Back To The Future

Last Thursday a couple of my downtown Warburg agents held a first
open house for their new multi-million dollar loft exclusive in Tribeca. The
open house began at 12:30; by 2:00, when it ended, they had a full price offer
which sets a new price-per-square-foot record for the building.  Welcome
to 2013!

While the sense of frenzy and boundless optimism which fizzed
through the New York market in 2006 and 2007 is not so much in evidence today,
the extremely tight inventory in our market has driven prices up and introduced
a sense of urgency. This has created a complicated situation for buyers and
sellers, and their agents. Buyers must gauge the level of interest in the
property to which they are attracted and figure out what it is worth to them.
At the same time, using comps from six months ago can lead buyers to assume too
low a value. Real estate, like any commodity, is worth what a willing buyer
will pay for it. And willing buyers are paying more now than they were in June,
or September, or even November, of 2012. For the buyer entering the market
today, this sense that reliable comparables are hard to find can be
disorienting. I have had numerous conversations recently with Warburg agents
who are frustrated that their purchasers will not be more aggressive in bidding
for a property they like. Unfortunately, many buyers have to lose a property or
two before they fully comprehend the speed and upward trend of today’s market.

Sellers today face a different set of pitfalls. For them, the
temptation to overprice is almost overwhelming. Because prices are rising, many
sellers feel that the sky is the limit, and they can price their property based
on aspiration rather than fact. Even in a fast, rising market like this one,
there are limits. If the last similar sale occurred within the last six months,
sellers should reasonably remain within 10% of that number. One fact which has
not changed: the best buyers usually come during the first few weeks after a
property is listed for sale. With today’s inventory shortages extending into
most markets and parts of town, there is often a line of frustrated buyers
waiting to storm the door of any new listing. But they won’t jump at a crazy
price, and after a month on the market, the thrill is gone. We strategize every
day with sellers about how to be aggressive but not excessive in their pricing,
so they can maximize the advantage of those first few weeks of pent up demand.
We don’t want them to leave money on the table, but we also want the prices
reasonable enough so they are not simply LEAVING the table.

Inevitably a market environment like this one leads to many
competitive bidding situations. For everyone’s benefit, the parameters of these
situations need to be as clearly defined as possible. We suggest to our
sellers’ agents that they define a complete bidding process including the
amount of the best and final offer, the financial and other qualifications of
the buyer, the closing date, any other terms, and any additional information
the buyer or his broker might deem relevant. We request that these offers all
be delivered at a specific time, usually a few days hence, so the seller
and his agent can review them and decide with whom they wish to proceed. We
strongly urge our sellers to stick to the defined parameters; I abhor the
behavior, which has become prevalent in recent years, in which a lower bidder
will jump back in after having made a “best” offer to upset the apple cart by
raising his bid. And the seller whose head is turned by such an offer, received
after he has accepted another buyer who followed the rules of the process,
often lives to regret it. These offers designed to bump another (what we refer
to as “gazumping”)  are withdrawn at a much higher rate than offers in the
ordinary course of business, and in such cases the seller can be left with
nothing. His original buyers, who have been pushed aside , frequently want
nothing more to do with the property. His new buyer has withdrawn. He is back
to square one.

For agents and principals alike, the most effective strategy in
today’s market tempers aggression with fairness.  The seller who wants top
dollar should price aggressively but still in relation to recent sales of
similar properties. The buyer who hopes to secure a desirable property needs to
understand that the comps from six months ago are not a reliable guide to what
the property will command today. And agents on both sides of the transaction
must cultivate both courtesy and a fine line of transparency. As fiduciaries,
we must always put our client’s needs first. But within that framework we will
act with honor and integrity. We don’t reveal what others have offered. We
don’t invent offers we don’t have. We deploy our expertise towards obtaining
the best outcome for our client while working towards a fair outcome for
everyone. Agents can provide the guidance, on pricing, bidding, and structuring
deals, which keeps fast markets orderly and progressive. That is a win for
everyone.