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Three Cents Worth: Manhattan Ain't No Discount Outlet

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[This week, real estate appraiser, Curbed graph guru, blogger, and podcaster Jonathan Miller talks about everyone's favorite thing: discounts!]

This week I took a look at listing discount for the re-sale (existing) and new development sales markets. For purposes of this analysis, listing discount was defined as the percentage difference from the list price at the time of contract and the sales price. I also track this metric from the original listing price, but that metric is full of noise i.e. "my apartment is worth $25M so I'll list if for $100M and hope I get lucky" and is less helpful to analyze trends. In theory (and the way I tend to view this listing discount), is that an apartment is not actually "in the market" until it is priced competitively—otherwise it's just a number in a database or spreadsheet.

Another way to think of listing discount is as a rough measure of negotiability between buyer and seller, however it doesn't tell us whether the seller or buyer had the upper hand, just what the total distance traveled between the two prices. So a seller that caved to the buyer or a buyer that caved to the seller might show the same overall discount. Still it does give a general sense of how disconnected the parties are on price.

Re-sales (magenta line): Listing discount has remained in a fairly consistent band of 2%-6% over the past 4 years. You can see a spike near the end of 2012 as the fiscal cliff expired. I think that widening of the discount was a period where the sellers sensed an opportunity and priced higher but buyers tended not to give in. Of course, this is the aggregate result and there were a number of buyers who to did cave in to the seller's demands.

New Development (light blue line): The listing discount was far more volatile in this market segment over the same period. As the new development pipeline (i.e. shadow inventory) ran dry in 2011, the discount compressed to be competitive with resales. In other words the high discount was a function of list prices set prior to the Lehman tipping point in late 2008, and developers were quietly selling for lower prices as the market reset. With the lack of supply (that picture is changing rapidly) closings on new development are seeing very limited discounts and are almost identical to the modest discounts seen in the resale market. I think the new development discounts would show a lower number, but the rapid rise in prices on subsequent amendments has provided a little more room for negotiation in some cases.

With the disparity in supply between new development and resales going forward, I suspect we will be seeing resale discounts remain low and new development edge somewhat higher.

Then again, I like to watch Olympic curling.
· Miller Samuel [official]
· All Three Cents Worth [Curbed]