Warburg Blog

March 10, 2013.  I’ve been penning a monthly Manhattan Market Watch column for a trade publication for nearly ten years and have a sizeable library of articles about New York’s residential real estate market and its trending issues and cycles. In July 2009 at what turned out to be the nadir of the market, I wrote about “The Buyer’s Advantage” and two Januarys later, I characterized 2011 as “The Year of the Buyer.” In sharp contrast, today’s real estate climate favors savvy sellers. The Year of the Smart Seller is now.

 Who are smart sellers? They come in all neighborhoods and in all property sizes. They and their brokers share an understanding about market timing and a respect for trading psychology. Their objective is to capture bidding attention in the first three to six weeks of marketing. How they present their homes matters. How they price and handle negotiations is all important. 

Since there are no second chances for first impressions, a property ought not to come to market until it is squeaky clean, artfully staged and welcoming. Investing dollars upfront is wise to remove peeling wallpaper, paint walls, refinish floors, repair whatever is broken, edit furnishings, declutter surfaces and organize closets. Experienced brokers and talented staging professionals know how to present a home to its best advantage to maximize its value.

The reality is there are also few second chances with pricing. While some owners choose to test the market with a higher than advisable price, they ultimately do themselves a disservice. Not only do they add days to Time On The Market, which delivers a discounted price in the end, they miss the enthusiasm that comes during the initial marketing period. Overpriced properties are ignored, and as Days on The Market pile up, brokers and buyers become increasingly skeptical about why some properties linger. 

My experience has shown that less is always more—with both apartment staging and pricing. When furnishings are spare and tidy, buyers are less distracted and better able to envision themselves in a particular space. When a price is lean and on target, buyers are more motivated to begin a negotiating dialogue. A tight offering price causes everyone to take notice, creates urgency, stimulates competitive bidding and yields the greatest return. 

With low supply and high demand, the pace of trading today has accelerated. Buyers are scouring online listings, crowding open houses and making offers. As multiple purchasers make similar bids, Best and Final scenarios are reoccurring with greater frequency. In these situations, I try to avoid the expression “bidding war” because it connotes hostility and disorder which have no place at the negotiating table. Effective negotiations depend on trust and should be void of antagonism and absent of ego.

Two of my own recent experiences illustrate the unpredictable nature of Best and Final negotiations. In one where I represent the buyer for a Greenwich Village two bedroom co-op, we were outbid. It turns out there were four other qualified bidders. My buyer was disappointed of course, but had no regrets because he followed my advice and offered the last dollar beyond which he would not kick himself for having lost the property. We were in first position as back up should the winning bidder not sign a contract in five business days. And that’s exactly what happened. Days later, a contract was sent to my buyer which is being reviewed now. Once my buyer signs, he’ll become a smart seller, because we’ll be putting on the market his highly desirable one bedroom co-op on lower Fifth Avenue which we will price (hopefully) on the money. 

In another current situation where I represent the seller of an eight room Park Avenue estate, in order to flush out the boldest and best buyer from among the multiple bidders, I set a seven day deadline for Best and Final along with complete deal terms, full financials and personal bios so the executrix and I can evaluate not only price but each candidate’s qualifications which weigh heavily for co-op board approval. One buyer offered significantly over the ask, but then withdrew the following morning, which often happens.  At the moment, we’re reviewing back up positions as we continue to show the property. 

In 2013, smart sellers guided by experienced brokers will seize the day.

Does the direction of January predict the course for the year? Wall Street where the adage originated thinks so. The first month of 2013 scored impressive gains with the S&P up 5.05% and the Dow gaining 5.77%—signaling the best January since 1987 and rising above 14000 for the first time in over five years. In Manhattan’s residential marketplace, a similar scenario is occurring on the Main Streets of our city with 859 contracts signed in the first month of 2013, up 30% compared to January 2012 and the highest January according to Noah Rosenblatt since his online UrbanDigs began compiling real time analytics in 2009. Following a gangbuster December when players raced to close before January 1 tax changes, and contrary to expectations for a beginning of the year slowdown, properties in January were snapped up by buyers who competed aggressively and speedily for a limited supply of homes.

Will competitive bidding become as commonplace in 2013 as it once was in 2007 when the market was at its peak? Today as then as high buyer demand and low quality inventory converge, when a well priced offering comes to market, crowds of buyers and their agents rush to view. Within days, brokers are collecting multiple bids, and the property goes to contract within weeks. For sure there are similarities to 2007, but there are also notable differences.

In 2007 at the height of the market after successive years of escalating prices, buyers could hardly imagine a downturn in Manhattan real estate. A combination of windfall Wall Street bonuses, easy lending practices and exotic mortgage products fueled the run up in prices from 2003-2007. Rates hovered at 6%, interest only and no income verification loans were prevalent, nearly anyone with a pulse could secure a mortgage and lenders readily approved nearly all buildings. Buyers leveraged highly with little concern for risk, and apartments flew off the shelves, often trading 10-15% above asking prices.

Current interest rates, while inching up slowly remain at historic lows—as of this writing 3.5% fixed for 30 years. But the lending industry is over regulated today. Both borrower and building are scrutinized exactingly and repeatedly, and clearing to close is fraught with delays. Citibank’s Jeff Appel observes, “In the last year, lenders have become better at interpreting the new blitz of regulations. But as the CFPB (Consumer Finance Protection Bureau) prepares to roll-out the long awaited QRM (Qualified Residential Mortgage) guidelines, we will have to see if there is any net positive traction for consumers who have struggled while seeking a new mortgage.” At the same time, there’s considerably less cash bonus money around to fill shopping purses. With few exceptions, financial professionals are being paid with stock options and little or no cash, and many firms are capping bonuses or deferring them based on long term performance. 

Today’s buyers are more risk averse than their predecessors. Instead of frothy excess, they are seeking value, and when it surfaces, they are acting quickly and assertively to purchase. The current climate is indisposed to low ball offers and favors cash buyers first, and second those purchasers who can waive a financing contingency.

While there is increased velocity in all sectors of the market and all price ranges, not all properties are uniformly rushing to contract. Indeed, properties in mint condition are achieving astonishing results. Two from last week are noteworthy examples: a stunning high floor prewar 6 with a terrace and views on Park Avenue in the 70’s is purportedly going to contract 20% above the asking—a cool $1M over the $4.595 ask; in Tribeca, a Hudson Street loft designed by its architect owner received the first of several full price $3.395 offers during the first hour of the first open house. Meanwhile other homes that are either overpriced or have obvious shortcomings like a lack of sunlight, poor condition, or an out of the way location are being ignored.

In the current climate where the pace of activity is quick, the market poses challenges for everyone. Often it takes losing a property for a buyer to understand the elements that go into an offer, and that there are no second chances with Best and Final negotiations. Sellers need to appreciate that an inflated asking price not only diverts bidder attention but fails to capture the possibilities presented in the first weeks of marketing. Both principals need to acknowledge that a rising market creates problems with appraisals which are coming up short with more frequency.  Appraisals that fall below the contract price not only affect the karma of a transaction, but also negatively impact the loan to value ratio, significantly reducing the amount a lender will lend; most vulnerable are jumbo loan borrowers and buyers of co-ops which limit financing to a specified percentage of the appraised value. 

A spreading optimism is feeding the current market. As the economy improves, consumers who feel more secure are more likely to make a move. Maybe even inventory of resales will grow. While global uncertainties and a 7.9% U.S unemployment rate will keep overconfidence in check, January is a likely barometer for how the year will progress: 2013 figures to be very good. 

There’s plenty of data available to support a U.S. housing recovery even in areas that were hardest hit by the downturn like Miami and Phoenix. New residential construction is on the rise nearly everywhere, and home builders like Toll Brothers, DR Horton and Lennar have been posting significant gains monthly since October 2011. While the housing market indeed is improving across the nation, New York City continues to dazzle as it attracts not only foreign buyers who have found safe haven for sovereign money, but the brightest and the best who make NYC their home.

Demand remains strong in all segments of the market. At the top end in the over $10M category, trading volume and price levels have been climbing steadily since the second half of 2010, following a two year activity hiatus after Lehman’s fall when lavish spending was considered ostentatious. In sharp contrast, today those with the greatest wealth from the U.S. and around the world are buying with enormous confidence. While some seek a hedge, others are purchasing primary shelters and second homes. Many, in fact, are buying from plans again even before sales offices and model showrooms open officially. Beginning in early 2012 with sales at the Touraine, a 15-story Toll Brothers condo at the corner of East 65th and Lexington Avenue, deep pocketed purchasers have resumed signing contracts uptown, downtown, east side and west, even before they walk the actual spaces.   

In the mid to high range, a lack of resale inventory is the overriding concern. A short supply will probably contract even more in the near term until owners settle into the new reality of changing tax laws. Owners of larger residences have hit the pause button and are staying put. Warburg President Frederick Peters predicts, “It’s likely to get worse particularly…where tax ramifications are virtually holding inventory hostage. Facing the prospect of huge capital gains, sellers would rather hold onto their rambling apartments and have their heirs deal with the taxes.” When an already thin supply of 4 and 5 bedroom apartments shrinks even more, 3 bedroom dwellers have fewer purchasing options so they don’t list their homes narrowing the choices for 2 bedroom buyers. This spiral however translates into good news for sellers who price their homes realistically as it stimulates competitive bidding from inventory starved buyers. The tight local stock also works to mitigate the impact of global uncertainties.

Even if current historically low mortgage rates creep up slowly this year, rents are expected to remain high increasing buyer interest for one and two bedrooms. Like their parents and grandparents, Gen X and Y believe in home ownership to build equity. Lending requirements however remain tight and will probably not ease up any time soon. Reviews and re-reviews of both the borrower and the property are as stringent as ever. In an effort to stop overleveraging and the giving of bad loans, regulators have altered the financing landscape measurably and have actually inhibited borrowing for many. 

On the other hand, money has increased for venture capital. According to the social media news blog Mashable, funding for new start ups in New York is up by 40%. Moreover, a rapidly expanding tech sector now challenges Silicon Valley’s dominance as prominent companies like Facebook, Yelp, Tumblr and Foursquare follow Google’s lead and set up shop in The Big Apple. A presence in New York for businesses, both national and international, has always been important, but never more so than today when it seems to be a requisite for success. 

On the educational front, plans have been approved for the building on Roosevelt Island of Cornell NYC Tech—the Bloomberg inspired joint venture between Cornell University and Technion-Israel Institute of Technology. Although the first phase of the graduate school won’t be completed until 2017, classes begin January in temporary space donated by Google at their Chelsea headquarters. “By adding a new state-of-the-art institution to our landscape,” notes Mayor Michael Bloomberg, “we will educate tomorrow’s entrepreneurs and create the jobs of the future… [and] make New York City home to the world’s most talented workforce.”

According to the most recent census, New York’s population of 8,244,910 is expected to grow to 8.7M by 2020 and to 9.1M by 2030. Unique among the world’s cities, New York attracts a vibrant populace—those who seek opportunities in learning and business, those who respect innovation and entrepreneurial spirit, those who strive for a quality of life, those who seek safe haven and also those who desire to show off their trophy homes. Fueled by a confluence of factors including a deep buyer pool, New York real estate continues to outperform the rest of the nation feeding an appetite for both residents and investors from around the world which is bound to grow even stronger. 

The Art of Ethical Negotiation, part of a series of master classes in the NYRS program, takes place in the wood paneled boardroom at the Real Estate Board of New York. It’s an intimate venue that allows 30+ participants to engage in a lively discourse about bargaining and winning. It’s less about revealing real estate war stories and more about successful professionals discussing best strategies. For the past several years, it’s been led by Warburg’s President Frederick Peters and his life long friend, veteran investment banker Alec Haverstick, a principal at Bessemer Trust. Following is my take-away on guidelines for conducting a successful negotiation. 

By definition, negotiation is a communication process between two or more parties whose aim is to reach a mutually satisfactory agreement. For a smooth real estate transaction to occur, good relationships must be fostered and all sides must win.

Establishing strong alliances with our co-brokers is arguably as important as developing trustworthy relationships with our buyers and sellers. Over the course of our careers, we may be fortunate to close handfuls of repeat deals and even more referral business with each buyer and seller, but we will interact with our co-broker colleagues week after week and year after year. The agent whose email offer pops up suddenly in the sellers’ agent’s Outlook Inbox without having made a preliminary “feeler” phone call misses not only an opening to build rapport but also the opportunistic chance to learn something about motivation, rejected offers, and even emotional triggers. The agent who is arrogant, overbearing or confrontational reveals an adversarial hand and foreshadows an unwillingness to be a cooperative ally during the next all important step of preparing the co-op board presentation.

Advisors, Advocates and Architects

As advisors to our buyers and sellers, effective agents mix product knowledge with the realities of the marketplace. Armed thoroughly with as much information as we can uncover, our task is to persuade each side to raise or lower expectations while always advocating for each side and portraying the parties in the best light. Cultivating good will between buyers and sellers, we refrain from speaking badly of the other, filter any negative comments, defuse any bad feelings and keep emotions in check to maintain distance and objectivity. When we promote mutual understanding, we make room for empathy and flexibility to follow.

As architects of the deal, we devise a bargaining structure at the outset when a bid is first offered or received, and we prepare for successive moves. While each negotiation is different and there’s no one size fits all formula, generally all offers merit a counter. A token response to even low bids signals good faith to continue the bargaining dialogue. When that occurs it’s important to add the qualifying caveat “but unless your next offer is significantly higher, I won’t be able to get you another response.” If we were to follow the textbook negotiation sequence, there would be three moves of diminishing amounts. Compromise or splitting the difference is best reserved to bridge a narrow gap at the end of the progression.

In a successful negotiation each party needs to have a vested interest in the exchange in order to feel good about the outcome. If the time is too long, momentum and even interest are at risk; if too short, a deal that’s won too easily is questioned. Hitting the pause button when negotiations are moving too quickly to take a 24 hour breather from communication helps each side to reset to consider the other. Adding reverse psychology to a stalemate—“This isn’t working, so let’s move on to another property/buyer”—often gets a deal back on track.

Managing the negotiation process requires self discipline. Part of the negotiating skillset is the ability to listen. The agent whose silence makes room for the other side to speak stands a better chance of advancing a position. Allowing the principals to think they originated a compelling maneuver and complimenting them goes further than taking personal credit.

At the bargaining table there’s no room for ego, hostility or bullying. I’m always especially pleased to do a deal with another NYRS agent. There’s no question that to reach an agreement, we will demonstrate mutual respect and good faith and will treat all parties fairly. It will be win-win as we exchange bargaining chips as equal counterparts aligned to make deals happen.

There’s a palpable boom at the top of the new development market as a growing supply of high end products sizzles with through-the-roof pricing.   At the same time, price conscious home buyers are choosing from a shrinking inventory of resale properties.  Both phenomena are reasons for optimism. 

At the market’s upper end which is buoyed by foreign demand, a growing crowd of global moneyed buyers is setting all time price records.  Gary Barnett’s One57, which has been billed by the New York Times as the city’s newest “Billionaires’ Club,” will offer concierge services from the 5-star Park Hyatt Hotel which sits at its base.  Though the 1,004’ glass curtained skyscraper is not expected to be completed until late 2013, a purported 60% of its 90 residences have gone to contract since the sales office opened last December.  The numbers realized are staggering and unprecedented:  $115 million, $95 million, $90 million to cite a few.  Featured this week in NY Magazine as the residence that will be bought by the “Kings of New York,” this steel and glass tower developed by Extell near Carnegie Hall is being likened to a safe deposit box where global citizens can park their currencies in a relatively safe haven, adding a Manhattan trophy to their collection of homes much like a new piece of art. 

Vying with One57 and creating much broker buzz is 432 Park Avenue now a hole in the ground at 56^th and 57^th Streets.  Rivaling One57 as New York’s tallest residential building, Macklowe’s ground up construction will climb nearly 1,400’ high.  Formerly the site of the Drake Hotel, its 90 stories will offer 129 residences above a retail and office complex and is anticipated to open by April 2015.  Ten full floor 8,000 square foot homes starting at $64 million will be available in addition to smaller apartments of approximately 1,400 square feet.  The Penthouse with helicopter views is for sale at $85 million even before a show room opens by year end. 

Indeed selling from floor plans has returned.  Another example is Walker Tower at 18^th Street west of Seventh Avenue in the heart of Chelsea.  Even before this project officially opened its sales office in late June, approximately 25% of the units had been spoken for.  Meeting the demand for a high end new development product downtown, this outstanding conversion of a 1929 Art Deco building offers homes ranging from 1,350-6,500 square feet with price tags from $4.5-$50 million and is attracting celebrities, entrepreneurs and techies.  The historic building’s wedding cake shaped structure has multiple terraces, widened windows, 12-14’ ceilings and will probably average out at $3,500+ a square foot. 

Uptown, on the Upper East Side in a 19 block span from 60^th to 79^th Streets, Park to Lexington Avenues, there are at least eight high profile projects that will offer about 400 apartments averaging $3,000 per square foot.  After a four year hiatus, the current wave of new development projects either from ground up construction or rental conversion underscores that developers are not only confident and bullish on New York, but they are properly leveraged and capitalized. 

While the upper end of the market seems to be running away with itself, in sharp contrast, everywhere else buyers are supremely price conscious and continue to hunt for value.  An expected flurry of activity before year end to avoid an additional 3.8% capital gains tax next year has yet to materialize.  For some time now, rising rents and low rental vacancies have been contributing to an expanding pool of first time buyers seeking to secure historically low mortgage rates.  All the while cash purchasers continue to be preferred over those who are unable to waive a financing contingency.  Because the lending climate is so radically altered with regulatory scrutiny and delays caused by time consuming checks and balances, sellers are recognizing that it’s often worth more to take less from an all cash buyer.  Increasingly, loan approvals are averaging 45 days or longer with equally comprehensive examinations of the borrower and of the property being financed.  Clearing to close can take weeks more as the property and borrower get reviewed a second and even third time with repeated requests for more documentation. 

In all price ranges, the number of sales continues to outpace the number of new listings coming to market.  With inventory levels of resales at the lowest they’ve been in seven and a half years, even if demand remains flat, sellers who price realistically will achieve a good outcome.  There is every reason to believe that for the foreseeable future, the Manhattan market will sustain a high level of activity.  If there is price movement ahead in resales, it is more likely to trend up rather than down.  Bolstered by capital flight, the spiked pricing of the flourishing high end broadcasts confidence to the rest of the market.

Is there an optimum time to list a property?  Yes and no.  Spring is the season of perennial promise when inventory, demand and activity peak.  But buying and selling occur year round, and while the seasonal calendar affects the volume and velocity of sales, there are two more important considerations than the time of year a property comes to market—namely the life stages of buyers and sellers defined by marriage, birth, death, and employment and the life cycle of a listing which is shaped by pricing and condition.

During spring, the forces of nature conspire to spike all numbers.  Warmer weather and longer daylight hours contribute to increased showings during April, May and June.  Lush green lawns, flowering gardens and landscaped terraces maximize curb appeal, so there is greater product and choice.  Families opt to settle their children before a new school year begins, so more contracts are signed in spring.  

More often than not, however, life gets in the way of making a seasonal move.  Couples have babies and need room to raise another child.  Professionals relocate to accommodate job losses or position transfers.  Estates require money to pay taxes.  Overriding the residential real estate calendar, life events can not always be planned.

That’s when the cycle of a listing needs acknowledgement.  Nothing quite equals the surge of energy that comes in the first few weeks of a well priced new offering no matter the time of year.  This initial period when the savviest brokers and the most motivated buyers come through is nearly impossible to recapture once missed either because of a calendar interruption or because the property fails to show well or is mispriced.  The bloom on the rose is transitory.  As a result, the critical first three to six weeks of marketing need deliberate planning. 

There’s every reason to take the time and spend some money to prepare a property to show to its best advantage.  The stage needs to be set not only for the buyer but first for the camera. Today’s purchasers who begin their searches online take little notice of those homes with unappealing settings or cluttered rooms.  If a property is uninviting online, it may be overlooked entirely.  With home staging, less is more.  Most properties benefit from editing out unnecessary furnishings and accessories.  Buyers will always walk to a window, so anything that blocks a straight path is best removed and stored.  There’s value to painting with neutral colors so buyers can envision how their own possessions will fit in a space.  Similarly, there’s a benefit to organizing and uncramming closets and repairing anything broken.  Buyers respond to homes that are clean and depersonalized.  First impressions are critical, and there are no second chances for sellers.  Staged properties sell faster and for more money than unstaged ones.   

The allure of freshness that attracts large numbers of lookers to a property’s first few open houses fades with time on the market.  A crowd of more than dozens of interested buyers  during the first couple of weeks  is halved typically in later weeks and trickles down to a mere handful in three months.  Always interested to know how long a property has been on the market, buyers today can ascertain “days on market” on sites like StreetEasy with the stroke of a key.  Before the advent of these public website portals, brokers responded directly to questions from buyers to explain why a property might be lingering on the market.  StreetEasy provides a cold hard number for Days On Market which only resets if the listing has been off the market for six months or more.  StreetEasy also features Price Drop alerts which help to bring new attention to stale listings.  If after three months, a property fails to attract an offer, a price adjustment is warranted.  But rather than chip away with successive small increments, it’s best to reduce by 5-10% to be noticed.

The weather and calendar events impact a listing.  Heat waves and snow storms can put a drag on activity, so there’s less competition, and there’s something to be said for encouraging the contrarian off season principal.  Thanksgiving causes a slowdown with holiday distractions that extend through much of December and the first week in January.  Spring school vacations, Passover and Easter also suspend showing activity more often than not.  Another market deceleration occurs before Labor Day when the vacationing real estate community doesn’t usually resume business in earnest until the Monday after Labor Day.  In Manhattan, The Jewish High Holy Days influence showings.  This year, with Rosh Hashanah and Yom Kippur occurring early and not late, the start of the fall selling season is pushed back.  Many sellers will list in October this year so as not to interrupt and thus diminish the initial excitement of their new listings.  

October 2012 is expected to be especially busy despite the uncertainty of an election year.  Smart sellers and wise brokers will be marketing new offerings that have been staged carefully and priced realistically to capture buyer attention and stimulate early bidding action.  If spring brings promise, then autumn conveys wisdom. 

We’re at an interesting moment of time in the current residential marketplace.  On the one hand, an already thinning inventory of apartments has been shrinking steadily since the second quarter of this year.  According to analytics provided by Noah Rosenblatt’s www.urbandigs.com, as of today, a total of 5,599 apartments are on the market in Manhattan—the lowest number in more than four years.  At the same time, there are 3,0009 pending sales—just 186 deals short of the highest number of signed contracts achieved during this same period on June 14^th of this year.  Properties in all price ranges are being absorbed at a faster rate than new properties are coming to market.  With supply dwindling and demand rising, sellers who price realistically have the edge today. 

In Manhattan, the real estate market continues to demonstrate an inherent strength and relative balance despite negative macro economics.  Europe’s debt problems will not stabilize any time soon, and they are as disconcerting as they are distracting.  Worrisome too is the future of China—the proverbial elephant in the room.  Our own U.S. stock market confounds us with its volatile swings.  In New York, while job creation is up 2.9% for the first half of this year, especially in tourist-driven hospitality and retail, unemployment still hovers at 10%.

At the market’s upper end where demand exceeds supply, a remarkably buoyant audience of buyers is setting all time records.  Several highly publicized transactions have achieved eye-popping numbers, and not all have been bought with foreign money.  This past February, a Russian industrialist purchased the penthouse at 15 Central Park West for $88M, and international capital is rumored also to be behind two recent $90+ contracts at One 57.  Not so at Ritz Carlton Towers where Steve Wynn paid $70 million for the penthouse in June; the Courtney Ross’ duplex at 740 Park was purchased for $52.5M in May by a couple relocating from California; a business woman from Connecticut bought the Ted Forstman estate at 2 East 70^th for $40M in June.  Adding up the trades for this category in the last six months, 19 additional properties over $20M and 32 homes priced between $10M and $19.5M have closed.

At the opposite end, there is high volume and strong velocity in the market below $2M which is thriving for two reasons mainly.  Consistently high priced rentals are driving first time buyers to capture historically low mortgage rates.  As of July 26^th, Freddie Mac reported average 30 year rates at 3.49% and 15 year rates at 2.80%—the lowest in history.  These are not expected to rise significantly for the remainder of 2012.

There is a marked difference in the buying patterns of the middle market, very loosely defined as everything between $2—9M.  Once dominated by Wall Streeters with frothy bonus checks, these buyers are more conservative than their predecessors, and their ranks comprise far fewer financial professionals (with the exception of hedge funders) and more real estate developers, entrepreneurs, attorneys and surgeons.  In this category where housing stock is particularly short, when a well priced resale is listed, generally it sells within three months, if not sooner, and frequently in competitive bidding.

In this climate of tight inventory, there is broad demand from four distinct groups:  overseas buyers seeking a safe haven, wealthy U.S. citizens looking for a trophy home, New Yorkers trading up or down, and out-of-towners desiring a piece of the Big Apple.  The environment seems favorable for new development projects which are making a timely comeback.  Scores of new condominium ventures are rising once again in all areas of the city after a virtual four year hiatus.  Stalled projects have been recapitalized, and commercial investments have rebounded with multiple high end developments in the ground alongside up market rental conversions.  This current wave of development will not only boost inventory levels for new properties, but will undoubtedly lead to increased numbers of resale apartments.  Typically, as confidence spreads, more sellers list their homes, and nearly always, the power of the market moves from the top down.

Many of the new condo ventures are trending to larger spaces with ambitious prices for the ultra luxury market.  On the Upper East Side in a 19 block span from 60^th—79^th Streets, Park to Lexington Avenues, there are at least seven high profile projects that will offer mostly large apartments for about $3,000 per square foot.  Creating more choices for buyers, these shiny brand new offerings will bring renewed energy to the marketplace. We’ll have to wait to see whether these developers will hit their impressive numbers.

There is every reason to believe that the market in Manhattan will remain stable for the foreseeable future. Despite global and U.S. economic troubles, demand for quality homes in our city at this point in time is high enough to balance a tight housing stock, favoring sellers who prices their properties realistically and market intelligently.

Last December as the year was coming to a close, the New York Times characterized 2011 as “The Year of the Turndown.”  In addition, the reporter acknowledged that it was becoming more common for co-op boards to grant provisional consent to buyers, requiring that significant sums of money be held in escrow to ensure that monthly charges would be paid on time.  This year, co-op board rejections and conditional approvals have not diminished; in fact, they are on the rise.

Although it’s nearly impossible to quantify the number of board rejections, brokers can spot the snubs when properties come “BOM”—Back on Market.  Only sometimes, however, and then only anecdotally within our own companies, do we overhear when boards request that buyers meet certain conditions before their purchase applications can be approved.

Few turndowns make the headlines.  Unless the denied is a celebrity, of course, and then it’s newsworthy.  Like when Nixon was rebuffed by a Fifth Avenue cooperative after he resigned as President.  Or when the San Remo said no to Madonna.  Or in 2005 when the Dakota declined to interview Antonio Banderas and Melanie Griffith.  Or very recently when Sheik Hamad bin Jassim bin Al Thani from oil rich Qatar was rejected at 907 Fifth Avenue, it was easy to understand why someone with two wives and fifteen children, a ministerial entourage and diplomatic immunity might not be welcome.  Some board turndowns can be baffling, however, and all cause anguish, embarrassment and financial hardship for buyers, sellers and their agents alike.  The broker’s role in assembling the required documents for the board and in managing the expectations for both principals is critical. 

The boiler plate language of the contract states that the “sale is subject to the unconditional consent of the Corporation,” which means that if the board stipulates any conditions then the  buyers can either agree to the provisions, renegotiate with the seller because of the conditions, or walk away and take back their 10% deposit.  The Board might ask the buyer to finance less than the amount specified in the contract, or to not finance at all, or to provide a third party guarantee for the maintenance, or to deposit several years of maintenance with the co-op in escrow for an undetermined amount of time.  Recently, one Park Avenue board asked a candidate to post into escrow a staggering 10 years’ worth of maintenance fees for five years for the privilege of purchasing in that building—an amount exceeding $350,000. 

The “business judgment rule” for co-ops gives board members great latitude as long as they act within the bounds of authority provided by the co-op’s by-laws and proprietary lease and as long as their decisions are not discriminatory.  In New York City, Fair Housing Laws protect twelve specific categories including age, citizenship, familial status, handicap, marital status, national origin, occupation, religion and sexual orientation.  If discrimination is proven, individual board members can be held personally liable.  When they reject a candidate, they are not required to give reasons, nor are they required to interview the applicant.  In fact, when a board intends to reject a purchaser, the interview never happens.  Although the New York City Council has tried numerous times to enact legislation requiring boards to disclose reasons for a turndown, it is unlikely to be passed any time soon. 

Board turndowns and conditional approvals are a particular phenomenon in Manhattan where cooperatives still make up approximately 70% percent of real property ownership.  This year, with nearly every deal I handled, whether I represented the buyer or the seller, I began a conversation early on in the process about provisional consent and the possibility that the board might request maintenance in escrow.  When my Park Avenue seller accepted a bid from a divorcee who’s only income source was a trust fund plus alimony that would expire in eleven years, we asked for a side letter to the contract in which she agreed to put up to two years of maintenance in escrow to be held up to two years should the board require that as a condition to her approval.  Similarly, we have side letters for my West End Avenue and Central Park West deals that are in contract with financial professionals where their bonus money is substantial but out of favor with co-op boards because of market volatility.  On a deal where I represent the buyers of an east side one bedroom whose board does not permit guarantors, where father and son are co-purchasing an apartment where the son will reside, the co-op’s Managing Agent emailed last week to ask whether they would consider putting a year of maintenance in escrow.  I encouraged the buyers to look beyond the short term of wounded pride to the long term, and then succeeded in getting the seller to split this amount with the buyers. 

Throughout Manhattan, in every size category and every price range, co-op boards are stepping up their scrutiny of candidates— checking and rechecking that financial statements add up and are sufficient and verifying personal references with searches on Facebook and Google for anything that might undermine social acceptability.  With the board package, the purchaser has one chance to make a first impression; second chances are rare.  It’s up to the real estate professional to guide buyers and sellers through this new normal.

Sunday, June 10, 2012.  Vivian Toy’s “Who’s Got Your Back” on the cover of today’s NY Times Real Estate section advises home buyers and sellers how to choose a broker to help with a process that is high up on the stress meter because it’s full of challenges and involves what is arguably life’s largest and most important transaction. 

The article provides a timely opportunity to endorse REBNY’s NYRS program and to recommend New York Residential Specialists to consumers.  To the article’s 6-step Choosing A Broker outline, I would include the caveat to select a member of the Real Estate Board of New York and then add—among REBNY members, to hire a New York Residential Specialist (NYRS).  Of the 13 agents featured in Ms. Toy’s piece, one has earned the NYRS credential thus far. 

The NYRS program was started in 2007 as a way for brokers to distinguish themselves at the height of the market when the field was overcrowded with entry level real estate agents.  Developed for brokers by brokers, it’s an educational program with qualifying criteria for applicants and a prescribed course of study that addresses the unique challenges of New York City’s residential market.  The curriculum, updated regularly, reflects changing market conditions and emerging issues.  Experts and industry leaders teach such classes as zoning, taxation, real estate law, development, negotiation, ethics and social media. Class size is kept small to encourage thoughtful participation and an open exchange of ideas.

With less than 60 agents graduating yearly, the NYRS network comprises 200 agents today.  For the industry, the new designation is all about raising the bar and maintaining high standards of professionalism, ethics and leadership.  For consumers, the credential is the industry’s quality control and veritable seal of approval. 

According to online sources, today there are over 25,000 real estate Salespersons and Associate Brokers licensed by the New York State Department; of those, approximately 13,000 are Salespersons and 12,000 are Associate Brokers which is the next step up as it requires two years of Salesperson experience, 45 additional hours of State approved course work, and a pass grade on a State exam.  Narrowing those numbers to our local market, in New York City, there are 7,183 residential Salespersons who are members of the Real Estate Board of New York, and 1,799 who are Associate Brokers. 

Founded in 1896, The Real Estate Board of New York is the city’s real estate trade association.  REBNY works to promote municipal and industry policy, lobbies to encourage development and offers guidelines for professional practices.  Residential Brokerage is one of six separate divisions that it governs. 

When choosing a broker, consumers should insist on REBNY membership, and then look for the NYRS insignia and hire a New York Residential Specialist who may be found at the soon to be released www.nyrs.net.  These are the agents who are committed to professional excellence and advanced education.  They can be counted on to deliver results with integrity.  Together they form a powerful peer group whose influence is spreading. 

The following will appear in the June issue of “Mann Residential.”

Five years ago on 4/30/07, I wrote a column about Best and Final offers. The real estate market was at its peak, and competitive bidding was commonplace in all price ranges and categories. Discretionary Wall Street bonus money jingled with frothy cash payments, interest rates hovered at 6%, buyer demand was high, and quality inventory was tight. Open houses were crowded with as many as 30 people showing up in an hour, and activity was brisk. Apartments were not staying on the market very long, often trading 10-15% above asking prices.

Fast forward to 2012. We’re deep into a strong spring selling season, and multiple bidding has returned, but its flavor is very different. Prices are stable and except in the “uber” category north of $25 million, buyers are more restrained, and sellers are more realistic. This time around, short supply, high demand and historically low 4% interest rates are combining with rising rents to push up buyer confidence. Non-financial professionals are being favored over Wall Streeters, all cash offers continue to trump all others, and direct buyers are testing the boundaries of dual agency.

Though the climate is decidedly different, the steps required to navigate competitive bids remain largely unchanged.  In my view, there are four critical steps: 1) Hire A Pro, 2) Line Up Your Ducks, 3) Go The Distance and 4) Rush To Contract.

Hire A Pro

Today more than ever, it’s important to collaborate with an experienced real estate professional. Although sales information is readily available online, the principal who goes it alone is at a disadvantage—even more so when there are multiple bids. Contrary to lay opinion, veteran brokers acknowledge that when each side has separate representation, the transaction proceeds more smoothly and with less risk of derailing. While NY State recognizes dual agency, in a direct deal, both buyer and seller give up the right to an agent’s undivided loyalty.

Line Up Your Ducks

Pre-approval is essential for purchasers who intend to finance. Though neither binding nor a guarantee that an actual commitment will follow, being pre-approved by a lender serves as evidence that a borrower’s credit score was checked, income and employment histories were reviewed, and asset and liability statements were documented—all satisfactorily.  Buyers who are able to waive a contractual financing contingency but need bank funds to complete the transaction, should have their mortgage agent qualify the building in advance and also order the appraisal to ensure that the report doesn’t fall short of the contract price. Those purchasers who will not remove the financing contingency should offer a short 14-21 day timeline.

There are factors besides money to make an offer more attractive than a rival’s. The highest bid is not always the best. In competitive situations, the terms of the deal matter, and the buyer’s qualifications weigh heavily especially in co-ops where board approval is required. Your offer should include a clear net worth statement and employment profile to give it substance. If you can, express flexibility that matches the seller’s time frame for closing and occupancy dates. Personal notes help to humanize negotiations. If a common ground is discovered with the seller, such as schools, charitable interests or club memberships, do include this reference. When everything else is equal, intangibles can tip the scales.

Go the Distance

In a best and final scenario, there are no second chances. The difference between a winning and losing bid is sometimes insignificant. When I’m representing purchasers, I advise they go to the last dollar at which they will feel good about entering into a contract of sale, and beyond which they won’t kick themselves for having lost the property. When I’m representing co-op sellers, I often raise the subject of conditional approval for a buyer whose liquid assets may be low or whose income history may be volatile. I look for a willingness from the prospective buyer to enter into a side agreement to put maintenance in escrow should the board request this and grant conditional approval.

Rush To Contract

When your bid is accepted, instruct your attorney to complete due diligence promptly. With back-up bidders in the wings, delay could cost you money and the property. Once an offer is accepted, it’s best for a seller to stay with the deal and continue to show for back-up only. Sellers should be prepared to issue a contract to the buyer’s attorney within 24 hours along with supporting documents including the last two year’s financial statements, house rules, proprietary lease, offering plan and amendments. Set a time limit for a buyer to return a signed contract. Five business days is realistic. If your buyer pulls out for whatever reason, sellers should go directly to the first back-up bidder.

Unlike the Best and Final scenarios of 2007 which brought out the boldest of bidders, today’s buyers are demonstrating more restraint and deals are getting signed just below, just above or at more realistic asking prices. Skillful broker management remains key.