What’s the difference between “being greedy” and “being smart” when pricing your luxury condo?
It’s a fine line, but it all depends on whether your actions resulted in an actual sale…
You all know that I can’t divulge the names or addresses of properties I talk about in my blog, right?
As Realtors, we’re not allowed to “disparage a competitor’s listing,” so providing the address of a property and then proceeding to tear it to pieces would land me in some hot water!
Well sometimes, I just wish I could! The following story would be so much better if you knew which building I was talking about!
I was browsing penthouse listings on Sunday night, and I came across a downtown penthouse in a 2-year-old building that I don’t really like. The building, that is; I don’t like the building, but who wouldn’t like the unit itself?
I’m not a fan of this building because it’s “nothing special.” It’s just another condo, and because it’s located next to a so-called “luxury” hotel/condominium, people believe this building to be a notch below luxury itself, even though it’s nothing of the sort.
The penthouse in question was first listed in May of 2012 for $2,340,000, and was on the market for four months with no price reduction.
Guess how big the unit was? I mean, for $2,340,000, what would you expect? 4,000 square feet? At least 3,000, right?
Nope – only 2,398 square feet, meaning this unit was priced at just under $1,000 per square foot.
Again, I must specify that this is NOT a luxury building. Not even close. Just because this building is next to a luxury condominium does not make it luxury itself.
Since when is $1,000 per square foot reasonable? When did this happen? Was I asleep? I used to think that $500 – $600 was fair, give or take, and anything above this was expensive. But $1,000? For what? It’s not like there’s a brand name attached to this building, or are there any superstar amenities and features like a cute dog that puts a mint on your pillow every night.
In any event, the unit was re-listed for $2,190,000, representing a $150,000 reduction in price. However, they removed a $50,000 parking spot from the listing, and this was after the high-end condo market began to cool, so in my opinion, the unit wasn’t really reduced in price at all!
Even at the “new and improved” price of $2,190,000, this still represented $876 per square foot.
Don’t get me wrong – the condo is gorgeous, but where is the logic in this pricing?
After seeing the unit on MLS on Sunday night, a question popped into my head; one that should have been asked a long, long time ago: “What did the seller pay for the unit?”
The seller had the unit on the market now for six months, with no sale, and his price reduction was in line with a cooling high-end condo market. It seemed to me like he wasn’t trying hard to move the property, so I began thinking that perhaps the seller was having trouble making money.
It’s not uncommon for a seller to defy logic and reason in the face of mounting losses.
So I went into Land Registry and dug up the unit, expecting to see that the seller had paid $2,000,000 or something along those lines.
Can you guess where this story is going?
The seller whose unit has been on the market for six months with virtually zero price reduction did NOT pay $2,000,000 for this unit.
Not even close.
Nope, the seller paid $1,037,000, and likely did so in 2009 as the property closed in mid-2011.
Can you believe it?
I’m a capitalist, and I love the color, smell, and feel of money as much as the next person, but I’ll never make a business decision based on greed.
There’s no other way to explain this one.
Imagine paying just over a million-bucks for a condo, and pricing it three years later at $2,340,000?
I soon realized that this price was somewhat arbitrary. The $1,000 per square foot valuation was a sexy round number that had a psychological value to the seller. It was a trophy, if you will.
But the condo was never worth that price, or anything close to it, and it seems as though the seller has wasted all of 2012. December is just around the corner, and the real estate market will be on vacation for a month. There aren’t a whole lot of $2 Million condos trading hands a week before Christmas!
Had the seller priced the unit at $1,999,000 back in May, perhaps a sale was within reach. I guess we’ll never know.
But would the seller have “settled” for a paltry $1.8 Million?
Would he have been okay with “only” pocketing $700,000 and change?
This is greed, plain and simple.
Show me another investment vehicle on the planet where people have such incredibly high and unrealistic expectations!
If I had to make a prediction, I’d say that this seller will reduce the asking price $100,000 every four months, and allow the property to rot on the market.
This doesn’t seem like a smart business decision in my mind. It seems like it’s a decision borne out of arrogance and stubbornness.
Sometimes, I think that rich people would rather lose money than hurt their egos.
I have no idea who this seller is – it could be a guy worth $100 Million who doesn’t care about losing tens of thousands in carrying costs. But it seems as though these psychological benchmarks like $1,000 per square foot or “a multi-million dollar condo” are created in the seller’s heads, and interfere with their ability to make sound decisions. Because it seems right now as if the seller is refusing to go below $2,000,000, which leads me to believe he’s clinging to the “multi-million-dollar” tag.
The “penthouse” tag has some value, no doubt.
But the pricing here is just so out of whack, and it reeks of greed.
I know there isn’t a single seller on the planet that doesn’t want to get the most money for his or her property, but when you’re over-priced by several hundred thousand dollars, it’s almost as if you don’t want to sell the property; you just take pleasure in offering it for sale.
I’ll keep an eye on this one, but I’ll bet it’s still on the market in May of 2013…