Asking Prices

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By Ian Slater | April 27th, 2020
 
I work almost equally with buyers and sellers, with about half of our “gross commission income” coming from working with each sub-sector of the market. I like to think this gives my team a pretty great perspective on the psychology in the market on both sides as we are always working with sellers (those hoping for the maximum possible pricing) and buyers (those hoping for the least), and doing our best to properly educate each side on the realities of the market.
 
We obviously are currently operating in an environment where there is a fairly major and all-encompassing transactional pause going on, and the only real transactions we are seeing are those where there is a “must move” buyer, or a deal is incredibly good-- I am hearing of discounts of 25, 30% in some cases-- but very rarely. But when we come out of this time, when the lockdown is lifted and we come back to a semblance of normalcy, I’ve been thinking a lot about how to expect pricing to land. Mostly, how it’s going to change. Will it go up (arguments: pent-up demand, lack of development, faith in real estate as an asset vs. stocks, desire for larger apartments due to quarantine, low interest rates) or will it go down (unemployment, NYC exodus, lack of money, stock market losses)?
 
It’s going to be an interesting scenario we are in and after a conference with my team this morning, here are some of my experiences/the data/my thoughts:
 
  • A Barron’s article noted that 64% of homebuyers expect there to be discounts in the market now, with the majority of buyers expecting a 5-10% discount. This is a national poll, and many buyers in NYC are much more “deal oriented,” and likely expect higher discounts (I know from my own conversations this is, to some degree, very true).
  • In my experience thus far in the pandemic, buyers care much less about market value and much more about percent discount and feeling they are getting a “discount.” 
  • Offers I have seen come in have been 20-40% off of the asking price, and the expectation of a lot of buyers is that prices are going to fall-- but nobody really knows if that will happen and how much it will. 

What will this mean for asking prices on the tail end of this? It is important to know when representing a seller OR a buyer so that as a broker, you can be the most informed. So I think about this a lot. 
 
In my opinion, we should expect buyers to offer low, and sellers should be ready to negotiate to some extent. The first buyers out of the gate are going to be those seeking “deals.” The offers will have no real bearing on market data and will simply be tossed. I already have received offers that are simply a flat 40% under the asking price, or an asking price less $1 million, with no real supportive data.
 
Does this mean we should lower asking prices in the short term to meet buyer expectations?
 
I don’t necessarily think that lowering asking prices precipitously is going to get faster offers on the table unless the asking prices are well, and demonstrably, below market. I also think that asking prices may have a bit of “fat” on them coming out of this-- as sellers are going to know that buyers are going to want to negotiate. 
 
So, what to expect? For sellers: regardless of asking price, even if it is the most market-based asking price imaginable, supported by comps, data, and competition-- expect buyers to throw you offers well below it. And don’t be offended! You would likely do the same if introduced into the same scenario. Even if an asking price is adjusted downwards, I still foresee buyers negotiating further. 
 
And buyers: Because of this, expect there to be some “fat” on prices, but not all of them. And don’t expect, or get offended, when a seller doesn’t budge at your low offers. Keep in mind that many, if not most, sellers, are under no financial duress and can hold an apartment for a long time. If an apartment is asking $3,000,000 with $3,000 per month carrying costs, simply the difference between accepting a $2.8M offer vs. a $2.9M offer represents almost THREE YEARS of carrying costs! 
 
Keep in mind, on the sell side and the buy side, an asking price is simply that-- an asking price. A buyer has the ability to negotiate at their whim, and a seller has the free ability to say no or yes to any offer. A broker’s job is to educate and guide-- not make this decision on your client’s behalf.
 
 
 

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