Greenwich Real Estate Market Explained

Do I qualify for $250,000 home-sale tax break?

Realty Tax Tips-Part 1: Rules for occupancy, divorce, death

Suppose you could receive up to $250,000 tax-free cash. Better yet, suppose you could receive up to $500,000 tax-free. Still better, suppose you could receive this tax-free money over and over again, but not more frequently than once every 24 months.

Stop dreaming. It's possible. Thanks to Internal Revenue Code 121, millions of U.S. home sellers enjoy these tax-free benefits each year when selling their principal residences. But it is important to understand the simple rules.

HOW TO QUALIFY FOR THIS TAX BREAK. Whether you own and live in a house, condo, cooperative apartment or other type of principal residence, you can qualify for Uncle Sam's most generous tax exemption. To be eligible, you must have owned and occupied your primary dwelling at least 24 of the last 60 months before its sale.

Single home sellers can qualify for up to $250,000 tax-free profits. A married couple filing a joint tax return can qualify for up to $500,000 tax-free capital gains if both spouses meet the occupancy test even if only one spouse's name is on the title.

The method of holding title doesn't matter. Title can even be held in a revocable living trust, as millions do, to avoid probate.

However, if there are two co-owners not married to each other, then both names must be on the title for each to qualify. Military and Foreign Service members have special generous rules allowing the 24-month occupancy period as far back as 15 years before the home sale.

If you bought your principal residence as recently as 24 months ago, and occupied it since then, you meet the ownership and occupancy test. The 24-month residency need not be continuous. Brief temporary absences, such as for a 30-day vacation, count as occupancy time.

However, if you acquired your home in an Internal Revenue Code 1031 tax-deferred exchange as a rental property, and later converted it to your principal residence, for such sales after Oct. 22, 2004, you must own the property at least 60 months (24 of which it must be your principal residence).

Home sellers of any age can qualify. It doesn't matter if you buy another replacement home or not after the sale. Nor does the dwelling have to be your residence on the date of sale.
For example, if you lived in your primary home 24 months, and then rented it to tenants up to 36 months before the sale, you still qualify for this tax exemption.

IF YOU HAVE TWO HOMES, DETERMINING YOUR PRIMARY HOME ISN'T ALWAYS EASY. Suppose you own a "summer home" and a "winter home," as millions of U.S. homeowners do. You spend about six months each year in each home. Both residences therefore meet the 24-out-of-last-60-months IRC 121 ownership and occupancy tests.

But the IRS says only one residence can be your "main home." This issue was vital in the tax case of Guinan v. U.S. (2003-1 USTC 50475). The Guinans sold their Green Bay, Wis., home where they spent more time each year than in their other residences. The Wisconsin home met the 24-month ownership and occupancy tests. The owners kept bank accounts and automobiles in Wisconsin.

But the U.S. District Court ruled it was not their primary residence because the sellers never filed income tax returns from Wisconsin. As a result, they had to pay $45,009 capital gain tax on the sale of their Wisconsin home.

The IRS says principal-residence indicators -- if you own more than one residence -- are (1) place of employment; (2) principal abode for the taxpayer's family members; (3) address on taxpayer's federal and state income tax returns; (4) location of taxpayer's banks; (5) automobile and driver's license registrations; (6) voting location; and (7) civic affiliations, such as taxpayer's religious organizations and other membership groups.

LITTLE-KNOWN BENEFIT FOR DIVORCED AND SEPARATED HOME SELLERS.

Many divorced and separated couples are not aware they can still qualify for up to $500,000 total tax-free principal-residence-sale profits. If one divorced or legally separated spouse (called the "in spouse") qualifies for the $250,000 tax exemption by owning and living in the home at least 24 months of the last 60 months before its sale, the other spouse (called the "out spouse") can also qualify for up to $250,000 tax-free home-sale profits when the home is eventually sold.
This little-known tax break is often used when one spouse stays in the home until the children become 18 or 21 and the home is then sold with the profits divided between the ex-spouses.

ADJOINING VACANT LAND SALE CAN ALSO QUALIFY. Another little-known benefit of IRC 121 allows the sale of a vacant lot adjoining the principal residence to qualify for this tax exemption. However, the adjacent principal residence must be sold within 24 months before or after the lot sale.

UP TO $500,000 TAX-FREE HOME-SALE PROFIT IN YEAR OF SPOUSE'S DEATH. Although a surviving spouse should not rush to sell the principal residence in the year of a spouse's death, IRC 121(b)(2) permits use of the exemption up to $500,000 in the year of a spouse's death if a joint tax return is filed. In limited cases where a surviving unmarried spouse maintains a household for dependent children, this tax benefit may be available for two additional tax years.

However, a surviving spouse who inherits the deceased spouse's share of the principal residence should be aware he or she will receive a new 50 percent "stepped-up basis" to market value on the date of death. In community property states, the surviving spouse usually receives a new 100 percent stepped-up basis to market value if both spouses held title.

PARTIAL EXEMPTION IF YOU DON'T MEET THE 24-MONTH OCCUPANCY TEST. If you occupied your principal residence less than the required 24 months, but the reason for your home sale is (1) change of employment site meeting the moving-cost tax-deduction rules; (2) health reasons; or (3) unforeseen circumstances, you can qualify for a partial exemption based on the number of occupancy months.

The "unforeseen circumstances" rules are still evolving. The IRS allows these acceptable reasons: (1) divorce or legal separation; (2) death in the immediate family; (3) unemployment; (4) decreased income with the homeowner unable to pay the mortgage and basic living expenses; (5) multiple births from the same pregnancy; (6) damage to the home from a natural or manmade disaster or terrorism; and (7) condemnation, seizure or other involuntary conversion of the property.

If you qualify for a partial exemption, and you occupied the principal residence 18 of the 24 required months, for example, then you qualify for 75 percent of the $250,000 or $500,000 exemption.

TWO WAYS TO AVOID TAX ON MORE THAN $250,000 OR $500,000 HOME-SALE CAPITAL GAIN. If you will have a principal-residence-sale capital gain exceeding the $250,000 or $500,000 exemptions, there are two ways to avoid tax:

1. The first method is to convert your home into a rental property. Then it qualifies for an Internal Revenue Code 1031 tax-deferred exchange for another rental or business property of equal or greater cost and equity.

Most tax advisers suggest renting your former principal residence at least six to 12 months before exchanging it. IRC 1031(a)(3), known as a "Starker exchange," then allows selling the property, having the sale proceeds held by a qualified intermediary third-party beyond your constructive receipt, designating the replacement property within 45 days, and completing the acquisition within 180 days after the old property's sale.

2. The second method, allowed by IRS Revenue Procedure 2005-14 effective Jan. 27, 2005, allows use of both IRC 121 and IRC 1031 in a single property sale. This slightly complicated ruling is retroactive to tax years for which the statute of limitations has not expired.

Gain is first excluded under IRC 121 up to $250,000 or $500,000, and the remaining gain then can qualify for an IRC 1031 tax-deferred exchange. An example of this procedure applies where the principal residence was converted to a rental and then the property is "down traded" for another rental property after claiming the IRC 121 exemption.

SUMMARY: Internal Revenue Code 121 is a very generous tax exemption up to $250,000 or $500,000 that can be used over and over but not more often than every 24 months for qualified home sellers. For full details, please consult your tax adviser.

Greenwich Real Estate Market Explained

Turnaround expected for U.S. home builders
ECONOMIC OUTLOOK MARKETPLACE by Bloomberg

International Herald Tribune
Author(s): Matthew Benjamin And Rich Miller

The home-building industry is about to stop hurting the U.S. economy and later this year may start to help it.

The housing demand that is beginning to stir may be unleashing faster growth. While housing will not add much to the expansion before the end of 2007, it is becoming less of an impediment as price cuts, incentives and lower mortgage rates bring more buyers into the market.

"The worst of the drag on the economy from construction is behind us," said Chris Varvares, president of Macroeconomic Advisers in St. Louis, Missouri. As a result, he said, growth should pick up to an annual rate of more than 3 percent in the second quarter, from 2.25 percent in the current quarter.

That would reduce pressure on the Federal Reserve to reduce interest rates, disappointing bond investors who are anticipating that the Fed's chairman, Ben Bernanke, and his colleagues will cut them as soon as May.

The yield on the 10-year Treasury note rose to 4.65 percent Friday from 4.42 percent Dec. 4 as strong job growth and rising incomes prompted bond investors to scale back their bets on Fed rate cuts. Meanwhile, shareholders in home-building companies are already taking heart: An index of housing shares soared 11 percent in the final two months of 2006, outstripping the 2.9 percent advance in the Standard & Poor's 500.

"Investors are very forward looking, and there's a sense among them that a change in momentum in the housing market is approaching," said Robert Curran, managing director at the credit rating agency Fitch in New York.

Sales of existing homes rose in October and November, the first consecutive monthly gains since late 2005. New-home sales are up too, helping pare the number of unsold properties to 545,000 from a record 573,000 in July.

Builders still view conditions as poor, according to a December survey by the National Association of Home Builders/Wells Fargo. For the third month in a row, though, the survey showed an increase in the number of builders forecasting higher sales in six months' time.

Toll Brothers, the largest U.S. builder of luxury homes, "may be seeing a floor in some markets," said Robert Toll, the chief executive. Buyer "deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above." The long-term prospects for the U.S. housing market are more favorable than in other countries that experienced similar housing busts, said Mark Vitner, senior economist at Wachovia.

Housing prices surged this decade in Australia and Britain, peaking earlier than in the United States. Falling prices and sales in those countries proved to be only a temporary drag on economic growth, followed by rapid recovery.

The United States may fare even better, because its younger population and higher rate of immigration create more room to increase rates of home ownership, Vitner said. "Housing recessions didn't bring about the end of the world in those countries, and our demographics are much more favorable," he said.

The industry may take its time getting up off the bottom.

"In the wake of the boom we had and the bust that we're having, it wouldn't surprise me to see a long period of not much growth in housing because that's what it needs to rebalance supply and demand," said Richard Berner, chief U.S. economist at Morgan Stanley in New York.

A revival of home building will not add to gross domestic product at anything like the pace of mid-2005, at the height of the housing boom, when residential construction accounted for more than a third of the economy's 3.3 percent growth rate.

Varvares at Macroeconomic Advisers predicted that home building would contribute just 0.1 percentage point to growth by the fourth quarter of this year. Still, that would be a big improvement from the third quarter of 2006, when housing pulled growth down by 1.2 percentage points to an annual rate of 2 percent.

David Seiders, chief economist at the National Association of Home Builders in Washington, expects the industry to do much better. He sees home building adding as much as 0.7 percentage point to fourth-quarter growth.

Behind the improving outlook: More people are able to afford homes. The rate on a 30-year fixed-rate mortgage has remained less than 6.2 percent since mid-November, down from 6.8 percent in July. Applications for mortgages to buy homes at the end of December were up 8.3 percent from their low for 2006, in October. The median price of existing homes, which account for 85 percent of the housing market, was down 3.1 percent in November from a year earlier, the fourth consecutive monthly decline.

Greenwih Real Estate Market Explained

WSJ: End of Housing Slump Seems to Be Drawing Near

Signs of Stability Emerge In Mortgages, Home Sales, Buoying Economic Prospects

By CHRISTOPHER CONKEY

Recent firmness in mortgage applications and an increase in new-home sales suggest the housing slump may be nearly over, limiting the risk of wider damage to the overall economy.

One indication that home-buying demand has leveled off after a yearlong decline comes from the Mortgage Bankers Association, which conducts a weekly mortgage-application survey.

Yesterday, the group said mortgage applications fell sharply last week from the week before. Even so, its indexes of applications for home purchases and refinancings have been rising steadily since summer. The four-week moving average for the MBA's purchase index, which offers a less-volatile picture of the trend, has risen 12% since August, while the four-week average for the group's refinancing index has soared more than 41% since July.

A recent pickup in new-home sales also points to stabilizing demand. The Commerce Department said yesterday that new-home sales rose 3.4% in November to an annual rate of 1.05 million units. While that pace is down more than 15% from a year earlier, it has risen since July and has held fairly steady in recent months.

Despite some continued uncertainty, economists view the recent data as an early indication that the worst of the housing market's downturn may be over. "The net of all the numbers we've gotten is that it looks like the housing market and home sales appear to have stabilized, at least temporarily, in the latter part of the year," said Thomas Lawler, a former economist for Fannie Mae who now runs a consulting firm in Vienna, Va.

If this turns out to be the case, and the housing market begins to rebound next year, the economy would be likely to benefit. The slump has been one of the biggest dampers on the nation's economic growth. In the third quarter, for example, the decline in home building and residential investment shaved more than one percentage point off the annual rate of economic growth. Many economists expect a similar reduction in the fourth quarter but expect some improvement next year.

The chances of a pickup in 2007 partly depend on whether home builders can trim their inventories of unsold homes. Last month, there were 545,000 new homes on the market, or the equivalent of a 6.3-month supply at current sales rates, according to the Commerce data, down from a recent high mark of a 7.2-month supply in July.

Home-buying activity could wane, however, if interest rates rise or other factors, such as employment or the stock market, deteriorate. Economists expect the normally quiet winter months to produce volatile readings and say the best gauge of the housing market will be whether buyers come out in force as usual in the spring.

The median price of a new home -- or the price at which half sold for more and half sold for less -- was $251,700 last month, up from $237,900 a year earlier, the Commerce Department said. The figures aren't adjusted to account for the changing mix of sales. Thus, the November reading may have been distorted by the fact that sales in the higher-priced Northeast rose last month, while sales in lower-priced South fell.

Greenwich Real Estate News - Before Moving Out

Once you have sold your home, set a move-out date, and have begun packing, time will probably seem to fly right by. All you really need to do is pack up your stuff and leave, right?

Maybe. You should, of course make sure all of your personal belongings are out, and that you have cleaned up all of your garbage. You will still have to get your keys to the new owners in whichever way was previously agreed upon, but other than that, you're not really obligated to do anything else.

You could, though. A little extra work and consideration can make moving in a lot more pleasant for the family that will be moving in. A lot of agents will recommend that the home is at least "broom swept" before you move out. Sweep the floors, get rid of cobwebs along the walls and ceiling. Take it a step further, and mop or vacuum and clean the windows and surfaces, such as countertops and sinks. You should also take the time to give the bathrooms one last cleaning.

If it has been several days since the last time the lawn was mowed, that might be a really nice gesture to consider. Rake up leaves in the fall, or, in the winter, shovel the driveway and put down some rock salt to get rid of ice.

Of course, after you've gone through all of the work associated with moving, trying to get extra work done is probably not what you want to be doing. If you can, try keep everything neat while you are cleaning, and do any necessary yard work before you start loading the moving van. Then, you will only have a few quick things (a quick sweep and mop) to get done afterwards. This can be even easier if you entirely clean out each room as you get everything out of it. Empty out a room, clean it quickly, and then move on.

If you really don't have the time, consider calling a cleaning service to give the home a once-over after you have moved out. Yard work could be handled by a neighborhood teen.

So, what do you get out of this extra effort or expense? Nothing, really, other than the knowledge that you have made moving a more enjoyable experience for the new owners. Not having to handle a lot of cleaning in the first few days after they have moved in will mean a lot.

You don''t need to scrub the home from top to bottom, but a little extra cleaning can make a great impression. You've loved living in the home you are leaving behind; make sure the new occupants will love it just as much, from the moment they walk through the door.

Greenwich Real Estate Market Explained

Pain From U.S. Housing Slump Is Likely To Linger, but Some Say Worst May Be Past

By JAMES R. HAGERTY Wall Street Journal

Just when the gloomier pundits were starting to enjoy the housing slump, optimists are piping up to declare it could be almost over.

Former Federal Reserve Chairman Alan Greenspan, whose interest-rate cuts helped create what he once called "froth" in house prices, said in a speech last week that he detected "early signs of stabilization" in the housing market. Some Wall Street economists also are saying the worst may be behind us.

Not so fast, replies Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd., a Valhalla, N.Y., research firm: "It's going to get worse before it gets better."

Both camps are making valid points. The maximum impact of falling home construction may have hit the U.S. economy in the third quarter, some economists say. But that doesn't mean the housing market is on the verge of a miracle recovery. Construction is expected to fall further as builders struggle to shed a glut of unsold homes. And many economists expect house and condominium prices to continue falling for at least an additional six months to a year in parts of the nation where speculators went wild.

For now, the consensus among economists is that the housing downturn will remain a drag on the economy but probably won't sink the U.S. into a recession next year. Even Mr. Shepherdson, among the most bearish, believes the U.S. has a 60% chance of averting a recession in 2007. In any case, the weak housing market will remain painful for speculators who loaded up on credit to buy near the top -- and for millions of people working in housing-related industries. Just last week, Countrywide Financial, the U.S.'s largest mortgage lender, announced plans to shed about 2,500 jobs, or 4.5% of the company's total.

Largely because residential investment dropped at an annual rate of 17%, inflation-adjusted economic growth in the U.S. slowed to a feeble rate of 1.6% in the third quarter, according to an estimate released by the Commerce Department. Without that drop in residential building, economists said, the growth rate would have been about 2.7%.

After the third-quarter carnage, expect "some gradual improvement from here," says Peter Kretzmer, a senior economist at Bank of America in New York. He expects residential construction to decline at an annual rate of 13% in the current quarter, 5% in next year's first quarter and 2.2% in the second quarter before starting to grow again. Mr. Shepherdson disagrees, arguing that the drop in construction will accelerate before the market regains balance.

Offsetting the housing damage are several positives. Gasoline prices and mortgage interest rates have fallen in recent months. The stock-market rally has made some people feel richer, even as those who trust only in real estate feel poorer. And job growth, though unspectacular, continues at a "solid" pace, says Scott Anderson, an economist at Wells Fargo in Minneapolis.

With home prices flat to lower in much of the country, Americans already have less ability to tap their home equity to finance spending. But it is unclear how much effect that will have on consumer spending. Some economists believe that rising wages, the stock-market rally and lower energy costs will be enough to keep Americans loading their shopping carts with iPods and flat-screen TVs.

Mr. Greenspan sees hope in the rate of applications for home-purchase mortgages. After falling in the second half of 2005 and earlier this year, they have leveled off in recent weeks.

Some of the optimists' arguments are dubious. To bolster its position that the housing market is stabilizing, the National Association of Realtors last week trumpeted a 2.4% decline during September in the number of previously occupied homes offered for sale through multiple-listing services. But the Realtors' news release didn't mention that listings almost always decline in September, when the back-to-school season means fewer people are moving. Over the past 20 years, listings have declined an average of 3.4% in September, says Ivy Zelman, a Cleveland-based housing analyst for Credit Suisse.

Ms. Zelman, who last year correctly predicted a plunge in home-builder share prices, thinks investors who now are bidding those prices back up are way too early. Sales of new homes are unlikely to start rising again before early 2008, she says. Meanwhile, "land is going down in value daily," she says.

Joshua Shapiro, chief U.S. economist at research firm MFR in New York, is more upbeat but still thinks home prices will "stagnate" on a nationwide basis for several years, as rises in parts of the country are offset by continued declines elsewhere. After the unusually steep surge in home prices during the first half of this decade, he says, it will take time for incomes to catch up again with housing costs.

Greenwich Real Estate Market Explained

U.S. Economy Will Grow Slowly and Not Sink into Recession, Conference Board Reports

Varied economic indicators produced by The Conference Board are now pointing to slow growth ahead in the U.S., but not a recession, according to an analysis released yesterday by The Conference Board, the global research and business membership organization.

"The challenge for both the Federal Reserve Board and the U.S. economy is that this period of sub-par growth is likely to have little impact on inflation and short-term interest rates," says Gail D. Fosler, executive vice president and chief economist of The Conference Board. Her analysis appears in “StraightTalk,” a newsletter designed exclusively for members of The Conference Board's global business network. "Rather than coming down, they are likely to remain high for an extended period or even go up."

Over the past three months, The Conference Board index of leading economic indicators has turned down relative to its level six months ago for the first time in this expansion.

"While this signal is not particularly alarming, since the downturn is still rather modest, it does suggest that the economic cycle is more mature than is generally presumed," says Fosler. "Although such downturns do occur, they usually happen toward the end of the economic cycle." The current downturn is still in the range of the 1995 slowdown rather than the sharper declines before the 1990 and 2001 recessions.

The rate of change in the leading index is as important as its level. The LEI may dip into negative territory, but the decline is likely to be modest or brief. The key element is not only the level of the index, but the magnitude and duration of its decline. According to both of these indicators, the LEI is now signaling a downturn—not a recession.

The Fed Is in a Pickle

The Federal Reserve Board is currently operating with little leeway. The current topline Consumer Price Index is rising above a 4 percent annual rate, which is the highest inflation rate in over 15 years. Core CPI is running at about 2.5 percent, which is on a par with the rate that preceded the 2001 recession, and appears to be moving up to the 3 percent inflation rates of the mid-1990s.

"Despite the financial market's enthusiasm for the Fed's restraint in August, it is hard to believe that the Fed will not have to continue to raise the Fed funds rate in the face of these inflation pressures," says Fosler. "Before the Fed can actually cut rates, an event or shock of a sufficient magnitude to reverse the currently entrenched optimism in commodity markets will have to occur."

The next several months bear watching. Earlier, the Fed's tightening had little or no impact and it appeared that the U.S. economy might be reaccelerating after the shock from Hurricane Katrina in the fourth quarter. The deceleration in the economy is clearer now that consumer and investment spending and the housing and employment sectors are beginning to weaken. Over the past two years, the financial indicators in the LEI have taken the U.S. economy toward lower ground and the nonfinancial indicators are now following suit.

Capital Goods Markets Are Weakening

One of the biggest disconnects in the U.S. economy has been between the rapid growth in the capital goods and manufacturing sectors and the systemic weakness of the consumer sector. The consumer goods sector, which was propped up by low interest rates during 2000-2002, never faced the traditional recession challenge. Outside of housing investment, the consumer sector never recovered either. While consumer spending has remained in the 3-4 percent range, the major benefactor has been consumer-related imports. Domestic consumer goods orders on average have not grown at all over the past four years.

The capital goods sector has been the other overwhelming economic driver during this cycle. The acceleration in nondefense capital goods orders during this cycle dwarfs past investment booms -- even those of the tech "bubble" of the late 1990s. The year-to-year growth in capital goods orders peaked at about 30 percent late last year. This growth is the result of what has been, until very recently, rapid growth in domestic infrastructure, housing, technology, and capital goods investment, as well as a boom in investment in other parts of the world -- especially emerging markets -- which is reflected in the rapid growth in export orders. Exports of capital goods have been rising at a 13 percent annual rate over the past year.

But recently, the capital goods sector appears to be slowing. Besides the slowdown in capital investment in the second quarter Gross Domestic Product, there has been a sharp drop in capital goods orders overall.

Despite a bounce back in August from July's dip, the slowdown over the last several months in the Institute of Supply Management export orders index, which is generally a good leading indicator of export orders, is a matter of even greater concern. The decline in the short-term trend of this index suggests that external global demand for capital goods may be slowing. Vendor performance, as measured by the percentage of companies reporting slower deliveries, is still relatively high (above 50 percent).

Where Will Profits Go?

Corporate profitability, which is an important long-lead indicator of the business cycle, is making stunning gains. When corporate profits are high, investment usually grows rapidly and businesses spend more freely on travel, marketing, and other general administrative expenses. Hiring rises and, equally important, so does liquidity.

"What is clear is that companies have been spending their cash flow freely through investments and stock buybacks and increased dividends," adds Fosler. "Companies still appear relatively liquid, but the financing gap is now in territory that bears vigilance."

Greenwich Real Estate Market Explained

Pricing Your Home Gets Trickier

Sellers Test Different Strategies As Houses Languish on Market;
How to Trigger a Bidding War

By RUTH SIMON

As the housing market cools, one of the hardest decisions facing home sellers is how to price their properties.

Traditionally, brokers have set listing prices by reviewing how much comparable homes sold for in a neighborhood. Now, with prices edging lower in many places and the number of homes on the market climbing, checking comparable sales is becoming less useful. At the same time, many would-be buyers are sitting on the sidelines, waiting to see how far prices will fall. Bigger inventories of unsold homes also are making it harder for sellers to figure out how to make their house stand out amid the competition.

What it takes to sell a house varies from market to market. Some brokers are telling customers they need to underprice the competition -- even if they think their home is more attractive. Sharon Baum, a senior vice president with the Corcoran Group in New York, recently listed a two-bedroom, two-bathroom apartment for $3.7 million. That was $100,000 less than the asking price for a similar unit five floors below, even though apartments on higher floors typically carry bigger price tags. "As buyers have more choices, you've got to make your apartment stand out," she says.

Sellers are also being told to cut prices aggressively if their house isn't moving -- or risk chasing the market downward. If a home doesn't get any showings in 21 days or gets 10 showings but no offers, Ned Redpath, president and owner of Coldwell Banker Redpath & Co. in Hanover, N.H., often advises the seller to slice the asking price by 10%. "We don't like to see $2,000 or $5,000 price adjustments," he says. "We want to see a real whack" that attracts attention.

Builders of new homes also are tinkering with their pricing formulas to generate sales. Mid-Atlantic Builders in Rockville, Md. is offering to adjust the sales price downward up to 45 days before closing if the price on one of its similar homes declines. Waterford Development Corp. will have homes in its Woodland Pond at Manchester development in New Hampshire reappraised two years after closing. If the price drops, the company says it will write the buyer a check for up to 15% of the original sales price, not including the value of any optional upgrades.

Even in relatively strong markets, brokers are paying closer attention to price trends. Wallace Perry, president of Coldwell Banker United, Realtors, Carolinas region, says he has begun checking multiple-listing service data every week or two instead of once a quarter to see how recent sales compare with deals that closed three and six months ago. "Things can change...very quickly," he says.

The renewed emphasis on pricing represents a dramatic turnabout from the heady days of the housing boom, which peaked in the middle of last year. Bidding wars were common and, in many markets, homeowners simply looked at the last sale and asked for more.

That's all changed. The National Association of Realtors said this week that the median sales price of existing, or previously owned, homes fell 1.7% to $225,000 in August from a year earlier, the first such drop in 11 years. There's now a 7.5-month supply of existing homes on the market, the most since April 1993.

With so many properties vying for attention, sellers are also looking for creative ways to catch the eye of would-be buyers and their brokers. Some sellers are offering to pay closing costs or provide other incentives. When their 3,500-square-foot carriage house in Exton, Pa., failed to sell this spring, the owners dropped the asking price twice, to $449,000 from $479,000, says Beth Koser, an agent with Prudential Fox & Roach, Realtors. When that didn't do the trick, the couple agreed to offer $10,000 toward closing costs to any buyer or agent who attended an open house within a two-day period. The home sold a few weeks later for $430,000. "The incentive created a sense of urgency," says Ms. Koser. Buyers "saw that the seller was willing to negotiate."

Other brokers are using incentives to counter competition from new home builders. In Tampa Bay, Fla., Craig Beggins, president of Century 21 Beggins Enterprises, recently put together a list of 16 incentives homeowners can offer, from paying the mortgage for several months, to outfitting a media room with a big-screen TV, to picking up the cost of day care for some period.

Another approach is a personal plea. Traci Smith, president of Century 21 Smith & Associates in San Antonio, encourages clients to court prospective buyers with a letter explaining the intangibles that make their home and neighborhood so appealing, such as the fact that the kids on the block trick-or-treat at Halloween together. During the height of the housing boom, some brokers were encouraging the same type of personal notes -- but from buyers eager to get their bid accepted.

Some brokers are trying to trigger bidding wars by setting an asking price sure to attract attention. Romeo Aurelio Jr., sales manager for Century 21 Hartford Properties, recently listed a small one-bedroom, one-bath fixer-upper in San Francisco's fashionable Noe Valley neighborhood for $650,000, even though he figured the home would sell for $100,000 above that. "If we priced it at $750,000, it was going to sit," Mr. Aurelio explains. "We marketed it aggressively at $650,000 and it generated 20 offers." The house sold this week for $845,000.

And with more buyers hunting houses online, selling strategies are adapting to the new technology. Michael Gallagher, a financial-services executive, initially listed his four-bedroom house in Shawnee, Kan., at $274,500. When the listing expired, Mr. Gallagher's new broker suggested that he boost the price to $275,000. Within weeks, the home sold for $271,000, $36,000 more than the best previous offer.

The explanation? Buyers who use the Internet typically search in increments of $5,000 or $25,000, says Kerwin Holloway, a managing broker with Reece & Nichols, a unit of Berkshire Hathaway Inc., which handled the sale. At the higher price, Mr. Gallagher's home was likely to turn up in more searches. It also looked like a bargain to someone whose search started at $275,000. At the lower price, it was one of the most expensive homes priced between $250,000 and $275,000. Until recently, brokers had taken their cues from retailers, pricing a home at $199,500 because it seemed like a better deal than one priced at $200,000.

A property that's not priced properly can languish on the market and get shopworn, says Dan Elsea, president of brokerage services at Real Estate One in the Detroit area. A four-bedroom house in Troy, Mich., has been sitting on the market for 10 months, even though the price has been cut to $349,900 from $394,900, Mr. Elsea says. By contrast, a similar home in the same market sold this month for $360,000, just 23 days after it came to market priced more appropriately at $369,000, he says.