Take our quiz to see if you can guess how much above or below list price these recently-sold New York City properties cost. Tips on how to make the right bid follow below.
MANHATTAN — Bidding wars are still brewing for apartments priced about $1 million and under in many parts of Manhattan and Brooklyn, with many house hunters getting emails a few days after visiting an open house asking for their "best and final" or "best and highest" offer.
For buyers who want to compete, there's often a gnawing question: What's should their best offer be?
That's not always easy to answer.
It often involves a complicated calculus of what someone can afford, their emotional attachment to the space and how long someone has been searching for a home — and losing out to other bidders — brokers said. But as a starting point, it's important to understand what an apartment's fair market value is.
That, too, can be tricky given the limited inventory and pressure to bid above asking price. Manhattan, for instance, saw 49 percent of homes sell for asking price or above, which was the highest share in six years, according to a Douglas Elliman report on third quarter sales.
"Figure out what it's truly worth to you and maybe before going to best and final, put in a preemptive offer that possibly circumvents best and final," Douglas Elliman's Josh Rubin said. "Consider: If I don't buy this, what are my other options and what is it going to cost?"
1. Understand what the comps are.
Good brokers can usually help you understand whether an apartment is priced fairly based on "comps,"or comparable sales.
Since New York City real estate is hyper-local — where one building with certain amenities can be valued very differently from its next door neighbor — the best comps are same-sized units in the same building that sold recently.
Such sales, however, don’t always exist, and it can take time to comb through data to figure out the best comps.
Noah Rosenblatt is a former equities trader who brought his data-driven focus to Manhattan's real estate market as the founder and CEO of the research site UrbanDigs.com. He believes his site’s new feature, “Price Your Own Apartment,” can help.
Launched last week, the tool lets you input a Manhattan address and gives you a list of possible comps, accounting, for instance, for differences of floors (suggesting a $25,000 premium for each additional floor) and allowing you to adjust for anticipated renovation costs. It has a unique "time index” that is based, among other things, on the signed contract date rather than the closing since those are sometimes months apart — and therefore represent different market, Rosenblatt explained.
Brooklyn buyers will have to wait until 2015 to use the tool.
“It only helps to add transparency,” Rosenblatt said.
Working as a buyer's broker, Rosenblatt said that his quantitative approach helps sellers feel more comfortable accepting offers, buyers feel better about making offers and brokers feel more comfortable with giving advice.
"My buyers, they love it," he said. "It gives them confidence to say, 'Now I can justify bidding this.'"
So far, the majority of users have been other brokers, said Rosenblatt, whose tool has a 30-day free trial before a monthly fee kicks in.
“Computers are never going to know the nuances from building to building,” added Douglas Wagner, of BOND New York, which is soon rolling out a new comps tool for its agents. “But it’s nice to have someone do a quick snapshot.”
2. Don't bid if you're only casually interested in the apartment.
The first thing Douglas Elliman's Brian Meier asks his clients before they submit a bid is whether they truly want the apartment.
If not, move on because the bidding process is often stressful.
“If you're buying in this market, you have to have a stomach for it. You have to be aggressive," he said. "You're going to overpay."
You should offer the highest amount you feel “comfortable” with, so that in the event you lose out, “you’ll feel OK about it,” he said.
“A lot of times it pays for someone to pay above fair market value if you've been looking for a long time,” added Jeff Schleider, founder and managing director of Miron Properties, explaining that you make your money on long-term appreciation.
3. Bid over the asking price if you’re serious.
You're going to have to bid over the asking price if something is priced at fair market, said David Maundrell, founder and president of aptsandlofts.com.
If you submit an offer that’s 5 percent less than asking price, a seller won’t likely ask for a counter offer.
“It means that a buyer is not serious," Maundrell said.
"If someone puts an offer that’s $10,000 above the asking price, that means they’re serious, and an extra $10,000 on a mortgage is peanuts," he added. "Don’t loose out on your home for the next 5 to 10 years for a few thousand dollars."
4. Understand pricing strategies.
Some brokers look at the market value and base prices on that. Others like to price low and have buyers bid up.
Rubin listed a Greenwich Village 2-bedroom recently for $2.15 million even though his market analysis estimated its worth at $2.5 million. The offers came in at and above the market value.
"You find someone who emotionally wants it more," Rubin said. "They put the clinical aside and proceed with the emotional and will ultimately leapfrog the pack."
The home is in contract for $2.8 million.
This strategy only works if things are "carefully managed," said aptsandlofts' Maundrell, who has seen house hunters get caught up in the "frenzy" only to wake the next morning with buyer's remorse and later back out.
5. You may still get the apartment even if you weren't the highest bidder.
Many brokers have seen bidders who didn't win a bidding war end up with the home in the end.
This can happen when a winning bidder realizes the offer was overblown or when the momentum is lost when a contract takes too long to execute, which sometimes happens if a seller's broker gets "too confident" that a better offer might still come in, Meier explained.
"Two weeks later you get a phone call, 'Our first two deals didn't go through.' A lot of times you're second or third in a bidding war and all is not lost," said Meier, who estimates this happens in a quarter of bidding wars.
Conversely, you might still lose an apartment if you win a best and final because sellers will sometimes accept a higher offer that comes in later after a contract goes out to a best and final winner, many brokers said.
"You're not binding until both parties sign," Wagner said.