That sky-high asking price for a luxury home? Don’t take it to the bank
There is a rule of thumb among real estate agents that if a property is priced fairly, it should sell in about a month and within 5% of the asking price.
It rarely works out that way at the high end.
A median-priced home in Los Angeles County does indeed sell at or above the asking price within an average of 30 days. Luxury homes, on the other hand, usually go through a multitude of price drops, lingering on the market for months, sometimes even years.
In the rarefied air of ultra-luxury housing, most homes are not priced to sell. Instead, sellers — often ignoring the advice of their agents — set eye-popping list prices, figuring all it takes is that one special buyer. A lengthy waiting game typically ensues, peppered by hefty price cuts.
“Luxury-home sellers have the psychology that they can afford to wait and see,” said Tomer Fridman, an agent at Compass Real Estate. “I try to explain: Every day that goes by, you don’t gain leverage — you lose it.”
Homes priced at $3 million and above in L.A. County spent an average of 65 days on the market before finding a buyer in October, according to data provided by real estate start-up Open Listings. That’s more than double the average of 31 days for homes priced below $3 million.
That 65-day average might even be deceptively low.
Joyce Gottlieb, a real estate agent at Berkshire Hathaway, estimates that a third of the deals in the high end fall out of escrow once the buyers realize they’ve agreed to an inflated price; the homes then end up back on the market, a situation that “nobody wants.”
“You’ve got to price the home as aggressively as possible, otherwise you risk having a stale listing on your hands,” she said.
Stale listings are problematic for sellers, because buyers view them as an opportunity to gain leverage in negotiations. As a result, it has become common practice to cancel a listing if it hasn’t sold within 60 days and re-post it, creating the appearance of a fresh listing.
So smart home buyers should ask their agents for the cumulative days on market, Gottlieb said. Real estate agents have access to the information, which is often difficult to find using the big real estate websites.
Ultimately, many home buyers end up scoring luxury homes for much less than the buyers had originally hoped for.
Of the 108 single-family homes that sold in L.A. County in October for $3 million or more, 90 sold for less than their original asking price, according to MLS records. A mere 8% of luxury homes sold in October went for more than the asking price, far fewer than the 30% of homes that sold for a premium in the rest of the market, according to Open Listings data.
One Pacific Palisades home that closed in October originally hit the market in March. The initial price is now scrubbed from MLS records, but after a recorded price change to $7.49 million in April, and a subsequent drop to $6.99 million in July, the home eventually sold for $4.2 million.
Demand remained strong for high-end homes in the third quarter, according to a recent report by Compass. The median sales price of homes in the $3-million-to-$5-million range increased nearly 3% over the previous year, and the number of sales jumped a staggering 35% over the same period in 2016. Many agents have been touting 2017 as a banner year for luxe homes in the L.A. area.
Although there was healthy growth in the luxury sector, those numbers did not account for what the homes were originally listed for or how many times the price was slashed. A disconnect remains between what high-end sellers think they can gain and what increasingly savvy buyers know a home is worth.
Fridman said the price at which a luxury home eventually sells after multiple price drops and months on the market “is usually the price the agent recommended in the first place.”
But sometimes, agents themselves are to blame. Many engage in the process of “buying a listing” by promising to sell a home for more than the market will bear. In these cases, said Gottlieb, “the agents are just blowing smoke.”
Of course, there are exceptions.
One of the highest-dollar home sale last year was a $20-million Pacific Palisades estate, which found a buyer in 12 days and sold for the asking price — a rarity in luxe real estate but still possible if the home is priced right.
In general, buyers shopping in the upper echelons of L.A. area real estate should understand that the asking price doesn’t give a clear idea of what they might ultimately pay, and they can almost always expect a discount.
So unlike the middle of the market, where it behooves buyers to act as quickly as possible, luxury buyers are better served by waiting to see just how low the price will go.
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