Try This Pricing Strategy
A: I have been asked by more than a few UrbanDigs readers in the past 2 weeks why their properties are not selling, even though the price seems right! And these are the sellers themselves or friends of the seller, but in each case IT WAS ANOTHER BROKER TRYING TO SELL THE PROPERTY! Here is a piece I did for sellers last April but the strategy still applies today. For all you soon-to-be sellers out there who are curious to know HOW your property should be priced, try this pricing method. Originally Published April, 9th 2007!
Make 2 data ranges consisting of PAST COMPARABLE SOLDS IN THE LAST 12 MONTHS and CURRENT COMPARABLE ACTIVES now on the market in your building. Its the easiest way to get the most likely range of what your home will sell for on the open market. The fine tuning of the pricing strategy based on current buyer demand, your property's unique features, and your timeline to sell is where it gets a bit tricky.
First let me define 'comparable' for all those who don't understand what this means.
COMPARABLE UNIT - A comparable unit is a unit of the same layout (or very similar in interior size) as your own property in either the building you live in or a similar building nearby. When doing a pricing analysis, it is very important to compare apples with apples! If you own a 1BR w/ dining alcove (JR4 layout), then it is best to do research to see what other JR4's with the same layout have been selling for. Comparing the price per square foot (PPSF) of a 2BR or 3BR that sold a few months ago to yours really doesn't make much sense because quite simply there are fewer 2BR & 3BR property's in Manhattan; and less supply means the product should trade at a premium! I also hate any valuation using square feet; instead try to find similar footprint and same line units to compare. In short, your 1BR w/ dining alcove should trade at a slight discount to true 2BR's and 3BR's while taking into account the unique features your property has to offer over past sold units.
Okay, so that is out of the way. Moving on, you need to ask your broker (actually you shouldn't have to ask, the broker should provide this data to you when they discuss the sale of your property) to provide the comparable sales for the past 12 months as well as ALL units that are currently on the market; and the CONDITION THEY ARE IN!
Here is an example (1BR Co-op) of what I do when I visit a potential sales client:
PAST COMPARABLE SOLDS (last 12 months)
30A - SOLD FOR $515,000 (GOOD Condition); 675 sft - closed 10/18/2006
10A - SOLD FOR $547,500 (MINT condition); - 675 sft - closed 10/11/2006
2B - SOLD FOR $510,000 (GOOD Condition) - 675 sft; closed 2/14/2007
16F - SOLD FOR $520,000 (MINT Condition) - 650 sft; closed 10/20/2006
25F - SOLD FOR $590,000 (MINT Condition) - 650 sft; closed 11/17/2006
Range between $510,000 (good condition - 2nd Floor) ---> $590,000 (mint condition - 25th Floor)
CURRENT COMPARABLE ACTIVES (now on market)
Ranges between $600,000 ---> $635,000
Similar report done...(no need to post here, you get the point)
Conclusions? Well, its clear that similar units are selling between the low $500,000's and high $500,000's while current actives are ALL over $600,000! Now that you know the data on what comparable units sold for and what your current competition is, you MUST look at the unique features of the property and do some comparisons to the data just analyzed. These include:
FINAL VARIABLE - Timeline To Sell
Finally, and most importantly, we must take into account the seller's expected and desired timeline to sell! After all, time on market and current buyer demand will be directly related to the initial pricing of the property!
Therefore, I provide clients with three pricing strategies based on all that I discussed above to cover all needs. There is a direct correlation between aggressive pricing and expected days on market! I would present pricing options something like this.
Property Description - 1BR, 12th floor, Mint Condition, No Outdoor Space, Must sell fast
1. TEST MARKET - $590,000. Price at the high range of past solds and under the current competition. Still might take the longest time of the three options presented to move the property.
2. MARKET VALUE - $575,000. Priced right and based on 13 floors lower than last MINT condition unit to sell at $590,000. Should get the most demand of all the property's on the market and result in a shorter time on market for the seller. Probably will sell between $550,000 - $575,000, so this presents the top of the expected range.
3. AGGRESSIVE - $560,000. In mint condition this property should get 30+ people at the first open house, especially if the first showing is delayed giving more buyers/brokers time to find out about the listing. The goal here is to get a bid from a qualified buyer within the first few weeks and hopefully a bidding war! In the end, the seller will only accept a price that is agreeable to them and that meets their timeline to sell.
UrbanDigs Says: On both the premium and discount side of the equation you MUST look at what the features of the property in question has to offer in terms of selling points and marketability on the open market! Based on the data of the past comparable solds and the current competition, a fair market pricing strategy could be derived. Pricing options should be created AFTER this analysis based on the unit owner's anticipated TIMELINE TO SELL! When it comes to getting the deal done, its the brokers job to fully market the property properly and the seller's job to agree to correct pricing! In the end, the market dictates the market value of the home, NOT the broker!
Posted by Faith
Mon Apr 9th, 2007 04:33 PM
Could you extend your thoughts here to incorporate the the opposite scenario: when the seller does *not* want to sell right away. How would you counseled a client who is not sure when they would like to move, perhaps due to a job situation, but wants to test the market.
Posted by Noah
Mon Apr 9th, 2007 05:09 PM
If the seller was NOT in a hurry and wanted to test the market, I would price above the last comparable that is closest in features to the property in question.
In this scenario, I would tell me client to list at $590,000 - $600,000 or so.
What we must understand as brokers, is that its FINE for a seller to test the market. We are human and there are those that will ONLY move if they get their price.
I had a seller client who had NO TIME PRESSURE to move. I got them $100,000 OVER ASK, and got the buyer to agree to close in 6-7 months. I still didnt get the seller to accept.
We removed the listing after that. So, while its fine for a seller to do this, as a broker working on commission only I advise you to find out if the seller will actually MOVE on a deal if you procure one at the desired price! Otherwise you will waste your time and get no pay out in the end.
Posted by spaceboy
Mon Apr 9th, 2007 06:22 PM
That's a bit RUDE of the seller to allow you to do that legwork and then back out.
Anyway, question: You made a comment regarding floors: "Higher floors should trade at a premium to lower floors". However, if the share interest in a lower floor is lower then that of a higher floor, would that not in effect cause negate the premium of a higher floor?
Posted by Noah
Mon Apr 9th, 2007 09:35 PM
Spaceboy - for co-ops, management companies generally ONLY give # shares allocated to a unit and dont give a total square footage!
So, youll notice that co-op total sizes are estimated by the listing broker. Therefore, it can be argued that co-ops in building should be valuated on a PER SHARE basis; hence the premium of more shares on higher units.
In condos, you dont have shares, so we take the square footage and then ADD the premium to the units value based on floor as aproximation and let the market decide.
Did I explain properly?
Posted by rudy
Thu Jan 17th, 2008 11:10 AM
noah - good distinction between co-ops and condos. price per share (pps) is generally the more accurate way to go in a co-op. as we all know, without a standardized formula of measuring square footage in all buildings, price per square foot (ppsf) is less accurate.
Posted by Doug Heddings
Thu Jan 17th, 2008 03:28 PM
I love this post! I think the "comparable" definition needs to be expounded upon in that comparing apples to apples isn't always possible particularly in a market with such low inventory. The key is being able to make proper and accurate adjustments to comps that are similar but different in order to come up with an accurate price. In your example, you may only find one or two J4's so you have to compare to some larger 1BR's without dining areas or maybe some smaller 2BR's. I also don't like to put too much weight on prices of current inventory as you and I both know how ridiculously out of line some prices can be. Just saying that often and almost always there isn't a true apple to apple comparison.
Posted by Marcia
Fri Jan 18th, 2008 07:24 PM
Noah, I loved this post, too, however if the members of the board agree with all the brokers who priced every single unit above $600k, isn't there a chance that the board won't approve the buyer at $575, because they won't like the price? I've read the post your wrote recently about the qualified buyer getting turned down, and the next buyer approved because the board liked that price better. I presume that coop boards can come under the spell as all those brokers/sellers who are certain the prices should keep going up, well past the last comp. What do you think? M.
Posted by Noah
Sat Jan 19th, 2008 10:50 AM
Marcia - well this post was for a seller early/mid in 2007, so its a bit different. But yes its possible. Not in a bldg like this though prob because this bldg is a hi rise with a lot of units.
I would think boards of very small bldgs are a bit stricter and have a board comprised of owners who may not have made it to the board of a bldg with 180+ units!
Boards must be careful, as markets do go up and down. To reject based on price alone because its lower than last year is a shady practice. Market sets price, not the board.
Posted by Uwsider
Sat Jan 19th, 2008 12:20 PM
I noticed alot of confusion with who writes which posts
I suggest posting a photo of the writer at the start of the post
Posted by Marcia
Sat Jan 19th, 2008 04:03 PM
Thanks, Noah. And the post to which I referred was actually written by Christine. Yup, I can see that what you write makes sense - that large buildings would have boards that understand about market forces. Thanks for the insights. I visit your site every single day... M.