True Gotham

At the end of the day yesterday I received a phone call from the son of prospective sellers who own a luxury one bedroom condominium on the Upper West Side of Manhattan.  This is precisely the phone call that I and my colleagues are most happy to receive...at least that's been the case for the past 10 years.  This call was a bit worrisome however.

The owners (their son actually) of the property contacted me because I am currently selling a similar property in their building.  They were excited by the video tour that I was using to represent that property and encouraged further when I informed them that the apartment was currently in contract and likely to close in the next couple of weeks.  All seemed well as our conversation progressed and we discussed recent sales in the building, current signed contracts, and similar apartments that were actively being marketed in the building by other real estate agents.  All was well until I shared the price at which I thought this seller could actually sell their apartment.  My price opinion was met with stone cold silence.  "Hello...hello, you still there?" I said.  "I'm here...uh...um...my parents were thinking of a much higher number."

No kidding!!!  Here's the important info that I provided when completing my comparative market analysis to come up with my pricing opinion (btw...he insisted on me doing this over the phone which I never like to do):

• 15 similar one bedroom apartments have sold in the building since January with an average price per square foot of $1,142.
• 1 similar one bedroom (on a lower floor) is in contract (I'm the seller's agent) for $1,139/sf.
• 8 other similar one bedrooms remain on the market for months at an average asking price of $1,331/sf.
• This seller's apartment is 847sf.

I also felt it imperative to explain to this prospective seller that:

• Because the location of their building is in very close proximity to several new development projects, their is an inventory issue: more inventory for the lux condo buyer to choose from in this specific area than others in the city.
• The 8 similar one bedrooms in the building at $1,331/sf are creating a building specific inventory issue aside from what exists outside of the building.
• Lastly, the majority of "flippers" in this particular project are barely breaking even and many are losing thousands of dollars.

Again I was met with deaf ears as this gentleman proceeded to explain to me why his parent's believed that their apartment was worth $1,416/sf or more than 20% more than everything else that has recently sold or gone into contract in the building.  This gave me a flashback!  Circa 1992.

Back in 1992 when I began in the real estate industry, sellers often called our offices begging us to market their properties.  Often times...not always...but often, we would suggest ways in which they could market the homes on their own so we wouldn't get "stuck" marketing an overpriced property for up to 2 years.  That's right...I said 2 years!  It wasn't unusual to have an exclusive on a property for 1 year at a time and to still be marketing an apartment 20-24 months after your initial conversation with a seller.  Buyers were hard to find and thus they were golden.  Sellers were a dime a dozen and those who had unrealistic expectations outnumbered the realists.  A solid, qualified buyer was what every agent sought.  They were our life-line.  Back to 2007.

For the past 10 years, buyers have been treated like second class citizens (I'm guilty too!) as property was KING and if you had an exclusive right to sell a property, you were just about guaranteed to earn your commission.  So perhaps now you can see why the conversation that I had with this potential seller yesterday scares me.  At $995,000, this seller could actually procure a buyer (possibly more than 1) and sell at $1,174/sf or more which is still better than the average of what has recently sold.  He wanted me to take the exclusive right to sell at $1.2M or $1,416/sf.   No thanks.  My response to his request to list his apartment 20% too high:

"With all due respect, I'm sure you will find an agent out there who will be more than happy to market your apartment at that price.  In fact, there are 8 such agents who are actively marketing other overpriced apartments in your building.  If, however, you decide you really want to sell the place, call me and we'll discuss price again.  If you choose to list at $1.2M, my guess is that you may be calling me next year.  My next guess is that my market analysis next year won't be a whole lot different than the one I just provided.  It could be a little better...it could be a lot worse.  Feel free to touch base with me at anytime if you have further questions.  Best of luck!"

I don't live in NY, but in the SF Bay Area, in silicon valley, where we also have some issues with expensive properties. I currently own a few places, live in one, and am looking to buy one to rehab. I am seeing the opposite of what you are describing. That is, I go see a place, and my agent and the selling agent seem to be pulling high "what it's worth" prices out of thin air. I counter with hard data I pay to receive from Altos, and they look at me like I am crazy.

Recently I looked at a home that had been on the market for three months at $969K. It needed a good chunk of cosmetic fixup, but nothing major. The price had just been dropped to $899K, and my agent said I could get it for $825K, then clean it up and sell it for $929K, which was the "real market price." They did, supposedly, get an offer for $825k, which "happened" to come in on the agent's cell phone while we were looking at the home.

Uhhhhh, let's see. It's been on the market with no offers for three months and you got an offer which you are going to accept, for $825K. The Altos market number indicate that $825K is about right for this size place and in this zip code. Tell me again how the "market price" is $929,000 again? Tell me again how this buyers agent is "on my side" please?

It's crap like this that gives the RE agent industry a bad name.

Ron, I live in Saratoga, CA. I bought my last two homes without an agent, although both were listed. Why do you bother with a "buyer's agent"? (especially that one!)

Sounds like you would be better off making your offer contingent on seller's broker not charging for the "buyer's agent commission", whioch makes your offer 2.5% or 3% better than someone using an agent at same price.

Don't feed the beast.

I hear you both! Although it's tempting to "cut" out a buyer's agent (particularly the type of misinformed agent Ron speaks of) in hopes of saving their fee (2.5-3% as Dave suggests), I'm currently working with a couple who had no luck dealing directly with the seller's agent and together we have rejuvinated a negotiation. The seller's agent is much more communicative with me than she was with the client's directly and we just may be able to get a deal done.

This certainly isn't the norm but I'm a huge believer that both sides of a transaction should be represented. Don't be fooled Dave, the seller's agent is almost always NOT looking out for your interest. The very structure of a "direct deal" (one with no buyer agent) is a huge conflict of interest for the seller's agent.