In 2009, a historic townhouse on Manhattan’s Upper East Side hit the market for $28 million but didn’t sell. The listing recently got a price adjustment—to $35 million. In Miami Beach, Fla., a home once owned by Jennifer Lopez went on the market for $29 million in 2010, but the owner didn’t get an offer he liked. So he took it off the market for a year, then relisted it. The current asking price: $40 million.
Amid signs of a rebound in the luxury-housing market, some sellers are trying a bold, if risky, tactic: raising their prices. According to online housing tracker Zillow.com, Z -2.45% 436 listings priced over $1 million in the New York metro area on the market as of late August had raised their prices over the prior 12 months, compared with 266 for the same period two years prior. In the Miami-Fort Lauderdale metro area, 5% of listings priced above a million dollars had an increase in the recent period, compared with 2.3% two years prior.
In cities like New York, London and Miami, record-breaking purchases by ultrawealthy overseas buyers have boosted confidence at the very top end of the market. Earlier this year, a Manhattan real-estate record was broken when a trust linked to a Russian billionaire’s daughter paid $88 million for a penthouse owned by former Citigroup C -0.03% chief Sanford I. Weill. This summer, a house on Indian Creek, a private island off Miami Beach, sold for $47 million, also to a Russian buyer, setting a record for Miami/Dade County.
The result can be an irresistible temptation to try to keep up with the biggest sellers in the neighborhood. Leroy Schecter, chairman of Marino/Ware Industries, has a house down the street from the home that sold for $47 million, and next door to one that sold for $40 million. He recently put his 21,746-square-foot house back on the market for $45 million, up from $35 million when he first listed it in 2007. Mr. Schecter, 85, says he took it off the market for a few years for personal reasons, but the blockbuster sales nearby partly motivated him to relist at a higher price. Mr. Schecter says he plans to donate proceeds from the sale to his charitable foundation.
Pricing homes at the extreme high end of the market is a somewhat subjective, and often irrational, process. Because there are so few similar properties for sale, and the homes are often unique, it’s difficult to set a standard for a pricing scale, brokers say. For a home priced above $30 million, a “reasonable” price may be in the eye of the beholder.
Mark Gainor, a health-care entrepreneur who now runs a financial-services company, bought his Miami Beach home from Jennifer Lopez for $13.9 million in 2005, then spent four years gut-renovating it, including replacing the roof and adding reclaimed wood floors. The 12,152-square-foot home, on 1.2 acres with 200 feet of waterfront overlooking the Miami skyline, has seven bedrooms, a master suite with an office and gym and a closet made from three bedrooms.
By 2010 his children had left for college, so Mr. Gainor and his wife decided to put the home on the market for $29 million. Despite getting little more than a few “lowball” offers, he says, he was convinced the house was worth more, and in 2011 he raised the price to $34 million. He then took the house off the market for a year.
Mr. Gainor says he recently decided to relist the home for $40 million, citing the recent sales in the same price range and an improved market. Though he predicts he may get some offers closer to what he was initially asking, he’s not planning to sell the home for much below its current list price. “The house has so much value in it from a construction standpoint,” he says.
His broker, Nelson Gonzalez, thinks the market can support this type of increase. Mr. Gonzalez, a Miami Beach-based broker with Esslinger-Wooten-Maxwell Realtors, says trophy homes have been selling so briskly there’s very little left in the range of $20 million to $50 million. “If we didn’t raise the price, the seller would definitely be leaving money on the table,” he says.
Some real-estate veterans say raising the asking price rarely results in a higher final selling price, however. High-end listings often take awhile to sell, even in a good market. Sales remain slower in many areas, and are often preceded by price cuts.
“I’m extremely skeptical,” says Jonathan Miller, of appraisal and research firm Miller Samuel. Brokers say raising the price could scare away buyers who were on the fence when the home was asking less. “Unless it’s a unique property, it signals to the market the seller is not serious,” says Donna Olshan, a New York-based broker who publishes a weekly report on luxury Manhattan properties. She adds that homes that have had their prices raised tend to follow the same pattern as overpriced listings—they either sit on the market or get a big price cut.
“In the end, sanity usually wins the day and the price comes back down to reality,” Ms. Olshan says. “You can’t trick the market.” The median home in the U.S. sells for about 2% less than its asking price, according to data from Zillow.com.
The strategy sometimes works. Julia Hoagland, a broker with Brown Harris Stevens in New York, took on a listing that had previously been on the market for six months with another firm. The 26th-story Upper East Side condo with views of Central Park was originally asking $2.73 million. After researching comparable sales, Ms. Hoagland convinced the sellers to raise the asking price by $220,000, or 8%. “It is risky, to be perfectly honest,” says Ms. Hoagland.
After relisting the home with a price increase, slightly restaging the apartment and coming up with a new marketing strategy that included hiring a jazz pianist to play during a cocktail event, she says she got seven offers on the apartment in seven weeks. It ultimately sold for $2.875 million, or about $150,000 more than the original asking price.
And some brokers say a splashy price can attract the attention of global trophy-property hunters. The record-setting home in Miami was originally shopped around for $52 million in 2010. Then, the price was raised to $60 million. “We got a lot of attention,” says Oren Alexander, one of the listing brokers and the son of one of the developers. “When you list something for a record price like that, you create the hype.” Though the home eventually sold for $47 million, Mr. Alexander credits the higher price tag with putting the home on the international map.
Ravi Dhar, director of Yale’s Center for Customer Insights and a professor of management, marketing and psychology, says consumers will generally use the original price of an object as their reference point. But for homes seen as unique, raising the price instead of lowering it can tap into consumer psychology. Buyers might “infer that because the price went up, there must be a lot of demand,” he says. “There are various ways of signaling scarcity and uniqueness, and then slicing and dicing this, and real-estate agents are great at this.”
Some developers are trying price increases as well. In London’s Hampstead neighborhood, four newly built homes are now asking significantly more than they were last summer. The largest is listed for $22.5 million, up $3.2 million. Paul Goldstein, a London-based real-estate developer, says he spent seven years on the project, and decided to raise prices when the construction dust cleared and he saw the finished product. One potential buyer was turned off when he heard he’d have to pony up $3.2 million more for the same house. “I’m very much of the opinion that you had your chance and we’ve moved on,” says Mr. Goldstein.
Others quietly add to their prices with little fanfare. The Laureate, a new condominium on Manhattan’s Upper West Side, has seen several price increases since its units, which currently range in price from $1.7 million to $23 million, hit the market last year. A listing broker for the building declined to comment, saying the topic was not something the developers wanted to discuss.
Simple upgrades can prompt brokers to raise prices in markets where high-end demand is strong. Leonard Steinberg, a New York-based real estate agent, says he recently took on a TriBeCa listing that had been on the market for over a year with another agent, and raised the price by $4.5 million to $49.5 million—after repainting the home’s brightly colored walls and removing some of the more “taste-specific” artwork, including a collection of shrunken heads. The three-story building, which includes five separate apartments, “seemed underpriced to me,” he says.
Some price increases amount to rollbacks on previous discounts. In Los Angeles, 95-year-old actress Zsa Zsa Gabor’s home originally came on the market in 2011 for $15 million, then was reduced to $12.9 million before it disappeared from the market; it is now listed for $14.9 million.
Robert Erickson, the listing broker, says the increase partly reflects the fact that the home was used to shoot a Michael Douglas film, and production crews made $200,000 worth of upgrades. But “a lot of it was a publicity stunt, to be frank,” he says. “It creates enough of a curiosity that people then want to look at the house and go, ‘What happened?’ “
