Originally posted in January 2008
Read almost any local publication these days and you will likely find that the common theme is that the short term outlook for the Boston area real estate market is pretty bleak. Does that mean that sellers should hold off on putting their homes on the market? Does that mean that buyers are going to pay $1.00 today for a property that is going to be worth $0.95 tomorrow? Answering these questions is as difficult as writing an article about the Boston real estate market that applies to the market as a whole. The reality is that the answers to those questions can, and likely will, range between an enthusiastic "NO!", a "maybe" and an unfortunate "yes". Is this a cop out? Perhaps, but it is because the Boston market is packed with so many complex, mutually exclusive submarkets that trying to make a global statement about market as a whole is, or should be, an exercise in futility. Yet, pick up the Boston Globe on any given day, especially on Sunday, and you will be driven into a panic if you are a seller, and if you are a buyer, you will likely cancel your plans to go out to open houses regardless of where/what type of property want to sell/purchase.
There are some basic truths that cannot be ignored. There is no denying that the credit market is in disarray, that Wall Street is extremely volatile and that home prices have fallen both in Massachusetts and across the country. However, despite all of that, every submarket within Boston is facing a different set of circumstances. South Boston has been so overdeveloped in recent years that the prices of many newly constructed/renovated condominiums are coming down so much as developers need to dump their inventory that they are suffocating sellers of units that were redone two or three years ago. However, in other areas of the city, like Somerville and Jamaica Plain, buyers are finding themselves involved in bidding wars for similar sized units in desirable locations.
Over the past 6 months in Needham, 135 homes have sold in an average of less than 90 days and at 97% of asking. Conversely, in Marlborough, a town with approximately 10,000 more residents, only 119 homes sold in the same timeframe in an average of 140 days, but at the same 97% of asking. The point is that two brokers, one from each town, may have a different take on the condition of the market. The one point that they will likely agree on, however, is that pricing is key. It is important to understand that the 97% of asking is based on the asking price at the time of the sale as opposed to the original list price, which could be quite a bit higher. In Marlborough, the sale price as a percentage of the original list price was 92% compared 94% in Needham. This undoubtedly contributed to the longer sales cycle, but is also indicative of a softer market because, assuming the agents/sellers involved were diligent in pricing their properties, the data that they were using caused them to overprice their units by 5%.
As such, every prospective seller and every prospective buyer has to look at his or her situation as if it is the only event taking place in the world. All the economic data in the world will not change the fact that desirable properties in desirable locations that are priced right, sell. It is a fundamental certainty that ranks up there with death, taxes and Boston University winning the Beanpot [1]. The question is not, and should not be: "will my property sell?", but rather: "am I willing to sell my property for what it is worth?"
As a seller, now more than ever, you need to listen to what the market is telling you. You cannot back into your sales price by taking what you paid for your property and adding improvements and/or a desired profit margin. The only number that matters is its market value. That is obtained by objectively reviewing your property against the comparable sales in your area, your property's condition and, to a certain degree, the time of year. If that number does not appeal to you, and you do not have to sell, then do not put your house on the market. Any other pricing strategy is basically picking a number out of the sky and signing yourself and perhaps your agent up for about 150 days of waiting around and disappointing conversations about how the market is in the gutter.
On the buyer side, there is reason to be cautious if you are looking to buy a home with hopes of selling in the short term (2-3 years). In the past, you could expect your property to appreciate to the extent that you would be able to not only pay off your debt, but also the costs associated with selling your unit - broker fees, tax stamps...etc. and still be left with money to put down on your next home. With prices either in decline or only moderately increasing, such a purchase needs to be very carefully made. In many areas of the city and suburbs, buyers can afford to be and are being patient. Buyers are looking at more properties prior to making a single offer, and "low ball" offers are becoming standard operating procedure. Nothing hits a seller in the gut harder than after waiting 150 days for a single offer, getting one that is 80% of what you thought was a fairly priced listing. Buyers, like sellers, need to understand, that the market dictates the price (on most occasions - certainly there are exceptions where sellers are desperate and a low balling buyer happens to be in the right place at the right time). The point is that just because we are finding ourselves in the midst of a challenging market, it does not mean that sellers are unaware of this, have grossly overpriced their units and are willing to take 80 cents on the dollar.
You hear "location, location, location" as the real estate mantra. This cannot be disputed, but it should be expanded. The simple fact is that desirable properties in desirable locations that are priced appropriately, sell.
For more information about this project or if you have general questions or comments about this article, contact the author - Ryan McDonnell
[1] It should be noted that the author is an alumni of Boston College and less than thrilled about facing the reality of this as a fundamental certainty