I’m often asked how far waterfront home prices have fallen this past year by buyers who kicked themselves in 2005 for not buying in 2002 and 2003 and thereby missing out on the large profits made in 2004 and 2005.
For buyers looking for a retirement or vacation home along the Gulf of Mexico in 2005/2006 the prices made their dream home unattainable. Now there’s a window of opportunity to obtain that dream home as prices hit pre-2004 prices in this strong buyer’s market, but you better look now or you might just be kicking yourself again later!
Let me give you an idea of the bargain prices out here on Florida’s Gulf Coast with some recent numbers we compiled from the Multiple Listing Service (MLS). We compiled historical list and sold prices from the waterfront communities of Gulf Harbors, Gulf Harbors Woodlands, and Sea Forest in New Port Richey, Florida. These communities sit next to each other directly on the Gulf of Mexico. The waterfront homes have direct gulf access with deep water. Each community has amenities such as golf course, tennis courts, pools, boat ramps, private beach, and more. Most of the homes have docks which can accommodate a sizable boat. Some homes have boatlifts, some have pools.
The statistics focus only on the waterfront homes because these homes have the greatest potential and are the most sought after homes by buyers. There are approximately 1800 waterfront homes in these 3 communities combined.
During the period of June 2007 to October 2007:
Average Number of Waterfront Homes For Sale: 157
Homes Sold: 21
Average Days on Market of Homes Sold: 295
Average Original List Price per sqft. of Homes Sold: $303
Average List Price per sqft. at Time of Sale: $259
Average Sale Price per sqft.: $241
Average Price Reduction From Original List Price When Sold: 20%
Let’s compare these numbers to what was going on in 2005.
During the peak of home sales in 2005, average list prices were approaching $390 psqft for waterfront homes and the average sale prices were hovering in the $350 psft range. Today’s prices reflect a 33% reduction from 2005 prices and places the price of waterfront homes back to the pre-speculative investor prices of 2003.
“Yeah, but how do I know these prices won’t come down further?” you may ask. The numbers show a flattening of price reductions. In fact, most of the largest price reductions occurred a few months ago. Over the past two months, reductions only averaged 8%. So we could be seeing the bottom of the market as sellers become unable to reduce prices further due to loan balances, home value, and other factors. However, they are still leaving room in their prices with expectations of negotiating with buyers.
Where are the buyers?
National figures reflect the housing sales slump. Could it be that nobody needs a new home? Has the birth rate taken a dive along with home sales? Has promotions and job relocations froze? Of course not. Indicators show buyers are in a log jam. Buyers have held out as long as they could due to market jitters. The multitudes of buyers are stacking up behind the log jam and the pressure is increasing. When this log jam clears we could see a reemergence of the buying spikes witnessed in 2004/2005 but this time with more moderate price increases. The continual tightening of mortgage qualifications should prevent the unqualified part-time investor from getting the jumbo mortgages that were so easy to obtain in 2004/2005. The current default of these investor mortgages played a large role in today’s market slump.
When will this log jam clear?
This scenario reminds me of the scene in Jaws when during a beautiful, hot and sunny day on the beach none of the beach-goers would go into the water for fear the menacing shark would get them. After the mayor got one of his cronies to go into the water the entire beach population started to get into the cool water. That’s what it will take to clear the buyer log jam today. A few buyers have already started to take advantage of the current market conditions and low prices. These leading buyers have the pick-of-the-litter in homes and are able to negotiate the hardest for a great deal because the sellers are at their most desperate hour. As these leading buyers pave the way for following buyers, sales will begin to increase. Although list prices might not immediately increase with the improving market, sellers will less likely negotiate as desperately as they are now ripened to negotiate.
NOW is the time to test the waters!
Don’t worry about boys with fins strapped to their back scaring buyers back out of the waters of home-buying. There’s bound to be some market start-up scares during the next few months but there are methods to ensure you get the best deal you can (see my previous blog posting). Simply put, you the buyer, currently hold all the cards. The list prices are now lower, but the leverage is still there to negotiate much lower.
Be a savvy negotiator!
- Start negotiations low but with realistic expectations. Even in this market you are not going to buy a home for 50% or even 40% off the already lowered list price. But don’t be afraid to start negotiations at 30% off the (correctly priced) list price. Do your homework and get in touch with a Realtor that knows the area of interest.
- Create a top 5 list of homes you will negotiate on in order of your most favorite.
- Assign a top price you are willing to pay for each home and stick to it.
- Start with your favorite house. If negotiations stop above your assigned top price move on to the next home on the list. Let the seller know you have a list of 5 homes all similar in size, style, and location and you plan to negotiate with the other sellers if you can not come to an agreement.
- During the negotiations, write down notes on each home about the seller’s feedback, counter offers, and even their demeanor. How much time did they take to respond? Were they considering your price but hedging for additional money? These notes will be useful if you decide to return to the home for further negotiations. If a seller calls you back to accept an offer they previously declined you now have additional leverage. Let them know that you are now in negotiations with another seller, but perhaps if they threw in that extra-something you might be swayed to switch back. This extra-something could be anything from furnishings, to the little speed boat sitting out back, to a lower price. Approach this extra negotiation area carefully as you have already been successful in getting the price greatly lowered. If you feel satisfied with just your previous offer simply accept and close the great deal you made.
- Don’t go into negotiations timidly. Don’t start off by stating, “I know it’s a low offer but…” Instead, state that in this declining market you feel you are taking a risk and they (the seller) should carefully consider the offer prior to rejecting it.
- Your offer must be a written offer with the largest amount of earnest money you can afford to place into escrow. Do not go in with a verbal offer. A written offer sits before them and has an immediate impact. All they have to do is sign the offer and they can put this part of their lives behind them and move forward. No more open houses, no more panic cleaning sessions prior to a showing, no more strangers walking up to see their home without appointments.
- Consider writing a personal letter to the Sellers to be presented to them with your offer stating why your offer is priced right in this market. If they are represented by a Realtor the Realtor will likely welcome any tool to help make a sale in this market. Remind the seller (and their Realtor) that the loss they are taking on this home will likely be made up in the savings they make on their next home if they purchase immediately and negotiate skillfully. We successfully used this method recently during a negotiation session. After several rounds of negotiations, our final price was $50K from where the sellers wanted to end up, but after talking with the sellers it was learned they were going to buy a home up north which they had looked at back in 2005. The home had been reduced by $150K since 2005. We reasoned the $50K lost in the sale of their current home applied to the $150K reduction in price to their northern dream home still netted them a $100K gain had they purchased the home back in 2005. After they thought about it overnight they accepted our offer and later signed a contract on their dream home.
So get out there and buy...or it might be déjà vu all over again and you’ll be kicking yourself once more.
