Free cars and free lobster are nice, but what really moves houses in a buyers' market?
The bright-red Ferrari parked on the lawn on Summer Street in Lynnfield was a rare and beautiful thing. Its owner said it was the very same model and year as the car used in the movie Scent of a Woman, starring Al Pacino. The 5,000-square-foot, four-bedroom Colonial behind the car was for sale, but compared with the car, was hardly a rare or a beautiful thing. No one famous had lived in the house; it had never been in the movies. Its owners, Chris and Jeanette Alexandrou, were asking $1.47 million for it, so far unsuccessfully, even though it was March of last year, in what now looks like the best sellers market of the past 19 months.
Eager to move the Colonial and convinced that the sellers market wouldnt last, real estate agent Maria Gagliardi-Sullivan, of Century 21 North Shore/DAmico in Lynnfield, came up with an idea. She arranged for the owner of the car, her brother, to let the Alexandrous sell it on his behalf as part of the house package. She scheduled open houses. She took out ads in newspapers. She plastered fliers around Lynnfield and the surrounding towns. And, in a way, it worked. I had more people show up than at any open house Id ever had in my life, says Gagliardi-Sullivan. The men were all looking at the car, and the women were all looking at the house.
One couple that came to an open house ended up making an offer, but it wasnt the offer Gagliardi-Sullivan, or her brother, had hoped to get. It was for $1.1 million to buy only the house. The owners sold on those terms. The automobile, says Gagliardi-Sullivan, is still available.
Things have only gotten sillier since then.
In March 2005, when the Ferrari went out in front of the Alexandrous Colonial, the average number of days a home sat on the market was 88, according to the Massachusetts Association of Realtors; a year later, that number had crept up to 116. As of last month, there were nearly 53,000 unsold residential properties in the state, up from approximately 45,000 a year before and 28,500 in November 2004, according to MLS Property Information Network, a listing service for real estate professionals in New England.
Todays market has brokers mustering all of their creativity to bring potential buyers, or even just gawkers, to view the vast unsold inventory now keeping them awake at night vast compared with the past few years, that is, when homes were selling quickly. Its a nice change for buyers, who faced daunting challenges at the height of the sellers market in the summer of 2005, when buyers were lucky if a sellers agent even remembered their names.
Now, it seems, real estate agents and homeowners are tossing just about everything in with a sale including not only the kitchen sink but also plasma-screen televisions, cars, Patriots tickets, a years worth of condo fees, closing costs, cash back for home upgrades, and sometimes just plain old cash back. Open houses can resemble cocktail parties, lobster bakes, and barbecues sometimes with live music. Developers with multiple properties to sell also offer buyers agents incentives for them to bring their clients around: cars, bonuses of $10,000 or more, and commissions of 7 percent or more of the purchase price, more than double the normal buyers agent commission of 3 percent. In what is surely the most telling sign of hard times, some sellers agents are giving clients St. Joseph home-selling kits. These consist of a small statue of St. Joseph, the Catholic patron saint of the family and household needs. The statue, if buried in the front yard of the clients house, supposedly puts the power of divine intervention to work to sell it fast.
Any publicity is good publicity, says Howe Allen, an agent with Gibson Domain/Domain in Boston. Although he hasnt tried supernatural intermediaries, Allen recently marketed a high-end Dorchester condo by holding a brokers open house featuring paintings and photography by local artists, performances by cabaret singers, and hors doeuvres and cocktails set out on the kitchen counter. By chance, the National Public Radio news show All Things Considered also asked to tape a segment about the national real estate market at the open house. The condo sold two weeks later. Im not sure it sold because of the open house, says Allen, but its good to have any type of exposure.
Such enticements definitely create a buzz that we wouldnt have had otherwise, says Linda OKoniewski, an agent with RE/Max Heritage in Melrose, who is currently marketing a house with a 1 percent cash-back offer designed to pay for needed upgrades. Any way that you can distinguish yourself in this market is good, she says.
But considering the buyer will be paying mortgage-rate interest on that 1 percent cash back, wouldnt it be smarter for the buyer to just pay for the renovations themselves and knock 1 percent off the sale price? Well, I suppose thats the analytical way of looking at it, says OKoniewski.
Unfortunately for OKoniewski and her peers, buyers are getting mighty analytical and stingy when it comes to purchasing houses. All these forms of encouragement, while they may be good at getting people through the door, are not much help when it comes to getting a buyer to sign on the dotted line. In fact, many savvy buyers consider them slightly ridiculous.
The incentive is what the seller wants to give you, says Eric Wildman, a human resources manager who just signed a purchase and sales agreement on a single-family home in Melrose. But I want what I want. I would never want a car included with the purchase. Id rather have $10,000 off the purchase price. The special deals are no value to me. It might generate buzz and traffic, but it isnt going to make a difference to me.
Buzz doesnt exactly generate commissions, either. Many real estate agents are stuck with clients who are convinced that if they can only wait long enough, theyll find a buyer willing to pay their asking price. Those ever-creative agents who arent so patient are constantly coming up with programs that fall shy of offering a lower price but still appeal to the buyers desire to get a good deal.
For example: To help move condominiums throughout Boston, Chris Tuite, the president of RE/Max Waterfront, has arranged with a lender, Drew Mortgage in Shrewsbury, to allow sellers to purchase points against buyers loans. Each point costs 1 percent of the total loan and lowers the interest rate by one-quarter of 1 percent which gets buyers a much lower than market rate over the life of the loan without having to fork over thousands to buy their own points.
Tuite just created the program, so its too early to know if its working. We just started advertising it, he says. Its making the phone ring. People cant argue that the rates are too high. As to why the sellers dont use that money to lower the price, Tuite says that if you lower your price by $15,000, its not going to make a big difference with a $500,000 property. But if you can lower the interest rate for a buyer, that makes a difference.
Developers and sellers are very aware of the domino nature of the real estate market the buyer of your house usually has a house to sell before he can buy yours; the buyer for his house has a house to sell; and so on and when the market gets tight, the failure of one link in that chain can scuttle multiple sales.
So developers and sellers are trying to take the fear out of buying a house before selling an existing property. Some are doing it by paying the interest on a short-term bridge loan, which pays off the mortgage on the buyers existing home and often provides some of the down payment on the new house. Usually, these loans last one year, and the mortgage on the new house must be taken through the same lender. Other developers and sellers are offering to pay the points required for temporary interest rate buy-downs. These cost less than points that buy down the rate permanently and allow the buyer to pay a below-market rate for the first one to three years of the loan. Still other developers and sellers are giving potential buyers free staging consultations spruce-up tips from interior designers so their existing homes will sell faster.
The biggest and most effective
incentive is now, always has been, and always will be a reasonable price. But many sellers, especially developers of large condominium or subdivision projects, refuse to go below a certain sales price regardless of market conditions. A price reduction on one property creates a precedent that can have a catastrophic effect on total profits for a large project. Thats probably why so many investors and developers, like those involved with the Parris Landing condominiums in Charlestown Carlyle Realty Partners and Draper and Kramer Inc. are paying condo fees and giving signing bonuses and throwing in extras like high-end kitchen appliances, parking spaces, and hardwood floors or even cold hard cash. Buyers in those cases are paying mortgage-priced interest on the cost of the givebacks. But enough buyers are biting that many developers and sales agents are in no rush to abandon these motivators until the market improves. Jason Weissman, owner of Boston Realty Advisors, based in the Back Bay, says that there are a lot of back-end incentives to help keep properties at a certain number.
With no clear bottom in sight, many individual sellers and some developers, stuck between a rock and a hard place, have no choice but to face the current, cruel market realities. Weissman says even the still relatively warm markets in parts of Boston the Back Bay, South End, Beacon Hill, and the North End waterfront are not immune to the chill being felt in the suburbs. But he has eschewed incentives and has instead persuaded his sellers to lower their prices to going market rates. More than 50 percent of the properties his firm represents have been through at least one price reduction. People want to buy a home at the best market price they can buy it for, says Weissman. The marketing tactics that you see, its smoke and mirrors, and we dont buy it.
Incentives like a Ferrari thrown into the deal are proven losers when it comes to closing a sale, but many brokers believe that in hard-hit markets, such incentives will continue to be popular marketing tools. Thats because although most buyers think theyre silly, those same buyers might still be tempted to check out the properties which is the first step toward signing on the dotted line.
Strangely, these fancy marketing tools are proving to be highly effective for some people as long as theyre not trying to sell a house. One of the photographers whose work was shown at Howe Allens Dorchester open house the one with the singers and free drinks landed a regular gig taking head shots for one of the realtors who attended. And Linda OKoniewski says that one of her sellers, who is offering a 1999
5-Series BMW along with his house, may have a partially happy ending. She reports: Im getting more inquiries about the BMW than the house.
Kris Frieswick is a writer based in Bostons South End. E-mail her firstname.lastname@example.org.