The Case For Mandatory Reporting Of Transaction Price At Time Of Contract, Not At Closing

Author: Jason Thomas

Marketproof’s latest tool, which — for the first time — allows us to see historical condo price per square foot data as a function of contract date, indicates that Manhattan’s condo market peaked, not in Q2–2019 as closed date based reports have led us to believe, but in Q4–2015.

Two important dates define any real estate transaction: the contract date and the closed date. Although the latter is far more important to the parties involved — it’s when the seller hands keys to the buyer and the broker gets paid — the former is far more important to the industry. Why?

Because it is a current indicator. Contract price and date are a snapshot of what a consumer was willing to pay for that product on that day in history. Aggregate price and date for enough contracts and, voilà, we have an understanding of the market.

Due to no fault of their own, the industry tracks the market using price per square foot as a function of closed date since real estate law mandates reporting of transaction details only upon closing. That’s unfortunate because the closed date is a lagging indicator. “Lagging by how much?” one might ask. Marketproof provides us the answer. Within the secondary (consumer-to-consumer resale) market, the average time from contract to closing in Manhattan and Brooklyn is 67- and 62-days, respectively. Marketproof’s research also indicates that it takes another 3-weeks for transaction details to post to public-facing ACRIS.

Tracking 3-month old data is not the end of the world. However, what about the primary (new construction by sponsor) market? Within our white paper titled, “The Income Method: A Better Mousetrap to Property Valuation?”, we discuss that the time lag in the primary market is often measured in years, not months. Unfortunately, the industry is forced to wait, potentially for years, to correctly understand the past. This isn’t just frustrating, it’s dangerous.

Now that we’ve presented the problem, let’s quantify it. We can do this by using Marketproof’s first of its kind tool that allows us to look back at recent price/sf history as a function of contract date (the correct way) instead of closed date (the incorrect way).

First, the wrong way:

As a licensed salesperson for the past decade, an absolute price/sf maximum during Q2–2019 seems far-fetched to put it mildly. Why then does the chart suggest such?

Using Marketproof’s interface, we can easily explore the underlying closings during that period from Q4–2018 to Q2–2019 which led to the peak. Within ultra-expensive 220 Central Park South alone, we see 31 closings at an average price/sf of nearly $7,100/sf. Nothing surprising or alarming there, since we would expect extreme sales to skew the market and create a peak.

However, a deeper look reveals that greater than $600Million of those sales were signed into contract in 2015, including Ken Griffin’s nearly $240Million purchase. In fact, more than $1.483Billion of sales within 220 Central Park South that closed between 2018 and 2020 was actually signed into contract during 2015; i.e. the reporting lags the market by 3 to 5 years.

With that perspective in hand, let’s now chart Manhattan condo price/sf as a function of contract date (the correct way):

Different indeed. Overlaying the two charts indicates just how different the market was when viewed by contract date and by closing date and allows us to identify important conclusions:

• the absolute maximum did not occur in Q2–2019, it happened in Q4–2015
• when price/sf as a function of closed date suggested prices were peaking, the market was actually sliding down a steep hill.

If the industry ever wishes to view price trends and consumer sentiment through current indicator lenses instead of lagging ones, the powers that be will need to shift mandatory reporting of transaction price from closing date to contract date.

• Please note, we have purposefully omitted Q3–2021 data in all charts since, as mentioned previously, the time lag between contract date and public posting is roughly 3-months.