Given all the news stories and media hype, it appears to the average buyer that no property remains unsold, but that is not true. Due to the high expectations created by this “sellers’ market,” owners are often tempted to price their units too high. This is a misguided approach. Many sellers don’t realize that there are significant risks to overpricing, even in such an active market. Establishing listing prices that are only 5-10% higher than market value can critically ‘wound’ an apartment for sale.
This is true especially for un-renovated apartments and units without modern amenities and finishes. Apartments in non-prime locations are even more affected as they do not have the all-important “location factor” to fall back on. Additionally, the manner in which an apartment shows is critically important and can make or break a good sale. Each dated apartment competes with the pristine and up-to-date finishes and amenities in newer condominiums. In these cases it is critically important to listen to an experienced broker’s advice regarding staging and pricing.
Even in an active market, overpricing can initiate a cycle that has a damaging effect on the market’s perception of the property. With so much information now widely available, buyers are significantly savvier than they were just a few years ago, and are much more likely to recognize if a property is overpriced. Buyers in our market tend not to make low offers, and most often will not bid at all on something overpriced. The property then runs the risk of sitting on the market for weeks. And to make matters worse, if a seller is convinced of his apartment’s value, and only offers a small price reduction after some time on market, the cycle of no or low offers will continue. This creates the concern among buyers that “something is wrong” with the property. The sad reality is that most often, these concerns are not justified. In fact, it is an opportunity for a buyer to negotiate a sales price in line with the market without the unpleasant bidding competition of a well-priced apartment just coming on the market.
Below are strategies to prevent ‘wounding’ an apartment or to reinvigorate the property if the listing has become ‘stale.’
- Price appropriately right from the start and you may achieve a quick sale at or above your asking price. Some owners who receive multiple bids feel that they underpriced their homes. While it is normal to feel this way, bear in mind that in an active market, the highest prices are often achieved this way.
- If offers do not materialize within the first few weeks, drop the price dramatically right away. Do not make small incremental decreases as this will only serve to undercut the apartment further.
- If the steps above do not elicit offers, it may be time to take more aggressive measures. A strategy that has worked for sellers who do not want to sit on the market any longer is to systematically lower the price until you receive offers. Do not wait too long in between price reductions. This strategy will only work well in a very active market.
For the many buyers who are having a hard time with bidding wars and cannot purchase what they want, my advice is to look for stale listings. Don’t assume that just because a property has been on the market for a long time there is something wrong with it. Be analytical and research whether there is truly anything ‘wrong.’ If you find a ‘wounded’ apartment and want to investigate why it hasn’t sold, take the following steps:
- Ask the agent why the unit has not sold. Don’t assume he/she is trying to “sell” you. Depending on the veracity of the agent, you may or may not learn something of value. In these cases, a buyer may be wise to use an experienced agent to give them proper advice.
- Research and compare other recent sales in the building. If there are recent sales, do they support the price? Remember, the larger the apartment, the higher the price per square foot.
- Have your attorney review the financials to identify any potential problems or risks with the building.
If a buyer can step away from the emotional perception that something is wrong with the apartment and can carefully consider the larger picture, it is possible that a reasonable deal can be achieved.