Price reductions and real estate have always gone hand in hand. Their relationship has grown over the past couple years, and it stands to reason that if they had previously been hand in hand, today they’re probably married and busy raising three kids in the suburbs. Times were, a house might sit on the market for six or nine months or a year, and the owner wouldn’t worry too much about reducing his price. After all, in an environment where prices are rising, if you stick to your guns long enough, there’s a good chance the market will catch up with your pricing insanity. Markets in decline are just the opposite, and the worst position to be in as a seller is to be caught chasing a retreating market.
I’d make the argument right now that our Lake Geneva vacation home market is stable. That’s a blanket statement that doesn’t apply to the way I’d sell individual properties, but if I was tied up and forced at knife point (gun point seems less scary for some reason) to label the market right now, I’d call it flat. Sure market activity is on the rise, but it’s really only on the rise as a result of continuous and increasingly aggressive price cuts. The market might seem to be moving forward, but like most national markets at the moment, it’s moving forward at the expense of sales prices. Buyers should be rejoicing in their good fortune. Proof you say? Most of the lakefront sales this year have represented some form of price-centric value. The only sale at the South Shore Club was of a bank owned property. The highest priced residential sale on Geneva this year was the sale that I brokered for $5.885MM, a price that was leaps and bounds south of the original $7.495MM asking price. Lifestyle accomplishment is the motivator, but price is the catalyst that pushes the deal forward.
There have been some exceptions to the rule. A property on Pine Tree Lane closed yesterday for $850k. While that property had been reduced several times, it didn’t exactly represent solid value to me. A buyer that I represented closed on a Clearsky Lodge property earlier this summer for $2.475MM. That property had been reduced roughly $500k from the original list, but the buyer was motivated and fought off a contending bid to complete that sale, so it wasn’t exactly a sale that occurred only as a result of a significant price reduction. There’s a new foreclosure brewing on the South Shore, and that $2MM property will likely sell this fall not because it’s a great property, which it is, but mostly because of a price reduction. Sharks will eat pretty much anything whenever they feel like it, this much is obvious. But throw a little blood in the water and thrash around in distress and you’ll really see some carnivorous motivation. Buyers behave much the same way.
So today, on the 19th of November, there appear to me to be more price reductions of lakefront homes in the past three weeks that at anytime all year. Price reductions are a necessity in a soft market, but the timing of the reductions is what I find curious. If a seller lists their property in April, and it doesn’t sell by July, there’s a good chance the price will be reduced. If that same property doesn’t sell by September, there might be another reduction. But what happens when seller apathy is increasing at a rate commensurate with my soaring blood pressure, and the same seller finds the calendar reading November? This my friends, is the fork in the road, and it’s a very important fork if you’re a buyer.
Sellers who have given up hope, embraced apathy, and resigned themselves to the fate of a sale-less winter will probably pull the listing from the market about now, with the plan to re-list in late January. I’m employing this idea with several of my own listings at the moment, and it makes sense to do so. But while some sellers pull back, others who might have higher levels of motivation press onward, possibly because the sale is increasingly necessary. They reduce their price in hopes of attracting one buyer who stayed on the scene just long enough to watch a few sellers crack under the pressure of a November freeze. Sellers who remain on the market right now, and significantly reduce their price, are throwing up all kinds of signals that buyers need to pay attention to. What exactly is the signal? I can’t say exactly, but to me it looks very much like a white flag.
Price reductions might be an everyday occurrence in 2010, but the timing of the price reduction will tell you far more than the reduction itself. There are several lakefront homes on Geneva that have undergone sweeping reductions over the past 30 days. These are sellers that might not admit it, but they’re sellers that are looking for an offer. They’re practically begging. So put down your garland and get yourself up to the lake post haste. Def Leppard sang about the space where love and hate collide. That bores me. I’m far more interested in the space where seller apathy collides with a deal seeking buyer, and if you’re not paying attention, this real estate solstice will vanish before your last busy schedule excuse can leave your lips.