Home Price Data at Odds With Sales Stats

As the U.S. Marshals Service charged with selling Bernard Madoff’s former digs can attest, home sellers have it rough these days.

Madoff’s 4,000-square-foot penthouse in Manhattan got a 10% price cut (to $8.9 million from $9.9 million) after two months on the market while the Ponzi schemer’s Palm Beach, Fla., home was reduced by 7%. (The two properties were put on the market in September.)

The US Marshals dropped the list price at the recommendation of the listing agents (Sotheby’s International Realty) to attract more potential buyers. But the challenge of selling the Madoff lavish homes reflects the broader housing picture.

About one in four homes currently on the market (as of Nov. 1) have experienced at least one price cut over the past 12 months, according to a report from Trulia, which tracks property listings. What’s more, the average discount for a reduced home is holding steady at 10% off of the original listing price. And luxury homes, those listed at $2 million and above, are seeing even steeper discounts with an average of 14% slashed from their original asking price, according to the Trulia report.

Those numbers take some of the shine off the latest report from the National Association of Realtors, which touted an 11% increase in existing homes sales from the second quarter. The rise was in part attributed to the home buyer tax credit. (And according to the latest S&P Case-Shiller home price index, home prices rose 1.2% in August, the third straight month showing improvement.)

Some areas with high foreclosure rates — including Detroit, Las Vegas and Fresno, Calif. — are seeing a drop-off in the number of price reductions, but the sellers who have to cut their asking prices in these areas are doing so by significant amounts. For instance, the average home price reductions for Las Vegas and Detroit were 15% and 25%, respectively – well above the national average of 10%. “We are seeing in very hard-hit areas a bit more stabilization. When new listings come on the market, sellers are not forced to reduce the price of their home multiple times to compete with foreclosures,” says Heather Fernandez, a spokeswoman for Trulia.

Your typical seller is competing against too many other motivated sellers, many of whom are banks dumping distressed homes on the market. “That’s why the pricing environment is still tough,” says Mike Larson, a real estate analyst at Weiss Research.

And it might get worse for sellers yet.

The newly extended and expanded home buyer tax credit raises the income limits for eligible buyers and includes existing homeowners. This could spur a rise in inventory as qualifying homeowners who were planning to sell their home in the next one or two years decide to sell now to take advantage of the credit. Any increase in supply means sellers have to price their homes that much more competitively.

The best advice for any seller: Stay on top of your local market so you know where to price your home. “For the most part, if the property is priced correctly, there’s no need to drop the price,” says Gerry Bourgeois, a broker with Towne & Country Realtors in Leominster, Mass. “You don’t want to wait three months to re-evaluate the price.”