puzzling price policy / slow death near Union Square
why drop a price?
I have been watching a loft listing at 4 West 16 St (#8A) since it came to market in April, because I listed a unit in this building last year. I thought the original asking price of $1.35mm was pretty aggressive in April, even with what looks like a nice renovation (mine was in 20 year-old original condition, but a little bigger, on a higher floor and on the quiet [rear] of the building).
After not selling in two months, Pat Levy at PruDE dropped the price by $75k, and then by another $50k this week, to $1.225m.
price should help sell (d’oh!)
Which leads me to wonder “why drop a price?” The chorus will answer “to sell the apartment!!” but I was thinking on a different level. Or, on that level, but with emphasis on selling the apartment. The question-within-a-question then becomes “what price change will help sell the apartment?”
As I tell people to whom I pitch a listing, the asking price is the single most important element in setting buyer’s expectations about a listing. Does a $75k price change increase the likelihood of selling the apparent? I don’t think so, but others may have different opinions.
how to ‘suggest’ a seller is negotiable?
One theory appears to be that a small price drop makes sense because if suggests that the seller is negotiable without having to be desperate about that. I don’t agree. I think the fact that a Manhattan apartment has been listed for four months or more is enough of a hint to buyers that he seller may be (should be) negotiable about price.
One theory is that a price change makes sense if it brings ‘new’ buyers to the listing. I agree.
bring in new buyers
The hard part in doing this is to assess where the typical buyers establish price ranges. In this case, an original asking price of $1.35mm is – to me – not so radically different from the intermediate ‘ask’ of $1.275mm to bring in buyers who had not yet considered #8A. Anyone willing to spend $1.35mm is probably already considering anything price at $1.275mm.
In fact, the new price this week of $1.225mm is not very different from $1.275mm either. This is so, even though a move from $1.35mm to $1.225mm might have been enough of a spread to being in ‘new’ buyers – if it had been done directly.
The problem is that doing two price drops to get from $1.35, to $1.225mm risks boring people who are out there and familiar with the inventory. (To buyers who are just beginning to look, there is no problem with the new price being boring, but there are not as many new buyers each week as old buyers.) And anyone paying attention to days-on-market will realize that the listing is borderline ‘tired’.
sellers don’t like price drops that ‘take away’ money from them
Sellers hate to ‘give away’ money – even money that they never had in their pockets (like the $125k that the 8A seller has “lost” by dropping the price to $1.225mm). As a result, many sellers are tempted to drop the price by a minimal amount – if at all.
Which leads to death by small increments.
Most agents have stories about an apartment that finally sold well below where they thought it should have sold for. Often, these stories feature price histories with many small changes. (E.g., the 2 BR that went from $1.2mm to $900k in increments of $50,000.) In retrospect, the agents say that a larger intermediate price change (say, from $1.2mm to $1mm) would have resulted in a higher and quicker sale.
I know it is painful – for sellers and for agents.
pain, all around
I went through this with a seller recently. Our $2.5mm asking price looked good at the start – especially compared to three other apartments in the building. When we finally changed the price, I strongly recommended that we needed a ‘dramatic’ price change in order to capture a different set of buyers. The new price of $2.1mm did that, and we are about to have a signed contract.
In that case, the market place (bless its cold heart) told us that the $2.5mm was not a price that would get us the best price available in the marketplace. So we bit the bullet.
Not to pick on Pat Levy at PruDE, but I don’t think that moving #8A in two steps to $1.225mm will be as effective as doing it once. And – in this market of large inventories – it may not yet be even at the right price to attract the best price available in the market for that unit.
I will continue to watch what happens. Good luck, Pat.
© Sandy Mattingly
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