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Last Thursday a couple of my downtown Warburg agents held a first open house for their new multi-million dollar loft exclusive in Tribeca. The open house began at 12:30; by 2:00, when it ended, they had a full price offer which sets a new price-per-square-foot record for the building. Welcome to 2013!
While the sense of frenzy and boundless optimism which fizzed through the New York market in 2006 and 2007 is not so much in evidence today, the extremely tight inventory in our market has driven prices up and introduced a sense of urgency. This has created a complicated situation for buyers and sellers, and their agents. Buyers must gauge the level of interest in the property to which they are attracted and figure out what it is worth to them. At the same time, using comps from six months ago can lead buyers to assume too low a value. Real estate, like any commodity, is worth what a willing buyer will pay for it. And willing buyers are paying more now than they were in June, or September, or even November, of 2012. For the buyer entering the market today, this sense that reliable comparables are hard to find can be disorienting. I have had numerous conversations recently with Warburg agents who are frustrated that their purchasers will not be more aggressive in bidding for a property they like. Unfortunately, many buyers have to lose a property or two before they fully comprehend the speed and upward trend of today’s market.
Sellers today face a different set of pitfalls. For them, the temptation to overprice is almost overwhelming. Because prices are rising, many sellers feel that the sky is the limit, and they can price their property based on aspiration rather than fact. Even in a fast, rising market like this one, there are limits. If the last similar sale occurred within the last six months, sellers should reasonably remain within 10% of that number. One fact which has not changed: the best buyers usually come during the first few weeks after a property is listed for sale. With today’s inventory shortages extending into most markets and parts of town, there is often a line of frustrated buyers waiting to storm the door of any new listing. But they won’t jump at a crazy price, and after a month on the market, the thrill is gone. We strategize every day with sellers about how to be aggressive but not excessive in their pricing, so they can maximize the advantage of those first few weeks of pent up demand. We don’t want them to leave money on the table, but we also want the prices reasonable enough so they are not simply LEAVING the table.
Inevitably a market environment like this one leads to many competitive bidding situations. For everyone’s benefit, the parameters of these situations need to be as clearly defined as possible. We suggest to our sellers’ agents that they define a complete bidding process including the amount of the best and final offer, the financial and other qualifications of the buyer, the closing date, any other terms, and any additional information the buyer or his broker might deem relevant. We request that these offers all be delivered at a specific time, usually a few days hence, so the seller and his agent can review them and decide with whom they wish to proceed. We strongly urge our sellers to stick to the defined parameters; I abhor the behavior, which has become prevalent in recent years, in which a lower bidder will jump back in after having made a “best” offer to upset the apple cart by raising his bid. And the seller whose head is turned by such an offer, received after he has accepted another buyer who followed the rules of the process, often lives to regret it. These offers designed to bump another (what we refer to as “gazumping”) are withdrawn at a much higher rate than offers in the ordinary course of business, and in such cases the seller can be left with nothing. His original buyers, who have been pushed aside , frequently want nothing more to do with the property. His new buyer has withdrawn. He is back to square one.
For agents and principals alike, the most effective strategy in today’s market tempers aggression with fairness. The seller who wants top dollar should price aggressively but still in relation to recent sales of similar properties. The buyer who hopes to secure a desirable property needs to understand that the comps from six months ago are not a reliable guide to what the property will command today. And agents on both sides of the transaction must cultivate both courtesy and a fine line of transparency. As fiduciaries, we must always put our client’s needs first. But within that framework we will act with honor and integrity. We don’t reveal what others have offered. We don’t invent offers we don’t have. We deploy our expertise towards obtaining the best outcome for our client while working towards a fair outcome for everyone. Agents can provide the guidance, on pricing, bidding, and structuring deals, which keeps fast markets orderly and progressive. That is a win for everyone.
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