Monday, July 03, 2006

Setting Prices In Slow Markets

From the Wall Street Journal Online:

Sellers Find It Difficult to Set A Price in a Volatile Market

A year or two ago, pricing a house was simple. Sellers only had to look at what their neighbors were charging, add 10% and wait for the bidding wars to begin.

Now that the market has grown uncertain, homeowners are at more of a loss when deciding what price tag to put on their property. So in an attempt to attract buyers, some sellers are experimenting with non-traditional strategies for setting prices. Approaches include starting high and cutting the figure every few weeks, dropping the price to a different bracket to attract new shoppers or giving a range of numbers rather than one set figure.

Home-sellers are trying these strategies as real-estate markets across the country continue to send mixed signals. Listings are on the rise -- they are triple last year's levels in parts of Southeastern Florida and five times higher in Phoenix. In Washington, D.C., home builders are dumping inventory and undercutting existing home prices by offering rebates on closing costs or outright discounts. Overall, home prices are growing at the slowest pace in two years, though they were still up 12.5% in the first quarter from a year earlier, as measured by the Office of Federal Housing Enterprise Oversight. In some affluent places, like Palm Springs, Calif., and Palm Beach County, Fla., single-family home prices have flattened or declined.
...
When times are slow, most agents recommend setting a price that's just at or 5% below the market. Yet not everyone takes that advice. Below, a sampling of four unusual pricing strategies.
...
Two weeks ago, Rita and Daniel Davis put their three-bedroom Craftsman bungalow in Minneapolis on the market for $284,900.

A week later, the price tag was $279,900.

Cutting the price is common practice -- just not so quickly. In Minneapolis, sellers generally wait 30 to 45 days before making a reduction, says Mary Leizinger, a real-estate agent who is working with the couple. The fast drop wasn't due to unfamiliarity with the market. Before they listed their house, the couple had visited seven others for sale nearby. They discovered that many were similar to theirs, and worse, there was something for sale on every block. By cutting their price within days, the couple hopes to send a message that they're flexible. "We're between a rock and a hard place," says Ms. Davis, a businesswoman.
...
In February, Jonathan Hinkle, a telecommunications account manager, put his five-bedroom home in Lansdowne, Va., on the market for $1.35 million. He purposely set it high and cut the number by $50,000 a few weeks later -- and continued dropping it by $50,000 every few weeks until it reached $1.05 million. Mr. Hinkle, who bought the house two years ago, says that's close to the lowest price at which he can afford to sell.
...
Cincinnati professor John Bryan tried to price his home carefully. He surfed through local listings online and then waited until May, when real-estate sales are traditionally strongest, to put it on the market. (He bought a new five-bedroom home in January, a slow month for sales.) He finally set the price at $324,000.

He received one contract, for $307,000, but that fell through. He has just lowered the price to $299,900, even though he may lose money on the deal after closing costs and commissions. (He bought at $250,000 in 1998 and added $56,000 in renovations, including a new kitchen, air-conditioning system and landscaping.) He hopes the new price will bring his listing to the attention of a new group of Internet shoppers. Mr. Bryan says he is disappointed that he had to drop the price so low, but he thought it was the best solution. "I'm trying to break a psychological barrier," he says.

34 Comments:

Blogger Metroplexual said...

"He received one contract, for $307,000, but that fell through. He has just lowered the price to $299,900, even though he may lose money on the deal after closing costs and commissions. (He bought at $250,000 in 1998 and added $56,000 in renovations, including a new kitchen, air-conditioning system and landscaping.) He hopes the new price will bring his listing to the attention of a new group of Internet shoppers. Mr. Bryan says he is disappointed that he had to drop the price so low, but he thought it was the best solution. "I'm trying to break a psychological barrier," he says."............................

Am I missing something? Didnn't he live there for 8 years and also recieve tax breaks?

7/03/2006 06:03:00 AM  
Blogger Metroplexual said...

Oh yeah. How is that a los when it sounds like he is still ahead of the game on the "if I rented instead of bought".

7/03/2006 06:05:00 AM  
Anonymous Anonymous said...

Hi Everyone,

I lived in my fixer upper ten years before I got around to updating it. I would also never buy another house first then sell the current one I'm living in. I have seen too many people get burned doing that.

Chow Dog Owner

7/03/2006 06:55:00 AM  
Blogger InvestorDavid said...

I read somewhere (maybe here?) that one owner put up his house for $1 (yes, one dollar) hoping that it will start a bidding war or maybe someone might offer more than what he was initially thinking.

7/03/2006 06:58:00 AM  
Anonymous Anonymous said...

Oh Doesn't everyone just feel sorry for these money grubbing sellers. Oh instead of making 100% in 3-5 years they may only make 25%.

COOOOOOOOOLAPSE!

BABABABABABABA

BOOOOOOOOOOOOYcott Houses!

Nada NOOOTTING NO MAAS to High Monthly slave payments

Bob

7/03/2006 08:15:00 AM  
Anonymous Anonymous said...

Bob,

You are one sick dude.

7/03/2006 08:31:00 AM  
Blogger grim said...

Construction spending falls unexpectedly, down 0.4%.

From Marketwatch:

U.S. construction spending down 0.4% in May
Biggest drop since Sept. 2004

This is the biggest drop in construction outlays since September 2004 and the first two-month decline since February and March 2003.

Economists had anticipated an increase of 0.2% in May, according to a survey conducted by MarketWatch.

Outlays in April was revised lower to a 0.2% decline from 0.1% previously.
...
In the private sector, spending on residential projects fell 0.8% to $651.2 billion.

7/03/2006 09:08:00 AM  
Blogger grim said...

ISM unexpectedly lower.

From Marketwatch:

U.S. manufacturing sector grows slower in June

The U.S. manufacturing sector grew at a slower than expected pace in June, the Institute for Supply Management reported Monday. The ISM index fell to 53.8% from 54.4% in May. Economists expected an increase to 54.9%. Readings over 50% indicate expansion in the factory sector. The new orders index rose to 57.9% in June from 53.7% in May. The prices paid index slid to 76.5% from 77.0%. "Although the rate of growth slowed slightly, renewed strength in June's New Orders Index provides encouragement for the third quarter," said Norbert Ore, head of the ISM's survey committee

7/03/2006 09:13:00 AM  
Blogger patient homebuyer said...

good morning

just for a laugh go on craigslist go to real estate and search key word reduced

hundreds of listings

happy 4th im off to the pool and bbq

m

7/03/2006 09:29:00 AM  
Anonymous Anonymous said...

Grim,

You see the movement on the precious metals and crude/barrel?

whew...baby.

Forget interest rates, these energy prices are going to slow things down. Only a matter of time, if this keep up.

SAS

7/03/2006 09:37:00 AM  
Anonymous Anonymous said...

why do those greedy sellers think they have to make profit? Do they think they should always win when they go to casinos?

Sellers should start offer at 30% of the current asking price and not go over 38%! Anything beyond that is stupid.

Let the greedy lose their pants.

7/03/2006 12:04:00 PM  
Anonymous Anonymous said...

SAS,

I think its funny the way you scope out information. You remind me of my old cat with nine lives. This cat lived way beyond its life span....hahahahahahaha!

Happy Fourth of July to everyone.

Chow Dog Owner

7/03/2006 12:31:00 PM  
Blogger InLibrisLibertas said...

Buyers set the price, not the seller. A list price is likely to discourage buyers, rather than attract bids. Selling a house is not like selling a blouse at Wal-Mart, it is a unique property and the price is a matter of negotiation. The guy who listed for $1 had the right idea. What you want is bids.

7/03/2006 01:19:00 PM  
Anonymous Anonymous said...

The guy who started a bid on a dollar must be selling a POS house.

If it was something of value, no way would someone start at a 1$.

I am sure its just hearsay.

SAS

7/03/2006 01:43:00 PM  
Blogger grim said...

Corzine calls for a special session tomorrow, on July 4th..

grim

7/03/2006 03:05:00 PM  
Anonymous Anonymous said...

O.K..I'll get up and take them a coffee cake shaped like a flag, I guess...

I can get there in 3 minutes.

Maybe I'll take Corzine some real estate listings from over here in PA with the property taxes highlighted, so he can get the ball rolling a little.

Pat

7/03/2006 03:24:00 PM  
Blogger Metroplexual said...

I like the fact that he is screwing with their "holiday".

7/03/2006 03:34:00 PM  
Anonymous Anonymous said...

part of the settlement with the
union will be back pay. Watch.

7/03/2006 03:46:00 PM  
Anonymous Anonymous said...

I have a friend who works for the state, he is higher up a manager with state over 25 years.

He said it is a done deal that they will get retro pay for shutdown.

When does this screwing of taxpayer get done??

7/03/2006 05:09:00 PM  
Anonymous Anonymous said...

A lot of bitterness seems to be on display here - with comments about 38% bids etc. If you are not in the market for buying a house, why should specific prices upset you so much ?

For those who are waiting for lower prices - the probabilities certainly indicate that prices will be lower before they go higher. However keep this in mind - below a certain price point (the tipping point), the "good" houses will not stay on the market. So if you are specific about a location (across the park in the layout or on the cul-de-sac), you may not be able to find it.

Also, with rising interest rates, the monthly cost of ownership may turn out to be the same. You may want to keep that in the equation as well when you are trying to determine your bids on a house.

Finally - flame me all you want. I am up for it.

CNS

7/03/2006 05:34:00 PM  
Blogger InvestorDavid said...

CNS wrote,

"A lot of bitterness seems to be on display here"

I am not sure I am seeing bitterness.

"the probabilities certainly indicate that prices will be lower before they go higher."

I concur.

"However keep this in mind - below a certain price point (the tipping point), the "good" houses will not stay on the market."

I concur once again. But I don't think we have reached the tipping point.


"Also, with rising interest rates, the monthly cost of ownership may turn out to be the same."

Sure, but you can always refinance your house when the rate goes down.

"Finally - flame me all you want. I am up for it."

No flame.

7/03/2006 05:57:00 PM  
Blogger grim said...

Take the time, right now, to begin saving at a prodigious rate. I don't care if you are younger or older, the same rule applies.

Why? Because housing cycles play out in decades, not months. There is still plenty of time to pay off debts and build up your warchest.

If you are saddled with debt, and have cash little to your name. I'm sorry, but perhaps homeownership was never in your cards. If you are expecting to be handed a house at 50% off with credit terms that sound like the latest GM pitch, you are likely to find yourself disappointed.

Work hard, save, and sacrifice now.

Need a goal to strive for? 30-40% downpayment and a 15-year mortgage (that you plan to pay off early).

grim

7/03/2006 06:19:00 PM  
Anonymous Anonymous said...

investordavid,

We largely agree.

Re: bitterness - I was referring to posts that suggested bids at 30% of the asking price.

CNS

7/03/2006 06:53:00 PM  
Anonymous Anonymous said...

Grim,

You are right on. I totally agree with you. Young or old, you bring forth great advice for everyone.

SAS

7/03/2006 07:02:00 PM  
Anonymous Anonymous said...

Grim,

Although I agree that we all should sacrifice now, I'm not so sure that I agree with 30-40% down.

If you have the 30-40% and the discipline to invest it properly, wouldn't you be better off finding a solid investment?

As long as you beat the net interest rate that I'm paying(say 7% * .7 or 5%), my preference is to take the risk that I'll earn more in the market.

I am one of "those people" that extracted 80% equity 2 yrs ago, but I didn't spend it .. I invested it in the market.

SW

7/03/2006 07:02:00 PM  
Anonymous Anonymous said...

CNS
I was referring to posts that suggested bids at 30% of the asking price.

What's bitter about that? If that's bitter then how does 50-75% gain in three years sound??

Regards,

7/03/2006 07:13:00 PM  
Blogger InvestorDavid said...

SW,

I put 60% down on my house when I bought it at Feb. 2000. Then later, I refinanced at 4.75% for 15 years.

My mortgage payment including the tax was 7% of my gross income (now it's about 10% since my property tax tripled since I bought my house).

Even if I count 10% drop in the housing price compare to the summer of 2005, I have built up at least 80% equity in my house.

I didn't want to gamble with a place where my family lives. I can sleep at night without worrying about losing my house.

7/03/2006 07:48:00 PM  
Blogger InvestorDavid said...

"CNS wrote,

I was referring to posts that suggested bids at 30% of the asking price."

I don't remember reading "30% of the asking price". Maybe I missed it.

However, I do believe that within 3-5 years, the price will go down 25-30% from the peak price of Summer 2005.

If anyone suggested to bid 30% OF the asking price (rather than 30% OFF the asking price), I wouldn't call that bitterness. I would call it insanity or out of touch from reality.

7/03/2006 07:53:00 PM  
Anonymous Anonymous said...

If you guys are interested in reading a good book on RE, try reading the book titled "One Hundred Years of Land Values in chicago" by Homer Hoyt. One of the best books out there!

7/03/2006 08:32:00 PM  
Anonymous Anonymous said...

Anon @ 8:13,

I cannot comment on whether 50-75% gains in Real Estate in 3-4 years are justified or not (perhaps they are - falling dollar, rising commodity prices like steel, lumber etc ; perhaps they are not). Regardless, the fact is that this rise in prices did happen.

A 30% starting bid and a 38% maximum bid is not a healthy emotional response to the above reality. It cannot be helpful to whoever who thinks that way.

CNS

7/03/2006 09:42:00 PM  
Anonymous Anonymous said...

Don't really understand your reasoning CNS.

If home prices can rise quicky, then surely they can fall quickly also- at least for the odd seller who really needs to unload.

Drastic times/drastic measures. I see nothing wrong with people bdding - 30% on homes.

Particularly when they are looking ahead to a market that may keep falling for a very long time.

At any rate, what do you care? If you are the one selling, you can refuse the offer.

If it's your neighbor selling and your comps go down, oh well, that's life. Buying ad selling homes became one big casino. Some win big, some lose big.

7/03/2006 10:32:00 PM  
Anonymous Anonymous said...

Hello ... I am a home owner in the process of selling a home .. if some one to offer 38% or even 50% of the asking price ... then my response would be "The asking price went up by a million dollars" ... so .. I am not sure ... what any one would gain ... by offering 38% ... also .. that fellow would never receive a second viewing .. bcos .. I would consider him a non-serious buyer intent on wasting other people's time ...

7/04/2006 10:42:00 AM  
Blogger grim said...

But what if someone offered you 80% of your asking?

grim

7/04/2006 10:52:00 AM  
Anonymous Anonymous said...

Depends on the asking price ... if it is too high a price ...not grounded in reality .. then probably ... it would serve a wake up call to the seller ... also ... I did offer 87.4% of the asking price and closed on the deal around 90.52% .. also ... if you want to pay the price of the home what it would be in 5 years from now ... then you have to wait 5 years ... in a declining market .. just like a seller cannot ask the price of a home (what it would be in 5 years in a boom market) ... Again ... I think ... this stupidity that you should pay more bcos the interest rates are low and bid up the prices ... is ridiculous ... unfortunately .. too many intelligent people behave like idiots while dealing with realtors/RE agents.

7/04/2006 11:07:00 AM  

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