The Billion Dollar question!!! I received this email from a TrueGotham reader yesterday:
I am considering purchasing in a new condo development.
I understand there’s little value added with a buyer broker in this situation.
I don’t have a broker, though obviously I could find one.
I’m told I might be better off seeking a discount on purchase price or
asking seller to pick up closing costs rather than involve a broker.
It is hard to see where the broker would add $40,000 of value for me.
Do you have a view?
Thanks for any tips.
This is not the first time that my clients or TG readers have asked this question and I don’t suspect it will be the last. Here’s my response:
Absolutely see your point and would generally agree that you could do better without "most" brokers/agents. That said, if you have already visited the project, I would consider not bringing an agent into the picture now. But, if you can find someone who is VERY familiar with the
project, perhaps knowing the marketing agent or developer, that relationship could indeed be more valuable than $40K.
So you see it’s not so cut and dry. I’m a fan of having an advocate in my corner who actually knows what they are doing. Unfortunately in the real estate industry, that can be a difficult task. If you do decide to go it alone, ask the on site agent what they typically pay brokers and
ask for at least that as a discount.
Hope this helps and good luck.
More questions from this gentleman:
I really appreciate the prompt response.
I would add:
1) I did visit the project (why do you believe that makes a difference?), but hedged my bet saying I did work with someone but they are out of town, wink. The seller broker suggested that the developer would have a "preference" for unrepresented buyers (if there’s competition, you are handicapped). My risk: I get no discount and no broker either; or a useless broker and a handicap.
If I stay unrepresented, am I better off getting a commitment for a concession up front, or bring it up later in the process? also: a) I have a friend who is a broker, but clueless; I’d prefer the
$$ go to her than the developer all things being equal. b) I’m told attorneys can take a simple test and pay a fee to become qualified brokers. I am an attorney. If I were a broker, would I have a claim to the $40k?
2) Somewhat unrelated question, but this place is on the cusp of what I can afford. I considered the idea of renting it for a while to ease the pain. Do you know if any good calculators to see just how things would work out (the tax situation gets complicated ….). I attach a pretty good one I found, but it doesn’t consider NY taxes ….
Thanks again.
This is a situation that many of my family, friends, clients and colleagues talk about endlessly. What value does a buyer’s agent add to a transaction? My response to this reader’s last email:
I asked if you had visited project because I knew that agent would inform you of developer’s preference that you were working with no one. No secret that developer and buyer can do better without that $40k expense. More room for negotiation. A real argument here over what value a buyer’s agent brings to any transaction. I would absolutely go back and ask for a concession up front since you’re working without representation. You would have to ask the on site agent about whether or not they would pay you the commission. As an attorney, you are a licensed broker (I know nothing of any test, but that’s your realm?). I still think it’s best to have the reduction in price so you don’t pay tax on commission income. Love the tax calculator you attached (care of Mortgage-Investments.com)…best I’ve seen. NYC property taxes are accounted for. You should be able to get a rough idea of state tax implications just by asking your accountant. But as far as I see, almost every detail is included in this analysis.
Good luck! BTW..given the glowing review of your friend the agent, I would stay away from using her for this deal.
So should you use a buyer’s agent or not? As you can see from this email string with one of my readers, I don’t have a straight cut and dry answer. I will say that 95% of my business is representing sellers and when I do work with buyers, I feel like I and many of my colleagues add value to the transaction by bringing professional insight and negotiating experience to the table. As a seller’s agent, I wish that every buyer was represented by a solid, well-seasoned professional to make all transactions smooth and efficient. All too often, that’s not the case.
Part of the problem in our industry is that lines of communication are so poor that both buyers and their agents have difficulty trusting one another during the process. I believe that trust is a very important factor when considering an agent in the purchase process. Similarly, the "buyers are liars" phrase doesn’t come from nowhere. There is very little loyalty and no binding agreement between buyers and their agents to encourage loyalty. This mutual distrust that agents and buyers have continues to be an obstacle to an efficient market. Buyer’s agency in Manhattan may be an answer.
In the meantime, buyers and agents alike need to be discerning about with whom they work. If not, a great deal of time and money will potentially be wasted. Buyers and agents also need to shift their perspective of one another. With information becoming much more public, buyer’s agents need to bring more to the table than simply searching for property. Buyers need to select an agent who has an extensive knowledge of the marketplace and a proven negotiating history not focusing as much on what listings an agent provides. As a buyer, you can search listings on your own…and maybe you should.
It’s up at Salt Lake Real Estate. Check it out.
Vivian S. Toy of The New York Times reported Sunday about tightening restrictions that many buildings are implementing regarding open houses.
In the frenzied real estate market of recent years, the cries of “Enough!” from building residents won out, resulting in bans on open houses across the city. And although the market slowed a bit last year, open houses are once again attracting as many as a hundred people in an hour, giving the anti-open-house forces fodder for keeping, and perhaps even expanding, restrictions.
“We’re definitely seeing more buildings that don’t allow open houses, and it’s largely because people living there have security concerns,” said Deanna Kory, a senior vice president of the Corcoran Group. “Plus there’s also the inconvenience factor and the annoyance factor.”
There are some buildings, mostly on Park and Fifth Avenues, that have never allowed open houses, but in the last few years, restrictions have spread well beyond white-glove prewar co-ops on the Upper East Side. Brokers say they now encounter “no open house” rules in postwar buildings and even in condos, which generally have more liberal policies.
Indeed we in the industry are seeing new rules and regulations regarding open house policies in buildings that would have once begged for the kind of traffic we have these days. Just 2 weeks ago, my team and I held an open house for a 2BR apartment on the Upper West Side. As a direct result of the open house, which was attended by more than 100 people in 90 minutes, we had 6 offers and have gone into contract at a price above the asking price. For these sellers who have a 10 month old daughter and therefore a mass of toys and baby gadgets, the open house was the most effective and efficient way to sell their apartment with the least amount of headache for them. One big cleaning and vacating the apartment for 90 minutes was all that was necessary to procure a qualified buyer at an excellent price. Had their building prohibited open houses, we would likely still be showing the apartment and they would have been faced with constant cleaning, picking up, and leaving their apartment at times that wouldn’t have always been convenient for them. This particular apartment was asking just under $1M; a price point that makes an open house a MUST.
Real estate agents also said that restrictions tend to hurt smaller, less expensive apartments more than larger, higher-priced ones. “Open houses are really almost required for anything under $1 million,” said Mr. Mahler of Brown Harris Stevens. “Who wants to go back and forth to show a studio? It’s just more efficient, because you’re making things accessible to people who are working very hard during the week and who don’t want to make special appointments to look at real estate.”
It’s no secret that higher end property buyers are more inclined to request individual appointments. That said, if a seller has a sought after property, regardless of price point, an open house can be incredibly effective. A colleague of mine recently brought a 10 room Park Avenue apartment onto the market at a very appealing price. Because the building didn’t "officially" allow open houses, she held an "appointment only" open house for 2 hours one day and had 22 people view the space in the first day. Again, multiple offers were submitted and the apartment sold for more than the asking price.
There are some buildings out there that will never be effected by the lack or prohibition of open houses. And I believe some, like many of the elite properties on CPW, Park Ave and Fifth Ave, should absolutely prohibit them as the pool of buyers for these properties tend to lack patience for the hoards that may attend an open house. Of course, there are some security issues as well.
Paul Gumbinner, the co-op board president at Southgate, a complex of five prewar buildings on East 51st and 52nd Streets, said that his board stopped allowing open houses about 10 years ago mainly for security reasons. “We don’t want strangers walking around in the buildings,” he said. “But I also think — and I don’t mean to sound snobby — that really nice, upscale buildings don’t allow open houses.”
The most important factors that Boards and shareholders need to consider is how the prohibition of open houses may ultimately effect their bottom line and if they even care if it does. People want what others want and when an open house is well trafficked and mumblings are going on in every corner of the home, there is a greater likelihood that more than one person will be interested in the property. As Hall F. Willkie, the president of Brown Harris Stevens, said in Ms. Toy’s article "most of the problems that arise from open houses are easily addressed with proper management…like anything…you can do it right and make everybody happy.”
Some of the things that Boards and shareholders should consider:
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Is the "type" of apartment in your building such that an open house is necessary? (Open Houses work with all "sought after properties" regardless of price point).
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Only allow a couple of open houses during any given time (i.e. 2-3 open houses in building from 12-2PM and 2-3 open houses from 2-4PM).
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Restrict agents to showing only at certain times (i.e. open houses may be held from 11-3pm on Sundays only).
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Require more than one agent to "work" the open house insisting that someone escort all prospective purchasers to and from the unit.
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Insist that all attendees sign in with complete information (perhaps showing ID) prior to viewing the property.
Ultimately, in my 15 years, I have found that open houses are a necessary and incredibly effective tool in creating a buzz about a property and procuring the most qualified buyer at the highest price.
A TrueGotham reader emailed me the following:
Hello-
A friend just turned me on to your blog and I think it’s terrific. I wondered if you have any thoughts on all the new developments in Tribeca? Specifically, I’m comparing the Tribeca Summit (415 Greenwich) and 101 Warren. I don’t generally like new constructions (as opposed to conversions) but 101 Warren seems really well done. But my husband has
reservations about the location south of Chambers and whether this is truly Tribeca. However it is such an important building, with such high prices and the Whole Foods etc, do you think that the whole axis of Tribeca is going to shift once it is built? I’d love your thoughts on those two buildings and how they match up.
Thanks.
And my response:
The borders of Tribeca stretch from Canal Street south to Vesey Street and from Broadway all the way west to the Hudson River. Chambers is indeed Tribeca as is Warren. Murray Street which is south of Warren is still Tribeca. 101 Warren Street is in my opinion the absolute best development project in the city and no one is paying me to say that. Truly a top notch property with a complete amenity package, gorgeous finishes, unique design and layouts, and a still gentrifying neighborhood. It’s got a lot going for it which is precisely why it’s fetching those big prices. No project compares to it in my opinion.
415 Greenwich is a completely different animal. A 1913 building with beautiful old architecture and more solid construction than modern day developments. Certainly more central Tribeca. Except for the garden (and not a Pine Forest or Boxwood Maze mind you 😀 ), it has no other amenities. The buyer for a project like this is usually not the same as the one who buys at 101 Warren.
You and your husband need to decide what is most important to you regarding amenities, construction, location and price. I think you can tell from my response that I have a preference for 101, and I suspect most of the "new money" Wall Streeters would be more attracted to the
amenities vs. the neo-renaissance appeal. (On that count I may be wrong…just my experience.)
Hope this helps and please tell all of your friends about True Gotham.
Feel free to send me your questions regarding all matters involving Manhattan residential real estate. If I can’t answer them, i will find someone who can.
A few days ago I wrote about how I could provide real news support for any angle you would like to take regarding our current real estate market. Jonathan Miller of Matrix agrees. In his post today, Cherry Picking Housing News, Miller points out some observations that some brokers have shared with him about people’s desire to read what is comforting to them. In terms of housing news, 2 of Miller’s broker friends have suggested that buyers are reading national housing news (a gloomy picture) and sellers are reading local housing news (a very different picture as our market continues to chug along).
I couldn’t agree with Jonathan more that buyers, sellers, agents, bankers, bloggers, and journalists themselves should be reading as much as they can from every angle. As much as it may pain a seller to read a bubble blog like Patrick.net or Housing Panic, a buyer may also become discouraged by perusing the local blogs or papers like Josh Barbanel’s article on the Sizzling Luxury Market from last week’s New York Times) indicating that our market has picked up since January.
Whether buying or selling in Manhattan, it’s always a wise move to do some homework and try to make some objective sense of the market you are a part of. And don’t trust anyone who gives you only one side of the story as each individual must weigh their priorities against how the current market is playing out. Making sense of today’s NYC real estate market is a challenging task indeed.
I received this email from a TrueGotham reader last night:
I recently started reading your blog and think you’re doing a great job. Keep up the good work. As I really respect your viewpoint, it would be great to get your opinion on a buying opportunity I am pursuing in …a building to remain nameless.
What are your thoughts about this building? When comparing the average $800-$900/sqft in this building to other buildings like 20 Pine, 50 Pine, Cipriani, Setai, William Beaver that are around $1000/sqft, this building seems to be a steal. Admittedly some of the layouts are less than ideal. The unit I’m looking at only has 2 windows at the end of the living room with little view (low floor). However, it’s 1450 sqft and going for $1 million. I’ve attached the floorplan Still seems like a good deal to me.
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Would love to hear from you.
My response:
I must warn you that I am VERY partial to these new developments with more bells and whistles (as far as amenities go) than ever seen before and this building is as good or better than the rest when it comes to that. That alone will keep the building desirable to the local Wall Street crowd.
1450sf for $1M is about $690/sf! That seems like a steal to me even if it’s ground floor? But looking at the floor plan, I don’t see where it is even remotely close to 1450sf and I hear you about the windows.
Ultimately, if you like the location (I have never been keen on Financial district until recently), the building is amazing in my opinion, amenities are top notch, finishes are beautiful, and if you’re around $800/sf (check the measurements carefully and ask how much of the common areas they are adding to that number…a lot of common areas!) go for it!
Thanks again for considering my advice and reading True Gotham. Tells all your friends.
Here is another example of not being able to compare apples to apples. I really don’t see 1450sf here and of course I understand that a portion of common areas are likely included in this reported square footage. That said, in calculating price per square foot, I think that the best method would be to measure the apartment yourself and then visit some of the other projects and measure them as well. This will give a much clearer comparison. This remains one of the most frustrating aspects of our industry.
I just want to be clear with my readers that the impetus for my post yesterday about the stock market decline was my own curiosity about how this may effect the Manhattan real estate market and MY BOTTOM LINE. The reason that I asked 2 of the top financial people in banking and on Wall street was because I don’t believe that I am qualified to speak on specifically how the financial markets are tied to housing.
All of that said, as a real estate professional since 1992, I can give both anecdotal experiences as well as market observations when events like this happened in the past. In my 15 years in the real estate industry, a stock sell off like we witnessed yesterday (and may continue into today) is usually followed by a very quiet real estate office for a few days and then a return to normalcy. In fact, the last big decline like this was in September of 2001 when the market reopened after September 11. For about 6 weeks after September 11, understandable skittishness created opportunities for some "bargains" in the real estate market. Of course, this was largely in part to the shock that the entire country was in after that horrific event, but just 6 weeks later, the housing market picked up steam again and by early 2002, prices had surpassed the record levels that were seen in August 2001.
Most importantly I believe is that housing is never immediately effected by a stock market drop. There is always a lag. Most who know much more than I don’t think that this possible stock market correction will have a negative impact on housing. On the contrary, many believe it is good for the housing market. We’ll see.
The Opening Bell has just rung and the see saw begins. It will be interesting to watch what happens today and again, I suspect that I may have a couple of quieter days ahead followed by a busy week again next week. I could use a break.
I just sent out an email to two big shots in the financial world asking them "what does today’s plummeting stock market all mean?"
Equity Trader-Managing Director says:
Was driven by China price action overnight and Greenspan speech Sunday. What it means is if China gets rocked again overnight, it spills into our market. This is all good for real estate in NYC. Guys are long cash and when they look at their personal accounts at the end of the month and realize how smoked they got, they will come to the realization that you want to own real estate. You are going to be busy bro! Plus treasuries rates went down a lot today with the 10 yr at 4.5%, and durable good orders fell almost 8%! So what this all means is growth will probably be sluggish but the stage seems set for a gradual acceleration toward normalcy if the consumer keeps spending given they their spending accounts for 2/3 of GDP.
tomorrow am will be interesting….
Head Of Major Investment Fund:
Means the Fed probably reduces rates at the next meeting. Their intention was to break the housing market and slow things down. Mission accomplished. Risk markets have caught a cold.
Treasury market rallied…Goldman down 8%+.
Volatility baby. Woo hoo.
If these guys are correct, I’m going to be even more busy than I have been since January. Hard to believe, but bring it!
The Real Deal’s February New Residential Development Report is out complete with the newest developments to hit the market, financing updates, sales updates and those currently under construction. Check it out.
