Sell in May and Go Away?

Posted by urbandigs

Tue Apr 28th, 2009 10:00 AM

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 ON
Do 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)

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.
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!

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."

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."
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.

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!

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