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Pricing a Property Based on Comps is Still the Rule - Unless it's Incomparable

Pricing a Property Based on Comps is Still the Rule - Unless it's Incomparable

Anne Machalinski

When pricing a residential single-family listing, most agents' first step is to look at the recent sales of comparable properties in the same neighbourhood; about the same size; on a similar piece of land; and with similiar features, like views, amenities and updates.

This process of evaluating comps is especially important when the buyer is likely to need financing, experts say, because an appraiser is going to perform the same exercise to justify the loan.

But when an agent is considering how to price a luxury property - specifically one that's truly in a class of its own, and likely worth more than anything else out there - they become much less important. Or as Adam Rosenfeld, a founding partner at Los Angeles-based luxury brokerage Mercer Vine put it: "Comps are always relevant until a property becomes incomparable."

For those one-of-a-kind properties, agents often get to their list price by analyzing other data points gathered from nearby active listings, or similar properties that sold many years ago. They also often find the "next best thing" that's still for sale, and use that price as a base, going up from there, or rely on their gut instincts, honed from many years of experience, to guess what the current market will probably think the property is worth.

"The intellectual capital and experience of a seasoned luxury realtor becomes far more critical in an uber luxury sector than it is in the more commoditized or ordinary price points," said Jay Parker, CEO of Douglas Elliman's Florida brokerage. 

In Miami, Mr Parker said, single-family homes priced in the $500,000 to $1 million range have plenty of like properties to compare to that have been sold in the last six months. This makes determining the list price straighforward.

But at the $10 million and above, there aren't that many transactions, which means those comps dry up. Instead, there are a bunch of houses still listed in that range - information that isn't that valuable, Mr Parker said, because who knows what they'll eventually sell for - as well as some sold properties that may be a similar size and on a similar lot, but with serious distinctions in design and finishes that only a trained eye can spot.

"You wouldn't compare a Coach bag to a Hermes bag on size alone," Mr Parker said, "and the same should be true with ultra-luxury housing."

South Florida Douglas Elliman brokers recently ran into this problem with pricing a nine-bedroom, ten-and-a-half bathroom home on Pine Tree Drive, Mr Parker said, which the seller built for himself, but decided to list before he ever occupied it. "This house is so ridiculously exquisite and meticulously finished, with a view of the ocean and a large lot," he sad. "There aren't any comps that exist like it."

But when a spec house sold in February a few doors down for almost $22.6 million, after being listed for $34 million list price was justified. "They're both beautiful houses, but are as different as that Hermes and Coach bag," he said. "When one is custom-designed and handmade to the specific needs of the buyer, the other is a more standard spec producion."

Price range dictactes where Manhatten comps may be found

In Manhattan, where luxury resale properties might mean a co-op or condo or townhouse, "sold comps are the law of the land for the $4 to $10 million range," says Nikki Field, senior globabl real estate advisor and associate broker at Sotheby's International Realty.

In the next level of the market, at $10 million to $20 million, it's a different story. "To get more data at this level, we use active comps and sold comps going back 12 months," Ms Field said. This helps brokers get a sense of the current market and the market direction.

Things continue in that fashion until the $40 million mark, after which point Ms. Field said brokers solidly embrace that each property and each sale is unique. "Much like selling art, each transaction at this level comes down to what the market is willing to pay to secure this one-of-a-kind masterpiece," she said. Often, the sale is more about the buyer's lifestyle or their desire to secure a trophy - not what someone else paid three buildings over.

David Parnes, a broker at The Agency, said that the level at which comps become much less valuable is about the same in Los Angeles, although that's not a hard and fast rule. He recently sold a $30 million property to a buyer who needed financing, so they had to find comparable properties to justify the sale price.

Then there are cases, Mr. Parnes said, when a much less expensive property is difficult to comp because of its one-of-a-kind view, or a design that couldn't be replicated. "It's more subjective," he said. 

New builds often define their own price

Spec builds and new construction present a different challenge, regardless of the market, experts say.

In Los Angeles, Mr. Rosenfeld has seen spec builders of mega mansions like OPUS and 924 Bel Air Road, both of which come with over-the-top extras like sports cars, art installations and stocked wine cellars, and completely disregard typical top-end luxury metrics that would put the price per square foot in the $3,000 to $4,000 range. Instead, he said they'll price it at $6,000 per square foot. "The owners obviously said to hell with the comps - I'm just going to price this where I feel the value is," he continued.

On a far less expensive scale, developers of Aqualuna, a luxury 63-unit building selling off plan and set to be delivered in late-2018 in Sydney's Milsons Point neighbourhood, located across the Sydney Harbour Bridge, did the same.

When determining price, they looked to a nearby sold out new building at 88 Alfre, that's being constructed now. Units in it sold at A$24,000 to $26,000 (US $18,600 - US$20,000) per square metre, said Danielle Baker, the marketing manager of the Perth-based developer Zone Q Investments. So, for this new project, which has better views, a harbour-front location, and an in-demand architect, they started at A$30,000 (US$23,200) per square metre. "We added on a premmium for these perks."

In new condo devleopments in Manhatten, all bets are off when considering comps, Ms. Field said. "All that matters is what sold in the same building right before a buyer is ready to purchase," she said.

For that reason, penthouses, like the triplex unit she's selling at 212 Fifth Avenue, are always considered incomparable, and difficult to price.

Right now, Ms. Field said she's in discussions about whether they should list the penthouse at Schedule A pricing ($68.5 million) when it hits the market in September; bump it up; or do something else. "We want to get the number right," she said, "but it's all going to come down to real-time feel of who is in the market, and who will compete for it."

Cross-country comps

In Los Angeles, Mr. Parnes said he's seen an interesting phenomenon of late - buyers justifying a purchase price by referring to what he calls cross-country comps. "Los Angeles prices have gone up so much," Mr. Parnes said, "but still represent a great value compared to New York or London." This is why he'll consider these other cities when pricing L.A. properties.

For instance, he noted that he recently sold a West Hollywood house for $3.7 million at a price-per-square-foot record on the street. "But it represented an incredible value for the buyer, who was from Manhattan and used to Tribeca prices," he said. Soon after this property sold, three others on the same block did as well, at the same price per square foot. Two more of those buyers were from the East Coast.

*Note prices are quoted in US dollars. Article featured in Mansion Global

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