Getting to the Core of the (Big) Apple

Getting to the core - understanding what’s happening at the surface, what’s really happening below it, and why – is essential in any business, but imperative for today’s Big Apple real estate market. Discussing the current climate, spotting trends, going below the surface, and analyzing what one learns allows us to help buyers and sellers make informed, smart assumptions about the future, and plan accordingly.

The Peel:  What’s Happening at the Surface

Here’s what my typical buyers, sellers and colleagues are saying today, in the Summer of 2011: 

Buyers are shopping.

“There’s nothing on the market to buy.” 

“They attend our open houses and respond to our marketing.  They are looking for mint condition homes.  They demand beautiful finishes, excellent floor plan flow and convenience.  They are less interested in square footage and building amenity packages”.

“Buyers are slow to make decisions; they feel no urgency to act quickly.  They want a deal.”

Sellers seem concerned about selling.

“Make sure the listing price leaves room for negotiation.”

 “Sellers are testing the waters (especially if they bought at the market’s height) and can’t possibly sell at a loss.” 

“Well, if buyers like the property but don’t like the price, why don’t they simply make an offer?”

Experts convey mixed messages about the market.

Although appraisers and analysts provide the statistics--average prices, average days on market, listing discounts, etc. – their descriptions of the market are contradictory.  Some call it:

• Steady
•  consistent
• lackluster,

 and others describe it as:

• schizophrenic
• uncertain
•  listless.

Are these descriptions of the same market?

Have you heard these comments?  Or perhaps you have muttered them yourself. More importantly, where do we go from here? How do we direct our clients effectively and professionally in such a climate?

Under the Skin: What’s Happening below the Surface

Let’s understand what’s happening beneath the hubbub of the surface-chatter. Only then can buyers and sellers understand their options, what they can expect moving forward and how they should proceed.

Cutting away the hype and buzz, a few realities emerge:

1. There is no true consensus about the market.  This is partially because “the market” is hyper-local, comprised of multiple mini-markets, each with its own pockets of strengths and weaknesses. Take NYC’s Upper West Side, for instance:
• Small apartments are not selling well, but larger apartments are.
• The Columbia University area is hot, and so is the Frederick Douglass corridor, but Riverside Blvd. is quiet.

There is little consistency within a neighborhood; there is less consistency across neighborhoods, across boroughs, across the entire region.  Certain pockets are performing stronger than others.  “The market” is fragmented and inconsistent.

2. People will make large purchases, like homes, when they feel confident. Conversely, when they do not feel confident, they will not make large purchases. Period. Despite favorable interest rates, uncertainty in today’s economy translates into fewer home sales than we might otherwise experience.

All projections and assumptions about the market need to be filtered through these two realities. Only then will the actions of buyers, sellers, and perplexed brokers make sense.

Getting to the Core

In light of these two realities, let’s revisit some of the surface-level chatter to understand what’s really happening:

Q: Why do serious buyers perceive that there is nothing on the market to buy? 

A. Because the few properties that show well and are priced to the market sell very quickly.

 Unrealistic sellers, who overprice their properties, add to the perception that there are few good properties for sale.

Q: Why don’t buyers make offers on overpriced properties? 

A: Because they don’t want to waste their time. 

The statistics show that contract prices vary between 3% and 4% of final list prices.  Well-priced properties are the ones that generate offers, and generally these are strong offers.  These are the properties that sell quickly.

Q: Why do market reports seem so varied and inconsistent?

A: Because the market’s “consistency” is consistent in the aggregate, quarter over quarter.  Neighborhood by neighborhood, the market varies widely.  It also varies week by week.  Just as the stock market has grown more volatile of late, showing extreme sensitivity to economic and political conditions, so also has the real estate market become more sensitive to fluctuations in the stock market and the economy as a whole.  Some weeks have strong turnouts at open houses, while others are attended less well.  There is little rhyme or reason, but these fluctuations absolutely do exist.

The Core of the (Big) Apple

What’s the takeaway? Buyers in this environment need a compelling reason to buy.  Sellers need to offer something extraordinary to create excitement. Here are a few ways we help them achieve their goals:

• Encourage them to thoroughly understand hyper-local market conditions.
• Help them recognize their true motivations: are they testing the waters or being serious about transacting business?
• Go through their options and explain the anticipated consequences of certain actions and inactions.
• Buyers must understand that there are no “deals”.  Sellers must recognize that top dollar needs to be based on today’s market.
• Encourage buyers to make low offers on properties they like.  Have sellers create urgency by pricing to the market.

The (Big) Apple is sweet.  Its core has pits. Ignore the hype. Stay true to the realities. Think clearly.  Understand options.  Act decisively, but with due care.