Real Estate

If you’re considering selling real estate in Manhattan or Brooklyn, you’re probably wondering how long it will take and, more importantly, how much you’ll get. The usual measures — days on market and listing discounts — attempt to answer those questions by looking at the time between the original listing date and the contract signed date and the difference between the final price and the original asking price.

The results, typically calculated as medians to cull outliers, are, at best, rough estimates, and should be used as guidelines to set outside expectations. In practice, if your asking price is right, time on market and discounts should be minimal.

The Macro View

Below are the time-on-market and listing discount histories for Manhattan and Brooklyn. They tend to move in tandem along with the market. Currently, they suggest that sellers in Manhattan can expect 87 days on the market with a 7.3% discount. In Brooklyn, the median number of days on the market is 68, with a 4.8% discount.

But does that mean that sellers today should simply expect some basic negotiation after waiting nearly three months in Manhattan and a bit over two months in Brooklyn for a deal? Not at all. Instead, sellers who have done their homework should expect a deal within a few weeks at (or very close to) their asking price.

The main reason is that broad, market-wide statistics, such as median days on market and listing discount, obscure the real driver behind time and negotiability: price. Luckily though, as the saying goes, the more things change, the more things stay the same. The simple fact is that the closer your price is to the market, the faster it will sell and the less you’ll have to negotiate.

For example, a historical look at Manhattan and Brooklyn discounts, as measured from the original asking price, shows that units priced at the market, i.e., the ones with the smallest discount, trade faster and significantly closer to their asking prices than those farther away from the market. In fact, from late 2021 through early 2022, the median discount on units that traded in less than 30 days was negative, meaning that sellers got more than their asking price.

Notice that this holds true even during market stress, such as in 2020 and late-2022. Even during those periods, homes that traded in less than 30 days saw significantly lower discounts than those that lingered on the market. Hence, even during soft, slow, or in the case of 2020, non-existent market conditions, the pricing strategy at the market continues to work.

The Micro View

Indeed, drilling down and looking at the more granular monthly data for contracts signed in under 30 days and comparing it to the strength of the overall market, as shown by the percentage change in contracts signed versus the rolling five-year average for that month, shows more than just discounts.

The comparison to market activity shows that when the market is more active, premiums appear, as buyers compete and push prices above the asking price. Conversely, when the market is slow, i.e. when contract volume is below its recent five-year average, discounts become the norm.

But look closely: For units that traded in less than 30 days, the median discount sellers realized only rose above 2% during the pandemic, when the market was closed for business for several months. Moreover, the fact that this is a median look means half of those quick sales saw discounts of less than 2%.

The Bid

Through the process of shopping for an apartment, buyers can become experts in their local areas. After seeing multiple units, they quickly start seeing the angles, nuances, pros, and cons of each apartment simply by looking at the listing or walking through the door at an open house.

While each buyer may be a unique individual, as a collective, they possess the wisdom of the crowd and very rarely let values slip between their fingers. In fact, as we have seen above, when a seller presents a fair opportunity, they act fast. Together, buyers make the bid, which is similar to the ocean’s surface: never smooth but rather marked by the peaks and valleys of ever-present waves. When more buyers slosh together, the bids crest, and when buyers are few and far between, troughs form, but at any given moment, there is a level at which buyers are present.

The Offer

For sellers, this view is a great way to understand the opportunity cost of aspirational pricing, or the practice of pricing higher than the market in anticipation of negotiating down. In other words, the cost of pricing above the market today, in expectation of trying to meet a low bid in the middle, will likely be significantly more time on the market and a lower price.

Continuing the ocean analogy, if we consider bids a liquid surface, we can think of sellers’ offers as sticks hovering above the water level, with asking prices ascending as you rise. When the market is active, and waves are aplenty, the offer may get a splash up high, meaning the seller is able to move their home with little to no discount. When the market is calm and glassy, anything above the water level will remain bone dry. The seller is not seeing any bids and will need to lower their price until it is just high enough above the bid to make contact.

Of course, sellers who price below the market, i.e., submerge their offer, can expect the bid to quickly encompass their price, resulting in a premium as buyers compete for value and bring the offer back to sea level.

Final Thoughts

Buyers looking for deals today should focus on units lingering on the market. After an extended time on the market, sellers tend to accept their predicament and may be ready to lower their sticks.

Sellers, on the other hand, should remember that time on market is a silent deal killer. The more time that passes between listing and contract signing, the more the market is saying the price is wrong. Worse, even fresh buyers tend to shun overextended listings, assuming problems in advance. Going back to the bids as liquid analogy, time serves as an evaporator, invisibly lowering the bid, and by definition, increasing the discount needed to get a deal done. As counter-intuitive as pricing at or below the market seems, sellers must remember that when it comes to selling fast and getting the best price, the market works; trust the market.

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