Last month, development giant Extell Development pulled the condominium units at its new residential tower at One Riverside Park off the market temporarily to adjust pricing. The price tags at the 35-story glass-and-limestone building were simply too low, the developer said, and 70 of the property’s 219 units had flown off the shelf in the 10 days since the offering plan had been approved by the Attorney General. The move by Extell goes to show that even master developers are having difficulties pricing for the velocity of the market, brokers told The Real Deal.
Indeed, the brokerage community has had to readjust its pricing strategies significantly in the last year, as supply has continued to dwindle and sales activity has amped up, sources said. The limited inventory means there are fewer potential comps, or comparable sales and listings, to stack a listing against. Plus, buyers are looking further afield at properties in different neighborhoods, opening up a whole new world of comps to factor into the pricing equation. As such, pinpointing the right price for a listing has never been more challenging.
“A year ago, I would nail [the price tag] every time,” said Jason Haber, the founder of boutique brokerage Rubicon Property. “What’s happened now is that pricing has become much more of an art form than a science. Brokers don’t need PropertyShark as much as they need a muse at this point.”
In the third quarter, inventory hit historic lows, with just 4,567 total co-op and condo apartments available for sale, a 21.9 percent decrease from last year, according to a recent report by Douglas Elliman. That marked the tenth consecutive quarter during which inventory dipped.
Meanwhile, sales volume was frenzied, hitting the second-highest level in Manhattan in 24 years, with 3,837 sales closing during the period. The quick pace of the market means that a comp could be here one day and gone tomorrow.
“In the past, you’ve looked at the markets on a quarterly basis or even a biannual basis, but this is a monthly market,” said Todd Jacobs, founder of Noho-based full-service brokerage Bold New York. “What happened two months ago, or even last month, is not necessarily relevant this month. You have to look at it on a very micro basis, not macro.”
Finding the right price tag is one of the most important elements of making deals happen in this market, brokers said. Price too low and you won’t secure an exclusive listing; price too high and your listing won’t get foot traffic and could linger on the market.
“Pricing reductions in this type of market are frowned upon,” Jacobs explained. “When people see something that’s been on the market for even eight weeks, they say, ‘Wow, why has this not sold?’”
Part of the confusion about pricing for brokers stems from the fact that prices in the luxury market are rising faster than those in the middle, said Samuel DeFranceschi, an associate broker at Nest Seekers International. While the median sales price of a Manhattan apartment jumped by 0.8 percent quarter-over-quarter to $872,000, according to Elliman, the average price of a luxury apartment (an apartment priced in the top 10 percent of the market) rose by 9 percent quarter-over-quarter.
“On top of it being a tricky environment, you’ve got owners who’ve got their egos amped up by the fact that the market is amping up,” DeFranceschi said. “They justify a price in their mind that’s unrealistic [based on the luxury market]. The owners start to think that it’s 2020 when it’s still only 2013.”
With a recent listing at the Lucida, a luxury condominium at 151 East 85th Street, Jacobs said he took a new strategy with pricing the property.
“Instead of pricing it based on where we saw the market today, we accounted for the ramp-up period [between securing the exclusive and actually putting the property on the open market],” he said. “We said to ourselves, ‘Let’s price this where we think the market is going.’ By the time we were ready to go, the market caught up to us.”
The deal for the two-bedroom apartment closed in July for $3.2 million, setting a record for the building.
Haber said he employed a similar strategy at a listing he had at 108 East 66th Street recently. He priced a one-bedroom co-op unit at the building at $829,000, despite all logical calculations pointing to a lower price, after the seller said she felt the demand was sufficient to attain a higher number than he had initially suggested. The most recent apartment in the same line at the building traded for $599,000 18 months ago.
“I had brokers calling me saying, ‘Jason, what were you thinking? This apartment is worth $730,000 max, even if you go up 20 percent [over the last comp in the building].’”
Two months later, Haber had the unit in contract for just short of the asking price.
“I preferred it when I could be very analytical [about pricing],” Haber said. “I would create these spreadsheets with price per square foot and days on the market and I could come up with a price we felt confident about. Now, it’s a little more about instinct. There’s greater room for error when you have to get creative.”
One solution to finding comps is to look further afield, in other similar neighborhoods buyers might be scoping out, said Elliman broker Michael Graves.
“You have to expand the field of your comps,” Graves said. “You have to imagine that that person would hopscotch between properties that fit the mold but aren’t necessarily within a specific location. ”What is the buyer that I’m going to be showing to going to see 15 minutes before walking through the door? … If I’m showing in Gramercy, they might be coming from comparable apartments in Chelsea or the Flatiron or even Tribeca.”
Other brokers argued that looking for comps outside a few-block radius of the listing “degrades” the quality of the comp. If a broker is depending on a substandard comp, pricing starts to get a little off-base, Haber said.