a buyer and I’m looking between $300,000 and $400,000? I won’t find your house because these static searches have blocked you out.
For example, right now in West Hartford, according to the MLS, there are 13 houses actively for sale between $290,000 and $300,000. One of these houses is priced at $300,000. Nine of these houses are priced between $299,000 and $299,900. Two of these houses are priced at $298,000. The 11 houses that are priced between $298,000 and $299,900 are missing all of the buyers that are starting their search at $300,000 on the web, while the one house priced at $300,000 is showing up for the buyers that are searching up to $300,000 and those with a price range starting at $300,000. Which seller do you think has more people finding them online? Which seller would you want to be?
Realtor.com recently updated their website and replaced their pricing drop down menus with text boxes. Unfortunately most people have been conditioned to search using the typical incremental values of $10,000, $25,000, and $50,000. Most buyers will not think to start their search at, say, $297,000 to pick up all of the properties that are priced at $299,000 or $299,900. Agents see this similar situation in the MLS. We have text boxes where we enter the price ranges when setting up property searches for our buyers. The agent needs to be astute enough to manually enter a starting price slightly below the buyer’s range in order to pick up properties ending in $XX9,000 or $XX9,900. Agents, like buyers, sometimes have tunnel vision and don’t necessarily do this. So the buyer is missing out on potential matches. One of which may be your home.
If your goal is to have as many buyers find your house as possible, it may be best to go against the conventional pricing psychology and choose the slightly higher price that starts with a bigger number. More people will find your home during their online searches. Besides, when I’m showing a house that’s priced at $299,900 and the buyer asks me how much it is, I say “$300,000″ because in reality, that’s what it is. You’re not really fooling anyone.