"You Listed too Low!"

A new listing is an exciting and energizing thing. You get lots of phone calls, you race to schedule open houses, broker's opens, get the word out, arrange your mailings, walk the neighborhood, and the like. On Lakeview Ave in Watchung is no different. I posted my new listing online, made sure my office previewed it, got an Open House going on the first Sunday and more. 

Now, a brief review of the history of the listing: The home belongs to a friend of the family. He knows other Realtors but called my partner and myself. I felt secure that my partner and I would not have a problem actually getting the listing but there was the lingering Sword of Damocles that was the pricing. I had an uphill battle in that the perception of so many home owners in Watchung is that there are "Watchung Prices" that are sacrosanct and cannot be refuted. To list a home "Too low" is not only taboo but the height of madness itself because "Watchung is Watchung". I am sure mine is not the only township in this area let alone this state and this nation with such a sense of self-worth. It is not all together a bad thing. Pride in a person's town is admirable. However it leads to a rather awkward conversation when as a Realtor you have to explain the comps, the market conditions, and the absorption rate. But when I arrived on the scene I came prepared. I had a complete market analysis, fully detailed comparables, and lots of third party market information. I got the price that I wanted off by only a few thousand dollars. It was a great feeling both because I was an educated, prepared, and well-spoken Realtor and because now my seller would not be in a bad position as far as the declining market was concerned. He was in a price range that would encourage offers and attract a lot of attention both with casual and serious shoppers as well as with local Realtors. 

When I went back to the seller on Sunday to discuss the results of my Open House however I was met with an uncomfortable discussion. "Paul, everyone says I listed way too low!" my seller exclaimed. He wasn't accusatory and he certainly wasn't angry. He seemed almost amused by the protestations of his neighbors and family. 

However these opinions will be lingering with him when offers begin to come in. It will be in his head if the discussion of price reduction needs happen. It is an impediment to him and as much as I'm sure that these people care for my seller they aren't helping. Neighbors don't want to see the value of the neighborhood go down even if their concept of the value of their own homes is probably skewered high. 

How does a Realtor combat this barrage of people encouraging a reluctance in lowering price or entertaining lower offers? The same way I got my price in the first place: Knowledge, information, visual representations, third party information, and through their own eloquence. I am in no way encouraging you to undercut your sellers. That doesn't help anyone and it's unethical to boot. What I am saying is that you need to educate your seller (and quite possibly their family and neighbors) as to the reality of the current market. Newspaper articles, the Otteau Report (if you're in NJ), NAR information, Absorption Rates, Comparable Properties, and more are all essential in a Realtor's arsenal and none should be overlooked. If need be go through a market overview before presenting offers. Send weekly updates on market conditions and be honest about feedback from potential buyers and other Realtors. Honesty and information are our greatest allies in this business and even if you think it's going to be awkward or uncomfortable to confront a seller with reality remember one thing: If you're honest with someone they can only hate you for that moment. If you lie to them then they'll hate you forever. 

Some Improvement in the Market

Watchung is a unique town to look at from a Real Estate point of view. With a mixture of easy access to two major transportation corridors (US Interstate Route 78 and Route 22) and a short commute to the railway hub at Summit making it ideal for the commuter set that dominates this area. The school system is very desirable and though we have no downtown proper like Westfield or Berkeley Heights the rejuvenated Lake is a beautiful and popular locale for townfolk and visitors alike. Watchung's tax rate is relatively low compared to some other surrounding towns and it seems to maintain a spot on the list of town's that are considered "highly desirable". But despite this the movement of the homes around here is at a snail's pace. 

As of this writing there are 85 homes on the market in Watchung. In the last month only 2 homes have come under contract. That's a 42.5 month Absorption Rate! 

A Brief Note: Absorption is a rate used to determine how fast or slow a market is moving. The lower the number the quicker homes are moving. The number is determined by dividing the current number of active homes for sale on the market by the number of homes that have gone under contract in the previous 30 days. It assumes that if the level of contracting stays the same and no new homes come on the market it will take X number of months to deplete the current inventory. It's not the end all and be all of Real Estate and there is not necessarily a correlation between absorption and pricing. What it does do is give an indication of how "hot" a town is in so far as contracts coming in and being accepted. 

Generally five to six months is a normal market. Five or fewer months indicates a Seller's Market. Seven months or more is, therefore a Buyer's Market. 42.5 months is barely a market. That's not to say that Watchung is a bad town or it hasn't maintained its home values (because it has especially compared to some area municipalities) it merely means that the market is moving very slowly. When compared to towns like Scotch Plains (5.3 Months), Middlesex (4.2 Months), and Long Hill (5.5 Months) this is a jarring fact. However, compared to the 82 month absorption rate from a week ago, 42.5 months is an improvement. This reveals the weakness of the Absorption Rate in that it subject to wide swings in change from week to week depending on contracts and the amount of homes on the market. Potentially next week with a mere two contracts this number could be compressed to 21.25 months which is suddenly much more reasonable and even faster than Plainfield which is two towns over.