Choosing the right list price for your Manhattan property is a strategic choice that is equal parts art and science, and it involves a lot more than you might think.
Every property owner or homeowner who is considering a sale soon asks themselves the same question: “what is the right list price for my property?” In this article we’ll look at the considerations that go into arriving at the best list price for your Manhattan condo or co-op.
The basic steps to arriving at the best list price to are to: 1) understand comps and the likely appraisal value as your starting point; 2) understand the current market conditions using contract activity, contract prices and absorption rate; 3) understand your competition and what buyers are looking for; and finally 4) accordingly, make adjustments up or down from the likely appraisal value. Let’s look at these steps in a little more detail.
Understanding Comparable Sales
One of the first things a Manhattan condo or co-op owner should gain an understanding of is “comps,” or comparable sales, and their role in pricing. Comps aren’t the ONLY thing, but they are definitely a necessary thing if you’re to find the best list price for your Manhattan condo or co-op. While your property’s list price is not solely based on comparable sales, comps will eventually be the basis of an appraisal performed by the buyer’s lender, which is a crucial step in the sale process. They will also be the primary thing buyers and their agents will look to to determine whether your property is appropriately priced or not. Therefore, comps are a fundamental starting point of determining the best list price for your Manhattan condo or co-op.
The right comps to look at should be no older than 6 months. As much as possible, they should be from the same building or line as your own apartment. If that’s not possible, they should at least be similar layouts within the same zip code and no more than 0.25 miles away. They also must be closed sales, rather than active listings. And they should be as similar as possible to your condo or co-op unit in all ways, including features, layout, amenities, exposures, views, maintenance or common charges, and condition.
Appraisers typically can only use the most recent 6 months of sales to determine your property’s value anyway, therefore you and your agent should do the same. And this makes good sense. You want to look at sales that went into contract and closed in market conditions that were as similar to yours as possible. Comps that are older than 6 months really won’t reflect similar market conditions, and therefore will be unreliable – especially in Manhattan where sales can take 3 months to close for a resale condo, and 4-6 months for a co-op (new development condos can take even longer – sometimes up to several years), which means they may have listed and gone into contract a year ago or more!
You also want to make you or your agent use comps as similar to your property as possible. For condos and co-ops, the best comps are always going to be apartments in the same line in the same building, on a similar floor. That’s the “ideal” comp because it will be similar in every way. It will have the same layout, the same exposures, similar common charges or maintenance fees, and the same amenities. The challenge is that it’s often not possible to find enough comps within the same line that sold within the last 6 months to get an accurate picture. In most cases, you’ll need to also look at comps elsewhere in the building as well as in nearby buildings. But every effort should be made to ensure the comps are as similar as possible. Exposures, floor, layout, maintenance or common charges, taxes – all of it is important and will impact the value of your property.
Likely Appraisal Value
As mentioned above, one of the key reasons to look at recent comps is that they’ll form the basis of the eventual appraisal. It’s crucial to understand just how important this is in the successful sale of your Manhattan condo or co-op. Once you find your buyer and the underwriting process begins on the sale, an appraisal will be ordered by the buyer’s lender and that appraisal will determine how much the bank will lend to the buyer. Sales can fail, or run into big problems, if they don’t appraise for contract price. This can happen when the seller or the seller’s agent has not understood how appraisers function and failed to price the apartment correctly based on using the right comps. And this, in turn, can eat into your built up equity, or cost you money in the form of additional carrying costs if a sail fails or is delayed. No matter how much money you’ve put into renovating your apartment, or what you think it’s worth, it’s crucial to understand the comparable sales and the likely appraisal value. The help of an experienced agent who has a deep understanding of how appraisals work is often indispensable here and will protect your equity, your time, and your hard-earned money.
Understanding the Market
As necessary as it is to understand comps and the likely appraisal value of your Manhattan condo or co-op, when it comes to arriving at the best list price, it’s only the starting point. A list price that is based purely on comps has a high likelihood of not being specific enough, or accurate enough. It’s important to remember that comps are a “lagging indicator” which means they give you a snapshot of the recent past rather than the current moment. Comps don’t take account of differences in seasonality, or shifts in the market that have happened between the time those listings sold and the time you’ll be listing your property for sale. To get an accurate idea of what the right list price is today, one needs to look at additional information that tells you what’s happening in the market right now.
When it comes to selling your Manhattan condo or co-op, absorption rate – also referred to as “months of supply” – is one of the most important and informative things you can look at to determine the right list price for your property because it gives you an overall picture of supply and demand for your type of property at the current time. This information is rarely easily available to the public, so the help of an experienced and highly knowledgeable agent is indispensable here. A good agent will pull this data for you and explain where the Absorption Rate stands, and also give you information on which way it is trending. Pricing your Manhattan condo or co-op without sensitivity to current supply and demand is a recipe for frustration. When looking at absorption rate, as with any of these metrics, it’s important to be very specific and look at data that pertains to condo or co-op units like yours and in the same area. Looking at the overall market has limited usefulness. At worst, looking at absorption rates or other data that includes property types nothing like yours or in different neighborhoods can be downright misleading.
If the absorption rate is under 5 months, that would indicate a seller’s market – regardless of whatever else may be happening, supply and demand is such that demand is outpacing supply, which gives the sellers additional leverage. If the absorption rate is over 7 months, then you are in buyer’s market territory, and buyers have the leverage because there just isn’t demand in the current moment. And the higher over 7 months the absorption rate is, the deeper the buyer’s market is. An absorption rate of 5-7 months is considered “balanced,” meaning that supply and demand are generally on pace with each other.
Pricing in a Buyer’s Market vs a Seller’s Market
In a balanced market, pricing right around the likely appraisal value is generally the best and most successful move. In a seller’s market, a seller can push the envelope and price a bit higher because demand will still drive traffic to the listing. In a buyer’s market, a seller will need to work harder to attract buyers to their listing, which generally means presenting value to buyers and pricing to undersell their competition, and/or providing additional incentives such as seller concessions, interest rate buy-downs, seller financing, or other incentives (please search our blog for other articles on these topics).
Another highly useful indicator of what the market is doing right now is to have your agent show you the recent contract activity for properties like yours in the area. This will give you valuable information to help zero in on what might be the best list price for your Manhattan condo or co-op. Firstly, you’ll see how many properties like yours are actually finding buyers each month. And you’ll be able to see if those figures are trending upwards or downwards. Secondly, you’ll see what list prices actually attracted buyers.
Seeing how many properties are going into contract each month is powerful information to have your agent go over with you. If your agent shows you that in the last 30 days there were 30 comparable competing sales for your property, and only 2 went into contract, then that shows you that you have a lot of competition, very low demand, and you’ll probably need to find a way to be one of those top two choices in the eyes of the buyers if you hope to sell, much less have any negotiating power to get the best price and terms. Don’t make the mistake of choosing to sit on the market and waiting for that “one buyer.” This is a sure way to give away all your negotiating power and walk away with less money in your pocket. Your job, in coordination with your agent, is to find a way to maximize traffic and maximize activity on what you’re selling, so that you have choices and leverage when it comes to negotiating price as well as terms and conditions. If you sit on the market and only have one offer, you won’t have any of that. Understanding contract activity and how many listings are going to contract monthly will go a long way to helping you determine the best list price for your Manhattan condo or co-op to increase the chances that you are the one that sells while everyone else sits on the market waiting for a customer.
Seeing the list prices that are attracting buyers in the current market is also highly valuable information. You won’t know what price the buyer actually offered on the property or what contract price was agreed upon because that information isn’t made available until after the sale closes, but you will know exactly what the last listing price of the properties in question was, and that will show you that those prices, for those properties, were able to attract buyers. You’ll also be able to see how quickly those properties were able to find a buyer. If you see that a property just like yours, in similar condition, was listed at $1,210,000 and was able to find a buyer in 37 days, while another similar property was originally listed at $1,250,000, went through 3 price drops and took 5 months to eventually find a buyer at $1,200,000, you’ve just gained valuable insight into how buyers are responding to different prices. That $40,000 gamble the seller took in the 2nd example actually cost them $10,000 PLUS the carrying costs of the 4 extra months their property was on the market. By going over recent activity with your agent, you’ll be able to use this information to work with your agent and arrive at the strategy and list price that works best for your needs and goals.
Understanding the Competition
Some of this was covered above in the section about understanding contract activity, but, again, when you’re looking at recent contract activity you are still looking 30-60 days in the past. When it comes to finally listing your Manhattan condo or co-op for sale, you also want to take a look at everyone that is currently listed and scope out your competition. By doing this, you can strategically price to make sure that you attract the buyers and outsell the competition, again maximizing your ability to negotiate the best price and terms.
The most important caveat is to remember that active listings are not a useful indicator to understand the value of your Manhattan condo or co-op. Only comps are useful for that, and active listings aren’t comps. Nevertheless, it’s useful to look at active listings for other information:
How Many Competing Sellers?
The first and most basic thing to look at is, “how many other sellers are out there selling a similar product?” And you really should think of it as a product you are selling. You’re not selling your memories, your life, your emotions. You’re selling a product that a buyer wants to use to fill with their memories, their life, and their emotions. When you look at how many sellers are currently listed and competing with you for buyers, and couple that with the absorption rate and recent contract activity, you’ll get a very clear picture of what the current market conditions are like.
You also might gain valuable information on a strategic list price based on where everyone else is priced. Sometimes you might see a group of sellers all grouped together at one price, and another group at a lower price, and you might have a product that you can price right in the gap that allows you to draw more attention and have less competition. Or you might see that your apartment is a little nicer than the highest priced listing in your area, so you might choose to price at exactly the same price, draw away all their buyers, and let the bids take care of driving your price upwards. Conversely, if your look at contract activity showed the market is not in your favor, you’ll know you need to price very conservatively in order to attract a buyer and outsell your competitors.
Make Adjustments Accordingly
As we’ve seen, your starting point in determining the best list price for your Manhattan condo or co-op is working with an experienced and knowledgeable agent to collect good comps and understand the comps and the likely appraisal value of your home. From there, you’ll want to work with your agent to layer on information regarding the absorption rate and contract activity to understand the current market conditions. Finally, you’ll want to work with your agent to understand the active listings and your competition. Putting all these things together, you – with the help of your expert agent – will be able to see if you need to adjust the listing price up or down from the likely appraisal value in order to achieve the desired result, and arrive at the best list price for your Manhattan condo or co-op given your personal situation and your goals and needs.