It’s almost always the real estate agent who gets the bad press when a deal goes awry. Sometimes it is absolutely warranted and other times it is the case that people just feel they have to blame someone and me and my colleagues are often the easiest target. We see it all the time at the closing table when someone jokingly (not always a joke) suggests reducing the broker’s commission when an appliance isn’t working or the floor was damaged during the exodus. Whatever the case, my colleagues and I are somehow perceived as the path of least resistance when it comes to coughing up dough to close a deal. For the record, I’m not too receptive to this tactic, particularly at the closing table.
For the past week I have been dealing with a character who is just the kind of person to dodge any accountability in a transaction and erroneously come after the broker’s commission. How do I know this? It’s exactly what he attempted to do last night. Some background…Last week, I received multiple offers for a 3BR apartment on which I am representing the sellers. This particular buyer’s agent had difficulty communicating effectively the terms of his client’s offer. After a great deal of unsuccessful communication, it appeared that we had nearly reached an agreement to sell the property at the asking price to said buyer. The only hitch appeared to be that the buyer’s were asking for the purchase to be contingent on the sale of their current apartment…NOT happening. Because of the inexperience of their agent and his inability to communicate, I and my sellers were unclear as to exactly what the buyer’s were asking. I reluctantly suggested that perhaps a clearer channel of communication would be each parties respective attorneys. My seller agreed, but this buyer balked and asked that he be allowed to speak directly to my seller. I was incredibly reluctant to allow this but that ultimately is NOT my decision so I relayed the suggestion to my seller who agreed to be contacted directly by the buyer. After providing the buyer’s agent with my seller’s contact number, the buyer’s agent responded by saying that his client thought that the seller should call him…ridiculous games in my opinion, but I again relayed the suggestion and my seller said ok. My seller then called the buyer directly at which time the buyer indicated to my seller that he made his offer only in an attempt to somehow connect directly with the seller and cut the brokers out of the transaction. He was reducing his offer by half the commission and that was his final offer. My seller said "thanks, but no thanks" and hung up. I’m unaware of this ever happening to me in the entire 15 years that I have been in the business but have heard stories like this from my colleagues. That’s not entirely true…this kind of thing happened frequently when i started in the rental business in 1992…so sleazy…hence my leap to sales.
So having shared this story, I still believe (perhaps naively) that the largest percentage of buyers come from a place of integrity. But it is buyers like this that feed the "buyers are liars" sentiment that pervades my industry.
So how do we work together in cases where some or none of the parties trust one another? Very gently and all too frequently with a very suspicious under current. This is just the type of behavior that perpetuates distrust throughout the real estate industry. And what do you know, the agent isn’t always to blame.
Just for today I rest. Too much to do today in preparation for the Nautica NYC Triathlon on Sunday. Send me all of your positive energy Sunday between 8:15AM and 11AM…everything helps 😀 And good luck to all those crazy Iron Men and Women, particularly my former trainer Mike Monroe who inspired me to do these crazy things back in 2003, who are competing in Ironman Lake Placid this weekend…maybe I will give that a shot someday.
Thanks again for all of those who made this event a smashing success in honor of my stepfather who still struggles with pancreatic cancer. I have been overwhelmed by everyone’s support and because of the generosity of my friends, family and True Gotham readers, I am the top fundraiser for Fred’s Team in this year’s event!
See you Monday!
Tina Mattow of PropertyShark.com was kind enough to send over their 2nd Q Foreclosures Report of four major cities: Los Angeles, Seattle, Miami and of course our very own New York City. Here are the "key takeaways" directly from the report with an obvious focus on our local markets(important to note that New York City encompasses all 5 boroughs):
- Comparison to Q1 2007: The number of scheduled foreclosure auctions this quarter in Los Angeles soared (54.63%) higher from last quarter. Miami (29.89% increase) and New York City (16.06% increase) also increased. Seattle foreclosures declined by 13.02% compared to last quarter.
- Comparison to Q2 2006: Scheduled foreclosure auctions in Los Angeles, jumped 202% compared to the second quarter of 2006, while Miami increased by 146% and New York City by 19.5%.
- Foreclosures per Household: Of the four cities, Miami had the highest foreclosure rate per household, about 136% higher than Los Angeles, and 775% higher per household than New York City.
- New York City Boroughs: Properties in Queens and Brooklyn again dominated the total number of new foreclosure auctions in New York City, although the largest percentage increases from last quarter were seen in the Bronx and Staten Island. Queens foreclosures are up 102% compared Q2 2007.
Since the last quarter of 2006 Queens jumped from 167 to 324 foreclosures and Brooklyn from 84 to 147. The Bronx had 41 in Q4 2006 and 83 this quarter …OUCH!!! And we can’t ignore those Manhattan numbers (20 in Q4 2006 and 35 this quarter) which in my humble opinion points directly to the fact that the sub-prime meltdown is not as big of a problem for wealthy Manhattan homeowners. That could change however if it begins to effect wealthy Manhattan bonuses???
Thanks again to Tina and PropertyShark.com for sharing this data.
The Manhattan real estate transaction is indeed a chain of players and events that is often successful in spite of its weakest link. You’re probably asking what the heck is he talking about. Well I will tell you what I’m talking about. But first let’s examine the "chain" that is the Manhattan Co-op real estate transaction:
The Players (in no particular order):
- Seller
- Buyer
- Property Manager (from company that manages the building)
- Closing Agent (from company that manages the building)
- Attorney for Seller
- Attorney for Buyer
- Real Estate Agent for Seller
- Real Estate Agent for Buyer
- Appraiser
- Mortgage Broker/Banker
- Bank Attorney
- Co-op Attorney
The Events (in order of occurrence):
- Seller calls real estate agents
- Seller chooses real estate agent
- Real estate agent comprises the following information from building managing agent to insure accurate and full disclosure to the brokerage community and the consumer:
- Current maintenance (any utilities included)
- Recent maintenance increase and assessment activity as well as reasons for such (recent capital improvements, any upcoming)
- Recent 2 years of financial statements for the Co-op (current reserve fund)
- Flip tax (is there one, how is it calculated, and who typically pays)
- % Financing allowed
- # of Sponsor Units
- # of Commercial Units
- % of owner occupied units
- Sublet policy specifics
- Policy regarding Guarantors (including parents buying with or for children)
- Pet policy
- Pied a terre policy (do they allow people to buy and not live there full time)
- Storage availability (including if it exists and whether it is a locked open room or private bins/cages as well as if a bike room exists)
- Other amenities current or planned (roof deck, laundry, play room, gym, etc)
- Open house procedures (are they allowed, is permission needed)
- Copy of Purchase/Board Application
- Real estate agent disseminates listing to brokerage community and public.
- Real estate agent assists seller with selection of buyer.
- Offer accepted.
- Real estate agent prepares deal summary of terms, conditions and parties involved in transaction and disseminates along with offering plan, amendments, and building financials to seller’s and buyer’s attorney and agent. Purchase application goes to buyer’s agent.
- Buyer simultaneously completes mortgage application as attorney completes due diligence in preparation for contract signing. (Attorney reviews minutes of Board meetings, financials, offering plan)
- Buyer signs contract and provides 10% deposit to be placed in seller’s attorney escrow account until closing.
- Seller signs contract.
- Appraiser contact’s seller’s agent to schedule appraisal.
- Buyer’s agent assists buyer with purchase application and securing loan documentation and mortgage commitment letter.
- Buyer’s agent submits above to seller’s agent for review.
- Buyer’s agent submits above to managing agent for their review.
- Managing agent does credit check and often background check and submits package to each member of Board of Directors often with a cover letter summarizing buyer financial as they apply to Board requirements.
- Co-op Board reviews package, discusses and determines whether or not to grant an interview.
- Co-op Board calls managing agent to ask them to schedule interview.
- Managing agent calls buyer’s agent to schedule interview.
- Buyer’s agent calls buyer to schedule interview.
- Co-op Board of Directors interviews prospective purchaser.
- Board discusses and determines whether buyer is approved to become shareholder.
- Co-op Board calls managing agent with decision.
- Managing agent calls buyer agent or seller agent with decision.
- Assuming purchaser is approved, closing agent for management is notified and attorney for buyer and seller coordinate closing date with bank attorney, closing agent, payoff bank, their own personal schedules, and lastly the buyer and seller’s agent.
- Property closes!
Holy cow! This was an interesting exercise for me to actually write this down and see all of the "links" that could be weak spots throughout the process. Which precisely is the reason for this post. Below is just one example of a "weak link" that can make the process terribly inefficient and could even cost a buyer or seller money and certainly time:
Managing Agents are OVER WORKED and UNDER PAID…here is what all too often happens when a seller or her/his agent tries to comprise accurate information about a property coming on the market:
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The Original request was made for 2 page questionnaire to be completed.
-
Management replied with a generic information sheet that contained little useful information and almost none that we needed for example:
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When asked to do so, we re-sent the questionnaire (July 3rd) and they charged $100 to complete
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On July 13th (they said they needed to clear the check first), they sent the questionnaire back incomplete and with inconsistencies from what the seller had remembered when he purchased just 1 year ago particularly that pied a terres were allowed. Management on this occasion said they were NOT allowed (they change their mind later).
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We called the building manager to ask why the questionnaire wasn’t complete for $100. She replied “ I have spent the last hour working on this and you weren’t happy with the first questionnaire I gave you. This is not my job”. (So why are you charging me $100)
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We asked her if she could please let us know what the sublet policy is- she said there is no sublet policy and they are-not allowed. I told her there were renters in the building. She said this is the only information that she has.
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A few days later I decided to email another contact we have worked with at this particular management company. She forwarded my email to someone else who said said that there is a sublet policy as follows: You must occupy the apartment for one year and then you can sublet for one year. We then asked if there is a sublet fee? She said yes, there is. 15% of the annual maintenance and a $300 processing fee. In addition she said that pied a terres were NOT allowed and parents could by with/for children on a case by case basis.
-
We were still confused so we called the seller (who by the way hired us to have these answers)- we had a buyer who had a client who was a parent purchasing for child, and we wanted the seller to reach out to the Board president.
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The seller decided to call management first. This is how they responded to him:
Imagine the frustration as we continuously received contradictory information all the while trying to accurately market this property. For $100 all we got was an incredible amount of aggravation and a great deal more work for everyone involved. As it stands, today we received 7 offers on this property all of which were over the asking price and fortunately the 2 top bidders have had all of their questions answered. So for this particular managing agent, YOU ARE THE WEAKEST LINK…GOODBYE!!!" Except that I unfortunately will have to deal with this managing agent throughout the course of this transaction and for the rest of my real estate career…YUCK!
Amy Hoak of RealEstateJournal.com shares Effective Incentives to Woo Buyers and Sell Your Home. Hoak points out that gimmicky incentives like trips, cars, and flat screen TVs are less likely to provide the incentive a buyer needs than good old fashioned price cuts or financial incentives such as:
Reducing the Price (obvious right?)
A price reduction is often the incentive that is looked at first, says Delores Conway, director of the Casden Forecast at the University of Southern California’s Lusk Center for Real Estate.
"The price is something that is a common currency — it appeals to everybody," she says.
Gene Rivers, who owns four Keller Williams real-estate offices in Florida, agrees. If a buyer has in her mind that she’ll pay $350,000 for a home and the seller won’t budge from $375,000, "$5,000 in closing costs and a plasma TV ain’t going to get it done," he says.
Paying Points (one of my favorites!!!)
Sellers can offer to pay mortgage points for a buyer, an incentive that Mr. Dalzell tends to use in environments like today’s, when rising interest rates are at the front of a buyer’s mind. One point is 1% of the loan amount, charged as prepaid interest.
"When a buyer sees a lower interest rate or monthly payment, that’s something they can relate to," he says. The setup makes sense for a buyer who has to buy furnishings for the new place; it also can make for an easier monthly payment transition for families that are upsizing.
Buyers should understand, however, that the lower rate often lasts only from one to three years. Before accepting, understand and plan for the point in time when the mortgage bill will increase.
Down-Payment Aid (not possible in a Co-op)
For some buyers, the hardest part of entering the ranks of homeownership is the down payment — also an area where a seller can help. It’s mostly first-time home buyers interested in this kind of assistance because they’re often the ones lacking in funds to complete a deal, Mr. Zadel says.
"It gets people into homeownership," he says. "The disadvantage is that the buyer is financing that additional amount," he adds, because a seller would likely come down in the price of the home if a chunk weren’t dedicated to down-payment assistance.
Closing-Costs Help
Closing costs include items ranging from legal fees to title insurance and can add up, ranging between 2% and 7% of the loan value, according to Freddie Mac. So many buyers, especially those stretching to make a down payment, will be interested in having a seller help out.
In Phoenix, buyers in every price range have been asking that these costs be covered, according to Re/Max’s Ms. Ramsey. "They ask for it because they know that they’ll get it," she says.
Adding a Warranty
A residential-service contract is sometimes thrown in as an incentive because it acts as insurance for a home’s systems, often including plumbing, heating and cooling. At a cost of a few hundred dollars, some real-estate agents consider it an inexpensive add-on that affords a buyer a little extra peace of mind, Mr. Dalzell says. That peace of mind can be especially welcome during the first year in a house.
The Little Things
Other perks will appeal to buyers, too, ranging from the common to the unique. Payment of homeowner association fees — typically associated with condo developments — are sometimes offered. Ms. Ramsey says that a seller with a swimming pool might also offer a year’s worth of upkeep for it, a welcome help for those worried about the maintenance of the backyard attraction.
Or maybe, if a corner of the home was designed for a grand piano, leaving that instrument behind entices a buyer to go through with the deal, USC’s Ms. Conway says.
Some of these incentives could indeed be quite effective in helping a seller procure a buyer for their home. In the strong Manhattan market however, the best way to achieve that goal is to price the property properly. Should our market shift to more of a buyer’s market, I really like the idea of a seller offering to pay points to provide a buyer with a lower interest rate. That can add up to serious savings over the life of a loan.
As far as the other incentives go, the co-op market here in New York City makes most of these impossible. For instance, no Co-op Board is going to accept a seller assisting with a down payment. Having said that, none of this much matters under current market conditions as sellers still seem to have the upper hand in most cases.
Here I go again providing anecdotal evidence of what is happening in today’s Manhattan residential real estate market. I just can’t stop myself. After a very quiet month of June, someone has awakened the buying masses. Some of my personal evidence of the recent blip in activity.:
- 2 properties that we have been marketing for 3-6 months now have multiple offers on them.
- Another property that we have been marketing for more than 6 months had its most highly trafficked open house yesterday (it remains to be seen if we will have any offers).
- My team and I had over 80 (yes 8-0…EIGHTY) people come through another open house yesterday and we already have multiple offers on this property.
- One of my buyers ($4M price point) wanted to see a property that came on the market Thursday evening that already has 2 offers on it.
- Another of our buyers waits on the sidelines for more inventory (likely not the only ones which could very well put them in a multiple bid situation when the time comes).
- And another property that we just brought on the market received an offer in less than a week (not an acceptable offer but an offer nonetheless).
- We also have 3-4 more properties coming on the market in the next 1-2 weeks.
So the current Manhattan real estate market continues to defy national housing trends by chugging along and continuing to frustrate buyers, some sellers, and many agents as making sense of it is nearly impossible.
I don’t know what exactly has happened over the past 3 weeks but there has been a significant blip in activity both on the sell and buy sides for my business. Precisely why posts were light this week and I apologize for that.
As many know, I’m also in the final stretch of training for the Nautica NYC Triathlon (thanks again to all of you who have donated to support this cause!) to be held next Sunday, July 22nd. I’m SPENT!!! To boot, business has picked up significantly in the past few weeks with properties that have been on the market for months fetching offers that may see their sales prices exceed asking prices. Weird.
In case it seems like I’m complaining, I’m NOT! Looking forward to continued strength in the market through the summer and would love to see a bit more inventory as well.
As a Manhattan real estate professional for the past 15 years, one of the most common questions I’m asked by my clients is "should I go directly to my bank or use a mortgage broker?" I personally have always used a mortgage broker believing that more often than not, they will be able to secure the best mortgage product for my personal needs. My most recent loans and refinances have been handled by Daniel Shlufman, the President of FCMC Mortgage Corp. Since I trust him implicitly with my personal business as well as the mortgage needs of most of my clients, who better to answer this question. Here is his response:
I. Choice of Lenders, Products and Rates
Mortgage brokers work with many different lenders. Some of these are large national banks such as Citimortgage, JP Morgan Chase and Bank of America. Others are smaller regional savings banks such as Astoria Federal Savings and Ridgewood Savings Bank. As a result, we are able to effectively shop the market for you since we have several lenders that specialize in every type of loan product.
In addition, mortgage brokers work with non-bank lenders, who lend to borrowers who either have special situations or credit issues that need to be addressed. Many of these are sub-prime lenders who either do not work with borrowers or who prefer to work through mortgage brokers due to the complexity of these transactions.
The variety of lenders available to us allows mortgage brokers to tailor a loan and product to each persons individual situation. We are not bound by the requirements and programs of any one lender so we can offer the best program to a borrower regardless of which lender is used.
When going directly to a bank, the borrower can only avail themselves of the programs that are offered by that particular bank. For example, a bank may have a great rate on a 30 year fixed rate loan, but an above market rate on an interest-only adjustable rate mortgage (or “ARM”). Brokers, on the other hand, will use the best bank rate they have for a 30 year fixed and the best bank rate they have on an interest-only ARM, which will usually be from two different banks.
II. Priority Pricing and Payment of Brokerage Fees
In this competitive interest rate environment, lenders often offer pricing incentives to mortgage brokers to bring loans to them. As a result, mortgage brokers are often able to offer better interest rate to borrowers than they would get by going directly to the same lender. Also, mortgage brokers work with some lenders who you might not be aware of. This can also save you money when, as often is the case, these smaller or regional lenders offer more favorable terms or rates.
Generally, the mortgage broker fee is paid to the mortgage broker by the lender. This occurs in all cases when a borrower is taking a 0 point loan. In such event, so long as the rate is as good or better as one the borrower can find on their own, they get the mortgage brokerage services detailed in this article at no cost to themselves. However, they get all of the mortgage brokers expertise, processing services, bank access, etc on the banks dime!
III. Allegiance to the Borrower
Unlike the loan officers, appraisers and processors who work for the bank either as employees or independent contractors, mortgage brokers work for the borrowers. The borrower is the mortgage brokers client, and the mortgage brokers job, as a professional, is to understand and satisfy the needs of that client.
The mortgage broker discusses with the client the best type of loan for the client based upon the clients specific income, asset, and credit situation. We also analyze the loan requirements with respect to the amount and proposed use (e.g. purchase, refinance, cash-out). Once the mortgage broker determines what type of loan will best suit the clients needs, we are then able to figure out which lender has the best rates and terms (which often include maximum cash-out on refinances or minimum documentation when required).
In addition to acting as an adviser to the client, as issues arise throughout the process, the mortgage broker becomes the clients advocate with the lender. When going directly to a lender, a borrower is only one of thousands of borrowers in a lenders pipeline. However, a mortgage broker has an on-going relationship with each of their lenders which gives them leverage in resolving issues. Mortgage brokers have priority access to the bank decision makers which allows them to obtain answers quicker and more efficiently
IV. Service to the Borrower
Most mortgage brokers are local to their geographic area and, therefore, have specialized knowledge of that area. They are aware of such things as mortgage tax in New York, Peconic Bay Tax in the East End of Long Island and unique issues with respect to cooperative apartments in Manhattan with which out-of-town banks and internet companies are not familiar.
The loans are processed by the mortgage broker who has control over the process. Telephone calls made to a mortgage brokers office are handled efficiently by the loan officer, processor or owner of the company. Unlike calling a bank, there is no (800) number to dial, no prompts to work your way through and no extended hold times.
Since mortgage brokers handle the processing of the loan, they are able to process it much faster than lenders can since it does not go into a large black hole in some back office somewhere. The typical time for processing is 2-5 days with approvals received 5-10 days later. In the competitive real estate arena and in our fast paced world, time is money. Mortgage brokers understand this and react accordingly. We structure every deal with the clients needs in mind. This can include a mortgage contingency clause in the contract or a closing date to accommodate date specific needs for the funds.
VI. Summary
Mortgage brokers offer a valuable personalized service to make sure that their clients receive the best loan at the best rate for them. They shop the market for interest rates which save their clients time and money. They work for the clients from pre-application through closing as advisers and advocates. And, best of all, nearly all of the time the banks pay the fee, yet you as a client receive the valuable service for free.
Again, if I didn’t know Dan was of the highest integrity, I wouldn’t have asked him to answer this question. Now I definitely have high-end clients who have personal banking relationships that could never be matched by anyone. Having said that, Dan has always told these clients when they already have a great deal that no other lender can beat.
With all of the sub-prime market meltdown, mortgage brokers are more frequently being unjustly vilified. People just love to point fingers and dish out the hate. Of course, there are bad seeds out there, but just as a savvy real estate agent brings value to a transaction so does a knowledgeable and honest mortgage broker.
Check out this letter to the editor from this past Sunday’s New York Times regarding their recent story on what brokers can and can’t say to prospective clients:
To the Editor:
Your June 24 cover article “Questions Your Broker Can’t Answer” focused on the Fair Housing Act’s prohibitions against discriminatory advertisements, but mischaracterized its proper legal application.
Housing providers who advertise that their buildings are “family friendly” aren’t violating the law. Instead, they are announcing their compliance with the law by saying that they don’t discriminate against families with children.
The law in this area is simple but just. Housing providers should not fear that making such statements will put them on the wrong side of it.
Kim Kendrick
Washington
The writer is assistant secretary of Housing and Urban Development for Fair Housing and Equal Opportunity.
This makes me wonder just how insane the interpretation of these laws has become in recent months and how much fear-inspired misinformation is being spewed? Hmmmmm?
BTW…I’m insanely busy right now!!!
I’m back from vacation today and once again, my week off was insanely busy. The summer market has indeed heated up again and here is the Prudential Douglas Elliman press release of 2nd quarter 2007 residential real estate statistics:
The Manhattan residential real estate market continues to be characterized by falling inventory, rising prices and a record number of sales in contrast to the national housing market.
– The number of sales increased 104% this quarter to 3,939 units as compared to the 1,934 units sold in the prior year quarter.
– Listing inventory dropped 31.5% to 5,237 units from the prior year quarter total of 7,640 units, which had been the highest level recorded in more than ten years.
– Days on market was 117 days this quarter, 4 weeks faster than the same period last year.
– Listing discount was 2.2%, down from 3.5% during the same period last year.
Price levels were generally up this quarter, with the greatest price gains seen in larger apartments, namely 3-bedroom and 4-bedroom units with a 17.6% and 36.2% gain respectively over the same period last year.
-The median sales price increased 1.7% to a record $895,000 over the prior year quarter result of $880,000 (7.2% above prior quarter result of $835,000).
-The average price per square foot increased 5.2% to a record $1,139 over the prior year quarter result of $1,083 (6.4% above the prior quarter result of $1,070).
-The average sales price decreased 3.8% to $1,333,316 over the prior year quarter record result of $1,386,193 (3.3% above the prior quarter result of $1,290,391).
Co-op Market
-The median sales price of a co-op this quarter was $695,000, down 3.7% from the prior year quarter but up 3% from the prior quarter. Average price per square foot and average sales price showed similar patterns.
-Inventory levels for co-ops fell 39.6% to 2,481 units as compared to the prior year quarter total of 4,105 units.
Condo Market
-The median sales price of a condo this quarter was $1,040,000 this quarter, up 5.1% from last year at this time and up 5% from the prior quarter. Average price per square foot and average sales price showed similar patterns.
-Inventory levels for condos totaled 2,756 units, down 22% from the prior year quarter total of 3,535 units. New development is estimated to be 34.9% of condo inventory this quarter.
Luxury Market (upper 10% of all co-op and condo sales)
-The median sales price of a luxury apartment this quarter was $3,600,000 this quarter, down 10% from the record $4,000,000 median sales price set in the prior year quarter last year at this time but up 5.1% from the prior quarter. Average price per square foot and median sales price also showed declines from the prior year quarter. However since this segment of the market is defined as a percentage of the total market, the declines reflected a wider range of included sales due to the surge in the overall number of sales. The 3-bedroom and 4-bedroom markets are more reflective of the high end market this quarter.
Loft Market (co-op and condo sales)
-The median sales price of a loft apartment this quarter was a record $1,650,000 this quarter, up 10% from last year at this time and up 1.2% from the prior quarter. Average price per square foot and average sales price showed 6.5% and 10% gains respectively from the prior year quarter.
The combo of stable demand and decreasing supply is fueling this active summer market. Properties that are priced appropriately continue to be snapped up quickly and those who are "testing the market" with unrealistic asking prices will continue to wait for a buyer. Today’s buyer is more patient and savvy than any I’ve seen in 15 years.
