2015 Hartford County Single-Family Sales Data

2015 was a good year for Hartford County real estate. The total number of closed single-family sales recorded in the Connecticut Multiple Listings Service (CTMLS) database was 7,701 (as of 1/6/2016).

2016-01-06 Hartford County Single Family Sales

The number of closed sales increased by 9% over the 2014 total. As the above chart shows, the market is approaching the activity levels seen in the early 2000s. The 7,701 sales are over 14% below the 2005 peak.

The increase in sales have not been equally distributed across price bands. Most of the increases have been at price points of less than $400,000, with essentially no increase in sales above $400,000.

2016-01-06 Hartford County Single Family Sales by Price Band

Year end is a good time to look at pricing trends. The chart below updates the annual calculation of median and average home prices. Although the number of sales has increased over the past few years, prices have been falling.

2016-01-06 Hartford County Single Family Prices

The big picture summary is that the region’s real estate market is still working through the impact of the financial crisis. The good news is that interest level is increasing, as shown by the increase in deals. On the other hand, prices are still adjusting downwards to look for a bottom.

We’re looking forward to seeing what 2016 brings … feel free to reach out to us if you have questions or would like more information.

Q2 Condo Contracts: Good News for Buyers

The Hartford County Condo market has fallen out of sync with the traditional seasonality, creating a good opportunity for buyers with lots to choose from and a more favorable pricing environment to go along with very attractive mortgage rates.

Hartford County Condo Contracts by Month - June 2011

The data shows a 13% decrease in the total number of contracts from the second quarter of 2010. However, looking more closely at the individual months, we can see that 2011 showed very steady performance – about 150 deals came together in each of the three months. The comparison to 2010 is tricky because of the federal home buyer tax credit. Last year there was a huge surge of activity in April 2010 followed by two much quieter months to round out the quarter.

Hartford County Condo Contracts by Town - June 2011More concerning is the lack of a meaningful bump in overall activity during the spring 2011 months. The 2009 market showed more traditional seasonality, which gives a sense that 2011 spent the second quarter of the year headed in the wrong direction.

Looking at the numbers for the individual towns, sorted by total Q2 2011 contracts, we can see that performance is all over the map. Some of the towns near the top of the list (towns with more condos in their housing stock) performed pretty well – Farmington and Enfield were more active than last year, while South Windsor was basically flat. Other towns with lots of condo communities struggled to match last year’s totals, showing declines of up to 40% in the number of contracts.

Inventory levels continue to increase, which is another important indicator of the direction of the market. As of this past weekend, it would take more than 10 months to work through the inventory currently on the market.

All of the data clearly points to an opportunity for buyers. The elevated inventory means that there are lots of properties to tour, and to choose from. The lack of a real increase in contract activity through the spring months shows that, for whatever reason, condos just aren’t as popular these days. Mortgage rates continue to be quite attractive, and loans are available for those with good credit and reasonable debt loads.

Renting? It may make sense to run the numbers to see if this is the right opportunity to become a homeowner.

Curious about investment properties? Being a landlord for a condo is a little bit easier than managing a multi-family or other type of property. It’s still a big commitment, but there are fewer things you’re directly responsible for as the landlord of a condo.

We would be happy to talk about any situation, and have personal experience going through both of these scenarios ourselves, in addition to helping others understand and work through them.

Just Plain Zilly…

Trinity College ChapelI helped a buyer write an offer last week. It was a strong offer on every aspect but price. I could understand how the seller might not think it was a fantastic offer price-wise. But the rational their agent gave me regarding their counter offer was nonsensical.

You see, the agent told me that Zillow priced the property at $XXX,XXX, so that supported the price. My response was “Excuse me? You’re using Zillow to justify the list price? This property has been for sale for TWO YEARS and you are using Zillow to say that it supports the list price? Do you have any MLS comps that support the price?” The agent continued to defend the Zillow price, even though I later found out the range on Zillow actually included the price my client offered. I also took a closer look at the comparison sales that Zillow used to run its algorithm to calculate the Zestimate. None of the comparison sales were anything that an appraiser would ever use. Essentially, junk data.

I am not a fan of Zillow’s Zestimates and I can write more about it in a future post. What blew my mind was that the listing agent actually felt this was good information.

How do I pull sales together when agents aren’t being logical and advise their clients in this way?

Thoughts on Pricing Homes

Peony at Elizabeth ParkSuppose 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.

Pricing a Home – Price per Square Foot

Pricing homes is often more art than science. Some of the factors that play into a recommended pricing range are nearly impossible to measure or quantify. For example, how do you put a price on location? Everyone knows the old adage that the three most important factors in real estate are location, location and location. But how do you systematically assign value to such a complex quality?

The practical answer is that we look for similar homes that have either recently sold or are currently on the market. We then make adjustments to account for differences between the properties. One day, there will be databases that can quantify what we currently consider impossible to measure, but we’re not there yet. In the meantime we visit as many properties as possible so that we can rely on basic metrics and human judgement.

Price per Square Foot ($/SqFt) is one of the most common basic metrics used to quantify the intangibles. The $/SqFt of homes often differs greatly between towns as a result of the desirability of individual communities. Perceptions about crime and schools play into the values, as do the physical characteristics of the housing stock. The $/SqFt can even vary widely within towns if certain neighborhoods or streets are highly desirable addresses.

I decided to take a closer look at how the $/SqFt varies within one particular school district in one particular town. The main question I wanted to explore was, “Could I calculate the list price of a home if all I knew was how big it was?” Here’s what I discovered about the 28 homes currently on the market in the Norfeldt school district in West Hartford.

2008-10-01-home-price-vs-home-size

As one would expect, there is much less dollar variability in price for smaller homes as there is for the larger properties. Interestingly, there are two homes that are both about 5,500 square feet that are priced about $800,000 apart. There must be a number of factors at work to produce such a large price difference.

Knowing the size of a home is a surprisingly good predictor of its list price in this particular school district. Excel reports that our very simple linear model for pricing homes accounts for over 87% of the variability. So if I had a 2,000 square foot house to sell, the model suggests pricing it at $352,570.

Now let’s calculate the $/SqFt for all these properties and see what that tells us. First we’ll look at it as a function of the home’s price.

2008-10-01-price-per-sq-foot-vs-home-price

The best fit line once again slopes up and to the right – more expensive homes tend to cost more on a $/SqFt basis. I suppose this shouldn’t be surprising since high-end properties are more likely to have luxurious extras.

The most interesting result of this chart is that there is much more variation at the lower price points. Perhaps this is best explained by my friend Alan’s observation that here in Connecticut (as opposed to The South) two adjacent homes, even though they look exactly the same on the outside, can be completely different inside due to their level of updating. His previous experience had been that all houses in the neighborhood were very nearly identical both inside and outside since they were built as part of a large, recent development.

2008-10-01-price-per-sq-foot-vs-home-size

Out of curiosity I also plotted the $/SqFt as a function of the home’s size. In this case there is very little relationship and lots of variation at all sizes. Anecdotally, it is common to see smaller homes that are impeccibly upgraded and maintained with the highest $/SqFt.

Although it is by no means a perfect metric, understanding $/SqFt is important for both buyers and sellers as a proxy for the many intangibles of real property. Buyers should think critically about whether a property in which they are interested warrants a premium price. And sellers need to consider $/SqFt relative to their competition when deciding what to ask for their home. $/SqFt will likely be one of the many supprting data points raised during negotiations – but only after buyers fall in love.