Many properties trade at a discount off the asking price. Our statistics refer to this as the "listing discount". But what exactly does the discount relate to - the final asking price? The original asking price? Something else? And why is this important?
Understanding that properties typically trade at a discount is especially important in a rapidly shifting market, such as ours, when it can take months from a contract being signed until a sale closes. It is at closing that a sale price becomes public knowledge; until then, we only know the asking price and, with a bit of digging, the listing history, including time on the market. If we understand a typical listing discount, we can make presumptions about a sale price, and a home's value, based on the list price and time on the market.
Is there a guarantee that the contract price, or the recorded sales price for that matter, accurately reflects the value of a property being traded? Unfortunately, not. These prices fail to reflect whether any incentives were offered. Historically, incentives may have been furniture or artwork included with the sale. (Transfer tax on real estate is typically less than sales tax on personal property. Just sayin'.) Or a storage bin, parking space or other similar freebie. There may be an allowance toward required repairs or needed renovations. In the world of NYC cooperative apartments, prices may be artificially inflated to satisfy a Board's requirements. Boards have been known to reject sales at low prices deeming them a devaluation of the other units in the building. Today, as interest rates on mortgages have spiked, we're seeing sellers assist with the buyers’ closing costs or buying down their interest rates as effective incentives.
Rentals in NYC typically post the asking rent, but not the negotiated rent. They also are notorious for failing to disclose incentives such as free rent, payment of broker fees, the length of lease and the terms of any renewal leases. Comparing prices of rental properties is truly like comparing apples to oranges, and rental values might as well be determined in a vacuum.
Since an incentive affects the value of a property, it must be disclosed to a lender, an appraiser and a governmental taxing authority. However, they're often disclosed with an invisible asterisk. The contract price or sales price does not accurately reflect the incentive or the property's true fair market value.
Top real estate agents, with outstanding knowledge of their communities and with great professional peer relationships, can offer specific, curated inside information and knowledge about recent transactions, including whether there were incentives offered. Our insights into accurate property values are invaluable when it comes to effective pricing, marketing ideas and negotiating strategies. Knowledge and analysis by savvy agents are essential to a successful transaction.
Kindly share this blog with friends, relatives, colleagues and clients interested in accurate residential real estate pricing information. And please reach out with thoughts, questions and comments.