Price vs. Value – Beware of the Money Grab
Price vs. Value – Beware of the Money Grab
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In this issue:
Price vs. Value – Beware of the Money Grab
New and Noteworthy – Penthouse Sellers Raising Prices – Maybe It’s Not Transitory?
4 West Hill Place, unit 4 – Good Value on the Flat of the Hill – Well Bought
22 Liberty Street, unit PH2A – Seaport Flipper Hits a Home Run – Well Sold
What’s Catching Our Eye
Price vs. Value – Beware of the Money Grab
Early in my career, I worked for my family’s broker-dealer where we specialized in trading the securities of closely held public companies. These securities traded by “appointment only” in the "Pink Sheets" and included companies like Boston Sand & Gravel, Nantucket Electric Company, Bar Harbor Water Company, the Boston Athenaeum, and the list goes on. Like high-end real estate, the over-the-counter market was illiquid and highly inefficient. Our clients depended on us to do proprietary research to get the valuations right.
With real estate, the asking price is often nothing more than a fanciful price that a seller thinks that they are entitled to. Listing brokers are almost always happy to go along for the ride with the idea that the listing will get the phone ringing and eventually seller fatigue will set in and the price will be dropped. Additionally, there’s always the very real possibility that some uninformed buyer (aka a sucker) shows up and pays the ridiculous price – this is where real consumer harm comes into play.
Value, on the other hand, entails some actual analysis and due diligence that goes well beyond the meaningless “comps” that the brokers' sales agents cherry pick to justify the inflated price. We routinely see properties sell 20%, 25%, and 30%+ below the original prices. Knowingly inflating the price of securities on Wall Street will land you in the hoosegow. So how do real estate brokers get away with it?
The short answer is caveat emptor – let the buyer beware (which is actually the law in Massachusetts). It’s basically a money grab, with no regulatory oversight. Compounding the problem is the fact that in Back Bay/Beacon Hill, the top four brokers control a whopping 75% of the luxury market. It is, by definition, an oligopoly. Here’s a good example of what we view as a money grab.
54 Pinckney Street – Money Grab?
54 Pinckney Street is a 3,825 square foot (city records indicate the living area is 2,625 sf), 5 bedroom single family on Beacon Hill. The current owner bought the house less than a year ago (December 2020) for $5.557 million. At the time, we called it “well sold” and pointed out that the developer, who bought the property a year or so earlier for just $2.6 million, must have pocketed a handsome profit after the renovation expenses (see previous commentary).
This week, the house hit the market again for a whopping $6.45 million ($1,686/sf). Apparently, the current owner did some painting, installed a few new light fixtures, window treatments, etc. To put this in proper context, if by some quirk of fate they get their asking price, according to MLS data on a price per square foot basis this will be the fifth most expensive house to ever sell on Beacon Hill. Just to be clear, 54 Pinckney is a great house, but let’s be honest, upper Pinckney Street isn’t Louisburg Square.
Marking the price up by nearly $900,000 (16%) in just eight months doesn’t sit well with us. We probably pay more attention to valuation than any other broker in the city, and while the health of our market is relatively good from a liquidity perspective, with the exception of the ultra high-end condominium market (which may be as much about asset allocation), we’re not seeing meaningful price appreciation.
The punch line is simple, caveat emptor - real estate brokerage is seller centric, it always has been. When buyers deal with brokers whose business model is centered around representing sellers, they’re likely going to end up negotiating over price, not value. We specialize in representing buyers, reach out to us today to see how we can help you.
New and Noteworthy
1 Avery Street, unit PH2A – Price Increase at Manny Ramirez’s Old Haunt
Penthouse unit 2A, the former home of Red Sox slugger Manny Ramirez, is back on the market with a new price of $8.9 million ($2,013/sf). This 4,421 square foot, 5 bedroom apartment languished on the market for 308 days with an asking price of $7.5 million before the seller called it quits last spring.
Yeah, no sale at $7.5 million - maybe the price was too low? A novel marketing strategy indeed. It’s worth pointing out that the average sale price per square foot at 1 Avery over the past year is $1,197.
This is a nice spacious apartment, but this building turned 20 years old this year and many of the units (this one included) are in desperate need of updating. Renovation budget aside, undertaking these kinds of projects in high-rise buildings is not for the faint of heart.
1 Franklin, unit PH4A – Another Penthouse Price Increase
Sticking with the penthouse price increase theme, the seller of penthouse unit 4A at 1 Franklin Street apparently decided that his unit is suddenly worth nearly a half a million dollars more. After 95 days on the market without a sale at $13.5 million, the new price is now $13.995 million ($3,332/sf).
The views are great from these upper level units, but $3,332/sf in Downtown Crossing - no thanks. We see better opportunities elsewhere.
Well Bought/Well Sold
4 West Hill Place, unit 4 – Good Value on the Flat of the Hill – Well Bought
4 West Hill Place has a new owner after nearly a year on the market with a sale price of $3.425 million ($1,080/sf), 24%, or $1.1 million below the original asking price. This 3,139/sf, 4 bedroom unit was extensively renovated in 2014 when the property was combined with the neighboring building to create this two unit condominium association.
Having previously lived at West Hill Place, we developed a bit of a love-hate relationship with it. It’s a great location, but entering via the Charles Street Garage passageway is less than gracious. Also, being a private street with what is effectively assigned parking, there is a neighborhood association that runs the show. Let’s just say that people aren’t always on the same page when it comes to things like snow removal.
This unit last traded back in 2014 for $3.139 million, so after fees, this sale is effectively flat with the 2014 price. We think this was a fair deal for both parties. As long as the new owner declines the inevitable invitation to serve on the snow removal committee, we’re calling this one – Well Bought.
22 Liberty Drive, unit PH1F – Seaport Flipper Hits a Home Run – Well Sold
Penthouse unit 1F at 22 Liberty Drive, a 2,951 square foot, 3 bedroom changed hands this week for $9.375 million ($3,177/sf). It’s hard for us to get too excited about deals in the Seaport as it’s an entirely new construction scene, and in our view it’s monotonously sterile. But when it comes to Seaport living, the water facing penthouses at 22 and 50 Liberty are pretty much as good as it gets.
The seller paid $6.82 million for the apartment back in 2015. On the surface this looks like a financial home run, but the original asking price was $11.995 million. We imagine that with a final sale price $2.62 million, or 22% below the original price, it may be bittersweet for the seller.
The trend in the downtown ultra high-end condominium market is definitely healthy. It’s common knowledge that the developer of 22 and 50 Liberty sold pre-construction units on the cheap, so that explains the gain. This is a great apartment, but we’d say that it was fully priced. The seller had the upper hand on this one, it was – Well Sold.
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About Batterymarch Group LLC – Batterymarch Group is an independent full service real estate brokerage and advisory firm focused on the downtown Boston high-end residential market. We represent both sellers and buyers with a sharp focus on valuation. We also offer sub-advisory and owner’s representation services to financial institutions, family offices, and trustees.
About Andrew Haigney – A 25 year Wall Street veteran, Andrew held senior positions at leading global investment banking institutions where he routinely valued and negotiated complex securities transactions on behalf of institutional clients. Andrew has been an outspoken advocate of a universal fiduciary standard. In founding Batterymarch Group, Andrew brings that same discipline and passion to the real estate brokerage.