The most common question I’m currently being asked by owners seeking to sell their Manhattan homes is "how long have you been doing this?" And of course the second question is "how’s the market?" which seems to be just an inquiry to further support what they already know…it’s shaky.
I became a real estate agent in the early 90’s when property often took 2 or more years to sell. It was a time when buyers were like gold and taking the exclusive right to sell a property required careful consideration as the marketing alone could easily eat up most of the commission if you were lucky enough to sell it and see that commission. That said, transactions did take place but the experienced brokers/agents who had been around the block were the ones sought as the experts during that time. It made it very difficult for a newbie like me to earn a living which was precisely why I focused most of my energy on renting properties (what a disgusting experience that was!).
Fast forward to today. Although transactions continue to take place across all segments of the Manhattan real estate market, the pace has definitely slowed. For the first time in 15 years, I have a Georgian Townhouse at 863 Riverside Drive in Washington Heights (cheap plug I know but what the hey) that I have been marketing now for 18 months. It was listed with another broker for 6 month’s prior so it’s been listed now for two years. This is not the norm of course and I’m not implying that our current market has dipped to the snail’s pace of the early 90’s but it is definitely another indication to me that our market continues to change.
Here is how I see the story with the above property. It was originally listed in May 2006 at a very aggressive and ambitious price set by the executor of the estate. The property was listed as being in East Harlem in the listing database for 6 months making it impossible for people looking in Washington Heights to find it. I took over the home in December 2006 and against my better judgment followed the wishes of the executor to keep the price at $2,450,000. I was however able to suggest that we should market at that price for a completed renovation and $2.2M as is. It was still too high. By the time we reduced the price to $2.2M in June 2007, buyer psychology had started to change and August brought us the credit crisis. In September 2007 we reduced the price to $1.995M which is where it has remained for the past 10 months. We have had 2 contracts out in the past 2 months at levels very close to the asking price but one party ultimately could not obtain financing and the other couldn’t build high enough to make the space work for their religious organization. So nearly 20 months after taking this property over, it remains listed at $1.995M and I continue to spend significant time and money marketing and showing the home in an effort to procure the "right" buyer. The reason that the seller has continued to renew his agreement with me is because he appreciates the continuous effort over the past 19 months that we have made to procure a buyer…and we will sell the home. The reason that I continue to market the home is because I believe it is a magnificent property for the right owner and of course I have put way too much sweat into the place now to simply walk away. I remain committed to sell this home.
There are two significant points to this story. Obviously hindsight is 20/20 but had the owner allowed me or his first broker to price the home right out of the gate at $1.995M, the estate would have been sold almost 2 years ago and everyone would have moved on with their lives. As it is, this is a prime example of how being behind the curve in a softening market only results in more time on the market and a lower final sales price. The key is to be ahead of the curve and price a property at an attractive level for current buyer psychology. The second important point is that a seller should constantly and consistently be checking in with their agent to make sure that marketing is continuing and being tailored in a constant effort to procure a buyer for their home. All too often in markets like the early 90’s, agents get a signature on an exclusive listing agreement and then just hope and pray that the right person comes along to buy it.
My business is about selling homes, not accumulating listings that can’t be sold. So on the rare occasion that I find myself with a property for this length of time, I constantly evaluate my marketing strategy, motivation and whether or not I’m captaining the ship. That said, I have to go call my captain…uh…um…I mean seller. Eureka!!!
I just received a phone call from the attorney for the estate of a client that my group represented two years ago. The young man (in his mid 30’s) was battling cancer when he purchased the home and I just learned that he lost his fight and passed away very recently. His family in Europe asked that the attorney reach out to me to help them market and sell the apartment for the estate. A bittersweet phone call indeed.
Most of the large brokerages and many of the not so large circulate estate information to their agents in an effort to procure exclusive represention on behalf of the executors for such estates. I have always made it abundantly clear to the powers that be in my company that I don’t want to be included on these lists as I have never felt comfortable contacting the grieving regarding their recently deceased loved-one’s property. That said, there have been many times in my 16 years in the industry when estate attorneys or the families that they represent have reached out to me to assist with the sale of residential property. In these instances, I feel that it is my duty and responsibility to make the process as hassle free as possible for the grieving family.
On a personal level, acting as the exclusive agent for the property of an estate is an experience that always helps me to put my own life in perspective. Gratitude for the everyday experiences of the real estate business, parenting, relationships, and life in general grow exponentially. I was recently asked by a friend as to why I wore the yellow Livestrong bracelet every day. Aside from the fact that I’m a believer and a supporter of the Lance Armstrong Foundation, the bracelet is a constant reminder throughout my day that LIFE IS GOOD.
I just returned from a visit to the Maryland and Delaware shores and let me tell you that the resort housing markets in these areas are seriously hurting. Signs are posted everywhere suggesting that "now is the time to buy and we will tell you why?" Vacancy rates are high on both the residential and commercial fronts (an entire shopping mall that has been there since I was a child is now vacant), traffic volume was incredibly low for this time of year, and getting a table at a restaurant was a snap. I can’t remember ever seeing these areas so quiet during the 4th of July in all of my years visiting.
So is it indeed the time to buy in places like these? No one wants to catch a falling knife but it appeared from just a glance at advertisements for condos and homes that prices are as much as 30-40% off their peaks and inventory is plentiful. A recent conversation with friends who summer on the Jersey shore have also indicated much of the same in terms of price drops and surges in inventory. I wonder how much farther prices will have to drop in these areas before buyers jump back in sensing bargains. For those trying to "time the market," good luck with that.
And lastly, is this any indication of what is to come for the Manhattan marketplace? I don’t think so…or at least I certainly don’t hope so. That said, a 10-20% adjustment in prices would certainly generate an increase in sales volume and may even provide the opportunity for home ownership for so many who have been priced out of the market. The good news about Manhattan housing cycles is that they generally lag other housing markets across the country and they are usually the first to recover making our down cycle a bit shorter than the rest. That said, I am seeing some price softening in the market as buyers remain cautious and sellers become much more realistic about their expectations. Deal flow (anecdotal of course) has remained steady through the first 2 quarters of 2008 but lags that of same period 2007.
There is no one out there who has a crystal ball to tell us whether Manhattan will see price depreciation like that of so many other markets across the country. That said, those of us who have been doing this for 16 or more years can tell you unequivocally that Manhattan is not immune to a housing slump (late 80’s through early 90’s). It doesn’t however appear to be headed in that direction…yet (I believe prices have dropped in some segments of the city as much as 10-15% already). With rental vacancy rates still very low and co-op, condo and town home inventory still at relatively low levels, the choices for those who wish to call Manhattan "home" aren’t plentiful. It’s buy, rent or stay put and of course it makes it much more difficult for me to earn a living if people choose the latter. Thankfully, New York remains appealing to a plethora of prospective purchasers/investors from across the globe. And let’s not ignore the fact that New Yorkers themselves are absolutely OBSESSED with real estate and where they will next hang their hats and everyone needs a place to "hang their hat."
As housing markets across the country flounder, many owners and developers are turning to auctioneers to help sell their languishing properties. Alison Gregor of The New York Times writes today that Auctions Are Aiding Sales in a Weakened Market.
It has been 15 years since real estate auctions held by property developers have been commonplace, but in the current torpid real estate market, they’re starting to re-emerge in cities throughout the country.
Gross sales revenues from auctions of residential, commercial and industrial real estate grew by about 5.2 percent in 2007, to $32.6 billion, according to the National Auctioneers Association, and there are indications that the number of real estate auctions involving multiple condominiums will be much larger in 2008. For instance, Accelerated Marketing Partners, a real estate marketing firm with headquarters in Boston and in Danville, Calif., has held 25 auctions thus far in 2008; in 2007, it held two all year.
Just further evidence that price overcomes all obstacles. One developer’s tale:
So, with published minimum sales prices for one-bedroom apartments of $170,000 and two-bedroom apartments of $250,000 (a reduction of about 40 percent from the last asking price), the auctioneers sold about 30 units — about half of them one-bedrooms — at an average auction price of $244,200. About 100 people attended the auction.
But it is imperative that the auction strategy is planned and implemented correctly:
“The price points were less than I had thought they would be,” Mr. Kuhn said. “One of the mistakes we made was starting off with the best spaces first, because people were unsure of how the auction process worked. That meant the auction pricing on the best units moved very slowly, and then locked in at a low price that became the cap for the auction.”
Are we going to start seeing auctions here in the Manhattan market?
It remains to be seen if New York City developers will feel the need to hold property auctions. Louise Sunshine, a real estate development consultant, said she was able to improve property values with auctions held in the late 1980s at residential developments like 52 East End Avenue.
“Auctions are more useful when the market is at a dead halt,” she said. While auctions can provide momentum for a marketing program, “they have to be used very carefully,” Ms. Sunshine said, “because the word ‘auction’ could connote distress. Developers could use some other marketing terminology, like maybe a ‘sealed bid sale.’ ”
The irony here is that during the housing boom of the last decade, I and many of my colleagues relied heavily on the "auction type" atmosphere to successfully market and sell property. When more than one person perceives value in a home and they all bid, there is no telling what the winning bid will be but it is often a number that positively surprises both the seller and their agent. They key once again to creating the perception of value is to aggressively price the property to appeal to a larger pool of buyers. A tricky task in today’s less heated market.
Sometimes I receive emails or comments from TrueGotham posts that are so unbelievable that they warrant their own post. Check out this horror story from a Co-op shareholder and former board president:
Here’s my story
I have owned a 4 level co-op on 38th between park and Madison I was president of the co-op from the time I made the purchase about 4 years ago. At the time I moved in, the co-op was in trouble financially losing about 25K a year and had a few thousand dollars in reserve. During my term as president I made numerous changes and basically took the building from the brink of bankruptcy to having more than 400K in the reserve fund. A few changes included writing a rules and regs book for building procedures and selling a rent controlled apartment (with tenants in place) that only pay a fraction of the going rental rate, for 375K. Everyone said it could not be done. I also instituted an increased flip tax from 1 to 4%, plus raised maintenance to levels that made us slightly profitable every year
It gets better, One of the board members spent a week with us in our home in Utah for the Christmas holidays last year and at the end of their stay we offered the maintenance check for the apartment and she said "No, that’s OK, just mail it." 5 days later we get a note from the "board" that out check was late, and we owe a $50 late fee ????
12 months ago I was forced to sell my business and move to Utah for employment. We were fortunate enough to sell our apartment to a very well qualified buyer who was turned down by the board. She had all the qualifications; excellent income,good assets, wanted to participate on the board(self managed building wants that), even willing to put up 1-2 years maintenance in escrow. vs me, who is close to stopping payments on the mortgage plus the apartment has been vacant most of the time for a year. I wrote a letter to all the shareholders explaining that this was a bad business decision,aside from the fact that I saved the building from ruin. "only one reply, from a new shareholder, nothing from all of my "friends" who thought nothing of knocking on my door ,day or night for anything, personal or otherwise.
It gets better. I thought I would rent the apartment .The board had told me in Dec that they were considering instituting a rent fee of 15% (that would mean $1800 a month to them for my apt,if it rents for suggested $12,000 month), all of a sudden, I have new partners. They told me before the new rule went into effect that they would never try to collect that from me, only new shareholders. You guessed it, seems that they have short term memory loss on that subject.
So I thought about splitting up the apartment into 2 or 3 units (as it was one 3 separate units) but that would change out tax status and cost the building money (I was the one that got our taxes reduced in the first place) One of the existing owners offered to buy one floor of the apt and combine with hers, that would not change the total units or the tax status,plus we had an offer for the other 2 floors. the only condition was that the existing owner wanted to rent out that apt until she was ready to move in. You guessed it, board said no to the rental, and the deal was dead. they would rather have my 4 floors vacant.
I own 26% of the building,If I go under, the entire building becomes insolvent and nobody can sell their apartment or get financing
I need help
Thanks for listening
It seems to me that the best choice for this particular owner is to sell and sell fast to sever ties with a clueless co-op. That said, I wish I could hear the co-op’s side of the story.
Not long ago there was a time when agents for buyers had great difficulty scheduling appointments with seller’s agents as property lasted only days on the market. In fact, as an agent who has represented predominantly sellers for my entire career, I long for the days when I dictated when people could view a property and would often be able to demand that people see property only on specific days at certain hours. It was the most optimal way to create a buzz about a property by having multiple people in an apartment at the same time discussing where they would put their furniture.
On the flip side, I remember the many appointment requests on behalf of buyers whom I represented that were answered with replies such as "I can only show at 10:30AM on Thursdays darling…I’m not taking the train down from Greenwich any other time" or "if your buyers want to see it, I’m showing from 4-5PM on Tuesday and 12-1:30PM on Sunday and then we will go to highest, best and final offers over the asking price."
Such confidence that everyone (me included) had that the properties that they represented would not only sell but would do so quickly and at prices beyond the ask. Today the market is different. If someone calls my team for an appointment to view one of my exclusive properties, we do everything in our power to accommodate them at their convenience. In a market with more inventory and fewer buyers, it is imperative that when someone wants to see your home, they are accommodated because there is NO GUARANTEE that they will come back around if they don’t get to see it the first time. Fewer buyers have more choices and you want all of those buyers to view your home. They won’t buy it if they don’t see it.
The current Manhattan real estate market has brought about a shift in broker/agent psychology and behavior and many agents are playing nice again. Now when someone calls to view one of my properties they get in when they want. Conversely, when I or a member of my team calls another seller’s agent for an appointment the replies now sound more like this: "We would love to show it to you at your convenience, you just let us know what works for you." And even when a request is made for a last minute appointment we often hear "I can have someone meet you there in an hour with no problem…let me get right back to you to confirm."
As someone who has been entrenched in the Manhattan real estate market for 16 years, I much prefer the current serene interaction with my colleagues than the fervent and tumultuous one of the housing boom (don’t get me wrong…I’m not suggesting for one moment that I didn’t LOVE the housing boom and this isn’t a piece on market conditions). I do think however that we should all try to remember how much healthier it is to be kind to one another the next time the we have such a frenzied housing market. I know…there will likely be plenty of time to prepare for that.
I’m a big fan of The Luxury Letter published by Leonard Steinberg and Hervé Senequier. In this month’s issue they feature a company that brings sunlight into dark rooms through solar panels and fiber optic cables. Huvco Daylighting Systems has developed the Parans Fiber Optic System which works by mounting solar panels on a roof that collect sunlight which is brought into the building and desired rooms through fiber optic cabels granting glorious sunlight in what could have been a once dungeonous room. This is absolutely BRILLIANT…pun intended! Check out the diagram and description below which comes directly from their website:
The simple principle of the Parans System is shown (above). First, sunlight is collected by Parans Solar Panels outdoors. The sunlight is then brought into the building through the Parans Optical Cables. Indoors, the sunlight flows out through Parans Luminaires. This technology is called Fiber Optic Solar Lighting.
This technology could change the way we live!
Several years ago my wife and I lived in a 2BR co-op on the Upper West Side with a VERY dark second bedroom facing an airshaft. The bedroom was to be our newborn son’s room and although it provided a cave-like sleeping environment (not so bad) we desperately wanted him to have more light. To that end, I built a window light box that consisted of shoji screens that were back lit by a soft white light on a dimmer that was mounted inside the top of the window frame. My hope was to put a timer on the light and "rig it" to dim to full brightness in the morning simulating sunlight. Needless to say, I never got around to the simulated sunlight part of the device but it did look a lot like sun shining through the shoji screens.
Imagine bringing natural sunlight into that interior library, den, bedroom or dining room! If you can’t tell, I’m very excited about this project and look forward to seeing it used widely in the future.
Current market conditions have prevented me from blogging as regularly as I like to as negotiations are taking considerably more effort than they have in the past and relationships with sellers are requiring more hand holding and regular in depth conversations regarding asking prices and marketing strategies. Go figure, my job is preventing me from blogging. That said, I’m working on some scheduling issues that should free up some time for me to start blogging daily again…I hope!
Going forward through the summer no one is quite sure where the Manhattan real estate market is headed. With mortgage rates up 3/4 of a point in the past 4 weeks and some speculation that they may go higher, some buyers wait in the wings for further (yes I said "further" as prices in many areas are definitely off their peaks) price softening and others have already taken the leap to lock in a lower rate and lower monthly payment. As buyers either take their time or play wait and see, sellers who are making lateral moves for a change in neighborhood or those who are upgrading to a larger apartment have become more flexible with asking prices as they realize that they will likely have more negotiating power on their purchases as well.
All in all it is a very active real estate market with buyers and sellers playing a lengthy and fair game of give and take in order to come to a meeting of the minds.
In the past on TrueGotham, I have been relentless in my examination of Co-op Boards even blogging, perhaps unfairly, about whether or not strict co-op boards can contribute to a softening market. I have shared accounts of Co-op board antics and the ways in which the Co-op market may have buffered Manhattan from the sub-prime crisis. I and my readers have discussed the possibility of Co-op Boards being forced to disclose a reason for a rejection with one of my readers even suggesting a Co-op Board audit to keep them honest. Having served on a co-op board for many years, I still maintain that disclosure of a reason for rejection would be a positive move for the Manhattan real estate market.
All of that said, today more than ever before in my 16 years in the industry, co-ops are having an incredible influence on current market conditions and who is being defined as a "qualified" buyer. It’s not surprising that since the credit crisis hit many co-ops have tightened their requirements for prospective purchasers. Down payment amounts have increased with fewer allowing 80% financing. Many have also increased employment history requirements as well as income requirements in the form of salary/bonus ratios. Also not surprisingly, some Boards have become overly cautious about approving purchases by those in the financial world (i.e. Bear Sterns). Not all of this is negative. Did I just say that? I did! In fact, hindsight does indeed support the fact that the Manhattan real estate market remained strong in large part due to the inability of people to borrow via ridiculous subprime mortgage products.
So today, despite my feeling that some co-op boards continue to over react to housing news and Wall Street reports, I apologize for being hyper critcal of co-op boards and truly believe that those that I take issue with are the minority. I’m also taking this opportunity to give kudos where kudos are due to all of those board members who meticulously examined prospective purchasers finances and dissallowed purchases by those who were clearly over-extending themselves. With 75% of New York City’s housing stock being cooperative, it’s obvious that the financial parameters set by Co-op boards were much more reasonable (and strict) than those set by the banks.
The Carnival is up at Mike’s Corner. Check it out.
