Art or Science? How the Pros Price Properties
Two of Compass’ real estate experts discuss how quantitative and qualitative data are key to accurately determining the value of a home.
Images: Lauren Naefe
Julia Hoagland’s science-focused educational background and extensive experience in real estate have helped her develop a precise approach to pricing a property. Her team, Julia Hoagland + the Modern Luxury Living Partnership, are consistently recognized as top performers at Compass and in multiple publications, ranging from The Wall Street Journal to The Real Deal. Similarly, Julian Berkeley’s 22 years in real estate have allowed him to master home valuation. Before joining Compass as its Managing Director of Sales, he was a real estate attorney, developer, and part of a top-performing agent team.
Together, Julia and Julian brought their comprehensive knowledge to a recent event at the Real Estate Board of New York — a century-old trade association of 16,000 local professionals—to discuss “The Art and Science Behind Pricing.”
Julian: To start us off, what is your general sense of where the market is?
Julia: From a qualitative standpoint, there is certainly less fervor than there was 12 to 24 months ago. Around 2014, we were experiencing an incredible sense of urgency on behalf of buyers to pay whatever was necessary to to get the property they were looking for. I happen to think that balanced markets—the direction we’ve moved toward—are healthier; buyers and sellers trust their decisions more.
Julian: This spring, the Manhattan landscape looked something like this:
• 5,300 apartments on the market, including 3,300 condos and about 2,000 co-ops
• Condo prices averaged $2.27 million and co-op prices at $1.65 million
• The market for $1 million to $3 million apartments has been declining since August 2015
• Inventory for apartments less than $1 million has dropped 29%
Can you run through how you consider qualitative data alongside quantitative data like this?
Julia: We always start with quantitative analysis, realizing it only gets you part of the way. Data is historical, so we are trying to predict the future by using the past. It’s crucial to account for the present accurately to advise on pricing strategy, considering, for example, consumer sentiment and interest rate. Incorporating as many qualitative pieces of analysis as possible will make sure that the pricing advice you give is comprehensive.
Julian: When you’re pitching a seller, what quantitative pieces are you looking at to determine an accurate price?
Julia: Manhattan is a very active market; there are a lot of buys and sells happening. So because you have a lot of data, you can get a pretty solid sense of fair market value by analyzing statistics. I look at price per square foot, per room, per share if it’s a co-op, per configuration — statistics from as many independent variables as possible.
Manhattan real estate doesn’t always make sense, but triangulating these figures allows you to feel reasonably confident that what the data predicts is what the range of value is. The market will ultimately price the property; our job as brokers is to find the one buyer that will pay the most for it.
Julian: How do you triangulate in a market that appears to be shifting?
Julia: The advice I would give buyers in a shifting market is you need to not only bid ahead of the comps, but you also have to bid ahead of everyone else who is bidding ahead of the comps. If the market yesterday is not as strong as the market today, and if you really want a property, you may need to be prepared to throw a Hail Mary. If buyers are over-paying I want them to know so that they can determine whether their reasons justify doing so.
My job is to enable people to make informed decisions about what exactly they want to do given the situation.
Julian: How do you handle a prospective seller who tells you that another real estate agent estimated the value higher than you?
Julia: I go back to the multi-layered analysis that I’ve done to point out the quantitative elements, augmented with qualitative. Ultimately the market will price the property, so our job as brokers is to price it in a way that makes you look like a serious seller and encourages people to look at it. I will point out that a majority of our listings sell at or above ask, so it’s not about the asking price; it’s about clearing the market and that is what we do with our techniques.
I then say that I am working for you; if you want to try and price it higher, we will do that.
Julian: How do you approach timing with sellers?
Julia: If they are looking to sell, the ideal time to sell in the spring is between February 1 and April 1, and in fall it’s usually right after Labor Day depending on the Jewish holiday schedule. If someone comes to me in July and says they want to sell, I’ll recommend they wait. The less restriction you put on the marketplace, the higher the clearing price is going to be, so they need to choose what is their priority: acting immediately or maximizing the price and maybe considering a temporary rental apartment.
In terms of timing once a property is on the market, I am a believer that the most active time for a listing is in the first three or four weeks. If we don’t have a deal by then, it’s time to act swiftly. I always recommend a 10% price reduction, which understandably makes some sellers panic. If they’re not ready for 10%, then I ask for at least 5%. If they want to do anything less than five, I recommend we leave it on the market for another four weeks and see what happens.
Julian: Let’s consider the buyer’s perspective. When you’re working with a buyer who believes that the market will continue to fall, how do you advise them to move forward with the decision to make a purchase?
Julia : There are a lot of moving factors in real estate evaluation.
I always tell people that the best time to buy real estate is generally 10 years ago, and the second best time is when you are ready and find a place you love.
I think back to 2009; it was a complete disaster, but a really good time to buy from a purely pricing perspective. When you’re buying, you are probably doing so in a healthier market and that means higher prices, but it also means a higher equity portfolio. The point is that there are so many different factors, it’s hard to estimate the right time. I try to advise my clients that if they see an apartment where they would be happy living, then maybe it’s the right time for them.
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