am I a coward? assessing + bearing risk in a risky world

a rumination (bear with me)
I tell owners in this market that my job is to protect their equity and get them on their way (to whatever is next in their lives) with as much money in their pocket as possible. I tell them I do not determine The Market price for their loft (nor do they).  I give them my best professional judgment as to the asking price that will attract the best price available in The Market in the time frame they want. I believe that (nearly) all sellers in (nearly) all markets are afraid of ‘leaving money on the table’, so they are (sorely!) tempted to price high ‘to see how that works’, but many sellers in The (current) Market are at least as afraid of bleeding equity, by being one of the Manhattan lofts that does not sell, even after serial price drops.

not my call
Of course, it is the owner’s assessment of risk that determines where a loft is priced. An owner who is more afraid of leaving money on the table than of lingering unsold in a declining market is free to make that choice (though I may choose not to work with an owner with a different assessment than I have).

brass tacks
What am I talking about?? I noticed 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 then noticed two other lofts in buildings I am well familiar with, also with fairly timely and extensive sales history, also offered through experienced and professional agents. Yes, also priced well above where I think The Market is today.

temptation is … tempting
I assume that these experienced and professional agents have as much information about The Market as I do, so that their sellers were well informed about recent activity and — more importantly today — recent inactivity. I hope that they understand that (to put it softly) there is a good chance that their lofts will be perceived as outliers by potential buyers, if they are seen at all. I assume they know that many buyers will demand that these lofts demonstrate some significant plus factor (view, condition, light), beyond what is described in the listing in order to be credibly priced. Yet these well-served sellers decided to start marketing their lofts as if some serious buyers would be attracted by a price that most buyers would see as too high. Perhaps because their lofts are "unique"….

Loft snob that I am, I am ready to believe that many lofts are "unique", at least as that tired word is used in the real estate industrial complex, and certainly as compared to "apartments". So the temptation is for a seller to think that — since "it only takes one" (buyer) to make a sale — someone will agree with the seller that this loft, with this dazzling light, in this beyond triple mint condition, with landmark (protected!) views, with a gracious layout and spacious feel, on the best block in [insert nabe here], and that that someone has the means to buy the darn thing today, near the asking price.


They might be right.

I can’t prove them wrong (at this point).

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. But I will be explicit, because readers who have not had to do this analysis may not — and because Manhattan Loft Guy is just … wordy (repentant, but wordy). 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. But (in the immortal) words of late night television, that’s not all!

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 their [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.

I fought the law and the law won
As I noted yesterday , there were 973 lofts offered for sale in Manhattan between $500k and $10mm as of Sunday, which is 293 more lofts than have been offered at any time since I started counting in June 2008 (the low was reached in mid-August). Since I started counting Manhattan lofts reported as new to market and as sold in October 2007, there have been 18 weeks in which the number of lofts reported as sold was in single digits; five of those weeks were spread from Halloween 2007 to Thanksgiving 2008, but since then thirteen weeks have shown single digit sales (and only four weeks have ten or more). I have every reason to believe that the overall Manhattan real estate market will show similar trends and similar scale when the market reports for the first quarter of 2009 come out in a couple of weeks.

To be even more pedantic about it, the law of supply and demand requires that some of these lofts priced above The Market will never sell — not just that they will sell for fewer dollars. The ones that are over-priced today may be nimble enough to catch up to the active market, but they will be competing with an increasing number of new-to-market lofts. Some will simply never catch up.

Again, I assume that the sellers mentioned here have discussed all this with their experienced and professional agents and that the sellers have decided to run the risk that their unique lofts will do better than The Market would indicate generally, because their lofts are better than the general lofts. But if these sellers really want to sell, I assume that they have a plan in mind to adjust their prices if (when) they learn that The Market disagrees.

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?

© Sandy Mattingly 2009  

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