Pricing Is Much More Art Than Science
After 30 years of combined experience pricing apartments in NYC, one thing is clear to us: pricing strategy is 70% data-based and 30% art. On some days, it is even 50% art.
You can give 4 top agents the same data and they will likely come up with different values for a property. Not reassuring, I know. This is why there is no substitute for experience. There are simply too many variables when it comes to valuing residential real estate and nearly all of the data a broker relies on is backward-looking.
At the same time, the market is a moving target. In a market that is moving up, pricing something wrong is not as tragic as pricing something wrong in market that is trending down. As they say, even a broken clock is correct twice a day. Well, in a market that is trending up, in time, the market will usually find your price (or at least get you offers). But in a market that is trending down like the one we are in, if you are priced wrong in the beginning, you will never recover without a price adjustment or two.
Sometimes, it is hard to predict how the market will react to your valuation. In our experience, sellers are nearly always better off pricing at or slightly below the most recent comparables and allowing the market to dictate where it trades.
New Development research teams will disagree with the prior statement and, to some extent, they are right. In a new development, pricing is more of a commodity effect, especially when it comes to pricing 10 one-bedroom units with similar exposures. So, for the sake of this discussion, let’s just stay focused on the resale market.
In resales, you normally aren’t pricing against 5 of the same other lines that are in identical condition and have a similar exposure.
So, why is pricing so hard? The data we rely upon is mostly closed sale date that is anywhere from 60 days to 12 months old. Since signed contract prices are not disclosed until the sale closes, there is not a lot of real-time data for us to consider. Inventory within your building, neighborhood, and price segment all play a crucial role and, of course, views, light, condition, exposure, and the most elusive buyer emotion.
Is your property offering something so unique it is hard to put a value on it? Then, you guessed it, it probably is hard to value.
To complicate pricing matters even more, in condominiums, there is an “exact” or “standard” measure of the square footage that has been approved by the AG and is listed in Schedule A of the offering plan. However, co-ops do not have an exact measure of their square footage. For the most part, the figures used by brokers are estimates, some accurate and others, not very.
Pricing a co-op without an exact measure of square footage then boils down to pricing the number of rooms that are being sold. It is like using an abacus to do your taxes. Really, it is.
You should look at pricing strategy like this: our jobs as brokers is to create the market for your home. Price is just one part of this process. We want to simply price your home at the number that is going to attract the most buyers (ideally, in the shortest period to create competition and scarcity). Where most sellers go wrong is by trying to dictate to the market where their home should sell at.
Telling the market your home is worth a premium is usually the worst way to get a premium. Price your property at the number that is going to bring you the most qualified buyers and they will offer you what it is worth.