How much does overpricing your home cost you when you sell?

It could cost your $800,000.  I’ll explain.

This month, we highlight a sale that our team did on West 81st Street, a townhouse that sat on the market for nearly 7 months before finding a buyer- our buyer.

A lovely townhouse off Riverside Drive on west 81st street

The home our buyer fell in love with is a 5200 square foot, 18′ wide townhouse with seven bedrooms, and seven baths on a gorgeous block just off Riverside Drive.  It had been converted into a three-unit house, with a therapists garden-level unit in the front, and a lovely duplex in the bath, occupying part of the garden.

It came on the market for $7,950,000, or $1538/square foot.  It sold for $5,400,000, at a price of $1045/square foot.  That’s a 32% discount.

Between going to market in late March 2022 (a year ago) and the closing in early 2023, the unit was reduced to $7mm thirty days after going to market, then by another $350,000 after Labor Day to $6,65mm, then another $400,000 a month later to $6.25mm.  Our buyer stepped in at that point, and we negotiated the sales price.

Could They Have Done Better Starting Lower?

33 Houses Sold between March 1st 2022 and today on the Upper West Side, priced from $4mm to $10mm.  You can look at them here.

33 Houses That Sold in the Last 12 Months

My takeaways:

• Those that sat on the market for a number of months had meaningful price reductions- $1mm or more
• There is a cost to carrying the house before selling it that may or may not be important to sellers
• Those homes that sold within 30 days of going to market didn’t cut their prices at all.

Different Buyers

The argument about how to price townhouses comes down to this: There are very different buyers who can come to the table.  You have Investors of one kind or another, Developers, or End Users.  Investors may just want cash flow, others will want to do major renovation to unlock value.  Developers will want to convert to condominiums.   End Users have many different needs, from taking over the whole building to only occupying a portion of the house.

It seems to me that townhouse buyers are more location sensitive than run-of-the-mill apartment buyers.  And with the various potential buyers, the logic could be to leave room for negotiation.

The Math

A $3mm mortgage in April 2022 would have cost you 3%, or $12650/month to carry.  The same mortgage in April 2023 will cost your $16,100/month.  What do you think happens to the value of homes when your purchasing power is so drastically impacted?

Based on a 3% mortgage, this $3450 difference would get you $800,000 in borrowing.  And there explains the difference in value between April 2022 and today.

In a world in which a seller started marketing when mortgage rates were at the lower end, then sold when rates were at the latter level, overpricing could have cost them at least 15% in their ultimate sales price.

That is, they could have gotten over $6.2mm – if they had started there.  Instead, they sold for $800,000 less.

How do you decide how much room to leave in your price?  I’d love to hear from you with your answers.   -Scott