if robust, The Market will fix a too-low price (at least, it did, at 124 West 24 Street)

follow the bouncing ball
The seller of the “1,097 sq ft” Manhattan loft #5A at 124 West 24 Street was motivated, and successful. He brought the 2007 era newly converted loft to market on August 23, found a buyer who signed a contract by October 6, and closed on December 31. A contract within 7 weeks and closing at 97% of the original asking price is, after all, pretty successful. The wrinkle is that the seller was so motivated that he dropped the ask after 3 weeks to be even more attractive to the buyer pool for high-ish end developments needing a large-ish 1 bedroom footprint. The calendar shows that whether or not he needed to drop the price to get a deal, The Market corrected the discount:

Reasoning backwards from the result, the discount should not have been needed to attract a buyer willing (after some negotiating) to pay as much as $1.35mm for loft #5A, but the fun thing about the actual Manhattan residential real estate market is that neither buyers nor sellers, nor the agents who love represent them, know how the thing is actually going to turn out until it (you know) actually turns out. This seller started out willing to deal at $1.35mm (as we see from the dates and prices), but thought that a pretty prompt drop as far as $1.325mm was needed to sell.

The #5A seller was even more motivated than so far appears, as he had objective evidence that the loft should sell above $1.34mm even as he came out at $1.395mm 4 months ago.

there was even more modesty involved
Like readers of Manhattan Loft Guy, the #5A owner knew that his loft should be worth at least a small premium over loft #3A, which sold at $1.34mm almost exactly a year earlier, as I hit in my March 15, 2012, keeping quiet about resale of 124 West 24 Street loft at 20% over 2007. After all, where the 3rd floor loft boasted tree-top views, the 5th floor with the same south exposure over 24th Street could boast “fantastic” light (but still no open views). Further, by the time #5A came out, 9 months had passed since #3A had both gone into contract and (quickly) sold.

With that context, starting the #5A campaign at $1.395mm seems an act of great modesty, while dropping quickly to $1.325mm seems a bright marker of high motivation.

But the #5A seller was even more motivated than so far appears, as he had paid $1,338,998 when he bought the unit from the developer on November 2, 2007. (That is not what he paid the developer, of course, but the deed price reflecting both the purchase price and the New York City and State transfer taxes that he paid.) Let’s just say that many sellers who paid as much as $1,338,998 on the way in would be sorely tempted to start the resale process at a level that would result in at least some gain, after again paying the 1.825% transfer taxes on the way out, plus a sales fee of 5% or 6%. Note that even a full price deal at $1.395mm would result in a net loss, after paying $25,000 in transfer taxes and a sales fee of $70,000 or more.

As I say, the #5A seller was pretty darn motivated. And modest.

real estate is not fair
I tell sellers all the time that buyers don’t really care about seller ‘problems’ (such as, “but if I sell at that price I will lose money”), just as I tell buyers all the time that sellers don’t really care about their problems (such as, “we need to coordinate the purchase with the sale of our apartment”). Looking at the #5A saga, there is one more additional painful point for the #5A seller that only he and I care about: his pain is magnified by that fact that he paid a lot more than the original #3A buyer did.

You remember that the #5A guy paid $1,338,998 to buy on November 2, 2007. How much pain would you feel if you knew that your neighbor for 4 years paid only $1,117,020 when buying the substantially identical #3A from the developer on November 15, 2007? I would feel a lot of pain, and would be hard pressed to get over all this … stuff … to end up selling #5A (a) only $10,000 more than #3A a year earlier, (b) at a much worse 2007-to-resale position than #3A, and (c) at a non-trivial net loss over my 2007 purchase. The #5A seller seems to be a better man than I am, or both pretty darn motivated and modest.

I have noted before how confusing it can be to use developer sale prices in a past new development to do Then v. Now analysis. This data set of #3A Then v. #5A Then (over $200,000 “market” premium to #5A) compared to #3A 2011 v. #5A 2012 (gap is down to $10,000) is but one example. My post about #3A when it re-sold at year-end 2011 provided another, as I then compared the #3A resale to the larger (and 2-bedroom) loft #3C, which sold at a lower price per foot than #3A, a lower absolute sales price, and a smaller gain compared to the 2007 purchase. The short story in that post is that The Market much preferred the 24th Street exposure (with no view) of #3A to the dark corner mid-block exposure of #3C, despite #3C having both more feet and another true bedroom.

Elephant-eared readers will recall that I hit that #3C sale in my December 6, 2011, over-optimistic loft seller at 124 West 24 Street still beats 2007 buy.

this may have been a tax motivated closing, but not by seller to avoid higher gains rates
I may not tire of doing this before you get tired of me doing this, but I have to point out that the #5A sale was timed to close in 2012 and not 2013 (because that heavy closing date was reserved only for deals that had to close then), yet the #5A sale is not one that fits the meme about which I was skeptical in my January 4, in which Manhattan Loft Guy bravely calls BS on the Market Trend Meme Of The Day. As I have already pointed out about #5A, that seller started the marketing campaign at a price at which he would have no gains subject to income tax, at old 2012 rates or at the scariest level of projected 2013 rates.

Remember; my beef with the meme is mainly that the 4Q12 deals that (in the Conventional Wisdom) account for the unusual number of deals at the end of 2012 in the overall Manhattan residential real estate market because of uncertainty over tax rates in 2013 are very hard to identify, and therefore, to quantify. It is only a single data point, but this sale was clearly forced into 2012 rather than closing more conveniently for lawyers, bankers, agents, title companies and others, but that had nothing to do with That Darned Meme.

© Sandy Mattingly 2013