In a market that is generally perceived as strong and favorable to sellers, why do some properties continue to sit on the market? The press loves to highlight spectacular sales and market trends because it makes exciting reading. While it is true that we have seen one of the most active markets to date with considerable price gains in many categories, I want to examine some realities of the market and pricing that are not commonly discussed by the real estate media.
Some sellers believe that because there is high demand and limited inventory, their properties will sell quickly and at high prices, possibly even generating multiple offers. Many of these sellers erroneously overprice their apartments by 5 to 10% or more. Even when their properties sit on the market for months, sellers are reluctant to attribute the situation to their own desire for an unrealistic price.
It is important for sellers to understand why many properties sit on the market for extended periods of time, with a large number not selling at all. By way of example, as of this writing there are 47 Upper West Side listings on the market priced from $2 million to $5 million (which has been a very active category). Twenty listings have been on the market but remain unsold for over 100 days, and 7 have been on for over 6 months. In an incredibly active market, the reason behind this phenomenon is that sellers have overpriced their apartments, thus creating a negative dynamic that is nearly impossible to rectify, and resulting in sales prices almost always lower than if the units had been initially priced appropriately.
Below are the main factors that should be taken into consideration when establishing proper pricing. It is important to note that there may be other factors that influence a property negatively as well.
Location: This is the number one factor to consider when pricing. Properties in prime locations sell for higher prices. Fifth Avenue, Park Avenue, Central Park West, West Village and the Gold Coast of Tribeca are all top locations and record sales happen in these areas almost exclusively. Conversely, a second or third tier location negatively impacts a selling price. Some examples of lesser locations include neighborhoods without proximity to public transportation, residential enclaves in largely commercial or industrial areas, and homes overlooking heavy traffic thoroughfares or looking out onto future construction sites.
Views: Second only to location, views are another main consideration when establishing a price. A spectacular view (overlooking a park, river or city skyline) can command a significant premium. On the other hand, a beautiful apartment with windows looking into a building or walls will not sell for the same price as a similar unit with open views.
Ownership: It is well known that the buyers generally consider condominiums to be more desirable due to ease of purchase and re-sale as well as for the ability to rent with few, if any, restrictions. For these reasons condos trade at higher prices than co-ops as purchasing and selling require board approval and rentals are not freely allowed.
Layout: An apartment that has a gracious layout will sell for more than one with an awkward layout. Additionally, a bedroom count that is in line with the square footage can be a major selling point for many people. For instance, it is normal to see three bedrooms, or 6 rooms, in an 1,800 square foot apartment. However if an 1,800 square foot apartment has only one or two bedrooms, and it cannot be easily converted to a three bedroom, the buyer pool will be limited, and if not priced accordingly it will languish on the market. Other elements of a layout that can limit desirability include a low number of bathrooms, a tiny kitchen or small living room.
The Visuals: Purchasing real estate is an emotional undertaking and most buyers are swayed by properties that are decorated beautifully. An apartment that shows well will have a significant advantage over comparable listings that do not, even in a market with limited inventory. Clean lines, bright rooms, colorful accents, absence of clutter and furniture placement that provides a nice flow are important components creating a favorable first impression. Conversely, an apartment that does not show well will sell for less and take a longer time to sell.
Monthly Charges: When monthly maintenance, common charges or real estate taxes for a property are significantly higher than average, value is affected. The asking price must reflect the high monthly charges. On the other hand, if the monthly charges are below average this can translate to a slightly higher price.
Amenities: For a growing segment of buyers focus has shifted to buildings that have a wide array of services and amenities. For many buyers, buildings that lack certain amenities are less appealing and of diminishing value.
The highest sales prices are achieved when several of the above factors are positive. What happens when one or more of these features are less than ideal? The real estate agent and the owner need to evaluate the property taking into account these factors in relation to comparable recent sales in order to arrive at a proper price. The price must reflect the negatives as well as the positives. In some cases, it is possible to offset certain less desirable features of a property – mostly with staging. From my experience, a seller who works to improve an apartment that doesn’t show well will definitely be rewarded in the end with a higher sales price.