Friday, January 25, 2013

Pricing 102: how to get it right the first time.

When people want to know what their apartment or house is worth, they usually ask two or three brokers in to see it and give their professional opinions.

There are those who will call in a licensed appraiser, but this can be expensive ($500--$1000).

Appraisers are highly trained.  To get an appraiser’s license, you have to go to school for two years.

To get a real estate license, you have to go to school for two weekends.   (It takes more than that to get a broker’s license, but not much.)

So legally, brokers cannot offer anything more than a professional opinion.

But a seasoned broker’s knowledge of the market can be just as intimate as an appraiser’s, and possibly even more accurate.

Brokers have access to the same information as appraisers. Selling prices of condos, co-ops and houses are now all public information and are not that hard to find.

So for no charge at all, a broker can give you a highly informed opinion of your property’s value.  That is, if he does his homework.

Here’s how I do it.  The first thing I do is visit it, take a long look, and have a detailed conversation with the sellers about the financial state of the building, any major repairs that may be coming up, their reasons for selling and what their expectations are.

I never mention a price during this meeting.

Of course location is important.  But not as important as it once was.  My feeling has always been, if you want to know what the next hot, hip, edgy, highly sought-after, expensive, pick-your-effusive-adjective location is going to be, just think of the place where you wouldn't be caught dead. 

Soho?  Tribeca?  The meat-packing district?  Williamsburg?  I rest my case.

I consider the work that the property needs, if any. Does it need a new kitchen and/or bathrooms? A new floor? The cost of the work will have to be factored into the price, along with an allowance for the hassle of doing it. 

There are other factors.  How's the light?  What's the view?  Can you see a tree anywhere? 

Sometimes there’s still another issue, one that has to be handled delicately.

Properties that are what we politely call “taste-specific” are harder to sell than properties that will appeal to a broader market. 

The owners of one small apartment in a very traditional prewar building had hired a very famous designer and given her free rein.  The result was a lot of burlap and cement. 

It must have cost a fortune to put together.  It was interesting and certainly representative of the designer’s style, and I'm sure the owners loved it, but it had absolutely nothing to do with the style of the building. 

They couldn’t give it away.

I generally tell owners like these something like, “Just as you have done a lot of work to make this apartment a reflection of your personal taste, the next owner will want to make it a reflection of theirs. People don’t want to live in a space that feels like it belongs to somebody else.” 

Often people have unusual ideas about what makes their property desirable. I remember a newlywed couple who wanted an unrealistic price for their co-op.

I gently pointed out that it would probably be worth what they wanted for it if it had a view of the street instead of a brick wall.

They were actually surprised. They loved that brick wall. It gave them a real sense of privacy. It was part of why they bought the apartment.

After the meeting, I go back to my computer and put together three detailed spreadsheets, with links to pictures and floor plans for each listing.

One offers information on every comparable property that’s sold in the last six months—rooms, bedrooms, bathrooms, monthly charges, amenities, square footage and price per square foot if available.

This is hard, factual data, but unfortunately it’s a bit out of date. The contracts that established the prices for these properties were signed two or three months before the actual sale occurred. A market can change in that time.

So the second spreadsheet offers the same information about all the similar properties that are currently under contract.

The actual contract prices are not available at this point, and won’t be till after the sales close, but it's clear that the last asking price was the right one because it fetched a buyer. 

This information, while not as hard as that contained in the first spreadsheet, has the advantage of being more recent and more reflective of the current market.

The third spreadsheet offers information about the listings that are active. That’s the competition.

What do other brokers and sellers think properties like these are worth? How long have the properties been on the market at their current price?

This is the softest information as, unless the property has been sitting on the market for a while, we have no idea if the price is realistic. But this information is the most current.

Then I look at the current absorption rate for properties like the subject. How many are there of them?  How many will a buyer have to choose from, and what do we have to do to make ours the most attractive?

How long will it take to sell off the inventory that’s currently on the market? Is it a buyer’s market? A seller’s market? A balanced market?

All of these factors are considered carefully before I give the seller a price.  And the price is always accompanied by the information that led me to it.


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