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.

What to obsess about when you buy a condo.

Last week I discussed what to obsess about when you're buying a co-op.

There are things to obsess about when buying a condo, too.

Of course, your attorney will perform what is called "due diligence" on the property before you sign a contract, as he would with any real estate purchase, including co-ops and houses.  

This means reading the offering plan (or at least certain relevant parts of it, especially the "special risks" section) and the amendments to it, reviewing the most recent two years of financial statements, reading the board minutes and investigating the property in general.

But there's information you should get before you reach that step (perhaps even before you and the seller agree on a price), and a good broker can get it for you.

Ask your broker to find out how many of the apartments in the building are owner occupied and how many are rented,  and whether there are any large blocks of apartments owned by a single entity.

Yes, it's great to be able to rent your apartment hassle-free if you want to or need to, as you can in most condos, but if this is not a priority, you don't want to spend a lot of money on a condo only to be surrounded by renters.  

If the proportion of investors to owner-occupants is too high, financing may be difficult.  Check with your mortgage broker on this.  Even if you're paying all cash, it's something to consider for resale purposes.

As you would with a co-op, check into the amount of money available for work that the building may need, now or in the future.  Remember, co-ops can borrow money using their building as security for the loan. For condos, borrowing money is far more difficult.  So if the building needs work and there's not enough money in the slush fund, there will be assessments.

This is not necessarily a bad thing.  Owners in some small buildings with few units, condos and co-ops alike, prefer to keep their money in their pockets. And in the long run, it may be  better to assess than to increase carrying charges or maintenance.  But if this is how the building operates, it's best to know in advance. 

At  the same time, make sure you know what work has been done recently and what work may be planned.

For example, thanks to Local Law 11, the city inspects the facades of every building once every six years.  If the city says the bricks need repair, the bricks have to be repaired.  This can be expensive.  

Of course, it's a small price to pay compared to having a brick land on somebody's head, especially if the somebody is you.

Needed and planned repairs may show up in the board minutes, which you or your attorney or both should read before you sign a contract.  If they don't, have your broker or your attorney ask the managing agent for information.

If the building is new, it's also important to know if there's a tax abatement.  A number of such abatements have been granted to developers by the city in order to encourage construction.

A tax abatement is a wonderful thing, as it significantly reduces real estate taxes for a given building--but not forever.  The terms of abatements vary.  

If there's an abatement in place, you need to know what your taxes would be if there were no abatement, how long the abatement will last, and how your taxes will increase over the years till it ends.

Any questions?  Call me at 917-991-9549 or e-mail cstimpson@stribling.com, and I'll be happy to answer them.  If I don't know the answer, I know how to find it.

What to obsess about when you buy a co-op.

Recently a column in Forbes magazine offered a list of ten things to obsess about when buying a residential property for more than $3,000,000.

The list included, besides location, open views and light, high ceilings, a practical layout, good architecture, a washer and dryer in the apartment, double paned windows, a gym, extra storage, excellent condition and a good reputation for the building.

Hard to disagree with any of those.  However there are some less obvious but extremely important 
things to consider when buying a co-op or condo. 

They can make the difference between a home that's also a good investment and a home that's a bad one.

Let's start with co-ops. 

Of course, a low maintenance is desirable.  If it's very low, there are two possibilities.  

The best one--and lucky you if you find an apartment in a co-op like this--is that the co-op owns retail space on the ground floor and gets money from it.  

There are some buildings downtown that get so much money from their retail space that nobody pays any maintenance and everybody may even get some income.

However, the other possibility is that no work has been done on the building in years, the roof is about to fall in, people keep getting stuck in the elevator, and every time it rains...well, you get the idea.

So be sure to check into what repairs have been made to the building recently, if repairs are planned in the near future, and if so, how much money is available to pay for them.  

Ask also whether or not there have been any assessments, or whether any are planned.  Repairs cost money.  It has to come from somewhere.

It's important to know what percentage of the maintenance is tax deductible.  This is the part that pays the real estate taxes and, more importantly, the interest on the underlying mortgage.  

A high tax deduction on the maintenance in a full service building is a red--or at least pink--flag that should be checked out.

If the tax deduction is much more than 50%, a typical amount in a full service building, the building's underlying mortgage may be disproportionately large.  

Your broker should be able to find out the amount of the underlying mortgage allocated to the apartment you're considering (this is not difficult). In a well-run co-op, this amount will be equivalent to no more than 25% of the sales price.

Speaking of the underlying mortgage, if you're planning to finance this purchase, the financial statements for the co-op will also tell you how soon the mortgage will come due.  If it's within a year or two, you may have trouble getting financing.  Ask your mortgage broker's advice on this.

What about a high maintenance with a low tax deduction?  Possibly there is a large amount of service--24 hour doorman, porters, etc., in a building with only a few units.  

The cost of the service is shared by far fewer tenant-shareholders than in a larger building, and of course is not tax deductible, which jacks the maintenance up considerably.

This is perfectly legitimate, and this kind of situation is desirable for many people.  But if you want the privacy of a small building with the convenience of a lot of service, you have to pay for it.

Also, this kind of co-op may not have an underlying mortgage.  People who live in buildings like this often have a real distaste for debt of any kind.  So the only deductible part of the maintenance is what pays the real estate taxes.

Private outdoor space will also raise the maintenance.  Maintenance is based on the number of shares allocated to the apartment, and apartments with outdoor space are allotted more shares.

In a typical-size full service building, maintenance should be not much more than $2.00 per square foot, preferably less.  Average maintenance for 45 recently closed two bedroom apartments in full service co-ops on the upper east side was $1.85 per square foot.

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

More to come.

A Manhattan real estate question: What can you buy for $12,745?

As I write, $12,745--that's twelve thousand, seven hundred and forty five dollars--will buy you exactly one square foot of a three bedroom, five and a half bath condo on the upper west side.

If you want all 3,923 square feet, you'll have to come up with $50,000,000.

True, the apartment is on a very, very VERY high floor, and the views are spectacular.  You can almost see the curvature of the earth.

And the master bedroom does have its own sitting room, and there's a staff room and a breakfast room and a gallery (what you call a hall when it's seven feet wide).

But there's no terrace or balcony, or even a fireplace, let alone a pool or a tennis court or a helipad or a place to exercise polo ponies. 

Look down at the floor.  Measure one square foot of it.  Now imagine that square foot being worth $12,745.

A development in the village has just come to market with average prices per square foot of around $4,500.  That's a long way south of $12,745, but it's still a lot of money for a square foot of floor.  An apartment in another development, this one in Noho, is priced at more than $5,000 psf, again, with no outdoor space or fireplace.

Developers must be supremely confident that these will sell, and quickly, because they keep building more of them.  And this is no easy or inexpensive process.

First, they may have to pay as much as $800 to $1,000 per buildable square foot.  That's square footage that right now exists only as air, up in the sky.  (The mere idea of paying a thousand dollars for a square foot of air makes me whimper.)  Then they have to carry the financing for these projects for three to five years before they see any income.

They have to build out the spaces--not cheap when everything has to be top of the line, and this involves architects (preferably the kind known as starchitects), expediters, contractors and construction crews.  And then they have to mount expensive ad campaigns, put together expensive sales offices and expect to pay commissions.

All of this takes money.  A lot of money.  The profit margins are far from huge.  And the risk factor is significant.  What if, somewhere along the way, there's a fire or a flood?  Or another economic disaster?

But right now there are any number of these vastly expensive projects in the pipeline, each of them taller, shinier and more ambitious than the last.

Here's the weird part:

Jonathan Miller, president and CEO of the semi-eponymous and pre-eminent appraisal firm Miller Samuel, explains "absorption" as the number of months to sell all listing inventory at the annual pace of sales activity.*

That is, if there are 100 properties on the market and there have been an average of ten sales a month for the past year, then it should take about ten months to sell all those properties.  In this case, there's a ten month supply of inventory.

More than nine months of inventory is a buyers' market.  Six to nine months is a balanced market, and less than six months is a sellers' market.

As per Mr. Miller's blog Matrix (http://matrix.millersamuel.com), there is currently no more than a five month supply of inventory of properties priced below $5,000,000.  In some categories below this price point, there is a supply of only two and a half months. 

Buyers are starved for property, and there's next to nothing available for less than $5,000,000.

But in the $5,000,000 to $10,000,000 range there's a seven and a half month supply of co-ops (a balanced market) and a twelve month supply of condos (definitely a buyers' market).  The picture above $10,000,000 is disastrous for sellers, with a 16.4 month inventory of co-ops and a 27.9 month--well over two years--inventory of condos.

There is something wrong with this picture.  I asked the expert to explain.

Mr. Miller kindly responded to my query as follows:  "Developers are largely forced to target the high end of the market because of the cost of land and construction. The math doesn’t work at the lower price points.

"If the high end softens then land prices slide and the math begins to work again. Rising housing prices tip more inventory in the market as people have more equity to participate although that has not happened in Manhattan yet."

I am waiting.  So are a whole lot of would-be buyers.

*http://www.millersamuel.com/blog/manhattan-absorption-august-2013-dont-blink-or-its-gone-except-trophies/30103

Sure, a picture is worth a thousand words. But how many of those words are the truth?

Many years ago, when dinosaurs walked the earth and I first got into real estate, there were no pictures. 

Oh, maybe if the property was really expensive--say, $800,000--you might have pictures taken for a brochure or an ad in the Luxury Homes and Estates section of the Sunday Times Magazine.  But by and large, brokers were dependent on words to sell properties. 

I remember "Glistening Diamond" as a headline advertising a cramped one-bedroom in a very ordinary 60s white-brick building.  "Exquisite," "Stunning," "Gorgeous" and "Fabulous" were all used and overused.

Every other apartment had "Old World Charm."  The ones that didn't have "Old World Charm" had "Soaring Ceilings."

Of course not all these descriptors were particularly apt.  But if you went to look at the apartment, you could dismiss the language as not an outright lie, just a difference of opinion.

Then our computers got smarter. Suddenly our most important medium for advertising was the web, and there were numerous pictures for every listing. 

New rules sprang up, written or unwritten.  At least one firm prohibited pictures of kitchens and bathrooms as being declasse.

The wide-angle lens became the photographers' and brokers' favorite.  It not only allowed a photographer to get much more of a room into a single shot, it also had the effect of making the room look enormous. 

(The wide-angle lens is a simple fact of life, and it's not going away.  Just remember that, as the back seats in the old car ads were not really twenty feet wide, the apartments you see photographed do not actually occupy a full acre.)

Then came a flood of conversion and new construction.  Suddenly apartments were being sold before they were actually built, off floorplans and what are called architectural renderings.  These became not just important, but crucial.

If a picture was worth a thousand words, it was now worth at least that many dollars.

Architectural rendering of 157 West
57th Street (New York Daily News,
MARCHMADE)

Architectural renderings are careful and supposedly realistic representations of what a building will look like when it's done, made when the building is still just lines on a piece of paper. (There was an interesting article in the Times recently about them.*)  

They're important not only to attract buyers but also to create good will among the building's neighbors.  Nobody wants an eyesore sprouting on their block, especially if they're going to have to live through years of the pounding of the jackhammers, the roaring and clanking of the steam shovels, the dust, and the suddenly homeless rats wandering through the neighborhood. 

But if the neighbors can be convinced that the building will be beautiful, will make the block beautiful, and will raise their property values, the noise gets a lot quieter and the rats a lot cuter.

And the better the pictures look, the more likely the developer is to get the (lately astronomical) prices for properties that are, at this point, literally castles in the air. 

Actual photograph of 157 West 57th Street
(www.newyorkyimby.com)

The renderings don't exactly lie, but they might bend the truth a bit.  A lot depends on the angle the artist chooses.

Viewed from below, the building can look tall and elegant.  Viewed straight on or from a helicopter, it can look intrusive and ugly.  Those who don't want the building built for whatever reason will find a way to make it look like a blot on the landscape.

Developers aren't the only people who use art to make properties more appealing.

Today there is something called virtual staging, which can add furniture, paintings, rugs, whatever you want, to an empty apartment.  The things are only there in the pictures, but they should give you an idea of what the place will look like when people live in it. 

Virtual staging is easily spotted and always looks phony to me, but it's a lot less expensive than renting furniture.  If it's made clear that it's virtual staging, not the real thing, it's helpful as a sales tool.  And it doesn't change anything about the actual space, just what's in it.

PhotoShop is a different story.  Just as PhotoShop can make an ordinary person a stunner, it can make an apartment look like Versailles. 

A beat-up 80s parquet floor becomes shiny oak strips.  An ancient Formica kitchen counter becomes Cardoza limestone.  Cracked tile becomes gleaming marble.

This is lying.

It's also stupid.

Leaving aside the moral and ethical issues, it's an excellent way to lose a client. 

Anyone who gets interested enough in an apartment to go to see it because of PhotoShopped pictures is going to be immediately disillusioned, angry because of the wasted time, and completely turned off to the property as soon as he sees the shabby truth.

Staging an apartment is one thing--rearranging furniture, getting rid of clutter, making minor repairs, hanging pictures on the walls, etc., etc., etc.  This is perfectly legitimate and can add thousands or even hundreds of thousands to the selling price.

There's even one photographic trick that I find acceptable.  Photographers I work with take two pictures of rooms with windows.  The first picture is exposed for the room, and the second, taken from the exact same spot, is exposed for the window. 

The two images are then married, and you get a picture that shows the room as well as the view.  It's the real room and the real view.

Two photographs were combined here to show both the room
and the view in the same picture. And yes, a wide-angle lens
was used.(Tom Grimes photo)

As in any business, the vast majority of people in real estate are honest.  But also as in any business there are a few who are not.  Fortunately, there are some controls.

I read recently of a broker who not only used PhotoShop to make a property look significantly better than it was, but actually did this while being photographed for a tv show!  The Department of State launched an investigation into his business practice.

Good.

*http://www.nytimes.com/2013/08/27/nyregion/architects-renderings-as-a-weapon-in-real-estate.html?_r=0.