Price reductions in some parts of the Bay State have become more common this year, according to local real estate agents. This four-bedroom home in Northborough was originally listed for sale for $689,900. After two price reductions, the home sold for $620,000 in early November.
In the residential real estate market, reductions in a home’s listing price – a rarity in the hot seller’s market that existed just two to three years ago – are no longer an uncommon occurrence.
While average home prices across the state are generally on the rise, Realtors in some parts of the Bay State are reporting that they’ve seen more price reductions as the real estate market has gradually shifted from a seller’s market to one that is more balanced.
Several real estate agents interviewed by Banker & Tradesman said buyer demand has remained strong because of low mortgage interest rates, but buyers have had more for-sale homes from which to choose in the last few months than they once did. Meanwhile, some sellers – remembering stories from the recent past about multiple offers, buyer bidding wars and nearly overnight value appreciation – have stubbornly clung to high asking prices, resulting in some homes staying on the market for months.
But when a home has not sold for several months, many real estate agents and sellers decide it’s time to re-examine the asking price.
“I think you’re seeing more of it [price reductions],” said Nelson Zide of ERA Key Realty Services in Framingham.
Statistics don’t always bear that out, however. According to Multiple Listing Service-Property Information Network, the largest real estate listing service in New England that includes home listings from most of Massachusetts with the exception of Cape Cod and the Islands and Berkshire County, out of 19,526 single-family homes listed for sale between Sept. 1 and Dec. 18 of this year, 27.5 percent or 5,372 homes, had price markdowns. Last year during that same time period, there were more price reductions. Out of 19,302 single-family homes listed for sale 29.5 percent, or 5,697 homes, had price reductions.
Market Shift
Recently, Zide had to reduce prices on the homes he listed for sale in Sterling and Framingham. In Sterling, Zide listed a home in July for $419,000. After three price reductions, the home, last listed at $359,900, went under agreement November for about $350,000.
In Framingham, Zide listed a home for $589,900 in May but twice had to reduce its asking price – first to $579,000 and later to $559,900 – before he finally sold it for $545,000 in November.
“Every time we went down we got a little bit more activity than we did before because we were hitting a different buyer category,” said Zide.
But Zide warned that small price reductions of $5,000 to $10,000 off the list price do very little to attract different buyers. According to Zide, the price cuts have to be significant enough to draw buyers who are searching for homes in different price ranges.
Zide is starting to urge his sellers to offer other types of concessions instead of price breaks, such as higher commission rates for co-brokers. The higher rates could be a good incentive for agents to bring more buyers to see a property.
“I think you will probably see more of that,” he said of seller concessions.
Price reductions have occurred more frequently with the higher priced properties in towns and cities, according to Zide and other Realtors. The higher-end homes have smaller pools of buyers to begin with, say real estate agents, and take longer to sell.
Michael L. Durkin, a Marlborough Realtor, blames unrealistic seller expectations for the price reductions. Some homeowners hear, for example, that their neighbor’s house sold for a certain amount and they’re convinced that their home is worth more, he said.
But the problem, according to Durkin, is that the market analyses that real estate agents do are usually based on home sales data that can be six to eight months old.
Another common situation is sellers of older homes who demand the same asking prices as those of newly constructed homes in the same area, according to Durkin, who pointed out that the resale homes are more likely to have price reductions.
“The new construction does not waiver on the price,” said Durkin, explaining that high construction costs keep selling prices pretty close to the original list price.
Durkin, who works for Carlson GMAC Real Estate, recently sold a 10-year-old house in Northborough that was originally listed in the spring for $679,000. The asking price was dropped to $669,000 and then $649,000. The home ultimately sold for $620,000 five months after going on the market.
While Durkin and Zide have seen the price slashes, for other Realtors in the Bay State, particularly in the Western region, that hasn’t been the experience.
Tini Sawicki, owner of Realty World Sawicki in Amherst, said there hasn’t been that much of an increase in the number of for-sale homes with price reductions in Franklin and Hampshire counties.
Price reductions that are occurring are probably because homes were priced too high to start with, she said, and unlike Greater Boston and other parts of the Bay State, Hampshire and Franklin counties are still experiencing inventory shortages.
“Certainly things slow down this time of year because who wants to move during the holidays unless you absolutely have to,” said Sawicki.
More price changes are likely to occur this time of year because sellers become anxious as winter approaches, according to local Realtors. Some sellers, for example, don’t want to worry about heating an empty home through winter months, while others are eager to move before colder weather sets in and may be more flexible about accepting a lower price, said Sawicki.
One in every five properties in Massachusetts that went under agreement between Thanksgiving and New Year sold for 10 percent or more off the original asking price, according to analysis of sales between 1996 and 2002 conducted by Bill Wendel of The Real Estate Cafe, a buyer’s brokerage in Cambridge.
Wendel said he has definitely seen the market shift to one that is more favorable to buyers, particularly in Cambridge. Recently, Wendel helped a buyer get what he described as a bargain on a home in Cambridge that was originally priced at $900,000 and marked down to $775,000.
“You’re now seeing homes [in Cambridge] sell below the [city’s] assessment,” said Wendel.
According to an analysis done by Wendel, eight of the homes listed for sale for $1 million or more through mid-November of this year in Cambridge have had price reductions. They include a single-family home that was originally listed for $2.98 million and reduced to $2 million.
Last year there were only two price reductions for home listings that fit the $1 million-plus category. In 2001, there were seven such price reductions, and in 2000, 1999 and 1998 there was only one price reduction for each year.
David A. Pap, another Cambridge Realtor, said that while the days of competing bids and properties selling within two or three days of coming on the market are pretty much a thing of the past, selling prices are not dropping.
“We’re taking about asking price reductions,” said Pap, a senior sales associate with Coldwell Banker Residential Brokerage in Cambridge. “I think buyers confuse the two because they see that asking prices are going down and they think prices are going down.”
The average selling price for detached single-family homes sold through October in Massachusetts was $376,242 – almost 9 percent higher than the average selling price of homes sold through October 2002, according to the Massachusetts Association of Realtors. The average selling price for condos jumped almost 10 percent during that timeframe to $266,315 from $242,242.
In recent years, many parts of the Bay State have experienced double-digit price appreciation, a trend that many real estate experts believe is not sustainable. But Pap characterized price appreciation – particularly in Cambridge, which has enjoyed rapid price appreciation in the past few years – as flat this year. Sellers have had to “successively bring their prices down” to attract buyers, he said.
“There have always been price reductions. Sellers have had different needs and strategies and different levels of motivation,” said Pap, a senior sales associate with Coldwell Banker Residential Brokerage in Cambridge. “If someone needs to sell quickly, they’re going to price their home more realistically and if they’re not in a hurry, they’ll price it higher.”
Pap recently sold a newly constructed townhouse in Cambridge that had come on the market in February for $449,000. The home was finally sold for $439,000 about three weeks ago.
“We have found that in the last two years the market has become more balanced,” he said. “Some people might say that the spring of 2002 was the peak, but I don’t know about that.”
There have been major reductions in the higher-end, luxury market, said Pap, but in the last two months, three homes priced over $3 million went under agreement in Cambridge – an indication, he believes, that the high-end market has “bottomed out” and may be back on the upswing.
Of those pending sales, one home was originally priced at $5.2 million and was reduced to $3.95 million. Another home was $3.65 million and was reduced to $3.53. But the final home, priced at $4.67 million, was on the market for 90 days and was never reduced.
“That [high-end] market may be picking up,” said Pap.
