The Case For Asking Prices In The Real Estate Industry
Access to market pricing is a necessity to all market participants, and one of our goals is to make it widely available.
At Agorafy we have made the case since day one that requiring verified asking prices for all of our listings increases transparency and accountability in the market place. We also believe it helps to create more efficient market by educating principals and clients alike, which leads to more informed conversations, and saves agents and their client’s time confirming availability and pricing.
Access to market pricing is a necessity to all market participants, and one of our goals is to make it widely available. Those looking for a new home for their family or business need to be able to research and compare prices across different buildings and neighborhoods. Real estate agents need to price out new vacancies and potential exclusives as negotiated the best deal for their client. Investors need to spot shifting trends and be able to properly underwrite potential deals.
Having access to data on recent transactions for comparables helps to give a partial picture of the current market environment. However when pricing a potential exclusive or underwriting an asset it’s not enough to know where prices have been, you need to forecast where they are going. This is the case for asking prices.
There are many positive aspects to relying on asking prices when determining market pricing. Not only do they give a starting point for negotiation and establish and expectation between the parties, but they are also a forward looking assumption on what the market can bear.
By focusing on shifting asking prices real estate professionals gain enormous insights into pricing trends. Since they are forward looking by nature, active listings are sensitive to supply and demand and are more responsive to the market. This feed back in real time and can be much more valuable than recent taking rents or closing prices, which degrade in relevance as time goes on.
It is true that asking prices can be inflated by misinformed real estate agents or unrealistic sellers and landlords. However, mispriced listings typically stand out as outliers and get corrected through market feedback. The majority of the time the taking rent or closing price is a small percentage below the asking price. However during periods of short supply deals get done quickly above the starting price, and subsequent asking prices get revised upwards.
Most real estate professionals can use their experience to forecast where the deal will get done in relation to the asking price and can spot changes in pricing by monitoring the spread between asking prices and the taking rent or closing price. Taking rents as a comparable provides a nice clean data point which can be used for pricing listings and underwriting assets. Once verified they provide a nice historical record of a transaction which professionals can point to when making a decision.
However there a number of downsides to relying too heavily on taking rents as comparable. Mentioned earlier, they lose relevance rapidly as time goes on. Especially in periods of market volatility taking rents quickly fail to reflect the current market environment and trends in market pricing. As just a data point they lose the context of the available supply and numerous other factors that led to the deal price.
Most importantly when they are distilled down to a deal price on a per square foot basis, they become stripped away from all of the factors that led to the two parties coming to an agreement. The taking rent per square foot doesn’t reflect the length of time on the market, or landlord concessions such as tenant improvement allowance, free rent, and landlord build out required to secure the deal. Without this context taking rents on a per square foot basis can become somewhat meaningless.
We believe strongly that asking prices are the most important data point for underwriting assets and pricing out new availabilities, not to mention searching for availabilities. For this reason we will continue to expand the reach of Agorafy in the hope of increasing transparency the New York real estate market. Our platform is built on verified asking prices to provide access and value to every market participant in the city.
AGORAFYStefano Boeri, the architect mastermind behind the famous plant-covered skyscrapers, is now designing Forest Cities in Liuzhou, China. #ForestCity #China https://goo.gl/PsTUwv
AGORAFYAuction is the second scheduled in a month for a One57 unit and it could set a NYC foreclosure record. #BillionairesRow #Foreclosures https://goo.gl/NZ3zqD
AGORAFYOnce a couch-surfing website, Airbnb moves on to luxury properties, further disrupting hospitality industry. #Airbnb #Luxury https://goo.gl/7TpLk6