The lavish Beverly Hills, Los Angeles, megamansion known as Opus hit the market in 2017, complete with a racy promotional video designed to titillate potential buyers and the media. Its initial asking price was $100 million.
After two years of price cuts, the seven-bedroom spec house vaulted back into view last month with one very noticeable difference—a $20 million price increase.
The seller, producer-turned-developer Nile Niami, upped the asking price for the property from $59.9 million to $79.9 million, Mansion Global reported in September. Meanwhile, Los Angeles brokers and developers have faced an oversupply of newly built spec homes with eight-figure price tags.
Unsurprisingly, Mr. Niami’s move made news—and elicited skepticism among some brokers and agents interviewed by Mansion Global who’ve been tracking the luxury home sales slump that’s settled into cities across the world this year.
“Something like that is quite extraordinary, and it’s going to get press and attention … but it’s also going to get a lot of chuckles,” because it smells like a marketing ploy, said Robert Dankner, president of Prime Manhattan Residential, a brokerage firm with a focus on the luxury market.
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When a property doesn’t sell after a sustained time on the market, there’s either something “inherently wrong” with it—such as being located in a “bad” neighborhood—or it’s priced incorrectly, Mr. Dankner said.
However, for Mr. Niami, it’s less about a marketing ploy and more about smart pricing. He told Mansion Global the Opus price increase can be justified by looking at two recent sales of smaller, vacant land lots next door and across the street from the property, in Los Angeles’s high-end Trousdale Estates neighborhood, which sold for $25.5 million and $30 million, respectively. He anticipates that construction of eight- to nine-figure homes on those lots will raise value throughout the area in the next few years.
“A price of $79 million currently for Opus is not about marketing, it’s about value,” he said.
In the current soft luxury market, and in an environment where buyers are more educated than ever, dramatic price increases à la Opus are rare, brokers told Mansion Global. More importantly, they’re difficult to justify, barring a major renovation or some other clear value-add, such as additional square footage
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Connie Blankenship, the Los Angeles-based director of luxury estates at Douglas Elliman, said that a mega-price jump, or “aspirational pricing,” when luxury market indicators are generally negative is not something she would advise to her clients.
Such a tactic is designed to “get people talking about the property again, especially if it’s been on the market for an extended period of time,” she said. “But I would say this is a very short-term view and you have a limited window of opportunity to attract a new buyer that’s not familiar with the history of the property.”
So why, absent a renovation, would any seller or broker worth their salt opt to relist a property for thousands or millions of dollars higher?
Scarcity, Perceived or Actual
In the best-case scenario, relisting a property that is truly unique within a limited geographic market with a higher price tag could signal its value—a penthouse with a fantastic terrace in Manhattan’s Chelsea neighborhood, for example, doesn’t come along often, according to Gill Chowdhury, an agent with Warburg Realty in New York City. He was the third broker to take on the listing after the home had spent 12 months on the market. The first broker asked $4.5 million and dropped it to $4 million; the second broker started at $3.75 million and dropped it to $3.45 million. Mr. Chowdhury said raised the listing price by $50,000, to $3.5 million, and eventually sold it at $3.3 million.
His strategy hinged on highlighting the property’s scarcity in order to “put upward pressure in an otherwise downtrending market,” he said.
“We are signaling to the market that we are here to sell, but that this is not a fire sale, like $3 million would essentially be,” he said. “Even though it didn’t trade over the asking price, I got a better number by anchoring in at a higher price. It’s really rare that you can do that in this market, but it is possible.”
Timing is Always Key
An important consideration when relisting and considering a price increase is how long the property was on the market and how long it was off the market before the price was raised, Mr. Chowdhury said. Sellers tend to be more successful when the property has been off the market for a while, allowing both the buyer pool and competing listings to naturally refresh.
Once a property has been relisted with a higher price, tracking average sales prices in the specific market segment is critical to gauge how long to keep it on the market.
“Get granular,” Mr. Chowdhury said. “If your higher price is consistent with where you think the market is, and properties are taking seven months to sell, then hold firm. If properties start closing at much lower prices and your target market price has been reset, act immediately.”
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In Sonoma County, California, timing and scarcity dovetailed this fall as Climb Real Estate founder Chris Lim relisted what he described as a modern, architecturally significant home built into a hillside. The property served as a weekend retreat for a Bay Area entrepreneur. Two years ago, when Mr. Lim was preparing to list the home for the first time for $7.95 million, Northern California was engulfed in a series of deadly wildfires, putting many real estate transactions on hold. The house survived the fires, and eventually a new broker took over and tried to sell it for $6.5 million, to no avail.
Mr. Lim now holds the listing again and is attempting to sell it off-market for $8 million—a hair higher than its original price, but $1.5 million higher than its last price. The highly desirable wine country market now counts fewer homes of this ilk, he said, and that could give him an edge.
“We believe that to be able to duplicate a home of this magnitude and the cost, given Bay Area costs—land costs, labor costs, construction costs—we believe that the price tag of $8 million is warranted, and we believe it’s a narrow buyer pool,” he said.
Unhurried, Ego-Driven Sellers and Buyers
When inventory is everywhere, like it is now, buyers are in control and can afford to be picky decision-makers. But in the upper echelons of the market, some wealthy sellers may list a beloved family estate or meticulously designed vacation home and refuse to budge on price, regardless of what’s happening on the ground or in the data.
“There are sellers who don’t need to sell and their position is, ‘If you want the property, this is my price,’” Mr. Chowdhury said. Such was the case with a Hamptons, New York, home owned by a well-known builder who rented it out to celebrities, he said.
“I think he was asking around $49 million and even [with an offer of] $45 million, he turned the buyer down,” he said.
Cody Vichinsky, co-founder of Bespoke Real Estate, a New York-based firm that focuses on properties priced $10 million and up, said a fundamental part of his job is understanding the hyper-local nuances that drive demand in a “micro market” like the Hamptons, where the firm sells vacation properties.
A measured price increase when relisting a home in the ultra-luxe market can sometimes prove fruitful, he said, because desire—not necessity—is driving demand for both sellers and buyers in this category.
“Sellers oftentimes romanticize what they have,” Mr. Vichinsky said. “They just believe it’s worth more than it is, and they don’t care. You will see, if they’re not getting traction, they may feel that it’s not expensive enough. And there are plenty of buyers in the planet, believe it or not, who buy based on price more than anything else.”
These kinds of buyer and seller attitudes aren’t isolated to New York or the United States, he added, but he does see it happening less domestically and more so in international markets.
“A lot of it is ego-driven, a lot of it is [their] capability to have what they perceive to be the best, and that’s a very rarified asset class and buyer class, but it does exist,” he said. “When you’re dealing with properties that are eight-figure plus … value is derived by what someone is willing to pay for something, and what someone is willing to sell for something.”
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For serious sellers, the decision to raise a listing price should always be made with integrity. If not, they risk burning money and time on the market.
“It’s important to be honest with yourself, and if you’re an agent, to be honest with the client. If the property is worth substantially less, you cannot list at a higher price if you’re a serious seller,” Mr. Chowdhury said.