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In 2019 a US$65m price cut on a mansion wasn’t a big deal
[NEW YORK] In a year when the 10 most expensive homes in the US sold for an average US$100 million each, sellers of superluxury properties had reason to be confident. But some were too confident, at least on paper: Many sellers of luxury real estate listed properties for millions of dollars more than their ultimate sales price.
The offering price of a Los Angeles mansion once owned by Tony Curtis, and later Sonny and Cher, has swung radically in the last few years. It's currently listed for US$115 million after being offered at US$180 million in 2017, showcasing a price cut of US$65 million. According to the Los Angeles Times, it was purchased in 2016 for US$90 million. And, after an original asking price of US$110 million, a New York City penthouse in the ultraluxury Woolworth Building was relisted earlier this year at US$79 million, a 28 per cent cut.
The act of pricing homes well above their market value, known as aspirational pricing, has been adopted by sellers looking to generate attention around their listings. It's used as a branding tool, says Jonathan Miller of Miller Samuel Inc.
"One of the reasons why this is more severe, on a percentage basis, at the high end is these properties are very unique, and therefore very hard to price," Mr Miller says. And even though the initial list prices are often way off the mark, the properties still can set records when they sell. Each of these super-high-end sales "shows you how extreme the aspirational pricing was to begin with."
Part of the Strategy
Sometimes pricing an ultraluxury mansion well above market value is part of a seller's overall strategy, says Stephen Kotler, who oversees the Western region for Douglas Elliman. "There's a lot of nuance to pricing a luxury property," he says. Sellers willing to let their properties sit on the market for longer often choose higher prices than do developers who have debt. "Some may say they're willing to wait."
It helps that the stigma of massive price goals, and subsequent price cuts, has largely disappeared, Mr Miller says. "There's no shame anymore in overpricing your house. Some houses worth US$20 million are put up for US$80 million."
Homeowners in luxury residential communities have a "herd mentality," that if everyone wildly overprices their properties, perhaps they'll sell at a higher price, he says.
One example is a spec house in the Bel Air neighborhood of Los Angeles. Originally priced at US$250 million, it sold for US$94 million in October, according to the Wall Street Journal, about a 62 per cent cut. That still represented the very top of the global housing market.
While Mr Miller expects to see continued high-end sales in coming years, the pattern of pricing properties well above what they ultimately sell for could fizzle out. "When buyers believe there's fair value, or something that they want that they thought they couldn't have, they're going to buy it," Mr Kotler says. "They're going to act."
The question is whether buyers will continue to follow the trail of these billionaires-only discounts.
"Superluxury sales are a real phenomenon. The question is how much or how often are we going to see these asking prices that have no connection to the actual value," Mr Miller says. "I suspect that will diminish, at least in the current cycle."