Re-Printed from the Falmouth Enterprise,
October 28, 2003
Are Rising Housing Costs in Falmouth
A Reflection Of True Worth Or Overpriced?
By David F. Kelley
Is Real Estate in Falmouth Overpriced? Good question, so let's find out.
During the first 3 quarters of this year, 391 homes were sold at an average price of $445,000. In the same period last year 431 sold averaging $376,000 or $69,000 less, and 5 years ago 485 sold averaging only $230,000 or $215,000 less.
Do these price increases mean the homes were overpriced? Some of them probably were and generally It means they are worth more, but why? Possibly because our town has become very attractive to buyers, especially those who cannot afford the prices on Nantucket and the Vineyard and also the younger "Baby Boomers" who are now ready to buy second homes.
What is overpriced? At present, Falmouth has 268 homes for sale in the Cape Cod MLS averaging $664,000. That's 33% higher than the average sale price of $445,000 this year. When analyzing charts of sold home listings, the average differential between list prices and sold prices is only about 5%. Individual differences can vary greatly, but the total of the whole is only 5%. How do you explain the 28% difference? I suspect that many sellers either don't know how to price a home realistically or are testing the market which may work in a "hot" market, but not very well when the market is soft.
What happens if they don't sell? They will be "Withdrawn" from the market or the listing "Expires." So far this year, 209 homes have been withdrawn or expired from the active lists with average prices in the $650,000 range vs. the average sold price of $445,000 and were almost 6 months on the market. There are many reasons, and overpricing is the biggest. Many have returned to the market, no doubt more wisely priced. Some of todays active listings will also meet the same fate, and return to the market more realistically priced. Ultimately, it's the market that determines what a home is worth, not sellers.
Are any homes properly priced? Many homes are priced right in Falmouth as the sold list proves. Most home sellers will accept a realistic price suggested by a good realtor if properly documented. After all, they want to sell their home fairly soon and realtors get paid only when a home sells. It makes no sense to drastically overprice a home that takes forever to sell. This creates ongoing expenses and effort by the owner, and it costs the realtor valuable time, and advertising dollars. Yet as previously noted, Falmouth has many homes overpriced and some unbelieveably so.
How are home prices determined? Realtors don't price homes, but suggest a price range to the seller who makes the final decision. This range results from a thorough "Comparative Market Analysis" of the home which the seller may accept, but too often the final list price is inflated and influenced by:
1. Prices seen in the paper or on homes for sale nearby are poor yardsticks as they may be overpriced or not comparable. Recent sold prices of comparable homes are their best guide.
2. They put too much money put into their property and want to retrieve it, but is now overvalued for the neighborhood.
3. Need to sell at a high price so they can buy another home.
4. Wishfully thinking. Some sellers think their 500K home is worth 900K based on a faulty interpretation of the market and will not listen to any proof to the contrary. Realtors should be wary as it will take much time and money to sell such a home.
5. Inflated prices from realtors are sometimes provided just to get a listing. Sellers love to hear high numbers, but should be realistic and get clear justification or additional prices, otherwise their home will face many days on market.
Where are the most overpriced homes? They are in all areas of town, but salt waterfront and salt waterview have the most. The closer to saltwater, the higher the prices with the last 10th of a mile the most common area for price testing the market. It's interesting to note that the highest fresh waterfront prices are the beginning of the salt waterfront prices.
How do sales prices compare by village? The figures on the following chart are based on the first 9 months of single family home sales in Falmouth.
To conclude, overpricing is a normal testing of the market regardless of the type of market. What makes home prices appear so extreme in Falmouth is the loss of the low end. At one point in 1997, there were over 85 homes for sale under $90,000 while this year there have been only 9 sales under $200,000. Meanwhile, Falmouth has 25 homes for sale over $1,000,000 which tends to inflate average sales prices.
Our market has had a dramatic change recently from 2/3's of all sales under $400,000 to an almost equal number above and below $500,000. Perhaps overpricing is no longer the correct word to use for a town with "Increasing Home Values." Homeowners understand this and see the opportunity, but many should make a greater effort to understand the steps necessary to realistically price a home in the Falmouth real estate market.
Please Credit: David F. Kelley, Falmouth MA
Article and artwork Copyright @ 2004 by David F. Kelley.
David Kelley is a realtor with Real Estate Associates in Falmouth and a past president of the Falmouth Artist's Guild and South Shore Art Center in Cohasset.
Copyright © 2002-2014 By David F. Kelley All Rights Reserved