It all started, in Jonathan Miller’s mind, with the sale of former Citigroup chairman Sandy Weill’s Central Park West apartment three years ago for the astronomical price of $88 million. Since then, others have aspired to lofty heights, causing a significant disconnect between seller pricing and market value. Real estate professionals such as Miller, president and CEO of Miller Samuel, a real estate appraisal and consulting firm in Manhattan, call this growing phenomenon “aspirational pricing”– list prices with little or no connection to market values. Jaws dropped when Weill listed the apartment in late 2011 for about $13,000 per square foot. The apartment quickly sold for that record price and could be returning to the market again soon, sources say.
“That became a benchmark to aspire to,” Miller says. “It ended up affecting people who maybe had a $5 million-dollar unit who said, ‘I might get $8 million for it.’” The phenomenon isn’t unique to Manhattan, but rather a global response by luxury sellers in a world where record listings and sales attract worldwide media attention.
Skewing the market
Luxury home sellers seeking more than market value end up distorting inventory numbers, Miller says. “If something is worth $10 million and you’ve priced it for $30 million, I would say that is not a listing,” he says. Hall Willkie, president of luxury brokerage Brown Harris Stevens, says the problem has grown substantially over the past two years in both Manhattan’s resale and new development sectors. To be sure, residential real estate pricing isn’t an exact science, but the use of comparable sales and market activity allow a luxury seller to establish a realistic range of value. “If you price within that range, at the very high end of that range, properties sell and they sell well and quickly,” he says. Buyers are ready to buy, but they are price sensitive and knowledgeable about the market. If they believe a property is priced outside of the market range, they generally won’t touch it, Willkie says. “If you ask a price that isn’t justifiable, people don’t even come and look at it, they certainly don’t bid on it,” he says. Some resale properties valued at more than $10 million in Manhattan have sat for more than three years. The average number of days on market for a $10 million-plus resale home was 133 days in the fourth quarter of 2015, with an average listing discount of 3.2%. One example of aspirational pricing, a property at 635 West 42nd Street, was originally priced at $10 million but later raised its asking price to $25 million and has sat on the market for 1,374 days. Unlike Miller, Willke doesn’t believe Weill’s former apartment fits into the aspirational category. Brown Harris Stevens represented both the seller and buyer in 2011 sale. Based on square footage of past sales, a $70 million price tag was justifiable but a $12 million renovation added value. As a result, the $88 million price tag wasn’t too far off its high-end value range, Willke says. “It was the highest resale price ever achieved in New York, but it was a spectacular apartment,” he says. “It was an outlier in that it was so magnificent.” Occasionally, when an incredibly unique apartment comes on the market, people will set aside their price sensitivity and will pay above market value, but that is rare, Willkie says. Aspirational pricing has not flooded the Miami market but it is cropping up, says Aaron Drucker, a managing broker for residential real estate company Redfin in the Miami/Broward county area of South Florida. “There are a few examples of (listing) prices that are astronomical that I don’t think the seller will ever get,” Drucker says. “We had a $60 million penthouse at Faena House sell for a record $4,794 a square foot so you see a couple of properties crop up at $5,000 a square foot and you realize that is maybe a seller being aspirational. There are just a few examples of sellers doing that. I don’t see a trend.” Faena House, in Miami Beach, is considered one of South Florida’s premier properties. It was built in 2014. With inventories on the rise, luxury buyers in South Florida, as well as many other luxury markets, have plenty to choose from. “I think there are plenty of deals for buyers,” Drucker says. “They can really pick and choose with all of this inventory.”
Advice for luxury sellers
• Use comparable sales and price at the high-end of the market range, not beyond the range. • Get the word out: Market to the full range of real estate brokers • Realize that the buyer has the same information you have. Think about the sale from the buyer’s perspective. • A property must show well to draw the highest price. This means clean closets, paint, renovate and stage the apartment. “When you open the door, there is only one chance for a first impression,” Willke says. • Capitalize on the energy of a new listing. If it’s priced wrong and doesn’t bring showings and offerings, it will quickly be pegged as ‘old and tired.’