In a Seller’s Market, Every Minute Counts
The New York TimesMay 31, 2013If there was any doubt that New York City real estate has become a seller’s market, consider the following: open houses are packed to capacity, bidding wars and all-cash offers have almost become the norm, and some listing prices actually rise, not drop, after a home is listed.
“It’s the kind of insanity you live for in this business,” said Mickey Conlon, a broker with CORE, recalling a two-bedroom two-bath condominium at 49 East 21st Street in the Flatiron neighborhood that he listed with his business partner, Tom Postilio, for $1.89 million in early January.
“At the moment, that was considered aggressive pricing,” Mr. Conlon said. Yet within 24 hours, the brokers had received a flurry of requests to see the place, which prompted them to be bold. The next day they raised the price by $100,000, to $1.99 million. Though some potential buyers grumbled about the change, about 100 people came to the first open house. Soon, there were multiple offers above the asking price. By the end of January, there was a signed contract for $2.16 million — all cash. The sale closed in April.
The rules of engagement for buying an apartment in the city have changed. Negotiation, brokers say, is no longer part of the equation. Forget about taking time to mull over your decision. Serious buyers need to be prepared to pounce. And while lots of cash has always helped, it’s now more important than ever, as sellers select the best offers with the least amount of hassle involved.
Not that sellers can name just any price. Brokers caution that even in this market of extremely tight inventory, listings priced too high tend to linger, and low prices intended to bring the biggest crowds through the door could result in lowball offers. There is an art to choosing the right price.
While housing prices across the country recently posted their biggest gains in seven years, New York City’s market has been experiencing a slow and steady recovery ever since the market hit bottom in 2009.
More recently, scarce apartment listings and low mortgage rates have stoked competition among buyers and driven up prices. The number of Manhattan apartments for sale dropped 27.6 percent last month, to 5,077, versus 7,011 for the same period a year ago, according to the appraisal firm Miller Samuel. At the same time, prices have inched up. The median sale price rose 12 percent to $930,000, from $829,000 a year ago, according to the most recent available data for the second quarter, which began on April 1. That follows a 5.9 percent year-over-year increase in the median sale price, to $820,555, in the first three months of the year.
Apartments are going into contract at a faster pace, with listings lasting 105 days on the market, down from 156 a year ago, according to Miller Samuel. In popular neighborhoods like the West Village, it’s not uncommon for sought-after properties to go into contract well above the asking price in the head-spinning span of 10 days or less. Brokers are fueling the frenzy, turning open houses into pressure cookers, with tactics like one-day-only showings and short deadlines set for best and final offers.
Yet for the tenacious buyer, it is still possible to land an apartment without offering a pound of flesh.
After losing one place in a bidding war and another because he waited a week to make up his mind, Shamoun Afram, a program manager at an investment bank in Manhattan, kicked his search for a one-bedroom condo into high gear and homed in on the Orion, a modern high-rise condominium in Midtown. In January he toured about 10 units there with the help of his real estate agent, Patrick Mills of CORE, and he was about to sign a contract on an apartment slightly above his $1 million sweet spot when he noticed a new listing on Streeteasy.com late on a Tuesday.
The next morning he was on the phone with his broker to see if he could get in to see the apartment that day, but it wasn’t being shown until Thursday. “I knew I had to make a decision fast,” Mr. Afram said. He put in an offer that day, sight unseen, at the full asking price of $999,000. “We decided, let’s just be cavalier about it,” Mr. Mills added. The offer was accepted on Wednesday; on Thursday they toured the apartment; and on Friday they signed the contract.
But that didn’t stem a wave of interest in the apartment. “After we had the contract out, people started to call,” said Sarah Son, a broker at Keller Williams Realty who represented the seller. “Even after we told them we had a signed contract,” she said, “they kept trying to make us an offer. It was really crazy.”
In a highly competitive market, where cash is king, here is what you need to do to buy an apartment in the city.
REFRESH, REFRESH, REFRESH. With prime listings being snapped up, the faster you get to an apartment the better. Web sites including nytimes.com/realestate, Streeteasy.com and Zillow.com eliminate some of the work by automating your search. Apartment hunters can save search criteria, and the sites will e-mail new listings that meet their requirements.
DON’T WAIT FOR THE OPEN HOUSE. “If you can’t see an apartment the first week it is on the market,” said Doug Perlson, the chief executive of the online brokerage RealDirect, “there is a good chance you will not even get a chance to make an offer. Schedule a showing during the week before the first open house and use the open house for your second visit. Then you should be ready to make your offer.”
FORGET ABOUT GETTING A DEAL. The conventional wisdom over the last few years has been to come in at 5 percent below the asking price when making an initial offer. That won’t fly for attractive listings that are particularly scarce, especially if they are priced fairly. “Give the full price with no contingencies and leave that offer on the table for 24 hours,” said Shaun Osher, the chief executive of CORE. “You want to let the seller know that you’re really serious, that you really want the property, but you’re not going to let them use you as bait to get a higher offer.”
DON’T DELAY. Being the first to make a solid offer can give you an edge. When a one-bedroom two-bath unit at the Memphis Downtown Condominium in the West Village drew more than 100 people to its first open house, Adolfo Brenes and Lena Datwani of Bellmarc Realty knew they had to act quickly on behalf of the buyer they were representing. They submitted an all-cash offer at the full asking price of $1.65 million. The next day they received a call from the seller’s broker informing them that two other full-price all-cash offers had been made. “Because we were first,” Mr. Brenes said, “the seller was giving us the chance to come up to $1.8 million to take it off the market.” Having been outbid for other West Village apartments at the full asking price, the buyer decided to meet the seller’s increased price. They closed the deal in April. A few weeks later, a similar apartment four floors above was listed at $2.1 million.
BE THOROUGH. A well-prepared offering package can be a leg up for buyers. When submitting an offer on behalf of her clients for a two-bedroom in Carnegie Hill recently, Lisa Larson, a Warburg Realty associate broker, “prepared the buyers’ financial statement, as well as a short bio, as this was a co-op and we also needed to show that they would pass the board’s approval process. We also presented the offer as all-cash and agreed to sign the contract in five days.” Her clients, she said, were recently approved by the board.
RAISE YOUR DOWN PAYMENT. Thirty or 35 percent down is the new 20 percent, brokers say. In a rising market, appraisals tend to lag behind asking prices because they are based on past sales of comparable apartments. Banks will not lend more than the appraised amount, so buyers need to come up with more cash to make up the difference. “The stronger offers are the ones putting down more money,” said Josh Scheier, a public defender with the Legal Aid Society in Brooklyn who was recently in the enviable position of choosing among 30 offers for the two-bedroom two-bath co-op in Prospect Heights, Brooklyn, that he and his wife, Anat Soudry, listed in April for $699,000. After winnowing the possibilities down to two of the highest offers — both of which were more than 20 percent above the asking price — Mr. Scheier said the decision came down to who was “less of a risk” if the apartment were to appraise for less. The winner offered to put 50 percent down and had more money left over after the purchase.
BEWARE MORTGAGE CONTINGENCIES. With demand high, fewer sellers are willing to accept contingencies, and desperate buyers may feel pressed to waive the mortgage contingency and risk losing the typical 10 percent deposit, in order to have a shot at an apartment. But unless you have the cash to cover your losses, it’s not a good idea. Without a contingency, you will lose your deposit if the appraisal comes in low and you are unable to make up the difference, or if the bank finds something wrong with the building and will not lend the money.
NEGOTIATE THE CONTINGENCY. Christopher Kromer of Halstead Property and his business partner, Nora Ariffin, recently found something of a middle ground. The buyer they represented wasn’t comfortable making his offer of $1.7 million for a two-bedroom in TriBeCa without a mortgage contingency, and the seller was concerned that a low appraisal could ruin the deal. “What I suggested is that we present our offer with a 70 percent contingency, while reserving the right to finance 80 percent,” Mr. Kromer said. “This is essentially telling the seller that the buyer will put down 30 percent if the bank requires it, but he is also reserving the right to put down 20 percent if allowed.” This addressed the seller’s concerns while creating a 10 percent cushion for the buyer.
SET YOUR ULTIMATE PRICE. If a bidding war ensues, buyers will need to have a “walkaway number,” Mr. Kromer said. Mr. Conlon of CORE put it this way: “Think of it like anything else you are going to buy or like something on eBay. What is the number you are willing to go up to and be able to sleep at night?”
SIGN YOUR CONTRACT QUICKLY. A year ago, buyers could take as much as two to three weeks for due diligence and negotiation before signing a contract. “Today’s sellers are less patient and may pull a deal from a buyer that is taking too long,” said Mr. Perlson of RealDirect. “Also, since there is nothing binding until a contract is signed, we have seen very aggressive buyers try to steal a deal by offering an amount significantly above ask to try to get the seller to switch buyers.” Ethical brokers, he added, will not abandon an accepted offer, but if it takes too long, they will go to their backup faster than in the past.