By Diane Saatchi
I recently had two separate conversations about real estate that led me to the same conclusion: Buyers and sellers have never been more polarized.
The first conversation was with a home shopper who said he assumed and expected he could buy a prime property significantly below the listed price. He went on to explain that many properties he’s watched in his year of looking ultimately sold well off the initial offering price — he even cited recent news articles about such sales. He was not in a hurry to buy and was determined to wait for a legendary deal.
This home shopper decided that waiting would mean even lower prices and more choices, since so many of the properties were first listed years ago when the market was higher are bound to ultimately trade at steep discounts. Back then, aspirational pricing was not necessarily wise — nor was it rare. Many homeowners priced high thinking or hoping a rising market and strong demand would catch up to their prices and schedule. But life happens, markets change and those who could no longer wait sold at current market valuations, which were considerably lower than they were when first listed. Hence, our home shopper’s expectation of steep discounts.
The second conversation was with a homeowner who has not officially listed but is hoping for a situation like those of her friends who got “knock on the door” offers with “make me sell” prices way beyond their wildest expectations. She would at “a price” but does not need to sell and is also happy to wait for an exuberant buyer with endless funds to come knocking. Like the waiting buyer, she is not in a hurry. However, those sales she cited happened during a seller’s market, when inventory was scarce and competition strong. Those “off market” deals still happen, but not so much right now, when there’s plentiful inventory and less competition than there’s been in years past. If she can wait, though, maybe it will happen sometime in the future.
Notice the common thread between these conversations: Neither the shopper nor would-be seller are in a rush, and they’re each holding out for the deal of a lifetime.
With more information available than ever, shoppers and sellers are coming to different conclusions
These are not irrational conclusions of naive or misguided people. Both are thoughtful, intelligent adults with successful careers who are up to date on the economy and market conditions. Past profitable real estate transactions factored into their future expectations. However, each relied on different data points and thus supported their divergent views of the same market conditions.
Although earlier blogs have addressed the differing visions of buyers and sellers, their differences seem even more, well, disparate right now. I think that might be due, in part, to new and unexpected circumstances.
In the past we could predict with some confidence that our market (luxury, second home real estate in general and the Hamptons in particular) slowed down going into an election cycle and recovered soon thereafter, that the volume and direction of real estate was in lock step with the stock markets and that low interest rates benefited real estate.
From the perspective of today’s market, however, the election cycle that began in 2015 seems to be ongoing. While the stock markets have never been higher and interest rates low for a decade, our inventory has grown, and volume of sales and prices have declined. Many homeowners find themselves getting offers to sell considerably below their initial costs. The Tax Cuts and Jobs Act upset some of the advantages of owning real estate. Our almost universal belief that real estate values trend upward and that one could expect to sell at a profit after several years is no longer so.
Thanks to the proliferation of real estate websites, it is very easy to see time on market and price change information, some of it correct — but not always. Valuation data, especially in the Hamptons and New York City, is often incorrect in either or both directions. Sellers are thrilled when the posted valuations are high while buyers are quick to dismiss; the reverse is so when valuations are low.
When the facts we relied upon are no longer relevant or predictable, we can count on human nature to chime in. It is not unusual in times of stress or in the midst of disruption to revert to comforting versions of the past or imagine the future as we would like it to be. In other words, in the absence of clarity, we tend to evaluate evidence based on the outcome we desire. I suspect the buyer and homeowner mentioned above did just that.
The recent market disruptions have left us with more and growing inventory and fewer buyers. Those buyers see time on their side because as they look, inventory increases and prices go down. We are seeing transactions when there is urgency on the seller side; those who want to sell price at market or reduce until the asking price excites the customer base. Sellers with patience remain homeowners.
© 2019 Diane Saatchi