To Reduce or Not To Reduce

Earlier this week, the San Mateo County Association of Realtors released its sales figures for March. What the association found may surprise casual observers of Burlingame real estate.

Using data culled from the Multiple Listing Service, SAMCAR found that sales in March were 65 percent greater, countywide, than they had been in February. For the record, 366 properties changed hands in March and 221 did the same in February. 322 sold in March 2010.

How can this be? Isn’t El Camino Real still lined with open house signs every Sunday? And aren’t those signs – sadly, lacking the distinctive yellow Cashin Company signs, now that Cashin has been consigned to the “local memories” bin – pointing to the same houses they’ve been pointing to since October?

Yes and no.

Burlingame did feel an increase in real estate activity in March. The 13 homes sold that month represented a 30 percent increase from February (10 transactions) and a 62.5 percent increase from January’s eight sales. Property values, however, did not follow suit.

The average sale price of a home in Burlingame for March was $1.1 million, about 6 percent down from February and January, when the average home sold for $1.185 and $1.192 million, respectively.

Also, in March 2010, 19 properties sold in Burlingame, which sort of wipes out the optimism of this year’s 30 percent month-over-month increase.

One of the problems with month-over-month data is that it involves a very small sample size. Saying your activity increased 62.5 percent over two months sounds very impressive, but really, we’re dealing with numbers barely into double digits here. The struggle to find an accurate barometer of market health continues.

How about price reductions? During the almost decade-long boom market, they didn’t exist. With almost every property creating a bidding war the moment its listing agent hammered a “for sale” sign into the front yard, price reductions were a non-factor. Now they’re back, and three years into the market “correction” there still doesn’t seem to be a consistent school of thought regarding their use.

Right now there are 82 total active and pending real estate listings in Burlingame, 64 single-family homes and 18 condominiums. About a fourth have experienced price reductions.  Thirteen of the reductions have been to SFRs, eight to condos. Four of the reduced SFRs are now in contract, as is only one of the condos.

This, in realtor jargon, is known as “finding the market.” What’s confounding, however, is that -- to casual observers -- there seems to be an utter lack of a pattern determining the “right” time for a price reduction. The “correct” amount to reduce is equally difficult to grasp.

The four-bedroom property at 1523 Alturas Dr. was listed on August 6, 2010 for $1.429 million. Sixty days later it was reduced $70,000 – 4.8 percent -- to $1.359 million. There it sat, for the next six months, until going into contract on April 5. We won’t know its final sale price until the close of escrow.

Contrast this to the experience of 1210 Bellevue #407, a two-bedroom condominium originally priced at $589,900. It hit the market March 27, was reduced two weeks later – to $575,000, a miniscule 2.5 percent change – and was pending by April 22. Or the home at 2112 Easton: listed on March 17 for $2.25 million, reduced to $2.15 million on April 4. This may be “finding the market,” but it seems more like “throwing stuff against the wall to see what sticks.”

That is, if you don't know what to look for.

There is, according to Realtor Maureen Harber of Alain Pinel, a rough equation to price reductions, one that considers more than simple Days on Market and sheds some light on the knowledge gap between "casual observers" and "industry insiders."

"If the home has been on the market for a few weeks and there have been multiple open houses and multiple brokers' tours and there is no action and there's been no action, no showings, inquiries, disclosure packages requested, then you should consider a 10 percent reduction," Harber said.

If there has been interest (showings, disclosures requested) but still no offers, she continues, a 5 percent reduction might be appropriate.

"But the best case is that you priced it right straight out of the gate," she said.

Ultimately, the decision to reduce falls onto the seller. Some of the more... confounding... price shenanigans are often driven by sellers who think they know more than their agent. As Maureen Harber proves, with just a few succint thoughts, the pros usually know what they're doing  -- an all-too useful reminder, especially given the present economic climate.