The market for downtown condos is very active but quite different from the single family home market in two key facets.
First, downtown condo owners who want to sell are currently competing with new units entering the market. If too many units come on at once, downward pricing pressure may ensue. That said, developers are very good at controlling prices and surprisingly patient. However, it’s important to note that condo projects are more commodity-like than single family houses in established downtown neighborhoods.
Second, units for sale within a building compete directly, and brutally, with other units within the same building. As we have written before, If you buy a house in central Austin, the odds are that it is different — in one way or another — from every other house in central Austin. When it comes time to sell your unique house, you may get lucky and sell for more than it’s worth, or you may be unlucky and have it sit on the market for a long time. Setting a price is a key variable, but pricing a unique house is as much art as science.
The issue is that the value of unique single family homes is subjective and highly personal. Every house, every street, and every aesthetic is valued differently. The single family home market, as one would expect, is very different from the downtown austin condo market.
Every high-rise condo project has a large number — sometimes hundreds — of interchangeable commodity-like units. Unit 16B is essentially identical to unit 17B. The result is a much more efficient resale market. When it comes time to sell a downtown condo, there will likely be similar units on the market. If they are cheaper, they will sell faster. If they are more expensive, the may never sell at all.
While the floor (the higher the better, stay away from the ground floor) matters and in some buildings the view can vary greatly from side to side, the effect on value is not as dramatic as one might think. Our ongoing analysis of Nokonah values and appreciation confirms this: units on floor 11, the top floor, are valued at just 11% more than units on the second floor. Buyers seem to pick a building first, and then look for the right unit weighing size and price. This approach leaves very little room for creative pricing.
Yet, it’s amazing how differently sellers price similar units. The AustinTowers listings pages provide a few great examples of this. For example, there are two units currently for sale in the Nokonah: a 670 SF 1/1 for $450K and a 1,225 SF 2/2 for $550K — the smaller unit is almost certainly overpriced.
Because it so easy to compare prices, downtown condo values will be efficiently set by the market. The building will make a huge difference, but actual prices will be set by your neighbors. This has some benefits and drawbacks. On the positive side, accurate comparables make it easy to set the right price and correctly priced units should sell quickly. On the downside, pricing may fluctuate more widely with supply and demand: when there are lots of people selling at the same time, it’s likely that prices will drop. And there is very little chance to get lucky and sell your unit for above market value — if a unit doesn’t sell, the most likely reason is that it is overpriced.