Our Deal of the Month: 900 Fifth Avenue
This month's featured deal is a lovely Central Park-facing 7-room home that was last asking $4,395,000. It looks right into the Park from the primary bedroom, the living room, and the secondary bedroom. It was completely renovated by the current owner, who just bought it four years ago. My buyers are delighted, not just because they found a home that they plan to live in for a long time, but also because it was a good deal. Why so? Let's find out.
Here's the Math
Usually, we would never meet the seller, but only speak with her agent. In this case, we had the chance to speak with her at length, which helped us learn a bit more about the background. The public information was that she paid $3,700,000 in May 2021. But she also told us about her updates to the apartment. We estimated she spent between $750,000-$1,000,000. So before we go into details, and before we consider our discount from the asking price, her all in cost looks like this:
$3,700,000
+$1,000,000
+$150,000 in closing costs and carrying costs while renovating
-------------
$4,850,000
Her sale price: $4,100,000 (it'll be our little secret, okay)
Her selling closing costs: About 10%, including city and state charges, building transfer fees (2%), and brokerage commission
Her net after those costs of roughly $400,000: Approximately $3,700,000
The back-of-the-envelope math has me at a $1,150,000 loss for this seller.
Why Didn't It Sell For More?
You could say that reason one was that she tried to recoup her investment at first. That is, she marketed the unit at $5,999,000. That price probably didn't help things. But then, we would have looked into where properties in the building had sold recently. I noted that a high-floor version of this unit with one extra bedroom sold for $6,500,000 February of last year. So even if you discount the apartment by a million dollars for the extra bedroom, and another $500,000 for our target unit being on a lower floor, you're still at five million dollars.
And that's what we see with a unit only one floor up, FOUR YEARS AGO. Unit 5A sold for $5,160,000 in renovated condition. So what gives?
You Could Blame the Market
Sure, you could look at a slower market and discount that $5.1mm sale price a bit further. Let's say 10%, which gets us to $4,600,000. But what reduces the value by another $500,000?
The kitchen.
I put the answer right up front, but this seller spend a significant amount of money installing a top-of-the-line kitchen in a color that one might describe as cerulean blue (yes, that is inspired by the iconic scene in The Devil Wears Prada). And as you may have guessed, not everyone loves a blue kitchen. They love the views, the millwork, the bathrooms, the light, the location, the size, the layout... everything but that kitchen. That kitchen cost the seller $500,000 or more.
In Summary
We are all for our clients creating a home that they love. We encourage our clients to listen to their inner guidance. But occasionally, when that voice tells you to build a blue kitchen, don't try to flip the apartment after two years. Maybe enjoy it for a little while longer. Or you're likely not to recoup your investment. - Scott & Magnetic
