Pricing Over The Top

By Alain Pinel
Sr. Vice President / Managing Officer
Intero Real Estate Services, Inc.

There are only two prices that matter when a property is on the market: the listing price and the sales price. You would think that at the age of real time information and transparency, the two would be a perfect match…well, they are not, or at least not often.

For the purpose of this paper, I am referring only to the gap which exists between the sales price and the “original” listing price. Obviously, if a house which has been collecting dust on a shelf for weeks or months is reduced 2/3 times, the gap shrinks accordingly. When it is the case, the two prices are within a few percentage points. When, however, the asking price is unrealistic, we will never know how wide the gap may be since the property will not sell!

With this in mind, I did a nationwide search through Trulia to try to measure the disparity in between the average listing price of all properties within a marketplace and the average sales price.  The findings are mind-boggling.

Take Miami as an example.  As you may know, the market there has taken a plunge starting roughly in 2007 and turned around only this year.  Some sellers (or some Realtors) did not get the memo.  There were many properties for sale in all neighborhoods the last week of August.  If you look at Downtown Miami, the average listing price then was $5,171,625. Guess what the average sales price was in that neighborhood from May to the end of July?…. $1,500,000…. About 30% of the average listing price!

Same picture in the next two upscale districts of Southwest Coconut Grove & Northeast Coconut Grove.  The average listing prices were respectively $1,779,954 & $1,475,487 and the average sales prices, using the same periods as above, were $845,273 and $615,754…Not quite half!

You might say Miami is an anomaly.  It’s not.  The same phenomenon can be observed on the other coast, in San Francisco. The market there also rebounded, although the recovery started in 2011 and it has been more robust.

Let’s look at the priciest San Francisco neighborhoods, using the same study periods (listings during the last week of August and sales from May through July). The first figure will be the average listing price and the second will be the average sales price.

  • Presidio Heights: $10,608,711….$2,265,071
  • Pacific Heights: $5,371,256….$1,350,853
  • Cow Hollow: $5,244,788….$1,723,190

Surprised?…OK, we owe to qualify those stats to relativize their significance, otherwise you might accuse me of mixing apples and oranges since the listings and the sales are not time related. Indeed, none of the sales during the May-July quarter pertain to the listings for the week ending August 29. That’s true, except that the huge delta between the average listing price and the sales price remains constant no matter what part of the year you look at. This proves 2 important points:

  • A lot of listings don’t sell. They never die though, as they eventually resurface, often under another broker’s flag and most often at a severely reduced price.
  • The higher you go on the price scale, the longer properties stay on the market and the more likely many will not sell. That’s why the stats look so skewed with an average asking price roughly three times higher than the sales price. On the other side of the spectrum, the lower the price tag, the higher the ratio between listing price and sales price. Call this the affordability factor.

That’s what is so significant when you read the stats. We know that today, the high end market is warm or hot again in much of the country. But it does not mean that properties in the range of $10 to $50M are selling like hot cakes. The simple reason is that the qualified buyers, whether foreigners or home grown, are not growing on trees.

Many sellers (and many Realtors) are unrealistic in their expectations. They only look at comps. They figure that if a similar home nearby sold for, say, $10M, they too should get that much or more. That makes plenty of sense on the paper but they fail to also consider the fact that, in the high end, it’s not just simple. There may only be one buyer for three comparable homes, or four for 10 homes….

Something else, while I am thinking about it… Many real estate agents are the problem instead of the solution. They either don’t know anything about values, or deliberately “buy” the listing by suggesting a ridiculous price…Or price it well but are incapable of marketing to the right crowd since they have no connection to international buyers or even a program to showcase the house to all prospective buyers. The result is the same: the listing grows old on the market, or does not sell at all.

Lucky you, this problem can be fixed: get a good Realtor, associated with a good company!
To see Alain’s previous Luxury Insiders visit: interoreblog.com

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