Board application packages: More fun than a root canal, but not much.

Part 6 of a series

I will not lie to you.  The application process for a co-op is painfully invasive.  And lately, the same goes for condos.

Think of your broker as a local anesthetic*.  He will make the pain go away, or at least most of it, but you will still be involved, and you will know what’s going on.

Don’t forget, everyone who lives in a co-op or condo has gone through this process.  

And because your neighbors have met the financial requirements of your co-op, they are not likely to default on their maintenance charges, leaving you and your more solvent neighbors to pick up the slack. 

It's the predominance of co-ops, with their stringent financial requirements, that has kept New York from having the huge number of foreclosures that other parts of the country have seen.  

So this whole Byzantine, complex, invasive process is definitely in your best interests as an owner.

Today, board application packages for condos are almost--often exactly--the same as those for co-ops**.  If the condo board doesn’t like your board package (condo boards don't normally interview applicants), their only recourse is to buy the condo themselves at the contract price.  They can't turn you down, but they still want the information.

The only way out is to buy in a new building (developers don't care; they just want your money) or to buy a house.  All cash.  If you want to finance, you will find that the banks are also nosy.  So are rental landlords.

Here’s what happens:

Once your offer has been accepted and a contract has been sent to your attorney, your attorney will do his due diligence on the property.  

In all likelihood the seller's broker will continue to show the property until the contract is signed, and by law, any and all offers must be presented to the seller. So move through this part of the process with all deliberate speed.

Your attorney will read the two most recent years' financial statements and the offering plan and all its amendments, which either the seller’s broker or the seller’s attorney will have sent him. 

He will also go to the office of the managing agent for the co-op and read the minutes of the meetings of the co-op board (you can go along if you want; these are almost never sent out).  

By the time he's through, he should know everything there is to know about the co-op.

At the same time, he and the seller’s attorney will be negotiating the contract—the closing date and various other provisions which he will discuss with you.

While he’s doing this, you will be having any inspections done (definitely if you’re buying a house, and a good idea if you’re buying in a small loft building or an apartment in a townhouse) and bringing your architect in if you’re planning to do work.  

Your broker will set up appointments, be present, and generally hold your hand through all of this.

When the contract is ready, you will go over it with your attorney, sign it and give your attorney a check for 10 per cent of the purchase price to be held in escrow until the closing, when it becomes part of the purchase price.

Now you’re committed, and as soon as the seller countersigns, he is also committed. The property will no longer be shown, and offers will not be considered.

Your 10% deposit will be returned to you if your contract is contingent on financing and you can’t get financing (your attorney will explain the ins and outs of this—it’s complicated) or if you’re buying a co-op and your application is rejected by the board.

Which brings us to the board application.

First, you and your broker put together the board package.

This is where you will be VERY GLAD you have a broker.  All you have to do is give him the information.  He will collect the materials from you, get them typed if necessary, assemble them in the correct order, check all the numbers and the arithmentic to make sure they’re accurate, make sure the reference letters are appropriate and will serve their purpose, make sure the package is complete, put the whole thing together with dividers labeling each section, write a cover letter and make the necessary number of copies. 

It will look beautiful, and as impressive as we can make it while staying within the boundaries of truth.  We pride ourselves on our board packages.

A typical package includes an application form to be filled out with personal information—your name and address, your attorney’s name and contact information, plus information about your employment, your supervisor’s contact information, your employment history, where you were educated, names of personal references, names of business references, bank and credit references, etc. 

Then there’s a financial statement that includes all sources of income, all projected costs, all assets and liabilities. You’ll be asked for two years’ income tax returns, personal reference letters, business reference letters, an employer reference letter and a bank reference letter, bank statements and other statements to support the financial statement, and various other items depending on the co-op.

All of this has to be done within ten days of the contract signing, or within a given time period after a co-op loan commitment letter has been issued by your lender.  (This is specified in the contract.)

When the board package is ready and the seller's broker has seen it and is happy with it, your broker will send it to the managing agent. 

Now you and your broker wait for a while.  If you're buying a condo, the next step is for the managing agent to obtain the signatures of the condo's board of managers on a waiver of the right of first refusal, after which a closing can be scheduled.

If it's a co-op....   

NEXT:  The board interview.  

Any questions?  e-mail me at cstimpson@stribling.com or call 917-991-9549.  I'll be happy to answer them.

*I was about to say novocaine, but it turns out dentists haven't actually used novocaine in more than thirty years, as per "Directions in Dentistry," a blog by Dennis Calcaterra, DDS, of Orange, CT.

** See "Condos Steal a Page (or 20) From Co-ops"

Bidding wars: The only good news is that nobody actually gets killed.

(Part 5 of a series)

Here's what's wrong with bidding wars:  

They can involve dozens of people, but only two parties win--the seller and the buyer whose bid is accepted.  

Everybody else goes away mad, buyers and brokers alike.  

The worst outcome is that, after everybody else has gone away, the buyer with the accepted offer suddenly realizes he's bid over his head and goes away too, and by that time the other buyers have either found other properties or are still so upset they no longer want this one.  

But when inventory is as limited as it is now, bidding wars are a fact of life. There are currently far more buyers than available properties, and that means heavy competition.

In a recent survey I made of co-op and co-op sales downtown over the last few months, more than half had sold at or above the last asking price.  

That means there were an awful lot of bidding wars.

Most brokers working with buyers (including me) have strategies for winning bidding wars.  Sometimes these work; sometimes they don't. 

The way a bidding war usually happens is this:  When more than one, or perhaps several, offers are made on the same property and none of them is distinctly better than the others (not just higher, but also from a buyer with better qualifications who offers better terms), the seller's broker will ask all the buyers' brokers for their buyers' best and highest offers in writing by a given time on a given day.  

Sometimes the term "best and final" is used, but as bidding wars can devolve into free-for-alls, the word "final" as applied to an offer can be meaningless.

After the deadline, the seller will review all offers and choose which to accept.  Then  a contract will be sent to the winning buyer's attorney.

You might think this is an orderly, logical and reasonable process.  Well, it should be.  Maybe sometimes it is.  But often it isn't.

During the time before the deadline, there is a lot of backing and forthing between the seller's broker and the buyers' brokers, who are trying to gain some insight as to how far their buyers have to come up in order to win while also trying to make sure the seller's broker understands how fantastically well-qualified their buyers are and how much they truly love the property.

Buyers' brokers are frantically trying to reach their clients.  Clients are trying to reach their accountants.

The seller's broker is fielding phone calls constantly, trying both not to give away information that might hurt the seller in any way, and to get the highest offer possible.

When all the offers are in, and one is accepted, you'd think we could all breathe a sigh of relief and move on to getting a contract signed. 

But no.  Not always.

One of the losers may decide he doesn't want to be a loser and open everything up again by raising his offer substantially.

When this happens, if I'm the seller's broker, I want to go home and crawl under the bed.  But I don't.  It's my job, and most of the time I love it.

The new offer may be so high as to be irresistible to the seller.  So the seller will accept it and tell his lawyer to send out another contract in addition to the one he's already sent.  

It then becomes my job to tell the broker for the first buyer that his accepted offer has been un-accepted, and ask if he wants to raise it, as a higher offer has come in.  

Harsh words are usually the result, and I am on the receiving end.

If a contract is signed at a higher price of course I am very pleased.  This, after all, is the point.

But too often this higher buyer (fun to say that, not always fun to deal with it) ultimately decides he has bid over his head and walks away without signing a contract. 

I am then the one who goes back to the broker for the buyer who won the original bidding war and says hey, just kidding, your buyer's offer is accepted after all.

Only by this time, that buyer may be so angry that he is either no longer interested or actually wants to lower his offer.

The can is open, and the worms are wriggling all over the place.

Even more complicated and unpleasant negotiations may ensue, but just thinking about them is giving me a headache, so I will leave the possibilities to your imagination.

A broker needs a great deal of tact, patience, resilience and empathy to deal with this kind of thing. Fortunately or unfortunately, over the years I've been on both sides of many bidding wars and have grown a lot of calluses.  

There are three  very important things to remember if you, as a buyer, get involved in a bidding war:  

One, be grateful you're not alone.  You have a skilled broker who has been through this before and will make sure that in the end, everything will be all right.  (And to quote the character in the movie*, if everything is not all right, then it isn't the end yet.)

Two, decide what is the most you are willing and able to spend for this property and DO NOT GO ABOVE THAT NUMBER.

Three, if you lose, remember this:  It's okay.  There are more than 300 million people in this country not living in that apartment and not minding a bit.  

Your broker will find you another one that you will love just as much. Maybe more.

I promise.

Any questions?  E-mail  cstimpson@stribling.com or call 917-991-9549.

*"The Best Exotic Marigold Hotel."  Great cast, fun flick.

Essentials of the offer: how to be the perfect buyer in today's sellers' market. (It's not just about dollars.)

(Part 4 of a series) 

At last, you and your broker have found the apartment of your dreams.

You've seen it at least twice, and so has your partner.  

Your broker has pointed out any negatives as well as the positives. (She's objective.  You may not be.  And not only will this help you make sure it's the right one for you, but it will help in negotiating the price.)

And if you're planning to finance the purchase, you were pre-approved (not just pre-qualified) for a loan of up to 80% of the amount you're planning to spend before you even started looking. 

Before you make an offer:

First, your broker should let the seller's broker know that you're seriously interested, find out if there are any offers currently on the table, and, if there are none, ask to be notified if any are made.  

Your broker should also try to find out about possible negotiability and should ask for comparable sales to support the price.

Second, alert your real estate attorney.

Third, make sure you have a substantial amount of cash readily available.  When you sign a contract, you must accompany it with a check for ten per cent of the purchase price.

At the same time, your broker should be looking for comparable sales in addition to the ones the seller's broker has given her.  She should research the price as carefully as if she were pricing it for the seller.

Now for the offer.  

It's not just a number.

The strongest offers are all cash.  The next strongest are those that include financing but are not contingent on it.  The weakest are those that are contingent on financing.  

Strong qualifications are also a highly motivating factor, particularly if the property is a co-op and the buyer will have to pass the board.  

An all-cash offer from a well-qualified buyer will often trump a higher offer with a financing contingency from someone with less impressive resources.

If the property is new to the market, well priced and likely to attract several buyers, you may want to make a preemptive bid, with a time limit.

A seller who is doing business in good faith will immediately accept an all cash, full price offer (in a sellers' market like today's, circumstances might even warrant a number over the full price), to close at his convenience, from a qualified buyer.

However, there are those sellers who will have another open house to see if they can get a higher number or stimulate a bidding war.  That's why a time limit is a good idea.

If there are no other offers on the table, and the property has been on the market for more than a month, you may be able to negotiate a bit.  

But in today's market, in order to get a response from the seller, your opening offer should be at least 90% of the asking price.  Most actual sale prices are now within two or three per cent of the asking price, either over or under.

If you don't think the property is worth that much, your broker can sound out the seller's broker to see if the seller will respond to a lower offer.

The formal offer should thus include the number, the closing date, the amount to be financed (if any), the pre-approval letter from the bank, and whether or not the offer is contingent on financing.  

It should also include your net worth, liquid assets, annual income (not just salary) and source of same. 

Your broker should present your offer the INSTANT you make it, by phone, and should follow up with a formal presentation by e-mail.

If yours is the only offer on the table and it is less than the full ask, the seller has three options:  she can turn you down flat, she can accept it, or she can make a counter offer.  

The third option is the most likely.  Then there will be some backing and forthing between you and the seller, via your brokers, before you agree on a price and terms.  

Both parties may assume that they'll eventually arrive at the midpoint between the opening offer and the asking price, but this is not necessarily true.  One or the other may refuse to budge at some point.  

A broker is an experienced negotiator and can help you through an impasse.  She will do her best to make sure the seller is the one who blinks.

Once you and the seller have agreed on price and terms, the next step is getting the contract signed.  

Unless, of course...

NEXT:  How to win a bidding war.

The one essential for working with a broker as a buyer. And what you're entitled to in return.

Part 3  If you're buying:

You may be tempted to work on your own.  Don't.

This may well be the largest financial investment you will ever make.  It will affect your life for many years to come.  You won't just have to live with it; you'll live IN it.

Do you really want to do this alone?  Without professional help?

Working with a broker costs you nothing.  And a good broker will save you both time and money.*

Finding the right broker to help you buy is less crucial than finding one to help you sell.  There's no written agreement.  If it doesn't work out, it's easier to change (but don't change lightly--more below on this).

Ask your friends, go to some open houses, walk into an office.  Be sure every broker you consider is a member of the Real Estate Board of New York (REBNY).

Once you find one you like, BE LOYAL.  Don't try to work with more than one broker at a time.  

It will hurt you.

There's nothing to be gained by working with more than one broker.  We all have access to all listings. REBNY requires that we share our "exclusives" with all other member firms within 24 hours of listing them.

If you're not happy with your broker, by all means change.  But it's in your own best interest to practice monogamy--serial monogamy if necessary, but monogamy--with a broker.

How will we know if you're working with another broker?  We are required to give our customer's name when we make an appointment to see a property.  

If the listing broker for that property tells us the customer already has an appointment to see it through another broker, or if the customer has gotten in touch with the listing broker directly, nine out of ten of us will drop the customer.

Here's why:  choosing five to seven apartments for you for an afternoon's tour, reviewing them with you, scheduling appointments with their brokers (which means a meshing of your schedule and theirs, not to mention ours) to see them in some kind of reasonable geographic sequence is extremely complicated and time-consuming.

Also, our firms do not pay for taxis or car services or lunches or snacks. All of those expenses come out of our pockets.  And we are independent contractors, on straight commission, with no salary or benefits.  If we don't sell, we don't eat.

Okay, this is not your problem.  

But we cannot afford to devote time, effort and money to anyone who may wind up buying through some other broker.

If you see something interesting on the web, pass it on to your broker and ask what she thinks.  She may know something about the listing that's not on the website--land-lease, brick wall views, whatever.  

If, in a moment of excitement about a property, you call or e-mail the listing broker directly, make it clear that you have a broker representing you.  

If you go to an open house without your broker, put her name down on the sign-in sheet.

Here's what you can expect in return:

If you don't already have a real estate attorney, your broker should provide you with the names of at least three she's worked with in the past and is comfortable recommending.  Same goes for mortgage providers, if you're planning to finance.

She should be seriously interested in finding you the perfect property and getting the best price, not just in making a quick sale.

(A smart broker knows that this is in her best interest. If she does her job well, you will come back to her when you're ready to sell whatever she helps you buy. You will also send any of your friends who have real estate needs to her.)  

She should listen carefully and TAKE NOTES when you tell her what you're looking for. 

Before she shows you properties, she should send you a list of them with pictures, floor-plans and other information.  Go over the list with her so that if there are some you're not interested in, you can explain why. 

Again, she should listen carefully and TAKE NOTES.

When you actually go out with her to look at properties, it is fair to expect her to pay cab fares and for any snacks along the way.  

If you're spending in the multimillion dollar range, it is fair to expect a car service, especially if your tour will be in the later afternoon when it's impossible to get a cab.

After the tour, stop for coffee to discuss what you've seen.  

If you didn't like something and can't come up with anything beyond "It just didn't strike me," your broker should know how to gently probe a bit, asking, for instance, if the problem was the light or lack of it, or if those white brick buildings that went up in the '60s should be ruled out altogether, or if there was something wrong with the block.

If you're looking with someone who will be sharing the space with you, ask for some time to discuss the properties privately.  But be sure to discuss them with your broker as soon as possible.

She should NEVER pressure you to make an offer unless she sees that you're interested in something, and she knows that other offers are already on the table.  

She shouldn't argue when you point out negatives, and she should point out any serious ones you miss.

If you've looked at a dozen properties and can't see yourself living in any of them, sit down with your broker and try to figure out what the problem is. 

But by this time, there should be at least one you like enough to make an offer on.

Now, more than ever, the right broker is essential. Now's the time to decide what your offer should be, and negotiate the price.

NEXT:  The offer, and beyond.

Any questions so far?  e-mail me at cstimpson@stribling.com or call 917-991-9549.  I'll be happy to answer them.

*For more on this, see previous post, "Don't jump into the pool without a lifeguard:  why buyers need brokers."

Seven questions to ask brokers before you choose one to handle your sale. And one question to ask yourself.

Part 2 If you're selling:

As mentioned in an earlier post (How To Choose a Broker, Part 1)  you first need to talk to friends, check your mailbox for broker mailings and go to some open houses.

Let me add one more item to that list: be sure to check out websites.

Remember, to paraphrase the rental car ads, you're not just hiring a broker, you're hiring a company.  

The website should be attractive and easy to navigate. And the company should have national and international affiliations so that your property is seen by national and international buyers.  

Once you've done all that, you should have an idea of which three brokers (or more if you don't fall in love with any of these) you want to invite to look at your property, give you a price, and answer some questions.

Here are the questions:

What do you think it's worth?  Beware the broker who takes a quick look around and says, "I can get you X million dollars for this."

Ask him for very specific reasons why he thinks it’s worth that.

  

Avoid anyone who gives you what we call "a blur" on the subject, changing the subject quickly to his or her immense experience and knowledge.

Don’t be led down the garden path by the broker who gives you the highest price. There are brokers who swear they can get a given over-market price, and then will ask you to drop it if the first open house doesn't produce an offer. 

Accurate pricing is crucial (see Pricing 101: Why you have to get it right the first time. and Pricing 102: How to get it right the first time.).

Personally, I never throw out a price at my first meeting with a seller. After I've seen the property I do my homework and then come back with a price and a marketing plan.  Which brings us to...

How are you going to market this property?  The broker should provide a written plan explaining in detail every step he plans to take in marketing your property—advertising, open houses, mailings, everything.

Does it need staging?  You need an honest answer here.  

If the broker says it looks fabulous when you know it doesn't, be prepared for him to change his mind once an exclusive agreement is signed.  

If it does need staging, who pays for what part of it? What about a floor plan?  Photography?  How much photography?  Professional, or does the broker do it himself?

How well do you know the neighborhood?   Although it may be helpful, it's not necessary for a broker to specialize in your neighborhood.

But it is necessary for him to learn everything he can about it.

Recently I had an exclusive on a beautiful Park Slope brownstone.  New to the neighborhood, I went to every single open house in every Park Slope brownstone on the market.  I made appointments to preview those that didn't have open houses.  I made friends with the brokers.

I learned the market inside out.

I brought a fresh eye to the project, which resulted in getting a price higher than anybody thought was possible.  Even after the house was sold, brokers were telling me the price was too high.  But we got it.

Who else will I be dealing with?  There are mega-brokers out there with hot and cold running partners, assistants, masseuses, you name it.  

One person shows the property; somebody else schedules appointments; yet another person handles negotiation and someone altogether different deals with board packages.

The person you originally hired?  You never see him again.  He's off pitching other exclusives.

There must be benefits in this arrangement for someone, but I don't see how it's the seller.  One advantage of the exclusive agreement is that you only deal with the person you hire, not a lot of others, and especially not a lot of inexperienced apprentices.  

Make sure you get all the expertise you're paying for. And speaking of paying...

What's your commission?  It's legal to ask for a reduction in the typical 6% commission.  If your property is priced in the multi-millions (or you've worked with the broker a number of times), it’s not unreasonable to suggest 5%.

But remember, you get what you pay for.  Can the broker afford to give you the same time and the same marketing at a lower commission?

Don't forget that the commission is going to be sliced at least four different ways--between the seller's firm and the buyer's firm, and then between the firms and their brokers.  

It's important to make sure the outside brokers have a strong incentive to show your property.

And beware.  The broker who is quick to reduce a commission just to get a listing is obviously not a good negotiator.

How many other exclusives do you have?  This is a veiled way of asking how much time the broker will have to devote to yours.  There are only so many hours in a week.  If a broker has a dozen or more exclusives, how many of those hours are you going to get?

Once you've asked these questions, along with any others you happen to think of, there's one to ask yourself.  

Which broker could you most tolerate being stuck in an elevator with?  

Of course, you will probably never be in that particular situation with your broker.   But being in the throes of a tough deal with someone can feel very much like being stuck in an elevator.  It’s best to be stuck with someone you like.

Any questions?  Call me at 917-991-9549, or e-mail cstimpson@stribling.com

NEXT:  If you're buying.

News flash: There are a few new condos out there that are not super-expensive.

Not long ago, while wringing my hands, I posted my thoughts on the stratospheric prices of new or relatively new Manhattan real estate (A real estate question: What can you buy for $12,745?).

Today the Times published an article that says there are new and shiny condos out there for a trifling $1,470 per square foot (Luxury Apartments For A Little Less). 

The article says that of the 230 new development condo units that are now on the market and that are priced below $2,000 per foot, 149 are in the Financial District. 

But if you don't want to live in FiDi (come on, it's nice down there!), you can choose from a grand total of 81 in the rest of Manhattan.  

Any questions?  Call me at 917-991-9549, or e-mail cstimpson@stribling.com

Who do you trust to handle what may be the largest financial investment of your life?

Part 1:  Whether you’re buying or selling:

Your broker is going to help you make some very, very important financial and emotional decisions.  And you're going to spend a lot of time with him or her.  

Be careful whom you choose.

There are a number of ways to choose a broker.  Use all of them. And talk to at least three brokers before you decide on one to work with. 

First, ask your friends.  

Remember, as Frederick Peters, president of Warburg Realty and among the most highly respected people in residential real estate, says, "The fact that your cousin's mother-in-law recently obtained her brokerage license is NOT a personal recommendation."

But if anyone you know has had a really good experience with a particular broker, talk to that broker and tell him who made the recommendation. 

Check your mailbox.  Like everyone else, you probably get frequent mailings from real estate brokers.  Do they offer you valuable information about the market, or do they just talk about themselves?

Check the web.  Look at the listings for properties similar to yours, or to what you want to buy.  Go to open houses. 

Do you find any of the brokers helpful?  Do any show a superior knowledge of the kind of property they're representing?  Don’t be afraid to ask a lot of questions.

Walk into a firm's office off the street.  Do you get a favorable impression of the office?  Are you greeted promptly and given a place to sit, maybe even offered a glass of water or a coffee? 

Does a broker come to help you within a minute or two?  Does the broker listen to you carefully and take notes? 

Maybe most important of all, is the broker a member of the Real Estate Board of New York? 

REBNY members must adhere to the highest ethical standards and are severely penalized if these standards are not upheld. 

Check the firm's website.  Is it attractive and easy to navigate?  Does the firm have national and international affiliations?  

Also, be sure to choose a broker you like and feel comfortable with.  This can be more important than you realize in a stressful situation.

NEXT:  How to choose a broker if you’re planning to sell.