Would The Real Sellers Please Stand Up
A: I'm often asked to describe the current market by my buyer clients and to offer my thoughts on where the market might be going in the short term, as most of my buyers have some sort of time pressure to buy their new apartment; whether it be a lease expiring, tax reasons, or other. Tough question, but I think the best way to describe the current market is by explaining to my clients that out of ALL the inventory currently available for sale, perhaps only 55% or so are serious sellers!
But how could this be? If someone isn't a serious seller, then why would they list their apartment for sale? One answer: TO SEE IF THEY CAN GET THEIR PRICE!
Have you tried to bid on a property AFTER you did all your research to come up with current market value of the property only to get a 'no response' from the seller? Did you find that the seller didn't even come close to meeting you halfway even though you are more than financially qualified to buy their home? If you answered 'yes' to either of these questions, than you will understand what I am talking about.
Today's New York City real estate market is mainly comprised of some sort of combination between SERIOUS SELLERS and what I like to call TESTERS. Here is my quick unofficial definition of both:
Serious Seller: Quite simply, a seller that must sell their home with at least one type of time pressure! The time pressure could be a divorce, financial burden, re-location, or other. A serious seller owns a property that ultimately doesn't want to be owned. They are pressuring their hired agent to generate traffic, holding OH's every Sunday, reducing their asking price as the market activity deems necessary, and flat out doing everything they can to create a buzz about the property. It is these sellers that buyers are trying to find and do a deal with as they will respond to your offer reasonably.
Testers: Testers are sellers that really don't have any pressure to sell. They would like to move, but only if they get their price. Testers don't mind if their property has been on the market for some time, as they usually start out asking well above market value to in essence 'TEST THE MARKET'. If a building is selling for $900/sft and a property is currently asking $1150/sft, then it is pretty safe to say that this seller is a tester. Even if they get a bid of $900/sft, they will only respond with a price that equates to $1,050/sft. Testers are adament about getting the highest sales price in the building and will not be bullied by finacially secure buyers or those looking to pay all cash. Testers are not easy for buyers to deal with and will only do a deal if they get their price; otherwise the listing will eventually be removed from the open market. Testers might reduce their price, but it will only be from the original way out-of-line asking price to a modestly out-of-line asking price.
Is there anything wrong with testing the market? NO, abosultely not! That's the thing. Buyers can be as frustrated as they are but when they eventually go and resell, they are going to expect top dollar for their property unless their is some type of pressure that is causes them to unload the property for market value.
If I were to estimate from experience the breakdown of all Manhattan real estate sellers to see how many were testers and how many were serious, it would probably look something like this pie chart:
Now, what to do? Unfortunately there really isn't much anyone can do to convince a 'tester seller' to change their mindset. Put yourself in their place, if it was your home that you were trying to sell and wanted to test the market to see if you can get a certain price range, would your broker be able to convince you to take a lower offer? Probably not! In fact, you would probably fire the broker and sign with someone else for the insult.
The best way to handle a 'tester seller' is to submit your HIGHEST & BEST PRICE possible. This does NOT mean submitting a verbal bid or a simple email to the broker! This means faxing a hand written bid, with all your financial information, your pre-approval letter, your attorney info, your mortgage broker info, and your financial anaylsis form for review by the seller. Remember that ALL bids must be submitted to the client for review. By giving in your highest bid presented in the best possible light and showing off all your qualifications as a buyer, you are putting the ball into the 'tester seller's' court for a response. Chances are the response won't be what you hope, but its your best shot at getting a property whose only chance of selling is convincing a tough seller to let go.
For serious sellers, well its up to your negotiating skills and the skills of your hired broker to get a deal done. The question with a serious seller is not whether you can get the property, but at what price!
Posted by Anonymous
Mon Nov 27th, 2006 01:48 PM
But how do you know which is which? And don't tester sellers eventually become serious? I would imagine, with the recent rise in inventory, that they may become so when they realize that they are "failing "their tests and only the serious sellers are "passing" so to speak. Will psychology turn that test into a need?
Posted by Bigzo
Mon Nov 27th, 2006 02:01 PM
So why would brokers waste their time with testers? Why would a broker agree to list a property far above the market price? Your theory is interesting, but you have left out the mitigating effect of the brokers, who tend to push their clients towards prices that will result in a deal.
Posted by drtomaso
Mon Nov 27th, 2006 02:30 PM
Not to pick on you, but was it necessary to show a pie chart of percentages that are wholly anecdotal? Why not 60-30-10? 70-25-5? 45-45-10?
Now I agree that the ratio of serious investors to testers may be important: more testers indicates that median prices may be inflated- and wont translate into lower sales prices until the pressures to sell increase. Do we have a way we can empirically measure these quanities?
The problem I have with NYC real estate is (unlike the west coast, fla, etc) getting real hard data is like pulling teeth. When we're looking at housing as a market, the most important metric in my mind is the inflation adjusted price to income ratio, and how that relates to its longer term EMA. If its way above the mean, then prices better look out below.
Posted by Noah
Mon Nov 27th, 2006 03:03 PM
Anon 1:48 - Some testers do eventually become serious sellers. For example, its now 1 year on the market, their strategy clearly failed, and now they have some type of pressure to sell.
But I dont think the % of testers that eventually become serious is all that high. If they needed to sell in the first place, why would they choose to price so high in a slowing housing market to 'test' to see if they can get their price. All these percentages are strictly for fun and not backed up, but I would say maybe 15-20% of testers eventually become serious sellers.
Posted by Noah
Mon Nov 27th, 2006 03:07 PM
Bigzo - Most brokers would NEVER turn down an exclusive listing, even if the seller only agrees to sign that listing contract with a sales price that is way out of whack.
The main reason is that brokers want exclusives to possibly convert direct buyers into their own clients that they can eventually sell a different apartment to. Now, brokers certainly try to sell the listing first, but if it becomes clear that this is not the one for the buyer, then they usually try to convert the buyer into a buyer client to work with on other properties they might buy.
Also, brokers like to further enhance their reputation as 'busy' or 'working', by having exclusives under their name. After all, would you want to sell your property through a broker that seems to have not done any deals, and not have any listings? Business brings more business in this crazy industry that has such a bad reputation.
Posted by Noah
Mon Nov 27th, 2006 03:12 PM
Drtomaso - Ha. Funny you say that because I said the same thing to myself when making the pie chart. I wanted to further illustrate my point and the chart helped me to do it, I think.
Honestly, there is no data to back this up and I came up with these numbers based on my own research over the past 3-6 months or so, from the 8 buyers I am working with that cover a wide range of asking prices. A few months ago I had a full ask offer rejected. I mean, are you kidding!
The only way to measure these quantities I would think is to tally up all building sales data to see what each building is selling for per square foot. Then, gather up all the ACTIVE inventory and do a comparison to what the building actually sold for. This would tell you the percentage of units that are currently asking per square foot MORE than what the building is selling for.
But doing this seems almost impossible due to the lack of sufficient data, i.e. accurate total size, and lack of recent sales data for many co-ops. Plus so many factors go into the pricing of an apt (light, views, renovations, noise, etc.) that getting a representative per sft number for any one building will be difficult.
I would love to have someone else try to get this data and review it myself though. It certainly would clear up alot of my questions on the current state of the nyc real estate market.
BTW -great point: When we're looking at housing as a market, the most important metric in my mind is the inflation adjusted price to income ratio, and how that relates to its longer term EMA
Posted by John K
Mon Nov 27th, 2006 11:37 PM
Regarding why would an agent take a listing like this, consider that most agents work with buyers and sellers. There aren't enough buyers to go around! Don't believe that "agents set the price" of listings. Sellers are a stubborn lot, even more stubborn now. They just won't face reality.
Would I take a listing even though I didn't think it could sell? Well, the seller is going to list with a competitor, and I don't have much else going on, so maybe. I'll hem and haw and show comps and sigh heavily when he demands a price 25% higher than the market allows, but I'll take it.
I agree with you, Noah, totally.