Seller Pricing Strategies Should Ignore Stock Rally
A: The less-worse bull market continues and we still have inventory restocking and uber stimulus in the pipeline that will contribute to much better economic data as time goes on. Stocks are in the process of pricing this in and gold is surging which is generating a reflation trade mentality out there. This does trickle down to our markets here in Manhattan in the form of higher buy side confidence and lower sell side motivation for those without a financial pressure to raise $$$ - both psychological. Media headlines are even starting to reflect the impact on sell side pricing strategies. But if I can offer a voice of reason to sellers it would be to ignore the stock market rally and continue to price your apartment closer to the most recent sales and where your price point is trading down from peak levels. The stock market can change on a dime at any time and many buyers continue to question the foundation, or sustainability, of this rally. It takes two to tango and just because you feel your property deserves to price-in future appreciation that hasn't happened yet doesn't mean the buyers will dance with you!
Bids for Manhattan residential property have improved and activity levels are promising for this time of year. It is what it is. However, I still find that buyers are bidding with the caution that the world has changed substantially since the peak. As a result, serious sellers always should be realistic on where the bids are right now.
The media campaign is beginning and we should worry about sellers adjusting their strategy too aggressively. Wait until they get a whiff of the upcoming Q3 report showing the vast improvement in sales activity from the 2nd quarter.
Here are two headlines already:
Time to raise residential prices? Depends on whom you ask
Expected price cuts not coming
Any struggling seller should ask themselves if you would pay near peak or above peak prices for a Manhattan property today? If you answer is 'yes', then I would question your bias as a homeowner who happens to be selling. The market does what the market wants and nothing I say here will change that. The best I try to do is report on it in real time. It seems bids are coming in at better levels than six or seven months ago when fear was high, but not anywhere near peak levels - especially for 1M and above. Therefore, expectations that a future bid will come in at a premium representing future profit potential on a so-called reflation trade should be tamed.
If you must sell, never price a property with the assumption that a perfect buyer with tons of money and no care in the world will happen to come along. Doing so will do more harm than good and may even scare realistic buyers away that otherwise might have been willing to view your apartment and bid. Do not underestimate how many buyers out there simply do not request a viewing because they feel the seller needs to get more in line with the realities of today's market OR refuses to put a bid in for fear of insulting a seller. I tell you from experience that many buyers think this way and will simply pass on your property until pricing is more in line with the market they obsess about daily. Im even willing to bet that the buyer pool out there that is interested in your property probably knows today's market better than you! After all, they are looking at all your competition.
If you have been on the market for the past 3-4 months and had more than 35-40 buyers through your property with no acceptable bid, question your pricing strategy! Simple. Done. If you don't have to sell, fine. The marketplace at all times contains subsets of sellers that either have no financial pressure or reason to sell or is simply choosing to test the market to see if they can get their price - a price closer to peak levels or if anything, minimizing the haircut when buyer confidence seems to be on the rise.
Fact is, this market has been considerably active since May and the upcoming Q3 report will show this on a quarterly trend basis. Given the dramatic improvement in credit and economic data, stocks are surging and this may lead some sellers to think the market will rise up to their expected level - so why not price high or consider increasing your price. Dangerous if you ask me. In this day and age every buyer can see the full listing history of your property even if you decide to remove it from the market and bring it back on later at a higher price. Emotions lead sellers to do these types of things and right now the markets are fueling this 'reflation' sense. This doesn't mean buyers will start chasing property and bidding near peak levels though. If I see that happening I will tell you about it her but I got to tell ya, I don't see that happening.
In my humble opinion, bids from buyers are coming in at the lower end of the range down from peak - not much more. I'll provide a hypothetical example to explain. Lets take a typical F/S Drmn Classic 6 in UES or UWS and see the range where bids came in when fear was high and where they seem to be coming in today:
HIGH FEAR (Feb-March 2009) ---> bids came in down 25-30% from peak levels pricing in fear/uncertainty
TODAY (July-present) ---> bids coming in down 20-25% from peak levels pricing out fear/uncertainty with reflation mentality
That is the best I can describe the difference in market conditions from high fear in March to the one I see out there today - varied on price point of course with higher end still struggling way more than lower price points. The difference is notable as we seem to be trading at the lower end of the range down from peak today, instead of at the higher end of the range down from peak 7 months ago. Bids improved just like it did for equities following an overshoot to the downside.
Now, do we expect this to continue and bids to improve further from here? Maybe, but I'm just not seeing it out there right now as buyers are also questioning the sustainability of this equity rally and noting the continuing fundamental concerns. If I sense a change beyond this trust me I'll tell you. For now, considering the depth of the shock we went through I am still amazed at how quickly this marketplace changed from Armageddon to Reflation. I can't deny it and it is what makes this market such a great place to build a real estate business in.
My advice to sellers is to take advantage of the strategy of realistic pricing and the benefits of high traffic that come with it. In the end the market will dictate the value of your home, not the brokers. Price right, get the traffic in, create a sense of urgency and get buyers to bid it out.
Do some of your own research on where this market seems to be right now and see how that compares with what brokers are telling you on sales pitches - knowing full well the brokers are competing for your listing! Look at the most direct competition that actually went into contract in the last month or two and see how their pricing strategy differs from your ideas. Look at the direct competition that did not sell and is still on market for a 3-4 months and see how they went wrong? Try to find what that gap is. Analyze most recent sales and if you see a deal that was signed into contract in Feb or March, which closed 3 months later, you probably can assume a slightly better bid today. But be realistic. Don't price high or near 2007 levels just because stocks are surging as that will only help to sell the competition that is priced right. Use the active market to your benefit. If you do decide to price high and test the market, prepare yourself for minimal activity and strongly consider all bids that may come in at realistic levels yet down considerably from your ask.
Posted by nyc buyer
Thu Sep 17th, 2009 11:07 AM
Noah,
Thank you for this candid post. You are 100% dead on when it comes to understanding buyer's mentality today. I am a potential buyer and will not look at any properties that are overpriced or give a low ball offer to an overpriced property because I think I would be wasting everyone's time.
While I do not expect a 40%+ drop from peak prices, I certainly am not willing to pay more than 20% below peak. The economy is far from being out of the woods. I believe there is a good possibility that there will be another 5-10% drop in NYC real estate prices, since the job market in NYC is still weak (although not as bad as predicted), incomes are not rising, taxes are sure to rise, and loans are still hard to obtain. I am certain that if we have a major stock market correction, which many experts predict, a lot of buyers will flee to the sidelines or re-adjust their bids.
I think we have a more balanced market than we did 7-8 months ago because of the stock rally but that does not mean real estate prices will go up any time soon in my personal opinion. However, a factor in favor of sellers is that the inventory is not as high as I expected it to be after Labor Day. Did you expect inventory to be at this level this time of year?
I love your posts because you are honest and tell it like it is. I find brokers who sugarcoat and consistently paint a rosy picture so insulting.
Posted by Noah
Thu Sep 17th, 2009 11:19 AM
thanks nyc buyer!! most of my clients share in your sentiment.
The thing is, they are willing to pay market value, but they have an idea of what market value is the seller usually has a different one. Now I got a few deals done lately and the price levels are around what I mention here. And buyers that didnt pull trigger, think in a similar way. They will improve their bid from say seven months ago, but not aggressively unless the place is a very unique gem that is perfect for them - which is always hard to find.
I worry that sellers will expect much more and this could dampen sales volume down the road. If buyers bids keep improving, Ill talk about it here. Lets see.
Thanks again
Posted by Anon
Thu Sep 17th, 2009 11:56 AM
Noah,
Do you think such seller mentality will cause another stalemate in NYC real estate in a few months?
Posted by SteveF
Thu Sep 17th, 2009 05:01 PM
>Noah,
Do you think such seller mentality will cause another stalemate in NYC real estate in a few months?<
If the economy keeps robustly improving, as it is doing now, there will be no seller/buyer standoff. Buyers will be compelled to buy. It must be pretty unnerving watching the economy coming back strongly. Anxiety must be building with the buyer holdouts.IMHO.
Noah, Don't ya just luv all this "debate stuff". I guess you do, otherwise no UD.
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Posted by Noah
Fri Sep 18th, 2009 08:22 AM
Anon - it tends to take a lot to shift buy side confidence enough to really drive higher prices on a sustained basis. with the fundamentals, I dont see caution leaving buyers anytime soon. they already responded to the pricing out of fear, and that is a great thing. but from now on, it will take a lot more for buyers to keep paying higher prices just because sellers ask for it or refuse to deal for lower prices.
i dont see a stalemate, I see muddled activity for a while, not as high as June/July (1200 contracts signed a month) yet not as low as feb/march (500-550 contracts a month). I see us in the middle for a while
Posted by Noah
Fri Sep 18th, 2009 08:30 AM
steveF - "If the economy keeps robustly improving, as it is doing now, there will be no seller/buyer standoff."
its the sustainability of this I always questioned. We have a few things driving an improving economy right now:
1) uber fiscal stimulus
2) uber monetary stimulus, 0.2% ffr, massive debt monetization, 30 credit facilities and a backstop of 16Trillin by the govt
3) natural market dynamics playing a role as fierce destruction was not sustainable forever; you cant see the destruction in wealth, credit, assets tied to mortgages as we did on a continued basis forever, it was too fierce, at some point the pace of decline slows and even a natural rebound occurs
4) less worse everything
Problem is govt/fed interventions played a HUGE role in this. Huge. That is not sustainable and not without its unintended consequences. We are a NOW society, kick the can down the road, save the day today. Always have been, continue to be. We got what we wanted and only reason we see what we see today is because of govt and fed interventions/policies. At some point that will fade and reverse. Market is not pricing that in at all, instead is pricing in robust profits on a sustainable basis and a V recovery.
Maybe we do get a shot of a V recovery but I doubt its sustainable. At some point, job losses will stabilize and we will only lose 100K-150K jobs a month - yet we still are shedding more today. The destruction in jobs is not sustainable. But a healthy economy should be adding 150K jobs every month...with such damage, the side effects of this crisis will be with us for a while and I think the fed continues its rigged bank engineered recapitalization environment for at least another 3-4 quarters. then regulation comes in and crimps growth. then taxes go up. them rates go up and people will blame the slowdown on that. That is my point. Maybe its in 2-3 years, I dont know.
I think any double dip will be a result of reversal of policy that curtails lending and growth and future inflation pressures.
Posted by UpperEast
Mon Sep 21st, 2009 03:51 PM
We've had our apt. on the market to test it. It's priced about 35% below peak pricing. Not that much foot traffic but the 1-2 people we get a month make an offer. The issue is, they have been offering 50% of asking. It's a beautiful gut renovated 2 bedroom. We are not in a must sell situation. We are a couple who aren't old enough to retire but could. We aren't going to give the apartment away. Even though we bought it quite a few years ago we have gut renovated it twice in our lifetime and most recently 2 years ago. So we are in it for 1.3 and we are getting offers at 800k which is absurd. I think the market will muddle along because at the end of the day the seller cannot be expected to give the property up at a steep discount if they don't have to. We aren't looking to wildly profit, but break even is what is fair. We are keeping our property and because we can afford to move and keep it we're just taking it off the market and going to hang onto it. Whether it takes 5 or 10 years, we'll hang onto it. I think we aren't the only ones in Manhattan at least that can and will do this.
Posted by Thisson
Mon Sep 21st, 2009 04:07 PM
I get mailings every month or two from brokers who mail every resident in our building comp sheets trying to drum up listings.
It looks to me like prices have receded about 25% from peak to about the mid-2005 price level and are still slowwwly trending downward.
Posted by Noah
Mon Sep 21st, 2009 08:43 PM
"It looks to me like prices have receded about 25% from peak to about the mid-2005 price level and are still slowwwly trending downward."
generally for the mid level market, I agree
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Mon Mar 22nd, 2010 09:57 PM
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Wed Jun 9th, 2010 04:57 AM
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