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Every week I read in blogs and newspapers about how hot the New York City real estate market is. And every week I wish that a more nuanced approach prevailed. Yes, it is true: 2013 has been a great year for Manhattan real estate, and an even better year for Brooklyn, where demand so outstrips supply that even mediocre properties sell in a week for record prices with multiple offers.
But that is not the whole story. The market has slowed considerably since Memorial Day, as it often does. Property is moving far less quickly in many categories. But since journalists tend to cover the market through closed sale prices (which appear in the public record through websites like ACRIS, usually a couple of weeks after the closings take place), their stories are still all about rising values and record prices. Although this information is now a little out of date, it has a big impact on sellers. They believe they can attach enormous prices to their properties because of an article they have read about the marquee sale of a penthouse in a midtown condo. Our job as agents is to try to sort out the difference between the perception and the reality. It isn't always pretty!
At the same time, we find ourselves caught in the opposite perception/reality time lag with appraisers. They too depend on closed sales, but they are obligated to use the most recent sales in the building in which the unit they are appraising is located, even if those sales are six months old. So just as we are struggling to create a realistic context for sellers to see that they may be shooting too high, we are also struggling with appraisers to persuade them that THEIR values are too low! In the wake of the financial crisis, appraisers nationally were blamed as having been too lax. Banks lost much of their control over the appraisal process, which may in some communities be a good thing. But for the unique marketplace which is New York, it has proved problematic. Especially if the appraiser is from out of town, he or she simply does not understand that a quarter of a mile away can be a completely different neighborhood. Or that a comparable sale from February is already completely out of date.
In these situations agents are steering between Scylla and Charybdis. On the one hand, we are trying to persuade our sellers to price realistically. Properly priced, many properties can still attract multiple bidders and sell in excess of their asking prices. But then, if they do, the chances are very strong that achieving a record price for the apartment means that the appraisal may come in too low.
So what is the solution? In the end, agents advise on but do not control either the pricing or the appraisal process. All we can do is our homework: get the best possible comps and use them in discussions with both the seller and the appraiser. Try to find Contract Signed comparable for the appraiser where the closed comps don't tell the right story. And most important, prepare the buyer in advance for possible appraisal problems. An appraisal number lower than the asking price, even when it does not disqualify the financing, tends to cause buyers distress. But appraisal is not science. The quality of the appraisal depends on the skills and market knowledge of the appraiser and the rules binding appraisers can be highly constraining. The market is the best indicator. Whether priced too high or appraised too low, when a buyer and seller agree on a price THAT's usually the real value!
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