The Real Reason Real Estate Prices Go Up
(Hint, It’s Not Supply/Demand)
Property Spotlight – On the Market
- 28 Mount Vernon St., unit 2 – What’s Not to Love About this De Facto Single Family?
Well Bought/Well Sold
- 146 Mount Vernon Street – Someone Interesting Lived Here – Well Bought
- 776 Boylston St., unit E12B (Mandarin Oriental) – A Wallet Fight at the Mandarin? – Well Sold
The Real Reason Real Estate Prices Go Up
Having grown up on a trading desk (I’m a third generation stockbroker), markets and asset valuation are a bit of an obsession. Like all vigilant market observers, we’re always on the lookout for trends. Subtle trends can be a window into the future and can give you the edge.
We recently highlighted a trend in our market where people were selling properties after just six to 18 months (see “Real Estate Mulligans”). In the note, we pointed out that these sellers aren’t flippers looking to make a quick buck, they’re just looking to get their money back. We explored the trend a little deeper, going back five plus years and the story is more or less the same – many sellers clearly just want their money back.
So why then are prices going up? The answer is simple – fees.
At the risk of getting a little geeky, let’s look at a new listing this week. Unit 3 at 361 Beacon Street, a 3,960 square foot four bedroom triplex penthouse was listed for $8.499 million ($2,146/sf). We won’t go into the details about the unit, but we don’t love it and we made that clear when the unit sold in early 2021 – see our note, “
Days Years on Market – Well Sold.”
The current seller paid $7.8 million for the unit a little over a year ago. After the standard commission (5%) and transfer fees, the seller in that transaction walked away with roughly $7.37 million.
Let’s assume that the current seller gets lucky and some chump comes along and agrees to pay $8.3 million for the unit. The current seller will walk away with a profit after fees in the order of $47,000 – not bad for a mulligan.
As happy as the seller may be in this scenario (which we think is unlikely), just think about the high-fiving going on with the brokers and their sales agents involved in the transactions. They’ll pocket over $800,000 in commissions on the round trip in a little over a year.
Will the Real Chumps Please Stand Up
This trend is totally at the expense of consumers. The original seller, who happened to be the principal in the redevelopment of the property, was willing to accept $7.37 million for the same unit that someone is now expected to pay upwards of $8.5 million – that’s a 15% increase in just over a year.
Just to be clear, the $7.37 million sale proceeds a year ago wasn’t a fire sale. It was market correct then and we’d say that it’s still market correct today – the value of this unit has NOT increased 15% in the last year. Note that our “Well Sold” last year was predicated in large part on what we saw as “liquidity issues down the road” for this unit.
So why do otherwise highly intelligent buyers pay artificially inflated prices? The answer is simple – a lack of true brokerage competition in our market place. We outlined this in some detail in our recent special report “The Boston Real Estate Oligopoly – Stubbornly High Fees & Other Consumer Harm.”
We try to avoid being too self promotional in these pages, but what the heck, this is our digital graffiti wall and we can do what we want. We focus on buyer representation, almost exclusively in Back Bay, Beacon Hill, and downtown Boston. If you’re in the market and you’re not getting a buyer rebate, with breakpoints and capped fees, well… maybe you’re the chump. Give us a call, we’d be happy to help you, no one wants to be the chump.
Unit 3 at 361 Beacon Street is listed with Campion & Company. We’d be happy to set up a showing and walk you through our valuation analysis.
Batterymarch Group is focused on buyer representation, so the highlighted listings are not ours. These are our opinions, so take them with a grain of salt. We’re happy to set up showings of these properties, offer our valuation analysis, and assist with preliminary renovation budgets when needed.
28 Mount Vernon St., unit 2 – What’s Not to Love About this De Facto Single Family?
Unit 2 at 28 Mount Vernon Street, a 3,395 square foot 4 bedroom was listed this week for $5.85 million ($1,723/sf). While the unit is part of a four unit condominium complex that includes 30 Mount Vernon, it genuinely has the feel of a single family.
We look at properties with a critical eye, but there isn’t much to criticize here. Stairs in four level units can be a turn off for the demographic target for these kinds of properties, but this unit has its own private elevator with stops on three of the four living levels. The private outdoor space is functional with good views. BSA Construction did the re-development back in 2017 and the finishes are high quality.
The real knock is the lack of parking and the fact that the unit is located at the top of Beacon Hill. Schlepping up and down the hill isn’t for everyone, especially in the winter, but you’ll get a good workout and can cancel your Equinox membership.
Good quality, mid-sized Beacon Hill single family homes have been somewhat non-existent in the early spring market this year. We view this as a de facto single family and $1,723/sf is all the money for a Beacon Hill single family, but we’d guess that they’re going to get their price.
Unit 2 at 28 Mount Vernon is listed with Compass. We’d be happy to set up a showing and walk you through our valuation analysis.
Well Bought/Well Sold
146 Mount Vernon Street – Someone Interesting Lived Here – A Fair Deal for All Parties – Well Bought
After 250 days on the market, 146 Mount Vernon, a 2,768 square foot single family located on the flat of Beacon Hill traded for $2.875 million ($1,038/sf), an 18% discount to the original asking price.
This stretch of Mount Vernon may be a bit too busy for some people, and it gets a fair amount of traffic coming off Storrow Drive, but from a convenience perspective it’s hard to beat. The house pretty much needs everything. If we were going to be undertaking a major project here, we’d need to be very confident that the pilings are solid.
This property was under longterm ownership, and the sellers clearly rejected the idea of staging. We found that refreshing as the place felt like someone very interesting lived there. Bringing this house up to snuff isn’t going to be cheap, but done properly we think the new owners can avoid getting upside down financially.
The sale price came in at a slight discount to the January 2022 price for neighboring 144 Mount Vernon, an identical house in marginally better shape. We assume the sellers are happy with the transaction as they bought the house back in 1983 for $375,000. This was a fair deal for both parties, we’re calling it – Well Bought.
776 Boylston St., unit E12B (Mandarin Oriental) – A Wallet Fight at the Mandarin? – Well Sold
Was it a bidding war, or did the deal include some expensive furniture? It’s anyones guess. Regardless, unit E12B at the Mandarin sold last week for $13.350 million ($3,362/sf) off an asking price of $12.9 million.
We’ll spare you all the unit details, except to say that it’s a very nice front facing apartment, although it’s not a penthouse. It’s our understanding that the seller recently traded up to a Mandarin penthouse, see “$27.5 million Off Market Blockbuster Deal – Well Sold.”
We understand the sales pitch for living at the Mandarin – the service is top notch, blah, blah, blah… but $3,400ish per square foot? No thank you. It feels sacrilegious to say this, but we’re consistently underwhelmed every time we go in that building. Maybe our expectations are just too high?
We see much better value elsewhere, this was exceptionally – Well Sold.
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.