Home Spotlight: 20xx Laurel

$50,000 Price Reduction

What's the big deal about a $50,000 price reduction?

They're practically run-of-the mill these days, especially in the upper price brackets.

What you don't often see is a $50,000 price reduction off of a home listed for $250,000, like the one shown above.

For the math impaired, that's a whopping 20% (vs. the more typical 3% to 5%).

Located at 20xx Laurel in Minneapolis' Bryn Mawr neighborhood, this 6 BR/4 BA Victorian with over 4,500 square feet is now listed for $200,000, after being reduced $50k on Wednesday.

Compounding the Seller's misery: they paid $560,000 for it just over three years ago (and, no surprise, the Seller discloses that it's a possible short sale).

P.S.: I discuss price reductions in much greater detail in a post titled, "Nurse! I need a price reduction, stat!!"

Who's Buying Houses for Cash?

Cash Buyers at Extremes of Market

No, I don't have any hard data backing me up.

But anecdotally, at least, it seems like the two likeliest kinds of houses to be bought for cash these days are:

One. Bank-owned foreclosures selling for bargain-basement prices -- and in such tough condition no lender would accept them as collateral; and

Two. Upper, upper bracket homes, where the Buyers' balance sheets are so large that they are effectively immune from "the recent unpleasantness."

As a practical matter, the only way to flag a cash purchase -- at least that I'm aware of -- is to look for sales where the house's "off market" date and closing date are separated by only a few days.

Or, they're the same date.

By contrast, when the Buyer requires a mortgage, the interval is typically at least 15 business days.

That allows time for the appraisal, underwriting, re-visiting the appraisal, etc.

Price Opinion -- or "Pot Shot?"

Informed vs. Uninformed Feedback

"Pot shot": a critical remark made in a random or sporadic manner.

--Merriam-Webster Dictionary

As I've blogged previously, experienced Realtors usually welcome feedback from other Realtors (even if they can and should anticipate what it's going to be).

Ultimately, of course, that feedback is shared with the homeowner/client.

Even when a property is overpriced -- make that, especially when a property is overpriced --hearing it directly "from the horse's mouth" (prospective Buyers via their agents) can be more compelling than hearing it from your own agent.

Exception to the Rule

So, when is that not the case?

When the Realtor(s) offering the price opinion don't know the area -- and make their remarks publicly, in front of a large group of other Realtors.

Both those things occurred the other week, at a Realtor meeting in an upper bracket home being hosted by the listing agent (representing the home owner).

As the listing agent (properly) pointed out, for sale homes can get a "rep," just like people do.

All it takes for a perception to take hold that a given home is overpriced is for a relative handful of Realtors to say so.

Even if they don't know what they're talking about . . . .

Price Reductions: A Realtor's Take

Cheaper -- Not Necessarily Cheap

In a recession, everyone's looking for a sale. So it stands to reason that a home that has just had a big mark-down is a deal, right?

Not necessarily.

Simply knowing that a home that used to be "X" is now $10,000 less -- or $50,000 -- really tells you nothing, for the obvious reason that the original asking price may have been inflated. All you can confidently say is that the price is now "better" (in fact, the preferred Realtor term for a price cut is "price improvement").

In my experience, some of the homes touting the biggest price drops are precisely the ones that were most overpriced initially.

Looking for Patterns

So what does a price cut -- or series of them -- tell you?

Mainly, how motivated and realistic the Seller is.

A home that has been on MLS at the same price for 60 days-plus is almost certainly too high (the exception being an upper bracket home, which has a longer expected market time).

At that point, most serious Sellers will entertain anywhere from a 3% - 5% price cut.

If their home doesn't sell in the next 60 days, they'll take another price. Wash, rinse, repeat until sold.

So when you see a home sitting at 187 days with no price reduction, you know something's up.

Similarly, when you see a home that took a price cut at 60 days, and another at 120 days, and it's now at 179 days . . . you'd guess that an attentive Buyer is going to factor a third price cut into any offer they make.

Sellers Offer Goodies in lieu of Price Cuts

A Price Cut By Any Other Name

When is a home price cut not a price cut?

When it's billed as "Seller financing" (or other creative Buyer inducements).

In a soft rental market, landlords will do practically anything to entice prospective renters without actually lowering their nominal rental rates.

By far the most popular gambit is free rent (typically, one or even two months). Next most popular are "freebies": free plasma TV, free tickets to Hawaii, etc.

Similarly, home owners who are loathe to take (more) price reductions are starting to offer other Buyer incentives.

Anecdotally, I'm seeing more instances of Sellers who are trying to move upper-bracket homes dangle attractive financing terms: second mortgages on attractive terms; contracts for deed (essentially, a Seller-provided mortgage, but one where title doesn't transfer until the last payment is made); etc.

Which makes sense: one of the big impediments to selling an expensive home today is the premium attached to jumbo loans.

I've yet to see the "Buy this house, get the [collector sports car in the garage free] pitch," but it may very well be coming . . .

(Not So) Exceptional Properties*

Upper Bracket Woes

Although Edina has been a housing standout in the current downturn, it, too, has pockets of excess inventory, and homes that have suffered serial price cuts -- and still aren't selling.

Just one street in Edina's Country Club section, Sunnyslope, now has six homes on the market, at prices ranging from $729,000 to $5 million. The market time ranges from just over 3 months to almost three years(!) (lots of green lawns in the MLS shots -- never a good sign in the Twin Cities in January).

What's going on?

Sunnyslope Sellers

Unfortunately, not just one thing. The economy, of course. The fact that anyone buying one of these homes likely needs a jumbo loan, which now carries a huge premium to so-called conventional or conforming loans (under $417k). The fact that people with the means to buy upper bracket homes have likely had their assets whacked, and now, their jobs threatened.

Finally, you'd speculate that the "Sunnyslope inventory glut" is emboldening Buyers to make, shall we say, "aggressive" offers that Sellers have been rejecting.

What you can categorically rule out is some sort of long-term decline, or a neighborhood-specific issue: Country Club is -- and is likely to remain -- a premier Twin Cities address.

So what happens next?

You'd guess some combination of more price reductions, Sellers who take their homes off the market, and/or Buyers who raise their offers enough to entice one or more of the Sunnyslope Sellers.

Although Edina so far has been spared the pox of short sales and foreclosures affecting other parts of town, that, too, could change with a deepening recession.

*Edina Realty has a special marketing group for upper bracket home called "Exceptional Properties," which includes two of the six Sunnyslope homes.