Apartment comps are becoming a waste of time

With New York City sales activity in flux, pricing new listings is like throwing darts

TRD New York /
Mar.March 07, 2016 01:00 PM

Pricing residential real estate has always been part art and part science. But amid uncertainty over the state of the market, agents say coming up with accurate comps is increasingly difficult — and in some cases, futile.

For properties priced at $3 million and under, tight inventory has boosted the pace of sales. But in the upper end of the market, the pent-up demand from the financial crisis, which resulted in a buying frenzy in 2013 and 2014, largely faded late last year. While those two sectors of the market are behaving differently from each other, the new dynamics have created pricing challenges in both.

“In today’s market, sale prices are more than ever a moving target,” said Eydie Saleh, an agent with Mirador Real Estate, a boutique firm that works closely with developers and building owners.

Not helping matters is that data for closings is old news, since sales can take weeks or months to be finalized after a contract is signed.

But the gap between what the data is showing and what’s happening on the ground is particularly wide these days, since over six months ago the market was, by many analysts’ accounts, at a peak. “The reality is that Manhattan dislocated [itself] in the fall of last year,” said Noah Rosenblatt, founder of analytics firm UrbanDigs.

In Manhattan, the average number of days on the market for properties was 83 as of Jan. 26, nearly 11 percent higher than a year earlier, numbers from UrbanDigs found. “What does that show? That buyers are not signing contracts as fast as they did before,” Rosenblatt said.

That’s causing some anguish among brokers, he said.

“They’re looking for comps and the comps are representing the peak of the market,” he said. “It’s hard to tell a seller, ‘Yeah, the market is 5 to 10 percent lower than that point and you just have to trust me.’ There’s no comp to justify the shift down.”

Jonathan Miller, founder of real estate appraisal firm Miller Samuel, echoed that sentiment. “There’s this uncertainty of whether the market is continuing in its current path or downshifting. Much of what you’re looking at is in the rearview mirror,” Miller said. “For example, if there was a sale in the building last year in the same line, and the seller wants it to be [priced] higher than last year, the agent [may] feel there’s been some edge taken off the market,” said Miller.

Many sellers also view new development as a proxy for the overall market, which is simply not the case, Miller said.

Danny Hedaya, president of Platinum Properties, described the comps conundrum in more severe terms. “The use of comps are completely outdated in today’s market,” he said. In previous years, according to Hedaya, agents would pull up “sold” and “in-contract” comparable units. Now, agents are pricing units based on what else is on the market. “At the end of the day, people always say the value of something is dictated by what someone is wiling to pay,” he said.

Another broker characterized the shift: “Before, people used to look at a [deal] from a year ago, two floors down. You don’t do that anymore,” said Compass broker Mark Jovanovic.

He said buyers have more leverage than they did last year. As a result, sellers need to consider not just closed-sales data but current inventory on the market.

“The strategy needs to be, what is the supply? What is the competition? It’s always about how are you best positioned in that [price and size] category,” Jovanovic said. 

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