Listing price lower than expected sales price

I think the best strategy is to price it either right, or preferably slightly under price it to comps and try to get a bidding war.

You can slightly under-price it by default and still come out ahead if you do one of the flat fee RLS listing options via companies like Hauseit these days. You save 3% to potentially all 6% if you find a direct buyer, so by default you can slightly under price your listing vs. the competition.

The other strategy you mention, of listing it high, is not preferred in my opinion. You run a high risk of getting crickets on your listing. Remember, buyers will only put offers in on properties they actually see, and you will get much lower traffic by default if your listing comes in over priced.

Pricing low is the best, and FREE form of advertising you can have!

Yes, Captain, I see your point especially about getting more traffic with a lower ask. However, the vast majority of listings are not done this way. Why do you think that is? And if listed at or just below expected price, won't most bidders still offer a discount? Also, a failed bidding war could be bad for seller. I personally walk away from bidding wars and "best and finals" as many are managed poorly by a listing agent who could care less about wasting my time.

If a seller is facing a potential capital loss, isn't there typically some urgency associated with the sale? If so, why would a seller list above market knowing it will take way longer than average to sell? A roller coaster emotional ride of having your listing stagnate on the market while getting low ball offers doesn't sound very appealing. Not to mention, the longer the listing sits on the market the less appealing it is to buyers like me.

One of the first things I look at is day count when reviewing listings. If it's too high, I typically think the worst - building financing issues, litigation, delusional / not serious seller ...

Why not just list closer to fair value and sell in a reasonable period of time?

Ximon, I think it depends on the market conditions and urgency to sell. In my view, in a hot market, you can list at 10-15% higher price than fair sale price and you will get enough buyers taking a look. However, in a slow market, if you list too high, you will not get any looks as there is plenty of availability. In such cases, better to price below the fair if you want it to move quickly. However, if the seller has the luxury of time or option not to sell if they do not get their price, they can list with an aspirational price in any market.

Yes, uptown, I see your logic. However, I am pointing out that 1) studies of behavior show that some sellers see a different logic than you do and 2) this different logic may actually result in higher gains. So it may be illogical but also successful a t the same time. That is what interests me the most about the phenomena which I think implies that people act differently when trying to avoid a loss as opposed to capturing a gain.

Yes 300, I hear what you are saying. But I think you can make the case that in a hot market, the best strategy is to list closer to expected price which may get you more bids and then create a bidding war to drive up the price. This can create an auction atmosphere in which, once people bid, they become "invested" in the process which then becomes time-sensitive. This is another form of psychological behavior that I think I is very interesting.

Although I do recall during the savings and loan crisis that a number of Boston condo projects were successfully auctioned off by a legitimate auction house. Apparently, in such a stagnated environment, a different way to motivate buyers and sellers was required.

Aspirational pricing can ruin a listing. If it lingers too long, with price-cut after price-cut it starts, it to stink (figuratively) and buyers become wary. Over-pricing a listing is a great way to wind up selling at less than value.

Apologies for the typos ^^

By the way, this is also a strategy used by auction houses--list lower estimates on lots and they tend to sell higher than if estimates were inline with value. Works on everything from low-end junk sales to high-end art auctions.

It's hard for listing brokers to explain what we do in a way that's concise enough for an academic paper... but one factor we would look at in each case is the depth and refresh rate (yeah, I guess that's two factors) of the buyer pool. If you are selling a condo targeted to overseas buyers, sometimes you don't have to adjust the pricing; currency movements will do that for you.
To answer your immediate question, aspirational pricing works best in a market where your listing is unique, or you can at least make a case that it is. It won't generally work in a 1960s white brick, because buyers will have the sense to wait for the next one. Most recently, the point of uniqueness I've often seen claimed has been the quality and thoroughness of renovations.
ali r.
{upstairs realty}

Thanks for the feedback. It appears to be the consensus that generally speaking, pricing a unit nearer to its expected price will help to achieve the highest price. But my two behavioral questions still remain unanswered - 1) Why do some sellers act differently (e.g. irrationally) when pricing to mitigate a loss vs. earning a gain? and 2) Are there conditions where it is a better strategy to list at an "aspirational" price vs. something more reasonable/sipportable?

1) Why do they price to mitigate a loss vs earning a gain? My guess is loss aversion. There is no loss until the sale is realized, so perhaps they are willing to hold out until their price is reached and unwilling to sell below and realize a loss.
2) When is it a better strategy to list at an "aspirational" price? I think most have agreed it is not a better strategy, except as Ali suggested, if it is a unique, i.e. "exceptional", property.

" That is what interests me the most about the phenomena which I think implies that people act differently when trying to avoid a loss as opposed to capturing a gain."
If I had a nickel for every seller who said "But I NEED to get X amount of dollars..."

In both up and down markets, most sellers have aspirational prices in mind when they first decide to sell. This makes them susceptible to brokers coming in and "buying the listing" (purposely claiming that they can get the seller more money even when they know they can't with the goal of getting the price decreased after they have locked in the listing. When we first saw the trend shifting to exclusive listings from open listings in the early 1990s there was a meeting of the now defunct Downtown Broker's Association with a panel discussion about the new trend. When asked "What if someone wants to give you an exclusive, but the price is too high?", Barbara Corcoran answered (paraphrasing) "Just make sure you get a long exclusive so when they need to drop the price you still have it".)

I think that psychologically sellers facing a loss are more susceptible to this practice than those who will be realizing a gain.

"2) Are there conditions where it is a better strategy to list at an "aspirational" price vs. something more reasonable/sipportable?"

When you have a rapidly rising market and no time pressure to sell. I think TeamM has noted seeing this in the townhouse market. Over the past few years we have seen a rather large number of high end listings (bot apartments and townhouses) which have come on the market at nosebleed prices, didn't sell, got taken off the market, came back on at lower prices, and repeated this cycle multiple times.

With the very high end you also have the phenomenon of properties coming on at very aspirational prices just for publicity sake. I think a recent example of this is the penthouse at the Woolworth building.

Yes, 30, I agree that you may see this phenomenon more with higher end, so-called unique properties. But when is it the best strategy? Obviously, taking a property off the market is a failure of strategy and may create a stigma that is difficult to overcome. But assuming the seller is reasonably motivated - neither desperate nor ambivalent - when does it make sense to set an aspirational price? Perhaps for a unique property, although there is risk. So, under normal conditions, is this strategy ever rational? This is a fascinating question to me as it seems to reflect almost polar opposite strategies that are both fairly common in the market.

Well, ximon, SE thread posters tend to be data-driven, and they tend to assume that other market players are as data-driven as they are, but that's not necessarily the case. There are buyers to whom the idea that a listing is "stale" isn't really a big deal. So I would be more likely, as listing agent, to run that risk if I thought that I had, for lack of a better word, non-analytic buyers in the buyer pool. A good example might be a view apartment... Some buyers are still going to comp that as $/sq. ft., but some are going to be romantics who are swayed by, and may put a high premium on, the aesthetics.

Yes, front_porch, I believe that what you describe is the essence of behavioral finance exemplified in the awarding of a Nobel Prize last week to Economist Richard Thaler. The importance of this field of study is to better understand when "irrational" behavior may lead to bad decision making for some but possibly opportunities for others.

Does anyone see opportunities to take advantage of such irrational, non-data driven behavior?

"Does anyone see opportunities to take advantage of such irrational, non-data driven behavior?"

To give a very snarky answer to this:
Inflate the square footage to take advantage of people who place too much weight on $/SF numbers (when a simple glance at the floorplans indicates the true size). This is why we are seeing so many listings coming on at higher SF numbers than the last time the property was listed.

Another thing we have seen is the addition of crazy amenities to buildings, which odds are the average purchaser is never going to actually use (or use once or twice in years of ownership).
Example: http://www.boweryboogie.com/2017/08/first-privileged-condo-owners-one-manhattan-square-will-infrared-sauna-amenity/
https://www.nytimes.com/2015/01/29/garden/over-the-top-amenities-sweating-the-details.html
Of course, with prices what they are these days, you can get anything you want - except for an extra square foot that's actually inside your apartment (remember that your pro rata share of the square footage of the amenities gets added into the "official" square footage of your unit.)

Rising market and no rush to sell should be the biggest factors in aspirational pricing within reason as after 6 months market may grow into your price.

Good point 30. When I sold my terraced coop, I re-measured apt. and found an extra 100sf. Also, price psf still seemed high due to the terrace so I made sure that I included SF of outdoor space in my listing. I also told buyers that I did not completely renovate the apt. in order to maintain its "pre-war" character (which coincidently happened to be true), and made a big deal about the proposed but not approved capital improvements planned for the common areas.

But 30, where have you seen common area SF added to sellable unit SF? In commercial property of course, but residential as well?

Yes, 300. growing into the listing price is common in an appreciating market as no one wants to think they sold when there was still more upside. I think one begins to see the peak of a market when sellers cannot get their aspirational price. Maybe we are near that stage now but time will tell.

I do not think any one is paying the sellers aspirational prices in NYC for the last year or so except may be in studios or one bed rooms.

"But 30, where have you seen common area SF added to sellable unit SF? In commercial property of course, but residential as well?"

In every condominium Offering Plan. That is how sponsors are allowed to calculate the listed square footage.

If Urban Digs is to be believed, and I believe him, overall peak Manhattan was summer 2015. Of course some niches, affordable 2-BRs for instance, still seem to have gone up since then, but in general terms, Ximon, I think we are past the peak.

30, interesting information about common area SF that I was unaware. Can you guess what is the average add-on factor for newly constructed condos? I believe that for office it is something like 20-30%. Now that I give it some thought, all the amenities included in new condo buildings now seem to make more economic sense if you can get a higher sellable unit SF.

Also, does REBNY have rules for how these condo units should be measured?

There is a lot of variation depending on the amount of common elements. Obviously the more amenities in the building, the higher the percentage of the square footage that's not actually inside the unit.

As far as I know REBNY does not have rules on measuring. In fact, I highly doubt most brokers do any actual measuring. The square footage you see should be what is listed in the Offering Plan. Since for Coops the square footage is very rarely listed in the Offering Plan (it's usually "Room Count") mostly you see whatever the broker "feels like" the square footage should be.

It's very interesting actually, I've seen some Soho coops (very nice, renovated) go for around 1100 and 1200 PPSF recently. Prime Soho too, streets like Prince, Wooster etc.