Sell in May and Go Away?
A: Everybody wants more Manhattan real estate updates! I kind of feel like providing weekly updates on Manhattan is counterproductive, beating on a dead horse so to speak. Everybody knows what is going on in this market, whether a broker or executive babbles or not. Things are tough. Period. If JAN - APRIL is our busy season, then I can imagine many agents wanting to find a new line of work. Traffic is still fine, buyers are out looking and appointments are plentiful, and I'm even submitting bids for my buyer clients, but getting buyer & seller to agree on price and get into contract with little resistance is proving very difficult. I truly believe that most sellers feel the worst is over and couple that with reports of higher foot traffic, and all of a sudden the motivation to hit a bid that otherwise perfectly fits into where this market is trading, is dampened. That sell side psychology may come back to haunt you!
There is a common saying that the first bid is usually the best bid; sometimes that is true and sometimes it isn't. When I was trying to sell my own apartment at 245 East 93rd Street, 2M, in early 2006 I decided to test the market and price high at $1.075M. I figured, if I got close to a mil, or above it, YAY!!! I was not desperate, inventory was tight, and good products with huge terraces were hard to find, so why not!
But there is a catch:
THE MOST ACTION YOU WILL GET ON YOUR PROPERTY IS IN THE FIRST 3-4 WEEKS OR AFTER A NOTABLE REDUCTION IN PRICE (WHICH IS WHAT THE SELLER TRIES TO AVOID) - THEREFORE, IGNORING A BID IN THE FIRST 4 WEEKS MAY COME BACK TO HAUNT YOU LATER ONDo you guys remember me spilling my guts to you in October 2006, on my efforts to sell my property? I called the piece, 'Don't Mess Up In Here', referring to the scene in Casino where Joe Pesci warned DeNiro not to make a big deal over the fact that he was secretly seeing his wife:
THE FIRST 2 WEEKS (The 'Should Have' Period)That was one of my favorite personal stories + discussions on listing history that relates to the market in general in any time period. My story was that I received a bid of $950,000, some $125K below my ask, in the first few weeks that I didnt respond to. Tough guy aren't I. Well that bid walked away, and four months later (and about $6,000 extra spent on advertising costs) I reduced my asking price to $975,000 (man, that $950K bid looked really good at that time) and ultimately hit an all cash bid of $935,000. Why did I do that? Well because my traffic really started to dry up and I found that minor price drops were NOT having the desired effect. The most traffic was in the first 3-4 weeks, and turns out, the highest bid came in that time period as well!I like to call the first two weeks of every exclusive the 'should have' period. The first 2 weeks is the period of time where you get a bunch of appointments scheduled from 'B' buyers who are trying to learn the inventory of their price point and their agents who just want to do a deal already. Maybe you'll get a few 'A' buyers too. Most likely, you'll get a low ball bid. Many times this very early bid is the nightmare for sellers 5 months later. So, I refer to it from the seller's point of view as the, "I should have accepted that bid and saved 5 months of agony" period. In hindsight, every financial decision is 20/20; including whether or not YOU, THE SELLER should accept that offer.
I SAY TO YOU, THE SELLER, DON'T MESS UP IN HERE! And if you do mess up and ignore the offer because there is so much activity and you won't sell below a certain price in the first 4 weeks, to NOT blame it on your broker for failing to move your property at the highest & best price possible down the road.
So, my advice to sellers out there now is to be very cognizant of where we are in the seasonal component of Manhattan real estate. This IS the active season and we ARE heading into the slower summer months. If you didn't sell, or you ignored a bid because you deemed it too low, seriously reconsider what your agenda is. The market is what the market is and it has become increasingly more difficult for brokers to influence buyers to raise their bid and pay a premium for any property. Does it happen, sure, but there are 11,000+ units actively for sale in Manhattan right now and it is safe to say that most are having problems getting that strong bid in. If I was wrong, we would see a big tick up in sales volume and a decrease in active inventory.
As I said in my recent State-of-the-Market piece:
"It's hard to sell a property when traffic is light. So, my view is that this countertrend pickup in activity (which is mostly foot traffic and not a surge in contracts signed) will not last for much longer. Once we enter the slower summer months, history will probably repeat itself and this market could get significantly more illiquid; similar to what the 4th quarter of 2008 saw and bad news for anyone that must sell. If this seasonal component proves correct, serious sellers will find it even more difficult than it is now and that may ultimately mean a bid will have to be hit. Therefore, I think the latter half of the 2nd quarter all the way up to the 4th quarter will show continuing sluggish sales volume and perhaps the second wave of adjustments in pricing that is only proven after the fact. Time will tell."Terry Naini describes this market perfectly with the exception of one phrase in The Real Deal's, "Agents team up to augment their business":
"A year ago, it would take one week to a month to get a listing into contract," she said. "Now it can take six months to sell a property."Yes, it is active out there, I am busy, I am submitting bids, I am showing properties, but deals are very hard to secure and there is still a disconnect between buyer & seller; as buyers have become patient & picky. Who are we to say that a buyer's offer is unrealistic if it is in the range of where this market is trading now! The term 'unrealistic' is too broad to just blame on the buy side. What if the buyer submits a bid 25% below peak levels for a property whose price point is actively trading down 20-25% below peak; like the $1M - $2M price point? To me, the bid would seem perfectly realistic and chances are the seller is being 'unrealistic' because they are not ready to take that kind of hit on the deal after calculating buy & sell side transaction fees. Cases like this are happening everyday out here and brokers, buyers and sellers are frustrated. Buyers want to price in downturn risk into bids, sellers want to get a bid at a premium to where their price point is trading, and brokers just want to move the property while satisfying their responsibilities to their client.While the listings take longer to sell, they also require a lot more work than in the past, with more marketing and negotiating necessary for each deal. "It's very busy, but there aren't necessarily as many deals," she said. "People are coming out and making appointments, just not pulling the trigger. Or when they do, it's an unrealistic offer."
It's easy to lay blame that the buyer's offer is unrealistic, but then again, its the buyers that MAKE this market! Never forget that a property is only worth what someone is willing & able to pay for it at any given point in time - I thought my place was worth more than $950K in JAN 2006, but in May 2006, I realized it was only worth $935,000. Turns out it was ME THAT WAS UNREALISTIC in JAN 2006!
Comments (13)
Very nice summation of the current state of the market, Noah. A lot of honesty here.
I've sold properties in NYC and out on the west coast. I found that roughly 75% of the time, as you indicate, the first offer was the best one.
If you really want to sell in a declining market, the key as you've pointed out many times is to be priced at the lower end of the actual trading range of the moment (importance of a realistic initial selling price can't be overemphasized), and more often than not serious buyers will respond by making serious offers. At least the odds are going to be better than pricing high.
I sold my own 2 bed condo in the city in Feb of 2008 by pricing about $60k below the lower trading range at that time and sold it in 2 weeks at a little above asking. Doesn't always work out that way, but does more often than not.
And today in most cases why wouldn't a prospective buyer price in a discount for taking the risk of overpaying when the odds of further price reductions are still quite high. Everything related to personal security and the broader economy is uncertain right now. Such a strategy is quite realistic from a buyer's perspective.
As you write often, the standoff will continue until expectations on both sides move into alignment with subjective and objective realities.
Posted by Aquarian | April 28, 2009 11:03 AM
that was a good seal Aquarian. Pricing is the most effective way to sell a property in this market. However, it gets emotional, stressful, and clouded for each individual based on their situation, needs, and perspectives from people they meet/talk to about selling.
We still do not see fierce sell side competition yet where sellers aggressively low ball each other to move units. We see individual distress and bids being hit, but not mass fierce sell side competition. It will take a few more quarters of illiquidity to bring that out.
Posted by Noah | April 28, 2009 11:32 AM
Noah,
I never understood the concept of being "emotional" when you are selling your apartment/house or being "insulted" by a bid.
It's a business transaction. When I sold my apartment and my rental property, I entertained every offer from buyers I believed to be qualified.
In fact, the buyer that ended up buying one of my apartments initially offered me 20% under asking price.... eventually we settled to around 6/7% under ask -- and the negotations took less than 1 week.
Noah, if you were to characterize the current market, would you say that the market is illiquid b/c of a lack of buyers or would you say it's illiquid because of the price disconnect. To clarify the question -- would properties be scooped up left and right if asking prices were 15-20% lower across the board, or would sales still be somewhat slow?
Posted by RegularAnon | April 28, 2009 12:15 PM
great question RegAnon! I would lean more towards the price disconnect. Bids I submitted that were NOT accepted in past few months WOULD HAVE BEEN accepted if my buyer got the seller price down another 7-10%. When seller didnt budge, talks stalled. Buyers knew they could raise bid, but had little motivation to do so.
They believe time is on their side. But you still cant completely ignore that the buyer pool has likely shrank dramatically due to this economic downturn, especially for higher end
Posted by Noah | April 28, 2009 12:27 PM
Noah,
Unfair question alert (feel free to ignore):
If you personally were in the market to buy an apartment now, and you had time on yourside (ie didn't have to move, but wanted to) would you be looking to buy now (even with "lowball offers") or would you wait?
It is the flipside to the seller's dilemma "to accept the first bid"...
Posted by lars | April 28, 2009 2:34 PM
If the property in question was perfect for me, my job was secure in my mind, and could comfortably afford it, YES, I would do my best to price in 5% downturn risk first and at worst, pay where that market is trading for that price point. I wouldnt chase it, unless money was a luxury.
Posted by Noah | April 28, 2009 2:45 PM
Lotta good advice here and I think the point about price disconnect is a fair one. However, I'm surprised to hear folks say that they see the same climate on both coasts -- in the SF bay area, where I work, there seems to be a slower market due to a lack of buyer interest across the board. Now you've got a lot of higher-end homes getting donated to local non-profits and raffled off (ie, the "dream homes" like sfraffle.com and another in Marin a few months back) -- which is definitely, I'm guessing, a less beneficial option than lowering price by 5, 10, even 20 percent (although hey, it passes on opportunities to folks who can't afford bids). Or am I missing something in the fine print here?...
Posted by Fred | April 28, 2009 2:47 PM
I think if you cut prices 20% across the board you would be shocked by how few transactions took place. Sure there would be a spike but I highly doubt you would clear more than 10-20% of the inventory, and then you would be left with NO buyers on the sidelines.
I liken Manhattan to the Carolina coast vacation market. Prices held up for a LONG time and then last year transactions just stopped. There are many islands (Fripp, Seabrook, Kiawah, Folly, John's, Edisto, etc.) where the inventory is 5-10 YEARS!! The only sales taking place, with few exceptions, are bank foreclosures. Asking prices have come down 25-50% in the last 6 months on many homes and they are still not selling. I told a broker last summer that he could lower the ask on all his listings by 20% and he would sell ZERO homes, he laughed, he's not laughing any more. I don't think Manhattan is quite that bad but like I said, most would be shocked at how few homes sell even if discounted 20% across the board.
John
Posted by JKD | April 28, 2009 3:57 PM
Don't you think the mkt is being a bad pessimistic here? There are always alternatives:
http://debtsofanation.blogspot.com/2009/04/
debts-of-lenders-dubai-developments.html
Posted by In Debt We Trust | April 28, 2009 4:00 PM
Noah, I don't personally agree with all the points of view you express here, but I now have newfound respect.
I wish I'd seen your account of your sale of 245 East 93rd Street in 2006 before I started following UD about a year ago; I hadn't known about this. It speaks very well to your credibility- especially since you had been selling at the peak of the bubble and yet were advising sellers to be more price aggressive while most brokers were advising the exact opposite.
Put a different way, it's one thing to talk opposite the herd if you have no stake in it. If you're right, you say 'I told you so' to the herd. If you're wrong, you keep quiet and nobody will remember. It's another to have a stake (in your case, your blog readership) and advocate a counter intuitive point of view. Kudos!
Posted by Former Seller | April 28, 2009 6:01 PM
formerseller - thanks you for your kind words!! Much appreciated and makes efforts here that much more worthwhile!
Posted by Noah | April 29, 2009 12:00 PM
With regards to what is causing this market to be illiquid....I think one has to consider that it may not be lack of buyers or price disconnect as if to say they are separate issues. They are the same issue caused by the turmoil in the financial industry. The massive decline in lending has reduced the buyer pool which has widened the bid-ask. The overall cost of capital has risen dramatically. Cash investors are able to ask for a much higher return. This translates into higher cap rates for all property types. What about the fact that all developers have "release prices" set that they cannot sell below? If they did, it would be a technical default on their construction loans. The condo market is just the tip of the iceberg....
Posted by David | April 29, 2009 4:07 PM
Noah, The fact that "everyone wants an update" on NYC real-estate is already a bad sign. I still see too much obsessing with the topic via crowds gawking ads in realter windows, coctail conversation, etc. Bottoms form when people loose interest in the topic, things dry out, a calm occurs, its stops being talked about.
Its interesting how nobody blinks that property is up 400% over many years, but people find it almost impossible that things drop 50%. Swings in prices when the public becomes uphoric and obsessed will always be abnormal.
Staying defensive, waiting to buy, or selling your property quickly seems to make the most logical sense here.
Thanks
Posted by iven | April 29, 2009 8:52 PM