The Secret Art of Pricing NYC Multifamily Properties
The Secret Art of Pricing NYC Multifamily Properties
Where should I price my property and why? I hear this question every single week.
We often hear brokers of multifamily properties dispense conflicting and even bad advice on this topic. At his or her core, a seller needs to operate with confidence and strength when making these choices — and it’s the broker’s job to guide the seller down the correct path.
What happens when an uncertain broker and uninformed seller are operating without an intelligent strategy? Fear drives the asking price decision, which leads to the wrong asking price, and money left on the table.
Ask the Right Questions
Creating an intelligent strategy and pricing your multifamily asset starts with 3 simple questions:
- What is the type of opportunity you’re selling?
- Who is the target buyer audience?
- How is the opportunity delivered?
Build your marketing plan around the answers to those 3 questions. The goal of this marketing plan is to create a competitive bidding situation that ends with the highest possible sales price and the best possible terms.
Unfortunately, the wrong asking price can obscure the opportunity and deter the buyers. It tells your audience that the opportunity is a waste of time and unworthy of their attention. It reduces the size of the buyer pool.
What’s the Temperature?
After asking the 3 questions above, one needs to consider the phase of the market cycle. There are exceptions to every rule, and asking price is just one consideration for your target audience, but you can generally follow these guidelines:
- In a Rising Market: A seller should increase the asking price by 10%+ over today’s price. Why? Because prices will rise during the marketing period, and aggressive buyers will stretch. This is the time for you to match aggressive buyers with aggressive pricing.
- In a Flat or Uncertain Market: Set the price close to current market trading prices. Why? Because uncertain buyers move slowly in these environments. Match their caution with pricing designed to grab attention and invite competition.
- In a Declining Market: The market occasionally enters a decline phase. In these specific instances, you should underprice the current market. Why? Because you want to prevent future losses. Underpricing can create a bidding war, while overpricing will chase prices down even further.
When to Have “No Asking Price”
Yes, you can list your multifamily property with no asking price, also known as the “un-priced” method.
This strategy should be used on rare occasions due to its inefficiency. Here’s why:
- Whispers: An un-priced property always has a “whisper price,” which you get from calling the broker. So, in essence, there is an asking price — but you have to work harder to get it. This is an analog activity in our digital world.
- A Shrinking Pool: An un-priced property also deters buyers from the opportunity (due to the extra effort required), effectively reducing the size of the pool of buyers and negatively impacting the sales price.
But there are situations when the un-priced method is perfect. Here are 2 examples:
- One-of-a-Kind Assets: Un-priced is often the right method when you’re selling a unique asset that features a significant pride-of-ownership component. The uniqueness makes value more subjective. The buyer will apply his or her own value, which allows the seller to potentially capitalize.
- Unknown Circumstances: Sometimes an unknown circumstance creates a value implication dependent on who buys. In these cases, the un-priced method is often effective.
What About Bid Deadlines?
The marketing process should project structure and create urgency. To do this sometimes a bid deadline is helpful.
That said, a bid deadline works better in some situations than others. For example, it’s almost always a good idea to use a bid deadline with institutional buyers. Why? Because a deadline focuses prospective buyers on the goal at hand, effectively moving them to take action.
Of course, bid deadlines are useless if you can’t draw a crowd, and they are less effective with private individuals. They can even work against you in some cases — private buyers don’t want to wait for deadlines to see whether or not they can buy a property.
Here are the 3 situations in which bid deadlines work best:
- When you need to clean up an unorganized marketing process
- When you need to grab attention
- When you’re marketing an unpriced property
How to Handle Price Reductions
Even when you follow the perfect process there are occasionally times for a price reduction. But how should you handle them?
The biggest decision to make with a price reduction is whether or not to advertise it. Some sellers think a price reduction makes them look weak or desperate. But this is a misguided concern. The truth is that a price reduction has the opposite effect — it sends a message that the seller is motivated, which helps create the bidding environment needed.
Sometimes the strategy is to reduce the price, but not advertise it as “price reduced.” For example, if your property has only been on the market for 45 days or less, buyers aren’t going to perceive it as stale. Rather, they are going to see your property as priced right and worthy of their time.
And one last thought on price reductions: Make sure you’re getting the guidance and support you need. Just as choosing an initial asking price is an art form, so too is choosing how to handle a price reduction. Find a broker that knows your market and your buyer pool to help you decide whether or not to advertise a price reduction.
Remember that different cultures around the world have different negotiating styles, and just about every culture in the world is present here in New York City. It’s important that you have a broker who understands different negotiating styles and cultural nuances when you sit down at the closing table.
That said, good competition always beats negotiating theatrics. The more competitive the environment, the more efficient we make our sellers’ markets — which ensures the highest price.
Finding success in selling a multifamily property requires a lot of different things. Some keys are:
- An understanding of the market
- Knowledge of your property
- An understanding of your target audience
- A strong marketing plan
- The right pricing
At New York Multifamily, our team knows this market and knows the buying pool. We can provide expert guidance and support that can help you sell quickly and enjoy the ROI you first envisioned upon purchase of the property.