cheating to talk about market conditions during nuclear winter, courage, and risk-bearing


my analysis from March 2009 holds up pretty well, I think

I started another OYAToMLG draft for today to shorten my keyboard time from New Orleans, but in looking at it and the posts this week I realized I am probably not the only one getting tired of March 2012 at this point. A quick scan of the Manhattan Loft Guy archives found what I think is a gem. My March 25, 2009, am I a coward? assessing + bearing risk in a risky world, was written not quite exactly Four Years Ago Today on Manhattan Loft Guy, but it is close, and it was an unusual attempt (for me, on this blog) to talk generally about current market conditions.


The context was the nuclear winter that was (in retrospect) soon about to begin to thaw in the overall Manhattan residential real estate market, the theme was the different risks for sellers and agents from being over-priced in that market, and the hook was an (of course) unidentified then-current listing:


a Manhattan loft recently to market that (a) is a pretty spectacular loft, (b) in a building I am pretty familiar with, (c) in which there is a fairly timely and extensive set of market inputs (i.e., closed sales), (d) that is offered through a very experienced and professional agent, and (e) that is priced well above where I think The Market for that building is in March 2009.


(I will identify that loft below, with its full history.)


Remember: this post was real time during a nuclear winter that was of then unknown duration. I talked about the risk the sellers took in not just taking a long time to sell, but of possibly never selling, because the buyer pool at that time was so thin:


the risk is not just in dollars

As I said, I assume that these sellers understand the risk in asking these prices in these times. …. Of course there is a risk that these sellers will end up selling for fewer dollars after a longer time than if they had priced closer to The Market to begin with, and that the number of dollars and additional months will be determined by their speed in dropping the price when they are unsuccessful. Of course, if current trends continue in the near term, the more months it takes, the fewer dollars there will be.


I assume that these sellers also understand that there is a serious risk that their pricing will prevent them from getting any dollars for these lofts, not merely fewer dollars. How can that be? Because it is the law.

Back in the day, Supply and Demand got along well enough for [there] to be a broad and deep Market. Back in the day, Demand was sufficiently robust that even an over-priced loft would sell eventually, because the seller would have the time to adjust and still "do well", or because the rising tide floated that boat eventually. Back in the day, time was not an enemy of above-market property the way it is today.


one form of cheap courage

It wasn’t my listing, so it may have been easier for me to be blunt about the sellers’ predicament than for their agents:


To me, if they have a $2mm listing, that means I expect them to be prepared to drop the price every month or so by six figures until they at least reach a point of serious interest from buyers. I hope they would consider a ‘ridiculous’ low ball offer if one came in early in the listing, but I suspect we will not see an immediate negotiation to a clearing price 25% off the ask.


whose risk is it anyway?

Agents are supposed to explain risk; sellers bear nearly all the risk. If courage is measured by the potential consequences one is willing to (knowingly) assume, these sellers are more brave than most. In addition, these agents are more brave than I am, as I would be very afraid of wasting my time with a listing at a price with a small prospect of finding ‘the’ buyer — unless I had a firm commitment to ‘take a shot’ then address the price ‘accordingly’. So there’s risk all around.


More for the seller, no?


Here’s the punchline, with details to follow: that March 2009 offering was then asking $2.199mm, dropped only twice (to ‘only’ $2.049mm), and sold 13 months later for … (wait for it) … $1.81mm, without taking a break from The Market. To review: instead of making more than one six-figure price drop, the sellers held at an unavailable price before (finally) negotiating to a deal at a 12% discount to last ask, 18% below first ask, and to do that they had to wait until April 2010, two to three calendar quarters after the overall market was in full thaw.


details! we got details!!

That was the “2,190 sq ft” Manhattan loft #4D at 22 West 26 Street, with this history:

Mar 2, 2009   $2.199mm
June 3   $2.099mm
June 27 agents change firms  
June 29   $2.049mm
Jan 7, 2010 contract  
April 8 sold $1.81mm

This history reveals that sellers did not have to sell in 2009; if they were that motivated, they would have dropped the price more often, more deeply. Yet they were surely beaten up that year.

Again, I assume that these sellers were well-advised by their professional agents, such that they knowingly undertook the risks they took on, from coming to market in March 2009 (brrrr), to dropping the price but twice, to standing pat to wait for The Market to come to them in 2010. Note that I am not saying that anyone did anything wrong here, even in retrospect. What I am saying is that this loft delightfully lived up to my contemporaneous expectations, offered within weeks of it coming to market under very trying conditions.


It is nice to be proven right, once in a while, even if it did not take much courage on my part.


© Sandy Mattingly 2013


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