Pricing property sometimes seems like trying to hit a moving target. For brokers, determining an appropriate asking price boils down to a combination of factors: Understanding the market, knowing the characteristics and trends of the neighborhood, and figuring out how the unit compares to the competition.
Still, there is no one-size-fits-all formula for pricing property.
“Pricing is not a science,” said Donna Olshan, the president of Olshan Realty, which specializes in the high-end market. “It’s an art.”
Yet in the current residential market, which is characterized by a shortage of inventory and an abundance of demand, some sellers are questioning their brokers’ artistic abilities.
An overpriced property will languish on the market. But a unit that sells immediately begs the question: Was it priced correctly, or was it underpriced?
Generally speaking, a property that is appropriately priced should receive an offer within a couple of months. On average, properties in the top 10 percent of all condo and co-op sales were on the market for 131 days, or about four months, before going to contract in the first quarter, while lower-priced properties moved in 115 days, or about three-and-a-half months, according to appraisal firm Miller Samuel.
But in the current market, sellers may receive offers at their asking price within days of listing.
“It’s the same story, whether it’s a $1 million or $50 million property,” said Lauren Muss, a broker at the Corcoran Group, who noted that nearly every one of her exclusive listings in the last year received offers at the asking price or above. “I set a price, and when we get an offer, or several offers, at or close to the asking price within the first few weeks, there are certain sellers who take the quick offers to mean the property was priced too low.”
“This has happened for listings I’ve had all over Manhattan,” Muss said.
It is a common tale. Noel Berk, co-founder of the boutique firm Mercedes/Berk, was representing a buyer who wanted to make an offer on a unit in a super-luxury building. The listing broker said he would only take the asking price of $35 million, not a penny less.
But when Berk’s buyer offered the asking price, the seller — worried that the property was underpriced — withdrew the apartment.
In these situations, Berk said that brokers on both the buying and selling end can face backlash. While the seller might question the listing broker’s price, a buyer might wonder if their broker mishandled the negotiation process. “It puts the buyer’s broker at a disadvantage, too. Now the buyer wants to know, ‘Why did you offer the full asking price?’ ” she said, even though those were the terms the seller prescribed.
In this particular situation, Berk said her buyer refused to pay more and walked away. “Instead of thinking that the broker set it too low, the seller should realize that they hit it just right,” Berk said.
“It’s what every broker dreads,” said Barbara Fox, president of the boutique real estate firm Fox Residential Group. “My theory is that a seller should be just over-the-moon happy that they got taken off the hook so quickly. But generally, the consensus is that ‘if anyone is willing to pay it, then it’s too inexpensive.’ And that’s a fallacy.”
For a seller to gripe about alleged underpricing is certainly not a new phenomenon. But complaints are becoming more commonplace, because in today’s market, many properties are sold days after they are listed — a function of educated buyers dealing with short supply.
“The reality of pricing in today’s market is that proper pricing will generally lead to a fast, quick sale,” Muss said. “That is how buyers purchase properties today. They don’t wait to make decisions, because they will lose, and yet at the same time, buyers will not overpay in this market.”
In fact, Muss said her experience shows the most serious buyers are consistently the ones who act first. Familiar with the terrain, many have either lost out on a property before, because they lost a bidding war, or waited too long to make an offer. If a property sells quickly, and the seller thinks that means it was mispriced and should have been priced higher, “I say to the seller, ‘Trust me, your property was priced right, and that is the main reason it sold. Quick sales velocity does not mean your property is worth $300,000 more,’ ” she said.
The properties Muss sold in the last year were listed for one to three weeks, she said, while her overpriced listings sold only once they were reduced to the “correct” price.
Brokers agreed that as long as agents do their homework, underpricing should not be a factor, especially since it is in the best interest of both the seller and the listing broker to maximize the price of a property.
Still, underpricing does occasionally occur, either because a broker is inexperienced, or as a result of extenuating circumstances. “I’ve seen [a property] go for millions of dollars less than it deserved. And the seller was sophisticated, and the only thing I could think of was that they needed to sell it immediately,” Olshan said.
Ultimately, it is the market that determines the price. “It’s a difficult situation because pricing is very arbitrary, and we really never know at what price something will sell,” Fox said. “It’s an instinctive kind of feeling, and we’re not always right.”