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Home Pricing Revisited

Home Pricing Revisited

November 20, 2017


Home Pricing Revisited


How pricing your apartment can hurt you or help you.

In the age of information technology, everyone's an expert. That may not be true in every case, but the fact remains that anyone who can Google anything from the palm of their hand is likely to consider themselves an expert. Whereas professionals were once the gatekeepers of information, that information is now stored online – in nearly every industry – for the customer, the user, the client, to experience individually.

So today's doctors find themselves talking their patients off a ledge after a grim but wildly inaccurate WebMD diagnosis, and in similar fashion, today's real estate agents are often confronted with the challenge of explaining to their clients why that new listing on StreetEasy isn't as horrifying (or uplifting) as it may seem. Because most of the time, a new piece of information isn't going to be a harbinger of doom and gloom, nor will it guarantee future success. Data is data – no more, no less. It is inert. And it's the job of a professional to shape that raw information into a cogent, intelligible, and reliable basis for making decisions.

In real estate, the most basic application of this expertise invariably comes down to pricing. "Why is this studio asking so much?" "How could that 2 bed/2 bath sell for so little?" "Can I leverage a recent sale in my building to get a better deal on the apartment next door?" The benefits of pricing real estate correctly are enormous, and the follies of pricing poorly can be equally devastating. We've decided to use this week's post to highlight the ways in which market data can help guide you – or lead you astray – depending on how you interpret it.

 

1. The Trouble With Asking Too Much

This is a problem for every seller, and it's why even real estate professionals often opt to have their homes listed with another broker, rather than attempt to sell on their own. In fact, in 2015 we devoted a full edition of The Bamberger Report to the topic of pricing psychology.

The point is, putting a numerical value on your own apartment is an extremely difficult task. Most homeowners – understandably so – have an inflated sense of what their home is worth, and instead of asking themselves what their homes would actually sell for, they are swayed by prices that reflect what their homes mean to them. This psychological disconnect is worsened when a seller sifts through market data and selectively chooses any listings that will reinforce her point of view. This latter phenomenon is called confirmation bias, and it crops up in any aspect of our world on which we may form an opinion. The difference with real estate, of course, is that millions of dollars are at stake.

This brings us to our first caveat: the trouble with asking too much is that you will turn away qualified buyers. There are only so many potential buyers for your listing in the market at any given time, and in our experience we've found that 90% of those buyers will visit a given listing within the first four to six weeks of its life on the market. After the fifth or sixth week rolls around, the influx of visitors tends to thin out dramatically. New buyers will continue to visit the apartment, but the critical mass of concurrent visitors – and their real estate agents – has usually already passed after the end of the first month. Overestimating your price from the start can dissuade your largest audience from seeing your listing in its prime, diminishing your chances of fielding strong offers at market price.

 

2. The Risks of Asking Too Little

There is a school of thought among some brokers that pricing an apartment below market value will trigger multiple offers simultaneously. With several motivated buyers jockeying for what began as a killer deal, or so the theory goes, a seller will have the coveted position of auctioning off their apartment to the highest bidder – presumably landing a deal above market value once the dust has settled.

In almost every scenario, we advise against this practice. While auctions and hype can sound sexy in a sales pitch, we've found that in reality these listings run into trouble if they fail to attract anything less than the best possible outcome (that is, receiving multiple offers simultaneously). And thus we arrive at the risk of asking too little: an offer at full asking price won't actually be enough. Take a moment to imagine the awkwardness of rejecting an offer at your full asking price. The obvious question from the buyer (or their agent) –"Why?" If you want to keep that buyer in the running as a serious candidate, you should have a good answer prepared. Now imagine thatseveral full-price offers have come in over the lifetime of the listing, but they appeared three to four weeks apart. What are the chances that any of those previous buyers are still motivated to seek a deal on your apartment, let alone be willing to enter a bidding war? The takeaway is this: if you set a below-market price on your apartment, you'd better be satisfied with getting one.

 

3. Reduce Responsibly

An example of a listing's price history as it appears on TheBambergerGroup.com Learn more here.

Price drops can scare many an inexperienced seller, despite their commonplace usage in the real estate industry. Let's begin by addressing some basic concerns:

"If we reduce our price, buyers will think we're desperate to sell."

"If I lower my price now, I'll never get a deal at the amount I originally asked."

"Price drops will draw the attention of bargain hunters, window shoppers, and other lesser-qualified buyers without producing any real offers."


In theory, any of these fears could come true. But like any sales tactic, price cuts are tools: it's all about where, when, and how you use them. In other words, reduce responsibly. If your real estate broker suggests a price reduction, have her present you with a comparative market analysis juxtaposing comparable apartments in your area (or building) that sold, entered contract, or are currently asking in the range of the proposed new price. If the comps favor a price cut, it may be time to update your listing. Contrary to fears that price reductions will attract lowball offers and eliminate the seller's power to negotiate, we've found that moderate, consistent price cuts can telegraph to buyers that the seller is both aware of the realities of the market, and motivated to get a reasonable deal on the table.

 

4. Good Comp, Bad Comp

Comparables, or "comps," are widely considered the most effective way to measure a home's value. As you probably already know, the idea is to compile a list of all apartments similar to the unit in question that recently sold, entered into contract, or are currently on market. A careful analysis of these comps and their prices should yield an accurate value for you to price your apartment. Simple enough, right?

The problem is, what two people consider "comparable" to the apartment in question could in fact be worlds apart, and those two people frequently turn out to be the seller and the buyer. Everyone's an expert, and when a seller looks at 5-10 apartments that he feels justify his asking price, odds are a prospective buyer will choose 5-10 apartments that are completely different when she tries to justify her offer (again, see: confirmation bias). Ask any real estate agent about a disagreement over comps, and they'll likely have several stories from the past month alone. This is because the devil's in the details. When you look at a gut-renovated apartment on your floor which sold four months ago for, say, $700,000, and immediately make the deduction that your own apartment is worth the same amount, ask yourself,"What would a buyer think?" A buyer would compare every possible detail between your apartment and the $700,000 sale, and that means looking a lot further than just the identical floor plan. When was your bathroom last renovated? Did you use comparable materials for the job? How's the sunlight exposure on your side of the building? Does your kitchen have appliances that would beat out most on market? If your analysis is sloppy, any old apartment with the same number of bedrooms can serve as a comp to your listing; what really matters is the accuracy of your selection.

The examples are endless, but the solution is quite simple. As with any dispute, the truth about seller-preferred and buyer-preferred comps usually lies somewhere in the middle. Challenge yourself to role-play as a buyer and identify the weaknesses in your apartment, before you leap on the whatever justifies the largest dollar sign. When you're walking away from a successful closing in three months' time, you'll thank yourself for your patience.

 

5. A Word From Dan & Aaron

The sheer volume of online information about New York City real estate could fill an endless conveyor belt of books. But with patience, pacing, and a professional's eye, that sea of information can be whittled down to form a realistic plan of action.

We hope this little breakdown on pricing was helpful, and we'd love to hear your thoughts. Do you have stories about your own experiences with pricing real estate? Do you have feedback on what you'd like us to discuss for next week's post? We want to hear from you!

Make it yours,
Dan & Aaron

 

Dan Bamberger

Real Estate Broker + Founder

(917) 903-7237

dan@thebambergergroup.com

Aaron Gordon

Licensed Real Estate Agent

(646) 598-6428

aaron@thebambergergroup.com

Contact Dan Bamberger
A leading Murray Hill Real Estate Broker

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Dan Bamberger

Real Estate Broker

(917) 903-7237

If you're thinking about buying or selling in Murray Hill , let's discuss your situation. It's completely free and there's absolutely no obligation.

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Dan Bamberger

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(917) 903-7237

If you're thinking about buying or selling in Murray Hill , let's discuss your situation. It's completely free and there's absolutely no obligation.
  • Ranked among the top 1% of all realtors nationwide in 2013 in NRT
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Contact Dan Bamberger

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Licensed Real Estate Broker

(917) 903-7237

If you're thinking about buying or selling in Murray Hill , let's discuss your situation. It's completely free and there's absolutely no obligation.

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Meet Your Murray Hill Neighborhood Expert

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Aaron Gordon

Licensed Real Estate Agent

(646) 598-6428

If you're thinking about buying or selling in Murray Hill , let's discuss your situation. It's completely free and there's absolutely no obligation.

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