Real estate is inherently illiquid, unlike the stock market where assets can be easily traded. Each home is unique, making it challenging to determine its value. The concept of the “inside market” helps buyers and sellers find the right price point. In equities, the inside market represents the range between the highest bid and lowest asking price among market makers, providing insights into a stock’s liquidity and valuation.
While the stock market has a visible inside market, real estate lacks this clarity. However, analyzing off-market listings, properties that failed to sell and were removed from the market, can give an indication of buyer range and help define the outside width of the bid-ask spread. Looking at a decade of data for Manhattan’s resale condo market, it was observed that the gap between asking and selling prices narrowed over the years, except during periods of uncertainty.
On average, original asking prices were 7% higher than final sales prices, while the last asking price before a sale had a mere 3% gap. Failed off-market listings were priced 18% above the market average, indicating a mismatch between seller aspirations and buyer perceptions of value. Homes priced near the market ultimately found buyers, while listings with overly ambitious prices struggled to attract buyers and were often withdrawn from the market.
Understanding the market is crucial for successful real estate transactions. Homes priced close to market value tend to sell faster, while overpriced listings are often overlooked by buyers. In Manhattan, the point at which buyers typically ignore listings is around a 15% premium over market value. Sellers should align their expectations with current market conditions, while buyers should look for properties priced realistically. Local data and trends also play a crucial role in pricing strategies due to distinct pricing behaviors across different neighborhoods.
Knowing that the inside market in Manhattan real estate typically falls within 15% of the market price allows sellers to set realistic prices that align with buyer expectations. Buyers can focus on properties priced in line with market valuation. By understanding the inside market and local trends, market participants can make informed decisions that lead to successful transactions. Ultimately, pricing homes based on market conditions and buyer expectations is key to navigating Manhattan’s real estate market with confidence.