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Three Cents Worth: Measuring Seller Resolve

[This week, our graph guy Jonathan Miller looks at the change in listing price discounts, from first listing to contract, to get at the mercurial issue of "seller resolve." Click on the image to exand.]

Sellers in the current market have shown little willingness to negotiate their position until recently. Even then, sellers are remaining fairly firm in their belief that they will get their "price." I call this "seller resolve." Perhaps one way to quantify it is to measure the change in the difference between the original and last list price discounts. First, some definitions:

· Listing Discount (From Original List Price): The list price the property originally enters the market with.
· Listing Discount (From Last List Price): The list price of the property when it goes to contract.

· Spread Between Original And List Price Discounts: The difference between the original and last list price discounts.Both types of listing discounts have been trending upward since the end of 2004 when inventory began to rise. The spike in the third quarter of 2005 was the point where I believe the housing boom ended in New York. It was a short term spike that occurred when sellers wanted to "cash out" as the market reached its peak. I kind of like the idea of looking at the spread because it measures how far off the sellers are from market levels in their pricing. In other words, if the listing discount from last price change (blue line) takes into account the point where the list price is low enough for the property to sell, the original list price (pink line) represents how realistic the seller is about pricing initially.

The spread (green line), or difference between the two discounts measures how far the list price has to be dropped in order to get it to the point where the property sells. A smaller spread means sellers are entering the market at more realistic price levels and the property incurs fewer list price adjustments.

The most recent quarter showed a slight drop in the spread to its lowest level in 18 months, suggesting some weakness of seller resolve. I suspect there will be further weakness in the spread over the next year.
· Measuring Manhattan Seller Resolve [Miller Samuel]