Drop the name “One57” and you’ll get a reaction--likely because the penthouse’s sale price of over $90 million broke the record set by Dmitry Rybolovlev at 15 Central Park West. For homes as unique as the penthouse of the media’s favorite residential building, it is difficult to determine how this near-billion-dollar value materialized. In the upper echelons of real estate, the difference between the digits in front of the zeroes quickly becomes blurred and less a matter of pricing and assessment than marketing and subjectivity.
In terms of consumer psychology, this phenomenon is not unusual. Take, for example, the legendary Birkin bag; with every price increase, the waiting list for the bag increases, increasing its exclusivity. In the mind of the consumer, exclusivity is an ephemeral but poignant value for the item itself. For real estate enthusiasts, Extell’s Gary Barnett, the developer behind One57, has introduced yet another item of exclusivity: granting a select few buyers the privilege of visiting One57’s unfinished site. It is difficult to determine if the breathtaking views at the top of One57 or the license to be there would cause more of an adrenaline spike.
Exclusivity, unlike square footage, renovations and amenities, is difficult to measure with a numerical value. In real estate, under the right circumstances, a price hike for the right unit is a risky gamble based on the consumer’s perception of value, but occasionally succeeds in temporarily “tricking” the real estate market. A great real-estate agent, according to Ravi Dhar, director of Yale’s Center for Customer Insights, can indeed signal scarcity and uniqueness by applying price increases--a seemingly counterintuitive approach that Dhar has studied as an application of consumer psychology in real estate. Dhar told the Wall Street Journal that the original price is a reference point: every added million thus begs the buyer to question why the home is suddenly so much more valuable.
The term “value” for luxury homes is inherently subjective because many of them are unique, there are relatively few of them, and it is therefore difficult to compare them to others. When even a few similar homes in this already exclusive market sell for more than their initial asking price, the price that sellers can justifiably ask for their home increases too. Furthermore, due to the recent phenomenon of foreign buyers investing in Manhattan real estate, overt overpricing has escalated. Once these top-tier homes are introduced to the international market, they inevitably fetch impressive prices.
Value, in this case, is the ownership of a status symbol. Real estate, once it asks a price that merits headlines, is a trophy. Top prizes are determined by the consumer’s perception of the home’s value as an exclusive item, communicated through the sale price. Ultimately, statistics maintain that increasing prices is indeed a foolish tactic to sell a house, and is perhaps only applicable for the deepest of pockets in real estate bubbles. Nevertheless--those numbers still get much attention.