This is the second in a three-part series on the Hamptons Real Estate shift.
Even as the landscape continues to evolve, it seems many people have begun to settle into a post-COVID world. With more people choosing to use their Hamptons home either full time or more often, the nature of participating in the Hamptons real estate market heading into summer 2021 is also evolving.
The Hamptons market shift factor #2: Negotiations.
Negotiations have evolved from frenzied in 2020 to strategic in 2021.
“Unfortunately, sellers are hanging onto headlines about increases in pricing and bidding wars,” says Adam Hofer of Douglas Elliman. “While those stats and stories are true in some cases, I think many sellers are being too rigid for today’s market negotiations,” he continues.
There is a dichotomy in today’s market — Listings that receive immediate interest and bids, and those that receive interest, but cannot come to terms as offered.
“You have these properties in good locations coming to the market that are priced relative to the most recent sale,” explains Joe Fuer, Senior Managing Director of Compass Hamptons. “Those are the properties getting bid up, but they don’t represent the market as a whole.”
Data supports Fuer and Hofer’s observations. In the last four weeks, in response to the decline in sales inventory, 16% of properties closed above the asking price, while 40% closed for 5% or more off the listing price. In 2020, only 12% of properties closed for more than the list price, while 47% closed for 5% or more off the last asking price, demonstrating a move toward the establishment of post-COVID pricing, even as prices continue to climb.
Despite the possible beginnings of a trend toward pricing norms, Fuer confirms that the market is still saturated with sellers who want to be aggressive by employing “COVID pricing.”
While buyers are interested in those listings, they really won’t bid up, or even bid, if the property isn’t everything they want. When they do bid, negotiations have gotten longer and more involved. Cash is still king and, according to Fuer, no one is winning bids with mortgage contingencies anymore, but at the same time, other terms like how compliance issues are resolved, and timing, have grown more important and are impacting even the cash deals getting done.
“Today’s buyers are asking more questions than the buyers of 2020,” reports Patricia Wadzinski of Sotheby’s International Realty. “It’s still a seller’s market because of the lack of inventory, but buyers, while still competing with other buyers, are also negotiating more strategically,” Wadzinski shares.
“My pool of buyers has definitely shifted,” reports Hofer. “Last year, the majority just wanted to get the deal done right away so they were pretty flexible on the price and location,” he explains. “The desire to purchase is still strong and buyers 100% want to be here, but these are long term purchasers, and they’re not as willing to make sacrifices.”
One couple who recently closed on a property that set a neighborhood record, wishes to remain anonymous because, “No one knows! We know we want to be here later in life, and our parents are excited to come visit, but no one in our circle knows. It’s our own secret paradise here and we want to keep it that way,” they explained.
When asked why they chose the Hamptons, the buyers responded, “Our jobs in New York will never be fully remote and we like having somewhere to escape to. Not to mention, it’s just magical here,” they explained. The couple had been renting for several years and decided it was the right time to purchase.
These buyers have hedged themselves for the future. “We felt like we were overpaying at the time of our offer, but that was ok. The house is perfect for us and the location is great,” they shared. Also citing concerns over the increasing prices of land and building costs — seeing no way for those prices and costs to come down within their desired timeframe, the couple didn’t mind paying what felt like more now for something they feel will likely increase in value and most certainly retain the value they paid, especially when factoring in the value of their enjoyment. But the process wasn’t without sweat and tears.
The couple had to come up in price after their offer was accepted to keep the deal together. The house didn’t appraise at the price they offered so they had to increase their cash outlay to close. Renovations that were in progress by the seller during the contract period, and other items, all brought up points that needed to be resolved between the parties, post-coming-to-terms.
“Despite the stress and anxiety, we lucked out when we missed out on the other properties we bid on. This one is so much more of what we wanted. We’re really glad we had our limits when it came to making sacrifices and knew when it was right to push a bit farther,” the couple commented in response to how they felt about the arduous process. They do not regret the amount they had to spend. Even if prices come down in the nearterm, they’re in it for the long haul. For now, the couple put the house on the rental market and received a full price offer for their desired periods to help cover the extra cash they needed to close the deal.
“These buyer’s aren’t alone,” Wadzinski says. “It’s not just buying to buy something anymore; now, the property has to fit something particular,” according to Wadzinski, who also sees an increase in the number of buyers who are committed to being in the Hamptons long term. “Those buyers should absolutely stay the course,” she advises. “I had buyers three years ago who really wanted to be here, but they couldn’t wrap their heads around the prices then. Well, they’re kicking themselves now.”
The year-round population has been growing on the East End of Long Island, especially since the early 2000s. Additionally, second homeowners have also started spending more free time in their Hamptons homes. Restaurants that had usually been closed all winter had already extended their pre- and post-summer season opening days in response to a growing off season community before COVID.
“It’s April and being on the roads, it feels like July used to feel. Last year we blamed COVID, but this started happening before 2020 and I don’t think that is going to change or go backwards any time soon,” says Wadzinski, who has lived on the East End since the 1970’s and worked through several market cycles since the early 1980s.
Many people that Hamptons Market Data has spoken to think that as real estate in New York City picks up, this means a return to city life and an exodus from the Hamptons. According to Noah Rosenblatt, CEO and co-founder of UrbanDigs, a New York City real estate market data and insights company, “The New York City markets have been in recovery since last fall and in overdrive since March. Buyers are seeking out larger apartments as evidenced by the UrbanDigs Market Pulse up 57% year-over-year for two-bedroom apartments and up 60% for three-plus bedroom apartments. This is compared to one-bedrooms seeing a Market Pulse rise of 21% and studio apartments seeing a decline of 8% from this time last year.”
Despite this uptick for NYC real estate and even a preference for a larger apartment, Hamptons Market Data believes there is strong evidence to suggest that as people contemplate and return to city life, keeping a secondary home location proximate to NYC will continue as a strong popular trend. After all, the NYC market has been improving since the fall and this has not yet seemed to impact, in any significant way, the upward trajectory of Hamptons home sales.
As discussed in The Hamptons Market Shift Part 1, how the wealthy are planning to use their homes is evolving and the sale of Hamptons properties, including the way they are being bid on and negotiated, is also evolving as a result. All the while, as listing inventory has declined since the start of the pandemic and new listings that are well priced are getting snatched up within 20 days, the market has made one more shift that actually helps certain buyers increase their odds of securing their Hamptons home in this seller’s market.
Follow the next factor in the Hamptons market shift: coming next week.