The NY Times ran an article on the market downturn in Manhattan real estate. Looking for Bottom in N.Y. Real Estate reminded me of conversations I've had recently with buyers, and it gets to the crux of the slowdown. Sellers and buyers simply are entrenched in their mindsets. Buyers are being cautious of paying too much, and sellers are in denial that their values have dropped. The result is that fewer deals are being done. They call this a buyer's market, yet the irony is that fewer people seem to be actually buying.
“What we’re seeing is a big disconnect — sellers need to get more realistic, but buyers don’t even think it’s enough. Buyers are not hesitating to walk in and bid 40 percent off the price, but sellers aren’t taking it.”
PAM LIEBMAN, CEO, CORCORAN GROUP IN THE NY TIMES
It's not like the phones aren't ringing, and properties aren't being shown. Traffic at open houses has been both decent and steady, but when one gets down to bargaining, it is harder to close the gap. The number of transactions taking place are off by 55% since last year by some reports. Values have dropped, and there is a lot of wild speculation at this point about how far. The correction is real, but in the downtown neighborhoods like Tribeca, the Village and Soho where I work, the anecdotal evidence would indicate that the deals are happening well above 40% off asking. It pains me as I read anonymous comments on blogs from people gleefully looking forward to an economic meltdown in which they can profit. No one likes a bottom feeder, and they rarely close a deal since greed gets the better of them. The market is pricing fear into its bidding and it is as hard to justify it, as it is difficult for sellers to accept that they have lost value.
how does a listing broker respond to the new market?
Some agents would have you believe that the market has absolute control over pricing and that their contribution to marketing the transaction is irrelevant. They will approach this market as a an exercise in financial analysis, and drown in a sea of data. Where is the value of what they bring to the table in that? It does require an approach that is different from a year ago when the market was still climbing. To close a deal today it takes better brokerage, advice on pricing that understands the realities of pricing in the marketplace, and uses the best approach to marketing it available. With less money chasing more listings, can a seller really afford to not have their property stand out? I see the broker's job in the context of market forces (macro influence), and using tactical promotion + pricing + negotiation (my influence). Striking the right balance is crucial to closing a deal in which everyone wins.
It is painful to see some sellers making decisions which will hurt them in the short run. Pricing their homes too high, in a declining market, and not closing the deal, means that you are going to be chasing the market down and quite possibly selling even lower in a few months. I wouldn't be the first agent who lost an exclusive to another firm that pitched an unrealistically high selling price to get the business. Agents get to meet buyers by "buying" listings this way. It is a huge disservice to their clients, who will sit and watch their values decline, and reduce their price eventually to a level that they will be pitched on later. The real rub is that level may be lower than it would have sold for if they had listed at a proper go to market price in the first place. I had an unusual year in 2008 in that almost all the properties I listed were taken over from other agents after their exclusives expired, then turned around and closed by me.
A good broker will lay out the hard and soft data that supports asking price, and will actually want to get paid for representing you. The one who walks in with inflated figures, and sells a discounted commission is often someone to be wary of. If you can't sell the property, you'll try to sell the fee, and get the customers. It's the oldest trick in the book. We will have real 1Q/2009 data next month, and while I don't expect it to be pretty, it will be better for the marketplace to know where it stands.
can sellers be successful in this market?
I believe that a professionally represented property will still sell for it's highest price possible, most will trade within a range that will vary and in relationship to it's features, and how well the marketing highlights them. This can still be a surprising market. I had a conversation recently that summed it up. I got a phone call from a colleague who was looking for some advice on pricing an apartment at the
Cielo on East 83rd Street, which is a building that I've done some business in. The conversation went something like this:
"Peter, I see you're in contract with your exclusive at the Cielo, I have a friend in a similar unit in the building. Can you tell me what the negotiated price was?"
"Not until after until it closes, but it was not that far away from asking."
"Incredible! The market's is really sputtering, there are 17 apartments listed for sale in the building, but yours is the only one that's gone to contract. Why is that?"
"Since you're asking, my practice operates a bit like a
boutique advertising agency. The quality of the graphic design, photos, and overall presentation are things I spend a lot of effort on— I think it makes the difference. We actually had simultaneous, multiple offers, for all cash on it, within just a few days of each other."
Her line of questioning was actually going to "did you have a fire sale?". We did not. It was sold within 5% of asking. Within that conversation are mentioned each of market forces that every real estate deal has in common. Pricing, promotion, and negotiation; subject to the environment of the marketplace. The first three being the levers which a broker can use skillfully to produce results. When your broker gets them right, you will get a closed deal. They work in every market. In this one in particular they are of more value than ever.
I heard a story about a coop Board turn down last week, when I went out with a customer to look at some Greenwich Village apartments. We dropped by to see a "Gold Coast" property off Fifth Avenue near Washington Square Park, which had just come back on the market. It was a lovely place, in a converted townhouse, with just five units in the building. As we were about to leave, I asked the listing agent why the apartment had come back on the market. It could be for any number of reasons like the buyer exercising a mortgage contingency, or an inspection problem — both of which seemed unlikely by the condition of the building, and the fact that the co-op required a 50% down-payment, which most banks would see as a low risk, loan to value ratio on lending. It turns out that the prospective buyers were the parents of the person whom would be the occupant/tenant of the apartment. The Board's due diligence process included online research of the tenant. It revealed a 'Facebook' page for the potential occupant which included pictures that raised an eyebrow with some the Board members. While I'm not privy to knowing exactly what the problem was, it seems reasonable that some owners became worried about loud parties and late night noise. It projected a questionable image, and the Coop Board turned down the application. 
Has the Manhattan residential real estate market found its footing again? Prices have generally dropped about 15% from the fourth quarter of 2008 when the financial crisis began to apply downward pressure. The uncertainty of the economy in the first half of 2009, has lead to a release of pent up demand in the second half. In December of 2009 signed contracts for condos were up 48%, and co-ops up 157%. 
I learned this week that I have been once again ranked in the top 2% of my company's real estate agents nationally! NRT is the parent company of The Corcoran Group, CitiHabitats, Sothbey's Real Estate, Coldwell Banker, and Century 21— with over 54,000 agents. It is always gratifying to be recognized for producing results, but this citation is even a bit sweeter. The point is made in the 
On the eve of Barack Obama's inauguration as president of the United States, Wharton finance professor 
