What Is Shadow Inventory?

Have you ever heard of shadow inventory? Unless you are involved in real estate, you are unlikely to have come across this mysterious term. Although many people don’t know about shadow inventory, it is an important part of NYC’s real estate market. Understanding what it is and how it affects the market is an important step in ensuring you find the best deal on your future apartment. Here is everything you need to know about New York City’s real estate shadow inventory.

Defining Shadow Inventory

Shadow inventory may sound dark and mysterious, but in reality it is just a real estate term that refers to a certain class of apartments in NYC. Basically, shadow inventory is what we call all of the unlisted units that are completed and ready for purchase in a building, but that have not officially been listed for sale

How Does an Apartment Become Shadow Inventory?

Typically, when a real estate developer–also known as a sponsor–completes construction on a building, they will put up listings for the individual units they want to sell. However, instead of listing every available unit, they will only list a small portion of representative units. For example, if a building has 20 1-bedroom units available, they may only list one 1-bedroom unit, making it appear on first glance as if there is only one apartment up for sale.

Why Don’t Developers List All Available Units?

Why do this? There are a couple primary reasons developers keep some units back as shadow inventory instead of listing all available apartments. Here are some factors that can contribute to this practice:

• It is redundant to list many nearly identical units. Holding back units helps to avoid a glut of listings that impede searches and make home shopping more confusing.
• It creates a false sense of scarcity. If only a few units are listed for sale, then buyers may believe the available apartment is particularly rare or valuable.
• It encourages buyers to act fast. If there is only one unit available, then buyers may be particularly motivated to close quickly. Developers want a quick return on investment whenever possible.

How to Know if Your Apartment Building Has Shadow Inventory

If you are looking to purchase a new apartment, take a moment to find out if your future building has shadowed inventory. Take a look at NewDevRev’s catalog of new buildings where closings have already begun. When you click on a building, you will see the percentage of units sold listed next to the building’s name. If the percentage is low but there are only a couple of units listed as available for purchase, then that means that the rest of the empty apartments are counted as shadow inventory.

Here at NewDevRev, our real estate experts have full access to all the shadow inventory details for almost every new development building in Manhattan. Contact us here and we’d be happy to tell you all about it.

What a Building’s Shadow Inventory Means for You

Once you know whether your building has shadowed inventory, you can make informed decisions regarding the purchase process. In particular, you can better gauge the speed at which you close on your new home. If there are plenty of available units, then you can take your time to shop around or negotiate for a better deal.

On the other hand, buildings that have sold quickly will likely not have much shadowed inventory. In these circumstances, then you will need to act fast to secure the apartment before someone else snatches it off of the market.

How Shadow Inventory Reflects the NYC Real Estate Market

In general, the way developers handle their inventory reflects the broader real estate market in NYC. Shadow inventory is typically larger in a buyer’s market. This is because oversupply leads developers to hold back on their units, hopeful to drive demand on listings already for sale. Alternatively, some developers may decide to actually list all of their available units during a buyer’s market in order to attract deal hunters.

What’s more, knowing exactly how much inventory a building has, particularly how many one bedrooms are remaining, etc., as well as what sales stage a building is currently at can help a savvy agent better negotiate on price.

Contact a Real Estate Expert Today

If you have more questions about shadow inventory in NYC real estate, or if you simply want to discuss a listing you saw on NewDevRev, then you should reach out to one of our real estate experts today. We can help you better understand the market. Our real estate professionals can advise you of the best possible decisions throughout the home buying process.