Overpriced and Undersold
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When it first came on the market for $50 million in 2001, the late Andy Warhol's 5.6-acre Montauk estate (called Eothen) was one of the most expensive properties in the world. But the uninterrupted views of the Atlantic and its storied past—the Rolling Stones, among others, had been guests there—couldn't make up for the fact that the houses on the property were in less than mint condition. After letting it sit for five years on the market, owner Paul Morrissey, who moved in with the pop artist in 1971, has lowered the price to $40 million.
Why do some houses sit on the market for months like wallflowers at a debutante party, while others get snapped up immediately or even have to fight off suitors? Eothen, after all, has remained unsold during one of the biggest real estate booms in history. It's not always about looks, though that plays a big part. It's not even about location, which is often the key factor when buying real estate. It's about, as with so many things, managing expectations.
At the very top end of the market, it is not unusual to see owners place enormous price tags on their homes just for the bragging rights of having one of the most expensive homes in the world. For the most part, these "sellers" are indifferent about selling because they are so rich they don't need the money. (Of course, if someone came along and offered them their inflated asking price, they'd be all too pleased to take it and congratulate themselves on their shrewd deal-making abilities.)
For the rest of the world, though, a house that goes unsold too long is a source of concern, especially for the seller. In most cases, people who have placed their homes on the market do so because they need to sell. Whether they want to buy another house and have to sell their current one to pay for it, are going through a divorce, moving out of town, downsizing, or settling an estate, the majority of sellers are motivated.
The problem is that too many times they are also motivated by greed. As real estate prices climbed and interest rates fell over the past five years, homeowners became accustomed to asking, and getting, sky-high prices for their properties. Fueled by low rates and a strong Wall Street, the housing market seemed to be in a perpetual upward spiral, shattering existing property records on a regular basis. When comparable homes are selling for between 50% and 100%—or more—than what they originally cost, who wouldn't try to get as much money as they can?
Yet in many cases the sellers ask for more than what even an overheated market will bear. Eothen is a good example. It's not that rich people are unwilling to spend $50 million or more on a house—in November, 2004, Dwight Schar, the chief executive officer of Virginia-based construction service company NVR, paid billionaire Ronald Perelman $70 million for his six-acre oceanfront estate in Palm Beach—but they don't want to overpay anymore than anyone else.
HOW TO MOVE IT.
What no seller wants is a house that languishes on the market—especially now as the global real estate frenzy continues to cool. When potential buyers find out that the property at which they are looking has been listed for months without any offers, they start to wonder what might be wrong with it. Sometimes the reason is structural—such as a leaky basement—but often it is that sellers have set the price too high. If a property has been on the market too long, the broker should suggest lowering the price or, in more prolonged cases, take the property off the market for a few days before relisting it to appear like a new house on the multiple listing service.
The key to selling a house quickly is to price it neither so high that it scares off potential buyers, nor so low that it puts a dent in the profit. The best way to price an apartment is to get a broker to do an analysis of comparable home sales. In addition to their knowledge of local markets, brokers have access to the databases that ordinary sellers can't get access to in some markets. These comparable listings establish a good yardstick. Of course, other factors can add to or detract from a home's value. Got a swimming pool? That will add value, unless it's old and leaks and needs a lot of work. Acreage is also a plus—unless it's next to a sewage treatment plant.
Of course, brokers aren't above setting prices too high since such sales can increase their commissions. But this risky strategy can backfire. Ensuring that the seller and broker are in agreement about a realistic asking price will improve efforts to sell a home quickly.
. Frequently it's not the daunting size or price of a house that wards off the average buyer but a style that is incongruent with its neighborhood. Stephen Nagy, CEO of an alternative energy company, has had his contemporary-style home in Greenwich, Conn., on the market for four months. In an affluent, conservative community where Tudor-style homes abound, selling potential buyers on the angular modern architecture of Nagy's home often means encouraging them to adapt their vision of a dream estate.
"We help them appreciate that the exterior packaging has some incredible surprises within," Nagy says. "Our home has the possibility of being updated with both modern and more traditional furnishings."
Now empty nesters, Nagy and his wife plan to move to a smaller home in Greenwich, but are in no rush to sell. Nagy and realtor David Ogilvy took the peculiarity of the architecture into account when determining their price of $4.5 million. "There is a price handicap because it's modern, but there's been absolutely no lifestyle handicap, it's been all benefit," Nagy says.
Sometimes, to justify a higher price, owners need to spend extra money burnishing their homes with fresh paint or even expensive new fixtures, and hope that the added investment will pay off. Seattle realtor Teri Herrera specializes in restoring and marketing homes that would otherwise be overlooked. An area resident whose property had sat on the market for more than two years with other realtors recently lost patience and sought out Herrera.
For the languishing property, situated in a desirable community on Lake Washington, Herrera needed to address repairs, staging, and marketing. She took the home off the market, repaired a leaky roof and other damage, and brought in professional landscapers and stagers to give potential buyers an idea of the lifestyle that could await them. She then created a guided video tour of the property for the Internet, allowing those who cannot see it in person to experience its full potential.
"I am always asking people to spend money," Herrera admits. "And at the end of the day, the [investment] always more than pays for itself." As a result, she claims the Yarrow Point (Wash.) home, which is now listed for $2.9 million, has already attracted the interest of a number of prospective buyers.
This is good news for buyers, because prices are unlikely to be as inflated as they have been and sellers will have to work harder, or at least realize that the days of double-digit profits have ended.
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