When it comes time to sell, do your homework, figure out which problems you may be facing and price … [+]
Usually, this space discusses general market trends in Manhattan and Brooklyn, but with the market quickly heading toward its annual hibernation, a public service announcement for sellers may be in order.
The lead-up to going on the market is very detail oriented. Cleaning, documenting, organizing, painting, pictures, plans, pricing, etc. There seems to be no shortage of tasks; all focused on one goal: selling. But many brokers and sellers work the equation backward. They start at the desired sales price and work in reverse to ensure the home is marketed and presented properly to achieve that price. While this approach typically works, sellers with homes that are lingering on the market longer than the average time on market for their local area may be wondering what’s wrong. Going back to the drawing board of multiple pre-listing tasks to identify and correct errors is time-consuming and unnecessary.
Frankly, if your home is not selling, it is for one of three reasons. One, there is a product problem; two, there is a market problem; or three, there is a price problem. Below, we’ll look at each of these and suggest ways to identify and mitigate any issues. To cut to the chase, though: It’s a pricing problem 99% of the time.
Product Problems
A product problem means something about the home is a turn-off for buyers. Examples include units needing a total renovation where any potential purchase requires significantly more time, money, and energy before moving in.
Bear in mind, of course, that renovations are in the eye of the buyer, so a perfectly well-appointed home but done entirely in black (appliances, sinks, toilets, walls, floors, etc.) is a unit in search of a singular buyer. Another example is location. In Manhattan or Brooklyn, that could mean a first-floor unit with little to no light or views. Again, the buyer pool for such units is extremely limited. Yet another example is a home with “bad bones,” such as oddly shaped rooms or very low ceilings.
Generally, most sellers know if they have a product problem. Hopefully, many sellers knew this when buying in the first place, so it’s not a surprise now. The common issue for problematic homes is the diminished set of buyers looking for homes like these. The problem for most sellers is that they tend to price using non-problematic sales as comps. Even discounted, non-problematic sales don’t get at the heart of the problem because most non-problematic sales have multiple buyers taking a look before a few make bids.
The solution, unsurprisingly, is a price adjustment. Sellers with problematic homes need to drop their price to a level where even buyers who would normally not be interested start to run their own mental calculations to see how much of a deal it could be.
Market Problems
A market problem means there is something off about the market itself.
In Manhattan and Brooklyn, COVID is the perfect example, as the market was literally shut down for two months. In the absence of bids, sellers who needed to sell had no choice but to discount heavily until they found ready and willing cash buyers brave enough to feel their way through the fog of uncertainty to get to a yet-to-be-determined-how-possible closing.
A more typical example is today. After a massive surge in sales, the markets have contracted back to lower-than-typical seasonal levels. For sellers, this means fewer buyers and more competition. To mitigate this issue, sellers must stay on top of the real-time trends in their local area to ensure they stand out despite market movements.
Price Problems
A price problem is a nice way of saying your price is wrong. And in real estate, prices are only wrong one way: they’re too high.
In fact, most problems eventually funnel their way into a price problem. Whether it’s a first-floor unit with brick wall views or a park-view penthouse asking peak prices, the core issue is the price is too high. While some luxury sellers may have the advantage of waiting for their price, the net issue for all sellers with extended days on market is overpricing.
The solution is a price cut for those who need to sell but have not. Unfortunately, the longer a unit is on the market, the bigger the discount needed.
No problems
For those about to sell, the best bet for avoiding the situation entirely is pricing at, or even slightly below the market, as buyers have a phenomenal and, more importantly, stable ability to respond to accurate pricing. An analysis of listed sales going back to 2004 — nearly two decades’ worth of data — shows that the highest median discount for units priced at the market with a contract signed in less than 30 days was 3.6%, and that was at the height of the great recession in 2009.
Listing Discount By Days On Market | Yearly Median Discount from Original Ask
In short: The more the market changes, the more it stays the same. When it comes time to sell, do your homework, figure out which problems you may be facing and price it right the first time to avoid problems down the road.
