Dan's Papers - February 15, 2008 - Point of Reality on Hampton's Real Estate Prices

"I've been following what's going on in the news and like everyone else, I know it's a buyers market in the Hamptons so I'm ready to buy."

"Great. What are you looking for?"

"I want a turnkey house - 3 bedrooms, 2 baths, pool - on half acre, within a mile of town - but not on a busy road - and close to ocean beaches."

"Okay, I'll do a search, what's your price range?"

"I don't care what the asking price is. A friend of mine saw an article that said the $400,000 house is back, so I wanna pay 4-450, tops."

"Well, there are homes at that price, but with your requirements it will be a challenge - it could limit lot size, location -"

"I know what's going on out there so don't bull^*!#* me, lady. I wanna be where I wanna be."

"There's no need to curse -"

As if the doom and gloom scenarios painted by national media aren't enough, local publications are running stories that add to the hysteria, skewing the reality with trends based on limited if not isolated examples. In addition to the promise of the $400,000 house, a recent headline read that foreclosures were "up sharply." Upon closer scrutiny, the copy read that the actual foreclosure numbers are "still low" on the South Fork. "Up sharply" yet "still low"? Leaving that puzzle aside, the larger question is, do stories like these affect the real estate market and the psychology of buyers and sellers on the East End?

According to Beth Troy, an agent at Town and Country Real Estate in East Hampton, the answer is yes. "Information like this sets up false expectations for customers [buyers], who come out and expect to pay far below list price and market value for a property. It's discouraging for them," she said. "Sellers are frustrated by buyers who put low ball offers on properties that have already gone through a correction based on the economy and the inventory. Not surprisingly, these sellers are not countering, and buyers are left feeling very disappointed."

Farther west, in Shinnecock Hills, longtime Southampton resident and real estate investor Celia Nacarato called the promise of the $400K house a myth. Currently in the market for a new investment, Nacarato has heard rumblings about investors thinking they can get much more for their money "Some people - even realtors I've encountered in my journeys - have the notion that they can get these amazing deals," said Nacarato. "People are 'halving' the house - offering 50% of list price. Sellers aren't going for it, but there is a lot more negotiation."

Agents are seeing the how-low-can-you-go limbo strategy of buyers regularly. "Some buyers think that because sellers have lowered the asking price of houses in the over a million category by, say $100,000, that means they will go even lower," said Troy. "They don't realize that the reduction means the seller is realistic, not desperate."

It's a reversal of the 55 to 65 mph speed limit on the highways. When the limit was 55, drivers cruised along at just under 70. When municipalities and states finally caved, raising the limit to 65, an East Hampton resident quipped at the time, "Great. Now we can go 80." So it goes with some potential buyers who think that the lowered asking price is the starting point, when in fact it may simply be a clarification of what the seller will accept.

Fortunately for the sanity of the local real estate community, not all potential buyers take this type of information seriously. Christopher Sullivan, who works in finance in New York and is a property owner on the East End, was unfazed after reading the article. "The one house mentioned was very small," said Sullivan, who is looking to trade up. "The article didn't weigh on my decision to buy or affect my expectations of the market at all - I saw the piece for what it was."

Pie-in-the-sky expectations are mitigated by an investor's market knowledge and business savvy - and, as it turns out, by sticker price. According to some agents, the number of unrealistic deal hunters lowers as asking prices soar higher. "It's a mixed bag," said Catherine Holzer, an agent at Corcoran in Southampton. "Yes, buyers are doing a lot of low balling, thinking a well-priced property isn't worth it even if I show them comps of houses that sold within the last six months," she said. "But this isn't happening as much in the high range. Buyers looking at $6 million and above, paying cash, know what they want and know the market. The low balling is mostly happening in the lower range - properties under $2 million."

In a real estate market where $2 million properties are considered lower range, it's safe to say that despite a few reports, there is no fire sale of the Hamptons.