Question re Pricing Mentality(for Brokers/Sellers)

TeamM, Would you recommend an auction after one or two month of showing? I wonder why that does not happen in most cases?

300 - the short answer is that I don't know, in part because I'm not experienced enough in real estate to figure out what's causing this clear process error in how properties are sold.

The long answer is that I think it depends on the situation (and how such an auction would be conducted). For example, here are some different scenarios that would impact the situation:

1) Seller has an easily rentable property (for a strong rental price, doesn't have other great opportunities to reinvest the equity and reasonably believes that the property will appreciate at a nice rate (when compared to alternatives, particularly when considering the tax impact of the sale) - in that case, I think it makes sense to price high while trying to rent, and then pulling it off the market quickly once finding a tenant.

2) Seller owns multiple units in a development that impact each other in value - in that case, the strategy needs to be different for a variety of reasons.

3) Seller is just testing the market, and is happy to hang onto the property - in that case, it make sense to price where it's worth selling and then pull of the market after a couple months if it doesn't sell. Letting it just hang on the market is a bad idea in the long run.

4) Seller wants to sell and simply want to maximize the value - in that case, I think that pricing competitively to start is still important because you want as many realistic eyes on the property as possible. I think that most real buyers will run searches within parameters that they are willing to pay, and if a property is overpriced then it won't hit a buyer's search parameters; and so if you run an auction after a period of time (and you start the bidding at a price that suddenly reaches the appropriate parameters) then you won't have received the benefit of having the right eyes on the property during the lead-up. I do think that an auction is a helpful catalyst to force buyers to act (simply continuing to drop the price after you've been doing that for a year is a rough strategy, because buyers won't know where the floor is) - I think it's important to give a lot of time and notice before an auction so that buyer's can arrange financing. I find it ironic how much Sellers want to look for "all cash" buyers when they're operating in the most sophisticated financing market in the world, and trying to market to wealthy individuals with incredible access to debt (and who deliberately try to not stay too liquid). I do think that it's important to really heavily market the auction and start at a low enough price that you are going to have a successful auction (but high enough that you're willing to sell at that minimum) - a busted auction is brutal on the value of any asset.

I'm sure there are other nuances/thoughts, but those are my gut approaches to how to optimize value for most types of Sellers.

TeamM, my answer as a broker is: yes, sometimes, yes and yes.

Telling the seller that their property is worth an outrageous price is called "buying a listing" -- the theory is that the broker's optimism gets him the exclusive, and then he either slowly gets the seller to capitulate to the market, in which case he makes money, or he uses the listing as a calling card to market to other clients, procuring other listings and making money by selling them. Of course this strategy does a tremendous disservice to seller clients who want to sell, but I can think of at least one brokerage that has been built on it.

As far as #2, I (and I think a lot of other listing brokers) discuss "what if" before the exclusive is signed, so that the seller knows what they're getting into.

#3 -- the times that I've found pricing has been the greatest struggle has been in the case of multiple sellers -- say there's a divorce and one person wants to stay on the clock for a long time to get the highest possible price, and the other person just wants out. Sometimes when a property is lingering on the market, it can be updated/restaged/repositioned/remarketed to get to the target price, but other times that price just needs to be chopped. Often the seller will take that advice to heart from a new broker even though they couldn't hear it from broker #1. Realize that people in the New York market are wealthy, and -- especially if they're earned that wealth themselves -- they think they're pretty smart, and so the process of getting them to capitulate to external advice and outside forces can take a long time.

I remember one particular flawed but spectacular luxury listing where at one point we had it with a whisper price, which honestly valued the apartment as though it had been fully renovated to take the flaws out. Not surprisingly, we didn't sell it.

The property then went through four subsequent brokers before the building specialist moved it about five years later. (She deserved the commission, because it was her second crack at the listing). The final sale price was at a more than 60% discount to what our shadow listing was at, and less than 50% of what the building specialist had priced it at the first time.

ali r.

Yes. If they're smart.yes. I have had a number of people call me, mostly former buyer clients asking;"why isn't my home selling?" Most of the time it's price. So far all have told me they chose the agent who said they could get the highest price. You know what they say, if it sounds too good to be true probably is . If you have a high demand property, price soft, chum the waters and let the games begin! Multiple bids mean top dollar, then choose wisely and don't get greedy and screw things up! Average home , price it at Market and prepare to negotiate wisely. A 'd' list home, you know who you are, price just below the other dogs in the neighborhood and undercut them. Be patient, this may take awhile.

Remember, the listing agent manages the sale. The buyer agent does the actual selling; think about that.

Correct pricing, deal management competency and exceptional staging is a recipe for success for any sale. Find a great broker/agent and listen, a great agent won't puff; no need to, no time to. Remember, most buyers are working with agents, agents all look for listings in the same place, think about that #2. If you are selling a $20M+ home, perhaps a broker with a deep international reach is in order. However at the end of the day most people are simply looking at streeteasy.com and brokers are entering search data into their proprietary/3rd party listing database to find property.

Keith Burkhardt
Tbg

Thanks for the insight. Have brokers ever thought about trying to do something to rectify this problem? Brokers obviously win with increased transaction volume far more than through incremental increases in value, and I'm sure that dynamic concerns many clients, but if brokers can manage that concern and also find a way to provide disincentives for other brokers to "buy a listing" (to borrow Front_Porch's term), then it seems like a victory for everyone. I'm not exactly sure what the action would look like, but perhaps creating a standard market database that tracks brokers and the life that their listings are on the market, as well as initial pricing v ultimately pricing (and perhaps even showing the present value of the ultimately sale price (as reduced by subsequent carrying costs) when calculated at the time of the initial listing in order to show some rough approximation of the negative impact on the client. It seems like this sort of self-regulation might help everyone.

@TeamM I think a seller can easily find that information right here on streeteasy. The bottom line is more or less everyone is 'selling' the same services, right? It is about finding the right agent, that is what technology is doing for the seller (and buyer).We all have the same bat and ball; now who is a playa! :) Discovery is right in front of your eyes. Take the time to sit down and interview 3 agents and get to know them and what their plan is. The people I work with are smart as hell, they can discern BS from a bonafide, fact based pitch rich in details, data and experience.

Keith Burkhardt

It's true that an unrealistic asking price can cause a property to sit on the market for too long, costing the owner carrying costs. However, those costs are actually negligible in the scheme of things... especially if one gets lucky and finds a sucker at a higher price.

Also, the whole closing process takes forever with the board interview, buyer's broker, bank, attorney, etc all able to add months to the process, largely outside the seller's control. It's not worth a seller's while to invest too much time in finding a broker / price that will get the listing from on the market to "in contract" quickly, because that's generally a small part of the overall timeline from listing to closing.

Auctions are great for discovering price, but there are other dimensions - most obviously board approval, financing problems, building financials, and the like.

Bryant, That is a good point.

My take is:
1. If you believe that real estate prices are going up, there is not urgency to sell as the market may grow into your price. Other owners will see the listing and their new listing may be higher as they see a comparable apartment listed at a high price.
2. If someone is living in the apartment while it is on the market, there is no urgency to sell.
3. Home equity is small portion of your assets and you do not care about re-investment as you have plenty of cash sitting aside already.
4. In addition, if the apartment is over-priced by say 10-15%, it is within bid-offer spread for most >2mm apartments. Buyers can bid 15% lower. If the apartment is 30% over-priced and is NOT UNIQUE, there is indeed a case for price cut.
5. Manhattan is a place with a lot of rich people who may overpay if they like something. Think some one with min three time the assets of the apartment price. It is rounding error for them if they like the apartment. That is why there are bidding wars.
6. They are always new buyers - newly married, great bonus, wife pregnant, moving into the city.

@300mercer You are way too rational :) Most people buying $2-3M apartments don't consider themselves necessarily rich in Manhattan. Listing errors can cause apartments to sit for many months and go 'stale'. A silly sounding cliche, however brokers/buyers will tell you it is a very real phenomena to be avoided at all costs (we love it).

Most sellers are not as relaxed as you. Many need to sell for various reasons (buying a new home, being transferred, kids, schools,divorce, marriage) For the typical seller there is a lot at stake both financially and emotionally. They do not look at the process as a business transaction so much as an emotional one.

I love the idea of an auction, it makes you put faith in the pure (so called) efficiency of the market. However in the end the majority of sellers don't trust that process. Remember Bid on city? I have found that buyers will accept change to lower their costs and work with a more efficient, newer model. Sellers will complain about costs, process but are less likely to take a quantum leap of faith and try something new.

I speak from experience. I have built a fairly robust company with a much different model for assisting buyers. We now count some of the biggest, innovative companies in the world as regular clients. We have spent zero dollars advertising and managed to do about $80m in transactions last year assisting buyers only.

I am all about innovation, I love we now have viable competition, it makes me work harder and continue to innovate! Lets hope we see more positive changes making the real estate brokerage model more efficient, transparent and competitive through small, precise tweaks.

Keith Burkhardt
The Burkhardt Group

Stale listing is indeed a great point. That clearly support the "price no more than 5-10% higher" than what the market genuinely is.

How long does it take for a listing to go "stale"?

@RealEstateNY that depends on present moment market trends/conditions with some consideration for property type and location.

The board process is an interesting/excellent point regarding how that needs to impact the approach.

FWIW, I think that people under-calculate the carrying costs on an all-in basis, particularly when considering investment alternatives.

TeamM, I do not think most people mix their real estate and equity pot of capital. Hence, alternative return is only a theoretical argument for individuals when it comes to their luxury home in NYC.

Before the 1990's, most listings in NY were "Open" listings as opposed to exclusives (except for "high end" properties). Then there were a few companies who started taking exclusives on anything (I'm pretty sure it started when the NJ based Weichert opened a Manhattan office in the old Rodman Realty office on University Place).

There was a meeting of the now defunct Downtown Broker's Association with a panel discussion about the "new trend" of taking exclusives. When the question came up "What do you do if someone wants to give you an exclusive, but it's really overpriced?", Barbara Corcoran answered "Just make sure you get a really long exclusive". I don't remember if she outright said or just implied that when they got desperate enough the price would come down.

How long is a typical exclusive listing? I noticed on the Olshan report that the average days on the market was well over a year...

Great history 30 years! I started at Sopher in 1990, very interesting many 'funny' stories..

Not sure which Olshan Report had days on market at over a year. Pretty sure the latest Corcoran Report had 95 days. I think currently the most common length for exclusives is 6 months.

Keith,
I managed the sales side of Sopher's Village Office till late 1989.

30 - sorry, I should have been more specific. I was talking about their luxury report last week. I think the data just relates to $4+ contracts that went into contract last week. I was just wondering whether the exclusivity had to be extended for that period for the original broker to still be on the account.

Most exclusives also contain some wording that at the expiration of the exclusive the broker will furnish the owner with a list of everyone who they have shown the property to and that the exclusive shall remain in effect for the names on that list. But, yes, typically if a property was on the market for over a year it would have required the renewal of the exclusive contract (or it may be that it was originally on with one broker, the exclusive expired, and they switched brokers. Although I think we are seeing an increase in the number of cases where brokers are taking "stale" listings and taking them off the market and then relisting them with different units numbers so that they appear to be "fresh" listings).