Dispatches from the Front Line of the Real Estate Wars

In March, I contributed a piece called “The Coming Real Estate Recovery By The Numbers”. I have also written extensively on various plans for real estate recovery policy, my own and other people’s, and the phone has not not stopped ringing.

Well, I am among other things a real estate salesperson. Most of my work has been investment and commercial in the urban areas of northern New Jersey, but I do residential, I go out of my local market, and have trusted contacts all over the east coast and in California. At the moment I am working with a couple who have two young children and want to buy in one of the elite towns with a top-rated school system. They have very particular requirements with respect to price, condition, proximity to public transportation, and several other factors. Even in a buyer’s market, these limitations make the search challenging.

The action of several recent weekends and the treatment of various offers makes me believe that conditions are moving away from buyers having it all their own way.

On one miserable cold and wet Saturday morning, we found ourselves queuing up to see a new listing that had come on the market at the extreme low end of the price. The wife was hopeful. “It must be a wonderful opportunity at such a low price, and with so many people come to see it.” Inside, what a let-down. Dirty, small, poor condition. Garbage, even at the price. And yet the couple who viewed it before us stood across the street in the rain after finally letting us go in, with the husband gazing longingly at it all goo-goo as if it were Megan Fox in her birthday suit instead of a knock-down. The house went under contract immediately, probably to them. If they got any competition for it, no doubt they paid more than asking.

My clients did not compete for this house. On the next one they saw, they did, through not one but two rounds of “best and final” offers. This house had the following good points: clean and tastefully decorated living room, dining room, and three good-sized bedrooms, all with good re-done hardwood floors. And the following bad points: lousy bathrooms, lousy kitchen, central air on its last legs, and washing machine separated from dryer by 25 feet of dirty unfinished basement. On balance I rated this house just OK, nothing special, and yet if the listing agents are to be believed (I make no judgments) there were a dozen offers. My clients’ full-price offer with 20% down and no house sale contingency was not successful.

If that sounds more like sellers’ market conditions, so too did the response of sellers through their agent to my clients’ next offer. They bid on a house they liked at 95% of asking price. The sellers countered at 99.6% of their asking price, essentially throwing my clients’ offer back in their faces with little consideration. Moreover they told us not to come back without meeting a number of onerous conditions that are not customary in this market.

Guess what? We did not meet those conditions and we did not go back. (My clients found something else and had their offer accepted.) A few days later the agent called, and was rather miffed that we had done exactly as they told us.

At current rates, the inventory in this town will take 10.3 months to clear compared to over 11 months around the county, but there are micro-markets within the town that are much hotter than that and the behavior of buyers and sellers has to adjust accordingly.

There are other factors to note. One, the $8,000 first-time homebuyer tax credit is going away soon if nothing is done, and the direction of policy-making in DC suggests nothing will be done. That provides impetus in this segment of the market, at least. Two, rising mortgage interest rates can also get buyers off the fence, if they have been hanging in for lower rates and instead see them going the wrong way.

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