Warburg Blog

Here in the English Cotswolds, where my wife, my daughter and I have spent the weekend, ancient villages consist of two and three story buildings built from rough cut local stone. The stones, hewn into squares and rectangles of various sizes, adjoin each other so tightly and variously that there is barely room for the mortar which adheres them. The roofs are gabled but low, made of slate shingles; the buildings seem as eternal as the rolling sheep-dotted fields which surround them.

In New York City these days, scaffolding abounds. It seems that half the buildings in Manhattan are busy with Local Law 11 work (which provides that, at least once every five years, buildings of over six floors in height shall have their “exterior walls and appurtenances thereto” inspected for safety and structural soundness by an architect or engineer, and that any necessary repairs then be made), and that work seems deeper, more time consuming, and more costly in each iteration. So the whole question of construction, of what works and what doesn’t, is much on my mind.

For better or worse, limestone and brick are porous materials. And while the two story, low-roofed stone Cotswolds house provides an excellent barrier against wind and rain, the twenty or thirty story, flat-roofed brick apartment building does not. Exposed to a force of weather unknown to the lower buildings here in England or even, for the most part, in London, these New York behemoths have multiple moisture entry sites: lintels, tarmac rooftops, and the aging brick and mortar on the upper floors, especially on the upper north corners where the wind is most fierce. In spite of the expertise and best efforts of our engineers, leaks and loosening masonry are simply a reality inherent in the size and materials of our housing stock.

Scaffolding isn’t pretty, and the recurring expense of it kicks up maintenance, common charges, and rents. Here in the south of England homes have stood, more or less impermeable, for centuries. But the verticality of our city, and the building materials which make those dizzying heights possible, are not so dense and indestructible. So as we look around at the rigs and netting that drape the scaffolding our city, let’s acknowledge that they are probably here to stay. This is the price we pay for what, and how, we build.

At 10 PM on Sunday night in Sharon CT the world is completely still. Other than the crickets and the peepers singing their songs, no noise penetrates the darkness. The stars blaze overhead; the few constellations I have learned to recognize, city boy that I am-Orion, the Big Dipper-prominent in the spring sky. The beavers we have been watching all weekend as they laboriously build a second lodge in our pond seem quiescent; even they, the great and indefatigable architects of the animal world, working without tax abatements or a union shop, have to rest sometime. In the quiet, I can think. Think about what is best for my agents, our business, my clients, my employees, think about what to write in this blog: if I can allow myself a little time in a quiet space, it’s remarkable what bubbles to the surface.

Tomorrow morning early we will load up the car with suitcases, food, an armload of peonies, and head back to New York. Every week end it feels like we are the Joad family cramming our earthly possessions into the truck to head for California. But what a gift this ritual is! I have made my life in the city, and life in the city is what I sell. The city is always vibrant, always exciting, always filled with possibility. But it is not an easy place for contemplation. In addition to shelter, that is what a home can provide. A quiet room, a serene color scheme, an hour or two with few distractions-then there is the opportunity to feel yourself outside the hustle of the urban experience and let the external noise dwindle.

One way or another, in one place or another, we all need time and space to reflect. Our customers need it to make sure they are buying what they really want; our sellers to make sure they are not walking away from offers they should actually accept. My agents need it to assure that they can come to their jobs each day clear-headed and committed. As high achieving, adrenaline surging New Yorkers, we go go go, we manage stress, we always need another hour in the day. But when my clients reach a negotiating impasse, I always urge them to take a day off. Walk in the Shakespeare or the Conservatory Garden. Look for migrating warblers in the trees in Riverside or Battery Park ( this is the time for that). Or just retreat to that spot in your home where the world drops away. When we sit still and let go, we tend to make the right decision.

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.

Who really represents your best interests as a buyer or a seller? About a year and a half ago, written agency disclosure became law for New York City real estate agents selling co-ops and condominiums. What that means is that every buyer and every seller, in every transaction, must acknowledge in writing whether the agent they are dealing with represents them, the other party, or both. This has been true in most of the rest of the state for years. My opinions about the disclosure requirements have evolved since they were first imposed, in some (at least to me) surprising ways. When I first learned that we would be required to get signed acknowledgment from everyone, it seemed like a terrible inconvenience; now it increasingly seems to me like an excellent idea. I don’t think most of us real estate agents fully understood how much people really ARE confused about whom we represent! For one thing, most people think we represent the person who pays us (in fact, representation and compensation are unrelated.) For another, buyers who show up without an agent at an Open House often really don’t understand that the on site agent represents the seller. Meaning, it is the agent’s job to get the highest price for the seller. Period. When buyers figure this out, many of them decide they want an agent of their own. And I say, all the better. Deals in which each side has representation proceed in a smoother and more orderly fashion. It works better for everyone.

At the time the law went into effect, we agents were pleased that the law recognized dual agency, in which an agent represents both the seller and the buyer. I was just as pleased as anyone else, because we tend to make more money in transactions in which we are the only agent. But here my thinking has changed. I have realized as time goes by that I don’t actually think dual agency is possible. How can I, or one of my agents, actually represent a buyer AND a seller, whose interests are frequently diametrically opposed, in the same transaction? It just isn’t possible. The buyer wants to pay as little as he can; the seller wants to net as much as he can. What agent can fight simultaneously for both those outcomes?

To use another example which happened with one of my agents in recent weeks: a buyer came to her directly with interest in one of her exclusives. Both the buyer and the seller signed the Disclosure Form acknowledging her as a dual agent. They made a deal. The next day, an agent from another firm brought my agent a higher offer, which the seller chose to accept. So how could my agent be fair to both sides? Representing the buyer, she should have thrown all her weight into persuading the seller to stick with the offer he had. But representing the seller, she had to acknowledge that he was getting considerably more money and might be swayed by that. In the end, the seller took the additional money from the new buyer and the original buyer was angry at my agent, claiming that she had not really represented him. And the buyer was right! She simply could not be an advocate for both sides.

So in the end, this is where I have come out: written disclosure confirming that you are a buyer’s rep or a seller’s rep is all for the best. It clears the air. It educates the consumer. And straight dual agency, while a convenient idea in theory, is laden with possible conflict in practice. So I make the same recommendation to consumers and agents alike: don’t do it! The most successful transactions have an agent on either side.

Buyers, sellers, and agents struggle to work effectively in stratified real estate markets. We have such a market at the moment in New York. Because one segment of the market is not necessarily behaving like another, it can be challenging for everyone to understand how value fluctuates from price point to price point. Reporters avid for an interesting story can just make the problem worse. So I will try here to deconstruct what my agents and I are seeing on the ground:

At the top of the market, unique co-op properties in good condition are frequently selling quickly with competitive bidding. That said, this surge in the $15,000,000 and up market is by no means comprehensive. There are also many properties, actually MORE than those that rush out the door with competitive bids after two weeks, which are remaining on the market for six, ten, even fourteen months. Many are beautiful apartments in top buildings on Fifth and Park Avenues. Why are they staying on the market for so long? Perhaps they don’t have outdoor space. Perhaps they need renovation. Perhaps they are not on high floors. Perhaps they are just too expensive. Unfortunately, the press is filled with stories of top prices and bidding wars for billionaires. So all ultra luxury sellers believe that this is going to happen for them. More often than not, it doesn’t.  Even in this range, most apartments are still boundaried by market considerations. So if it’s too expensive, or needs too much work, or doesn’t have great views, it can as easily sit on the market at $22,000,000 as at $2,000,000.

One more thing: if you are a seller contemplating listing your property, PLEASE do not be taken in by the hype which seems to be circulating in the marketplace and the press about “whisper listings.” It simply does not make sense for ANY seller who hopes to achieve the best price to limit access to just a few brokers to whom the information is “whispered.” No seller ever knows where his buyer will come from. Only by opening the listing to everyone (and making sure that a skilled broker has been hired to pre-screen) can any seller ever be sure of achieving the highest possible price.

Sellers are struggling even more to determine how to price their properties in the $3M to $7M range. Only a year ago, these co-ops were flying out the door. Now this marketplace has slowed dramatically and the buyers are much more cautious. Whether that is attributable to job insecurity, bonus anxiety, or overall second-decade-of-the-new-millennium malaise, many of these desirable six, seven, and eight room apartments are going for 10% less than they would have commanded a year ago. Sellers find this hard to understand, and it IS hard to understand! Sure, many of these units have been heavily used by the current owners and need refurbishing. But still, the economy looks better than it did a year ago. Stocks are higher. Employment is (slightly) better. Nonetheless, in this segment of the market buyers rule. They kick the tires of every available apartment. They bid low. They get cold feet. And finally, the apartments which sell are those with sellers who capitulate to the changed reality.

So here’s my parting advice for buyers and sellers alike; DON’T believe everything you read in the newspapers. Generally the trends which are being reported, based on closed sales on which deals were made 60 or 90 or 120 days before, are already old, outdated news. And reporters are looking for zippy stories. That is their job. And it is much more exciting the write about the $35M “whisper” listing which is creating buzz than the eight or ten other listings which have lingered for months. In the end, unique, special outliers aside, most properties in every price range respond to market forces. Those forces are complex, nuanced, and highly changeable. But they CAN be understood and interpreted by expert agents.  Or…just read my blog!