The more things change, the more they remain the same. Ten years ago, I concluded in a column, “Some sellers get no respect.” Homeowners who set unrealistic values on their homes—who fail to heed conservative pricing advice from experienced agents—lose valuable time and ultimately money. That message is worth repeating, particularly in today’s climate where price drops abound and where activity has slowed.
In a changing marketplace, it may be tempting to sign on with the broker who says your apartment can fetch a higher price than other broker estimates; but overpricing has consequences that are tough to reverse. An apartment that is ignored lingers and devalues itself. When successive price reductions chip away at unachievable figures, critical time is lost and can’t be regained. At the same time, price drops can signal desperation, or worse, suspicions can arise that something may be inherently wrong with the property.
The most important time in the life of a new listing is during the initial 3-4 weeks when the savviest buyers and most knowledgeable agents visit. There’s nothing quite like the rush of energy and anticipation that a hot, new, well priced offering brings. That excitement is never realized with mispriced properties. When the bloom is off the rose, enthusiasm evaporates.
Most will agree that pricing a property requires an artful blend of knowledge, intuition and discipline—each gained from experience. While it relies on astute marketing analyses of comparable past sales and current listings, pricing a property depends on a clear understanding of market cycles and economies.
There’s always a range in price to consider. It’s been my experience that less more often than not will yield more. A tight asking price invigorates the marketplace, causes everyone to take notice and yields the greatest return. Target pricing creates excitement, brings urgency to activity and stimulates interest.
When an asking price is under the market, buyer activity works to move the price up with competitive bidding. When an asking price is over the market, the reverse never happens. Instead the property is snubbed. In the heady days of a rapidly rising market, it might have been reasonable to pay a shade more than budgeted because the market was accelerating so quickly. But with a slower trading pace, there’s less pressure for more prudent buyers to stretch or act quickly, so properties are staying on the market longer. Deal making has become unhurried and absorption has slowed.
Heightened competition for buyer attention
Throughout the city in every product category, there is heightened competition for buyer attention, especially among new condo developments where overpricing is largely the result of higher costs for land, construction and insurance premiums. Nearly everywhere developers are demonstrating flexibility to get contracts signed by reducing prices or offering upgrades.
Compass analyst Bennett Rosnick recently tracked price reductions of condos for the last 4 months of 2015 and 2014 for a NY Times story that ran mid January. In both years, prices were reduced an average 8%, but 2015 saw twice as many price drops than the same period in 2014 from a similar total number of listings. Taking advantage of Compass’ research capability, I asked Bennett to take a look at the number of price reductions during the first six weeks of 2016, suspecting that the trend to drop prices is continuing. Here’s what the research turned up:
Number of Price Reductions By Month
September, 2015 194
October, 2015 377
November, 2015 281
December, 2015 191
Week 1 - Week 6, 2016 406
For the last four months of 2015, a total of 1,043 condos reduced prices by an average 8%. During the first six weeks of 2016, an additional 406 units dropped prices by an average of 11%.
It’s not unusual for agents to take on an overpriced property with the caveat that if there are no offers during the first month, the seller will agree to a price reduction. However in the current climate, this strategy shortchanges the seller. Now is not the time to test the market with a too high asking price. Growth this year is expected to be flat. Sellers are advised to collaborate with their agents to determine a realistic price, acknowledging that prices have leveled. The good news is a thin supply of resale products is working to prevent sales prices from dropping. For the astute buyer, there will be opportunities ahead. Who said sellers get no respect?