bidding war was a long time coming to 21 East 22 Street loft

revisiting a late deed with late action
The Manhattan loft #2H at 21 East 22 Street was a bit player in a post last week about a neighbor’s more recent sale (April 21, stubborn loft seller wins at 21 East 22 Street, about the March 29 sale of #5E) but it is interesting enough to deserve more full treatment. And it gives me a reason to bring out the Fifth Dentist again. Last week, the Fifth Dentist disagreed with the Conventional Wisdom that a loft that had been exposed to The Market for 6 months had been determined by The Market to be over-priced. He’s making a similar point today, which leads me to consider some other things about market dynamics. But first:

The … smaller loft #2H … sold on February 11 for $826,000 [with] “850 sq ft”. This one had a bit of a tough time, starting at $925,000 on April 4 last year, dropping to $875,000 on May 11, and $849,000 on July 10. No market traction, right?

With both a change in price to $799,000 and a change in firms on October 19, this one had a new lease on life: contract by November 11 at $826,000 (yes, a 3% premium over the asking price). That clearing price of $826,000 is only a 3% discount from the July-to-October asking price, a 5.6% discount off the May-to-July asking price, and a 10.7% discount off of the original and short-lived asking price of $925,000. In other words, if it was not within reasonable negotiating distance from the get-go, it certainly was for six months before the contract.

to repeat (again)
The Conventional Wisdom would hold that in general The Market had rejected #2H at any price near $875,000 (since May) or $849,000 (since July). But the fact that a buyer emerged in November willing to sign a contract at $826,000 means that the Conventional Wisdom did not operate in this specific sale. But wait … there’s more!

signs of a deeper market
Note that the #2H seller can be said to have over-corrected by dropping the asking price to $799,000 in October, because the clearing price turned out to be $826,000. I often tell sellers that The Market can correct a price that is too low if it is a market with enough buyers in it; this was clearly the case in the run-up to The Peak (essentially all of 2007) and was clearly not the case in the coldest part of the post-Lehman nuclear winter (up to the Summer of 2009). The sale of #2H (and the other green closings on the Master List of Manhattan Lofts Sold Since November 2008 (see my February 19, The Miller found 9.2% of deals above ask; Manhattan Loft Guy, not so much) suggest that we are in a market that is sufficiently deep to correct at least some too-low prices. (Note there The Miller’s stated belief that fully one-third of 2007 sales were above asking prices, which is a very deep market indeed.)

We would never know this without talking to the two potential buyers who drove the sales price of #2H above the November asking price of $799,000, but it is likely that these buyers were not in the market when the asking prices were $875,000 and $849,000 and it is possible that they had been in that market but learned (through losing out on other listings) that their view of market values was too low. Regardless, you’d have to think that the seller who started at $925,000 in April last year and dropped to $875,000 within 5 weeks, would have taken a deal at $826,000 then, if there had been a buyer willing to offer that much then.

Some sellers will draw the wrong conclusions from #2H selling above-(a-reduced)-ask, and rely over-much on that hoary chestnut it only takes one (to sell) and it only takes two (to get a bidding war) by stubbornly holding at too-high a price. But The Conventional Wisdom contains some wisdom: a 6-month-old asking price is generally evidence that The Market has rejected that proprty at that price, so that a price reduction is in order.

Rely on that Fifth Dentist at your own risk.

[UPDATE: I forgot to mention another reason for talking about #2H now, 10 weeks after it closed: the deed was not filed until April 5, making it a relatively recent bit of news.]

© Sandy Mattingly 2011