NYC Market Repartee

The below is part of an email response from a friend regarding my previous post:

“Who’s to say what’s realistic in this economy?  Actual

sales in the next few months is the answer.  However, it is a whole new

ballgame, and cash is king.

The problem with appraisals of residential real estate properties is

they it look backward when determining value.  For example, all of the

appraisals at ***** (a certain mid-town development)are coming in on target because they are just

looking at the deals which have closed within the last two months–the

prices for those deals were set months ago.  If they had the ability to

look into the future, it is my firm belief that they would be much

lower.”

My partial response today to my friend:

When a seller drops a price that is under what he paid for the unit – this is realistic & aggressive pricing.  Yes, the buyer determines value for a subject property; but, only if the two parties have a meeting of the minds and a transfer of title/shares result.

Determining value right now:

According to the Appraisal Institute, one must always use 3 comparables that have closed within the last 6 months when determining value on a report. I have been using 3 months. We will have an issue 2^nd/3^rd quarter 2009 and even more so in 2010.  This being said, the market cannot stop and we (brokers/buyers/sellers) need to push forward. There are plenty of “deals & steals” in Manhattan right now — but in general the majority of “newly listed” properties do not validate offers below 25% or more of the asking price.

Please know that this is not a self-serving philosophy.  Even though I am in a capitalist profession fueled by commission -it is not about the money.  It is about doing what is right for my clients while setting in motion a continual stream of fiscal measurement for the future.  I have stated many times: Real estate is not a short-term investment. Yes, a few of us have been lucky with quick appreciation in Manhattan and other parts of the world; but, this method is not a durable approach to build one’s portfolio of assets–it should be a small part of the equation. 

The current blight of desperation in Manhattan real estate is part economy and the other part is being stirred by the masses of buyers that are being influenced by the stories of distressed real estate in the United States. Unlike metro-areas that have the ability to build out into suburbia which significantly devalues real estate in a down economy: Manhattan is an island and there always has been a lack of land. I can write and advise with extreme conviction that Manhattan will rebound quicker than any other area and investing now is going to prove to be a very high return in five years. Additionally, looking forward to 2013, I believe Manhattan is going to experience a housing shortage and prices are going to soar within both the rental and sales arena (the current halt of new development projects is partially fueling this prediction).

CHANGE:Brokerage/Buyers/Practical Pricing

I have joined a new firm. After entertaining many companies, I without hesitation selected Halstead Property, LLC. It is not the largest brokerage in Manhattan, yet, they are the best positioned for my clients (and my personal long-term goals) during this economic position of unbalance we find ourselves enveloped. Additionally, they are a company that is currently debt free while being progressive in execution and their values strike a chord beautifully with mine.

As I witnessed my first office meeting with Halstead this past week, many agents were discussing how many of their buyers were offering such low offers on properties. I must admit, I do see this as a trend. Personally, my buyers are offering around 25% under ask with no reasoning. I am not quite sure where this methodology is coming from…it appears not to be in one price point–but all over the board: from $280,000.00 to $3M units.

 

For the reason that I am a huge data driven individual when it comes to real estate trades, I do not see the validation of 25% reduction of ask at this time. These buyers are REAL; but, their “want” has not turned into a “need”. It is almost as if they are throwing paint all over the city with these low offers hoping to find a real masterpiece of a unit without having a true passion for a specific property.

On the inventory side, I have seen more realistic pricing. Not everything but, I feel we are about two-thirds of the way there with the majority of the newly listed units. I do have a method to pricing regardless of the market: I ALWAYS pitch to price a unit 5% above what the unit will actually trade for. The trade is based on a minimum of what has correspondingly closed within the last 3 months blended with similar active units – with more weight on the closed units.

Why is this my method? Partly, because I cannot seem to lose the foundation I gained years ago as a national real estate analyst and residential property appraiser. Secondly, because I hate to play the game of what brokers call “buying a listing” with an outrageously inflated list price. Thirdly, I know this is the only way to sell a property –in any market. Most importantly, it is best for the seller, adds to my creditability as a professional and integrity as an individual.

I do believe, I am going to see my buyers’ “wants” turn into a real “need” in mid-February 2009. We all need to keep in mind that real estate is a commodity and even though the price per square foot may take more of a dip throughout 2009 – the real return on the investment will be appreciated by all within the next five years…