Pricing property right blends art and science. Particularly in a market like this one, in which both sales prices and sales volume have softened from month-to-month, analysis, while critically important, can only help so much. While we know a sale of a similar property took place three months ago, how do we compare this price to today’s property value?
Values in today’s market change from month-to-month. Since prices do not become public until after a sale closes, and since a period of three to four months often elapses between contract signing and closing, sales prices are already out of date by the time they become public. Would Ken Griffin’s penthouse at 220 Central Park South, which was no doubt signed for some time ago, still be worth $238 million to him if he bought it today? Who knows?
In this environment, what are agents and sellers (not to mention buyers) to do?
Here are a few suggestions:
Use Your Relationships. The most useful comparable sales in a changing market are always those which have gone into contract during the past few weeks or month. Agents who have cultivated relationships within the industry can contact fellow agents whose sales have gone into contract recently to find out what the purchase price was. Even if those agents are reluctant to share an exact price, they will usually give you a sense of what their property received if you have been collegial in your behavior with them in the past. It’s one of many reasons why it’s always better to be a good citizen rather than a difficult one.
Abjure Asking Prices. Even in a down market, many asking prices are aspirational rather than realistic. They don’t provide useful guidance as to proper pricing; in fact, often they present a cautionary tale in how pricing incorrectly can lead to months on the market. This is often the highest and best use of asking price information in discussion between agent and seller: these prices can demonstrate what NOT to do.
Remain Conversant In The Analytics. In our markets here in New York City, different areas and types of property have experienced different levels of decline. The sophisticated agent acts like an appraiser, taking highly local recent sales information and analyzing it to arrive at pricing per square foot, which takes into account condition, location, special features like views and outdoor space and sales velocity within the particular submarket. If necessary, the numbers can then be discounted to account for drops in market value since recent transactions occurred.
Price Tight. Sellers can often feel strong but unrealistic certainty about the specialness of their homes. As part of our job as agents, we gently guide sellers to an acknowledgement of market realities; in today’s environment that often means lowering their expectations. We also must convey another, related reality: buyers tend not to make offers on overpriced units. A high price discourages buyers from offering, while a realistic price encourages them. Most of us agents have had at least a few experiences with properties which follow the market down, starting at too high a price and then never reducing quite soon enough or aggressively enough to catch the market. Pricing tight on value from the beginning can thus save a seller both time and money.
Use Your Fingertips. I like to say to new agents that it usually takes about five years to get the business into your fingertips. At that point, you use data and intuition to instinctively know the appropriate price range for a property. In fast-changing markets like the one in which we find ourselves today, this intuition has enormous value. Since the data points are changing so quickly, we depend on our internal computers, to crunch facts and intangibles in calculating the correct pricing and value for a particular home. This skill can’t be taught. It arises from the experience, talent, and intelligence of the best agents. It’s what makes us professionals.