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.

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.