efficient, I am referring to being properly priced and price being in-line with fundamentals. This includes transacting at the right price, sellers asking at around the right price and buyers offering at around the right price.
All have access to the same inventory:
Firstly, in Manhattan as in the U.S., everyone has access to the same inventory for sale. This is sometimes referred to as an "MLS" system. In Manhattan, the "MLS" is technically the REBNY (Real Estate Board of New York) database or simply, the broker database.
Within 24 hours of getting a listing from a seller, the seller's broker is required, by law, to list the property onto the broker system. This is then transferred to other systems. Consumers have access to the broker system through their broker's websites. In lieu of viewing through the broker system, there are also third party websites such as Streeteasy.
In many countries, different brokers have access to different properties and this explains why buyers there work with several brokers. However, in New York and in the United States, all brokers have access to the same inventory. Even the consumer has access to everything. In addition, everyone has access to historical data for analysis.
This makes the Manhattan market transparent.
As such, the value of a broker is not to make viewing appointments. If that were the case, it's regrettable. Rather, the role of a New York broker is two-fold:
(i) Filter the right properties: Although the consumer has access to all inventory, everything looks great in pictures. Published data only tells a fraction of the story. Unless the consumer walks the streets looking at properties every day, there is absolutely no way to know which is a good property. Brick and mortar investments need to be seen in person and touched to understand. As example, online listings will not tell the downsides of each apartment.
(ii) Managing the whole transaction: This refers to price and terms negotiation, attorney and accountant coordination, board package, walk through etc. There are tens or even hundreds of hours of behind-the-scenes activities that brokers do beyond property viewing and showing up at the closing table.
Access to inventory for all makes the market transparent and is the first reason why Manhattan is an efficient market.
Fewer Investor Buyers:
The majority of Manhattan residential apartments are purchased by locals for use as primary residence. There is less investment frenzy like in the emerging markets. For example, if one goes into a dim sum restaurant in Hong Kong, it's not uncommon to see several people studying the real estate section of the newspapers.
In Manhattan, investing in real estate is not something every other person does. With less investors driving up prices, the market becomes less volatile and more stable.
A market becomes volatile when there are too many investor buyers. It becomes even more volatile when investors disregard the fundamentals of investing and key metrics.
In certain markets, prices keep going up despite high vacancy rates and no yield. Investors buy because they think property prices will always go up. Until one day it pops.
In Manhattan, the proportion of investor buyers is a lot lower. This keeps fundamentals in check and is another reason why pricing in Manhattan is efficient.
Higher Barrier To Entry
During the last property boom in the U.S., people from California were going to less expensive states like Texas and Nevada to invest and hence drove up prices dramatically.
The lower the barrier to entry, the less likely the investor would do a lot of actual work. Actual work here means going to see properties, speak to people, going to know the market etc. The easy work is reading data online. Many investors, because of the low barrier to entry, just researched online and go on 1 or 2 day shopping trips to the less expensive states to pick up not one, but a few properties!
In Manhattan, condo prices start at $500,000 for a studio apartment. There is a lot of due diligence beyond just reading data online. The vast majority of my clients are sophisticated, savvy financial people. They have already read everything there is to read online. Then they come and see properties, spend hours walking the neighborhoods, eat at the local places etc. All this while drilling their broker with tons of questions because they know someone who has seen thousands of properties likely knows more than the local friend who last saw apartments 3 years ago when he bought.
There is a tremendous amount of time invested in analysis before finally making an offer and doing a deal. This is a very important reason behind market efficiency.
Manhattan is perhaps most efficient in the $500k to $5 million price range. Above which the emotional aspects of ultra wealthy buyers start getting into play such as loving the 50th floor Central Park view, definitely wanting an apartment in a certain building etc. Up to $5 million is also 90 percent of transactions hence it is good representation of the market being efficient as a whole.
Wei Min Tan is a Manhattan luxury condominium broker and Managing Director of Castle Avenue Partners at Rutenberg Realty. His recent media appearances include being on NBC's Open House NYC, New York Times and the Wall Street Journal.