June 9th 2013
The New York Times
A day after a crowded open house, Dr. Nath, a Massachusettssurgeon, offered $803,000 for the unit, which was to be a home for his son David, a television news producer. But because of its location and the outdoor spaces on both floors, the unit attracted more than a dozen offers, which prompted the seller to request higher bids.
For his “best and final” offer, which usually signals the end of the haggling process, Dr. Nath promised $912,000, which seemed to do the trick. The seller congratulated Dr. Nath and told him the unit was his; a contract was drawn up.
Not so fast. A few days later, like a kite in a gust of wind, the price soared again, to $995,000. Insulted by what he described as being “played,” Dr. Nath refused to raise his offer and ultimately lost the unit to a buyer who plunked down $1.1 million. “I was absolutely outraged,” he said. “When you give your word that a deal is done, you’re supposed to fulfill your agreement.”
A real estate deal, like any other business transaction, isn’t ironclad until signatures wind up on a contract, said Tom Le of the Corcoran Group, the seller’s broker, who defended his clients’ right to get the highest possible price for their unit, even if it left some raw feelings.
“Of course Dr. Nath is going to be upset, because his heart was set on the apartment,” Mr. Le said. “But the truth is, Dr. Nath was given every single opportunity to match the price.” He added that after watching home values plummet over the last few years, sellers finally have relief. “They’ve been scraping by for years just to get to this point.” Both the seller and the buyer declined to comment, said Mr. Le, who added that even he had been taken aback by the intensity of interest in the home.
Whether caused by economics, or the unseemly equivalent of moving the goalposts to prevent touchdowns, experiences like Dr. Nath’s are becoming more common in a market with a huge pool of buyers chasing a limited number of homes.
Not too long ago, an accepted offer marked the home stretch of the deal: the expectation was that the two sides would sign a contract and a deposit check would be cashed a few days later. Now, as sellers go back on their word and repeatedly increase their asking prices, “best and final” often seems to mean “O.K. and almost there,” according to real estate industry sources.
Buoyed by a new confidence in the market, some sellers seem intent on keeping the bidding alive even after there appears to be a winner, with some demanding sharply higher prices, as in Dr. Nath’s case, and others coming back with gradual $15,000 bumps every week or so. Are these sellers merely reacting to a fast-moving market — or are they, as unlucky buyers might suggest, just being greedy?
“It’s surprising how ugly it’s getting.” said Robert Frankel, a real estate lawyer who has handled closings for two decades. Years ago, goalpost-shifting was virtually nonexistent, he said. Recently, he has been seeing one a week, while other lawyers have complained about having to draft multiple contracts for some properties.
“If you don’t hear back about a contract in two days,” Mr. Frankel said, “there are usually some shenanigans going on.”
Even sellers’ brokers, who are in theory supposed to take the same tack as their clients, can be left shaking their heads about how deals play out.
In February, soon after a three-bedroom condo on Ludlow Street on the Lower East Sidewas listed at $1.695 million, offers began rolling in. But the seller, perhaps miffed that the bids failed to match the asking price, did not immediately pounce on any of them.
Eventually, in March, he accepted Barry Schwabsky’s $1.55 million offer. But then he proceeded to ignore the agreement and increase the price by $10,000 or $15,000 a week, said Emily Fuller Kingston of Halstead Property, his own broker. “The price was like a moving target,” she said. “The owner kept coming back and saying, ‘We really need more money.’ It was agony.”
At one point, an increase was justified by a rumor that the SoHo House, the popular meatpacking district private club, would soon be opening a local outpost, said Mr. Schwabsky, an art critic. After going five rounds with the seller, he ended up paying $1.65 million, in a deal that closed this month. Although the presence of another bidder may also have been a factor in the ever-increasing price, Mr. Schwabsky, who has bought real estate before, felt that the seller negotiated in bad faith. “It somehow felt like the last bit of toothpaste kept getting squeezed out of the tube,” he said.
Claire Groome, the Warburg Realty broker who represented Mr. Schwabsky, was more blunt. “It was a little bit greedy,” said Ms. Groome, who has sold houses for 11 years. “I’m a big believer that when you give your word, you honor it.” The seller did not respond to requests for comment.
Ms. Groome’s concerns may have reached the ears of her boss, Frederick W. Peters, Warburg’s president, who weighed in on the topic in a recent blog post. “The idea which so many of us grew up with that your word is your bond seems to have been replaced by the notion that greed is good,” Mr. Peters wrote.
Yet if owners are taking negotiations to new lengths, their apparent reluctance to commit to a deal could almost be understood as a type of seller’s remorse. Indeed, with open houses routinely drawing hundreds, and people swooping in with juiced-up offers at the 11th hour, sellers would seem to have a powerful incentive to sit back and wait. Or maybe the sweltering market simply caught them unaware.
“Sellers are constantly shifting the bar higher, and in some cases, rightfully so,” said a longtime Manhattan broker who, like some others interviewed, asked to remain anonymous, in part because they’re involved in transactions of this type. “There’s a lapse between the time when a listing is priced and activity on that listing,” the broker added, “and prices are climbing in that period — that’s why this market is setting a new bar.”
Brian Lewis of Halstead, a 14-year industry veteran, is another broker sympathetic to this new sellers’ quandary. Moreover, he added, this should be familiar territory for many buyers. “It’s a competitive city,” he said. “Where there is a rope line around a property, it brings out the New Yorker in all of us.”
Still, no-apologies hardball tactics may have their limits. “Up to a point, it’s business, but beyond that, it becomes dangerous, because you will lose that buyer.”
In any case, buyers aren’t always the good guys. When the market favored them — as when there was a surfeit of inventory in the middle of the last decade — they were known to walk away from deals themselves. “They would just move on to properties that were less expensive,” said Nandini Nathani, a Halstead broker.
This winter one of her buyers, Sunil Bhavnani, thought he had snagged a one-bedroom condo in Midtown West for $1.255 million. He signed a contract, wrote a check for 10 percent of the total and, confident that the deal was as good as wrapped up, headed to India on a trip. But days before the seller was supposed to sign the contract, Mr. Bhavnani got a call telling him there had been a change of plans. An offer of $1.28 million had been made, the seller said, and Mr. Bhavnani’s bid needed to come up.
“You’re really in the dark about what’s happening on the other side,” said Mr. Bhavnani, who works for a financial services firm. “Is that other offer real or fictitious? You just don’t know.”
But match it he did, and he closed on the apartment in February. “I felt my client was overpaying,” Ms. Nathani said. “Ethically, the seller should not have done what he did. The finish line was moved.”
Whether commonplace, or justifiable within certain definitions, the practice is troubling, said Anthony J. Gray, the president of the Institute for Global Ethics.
Society is not any greedier than it used to be, said Mr. Gray, a former lawyer, and sellers may have perfectly defensible reasons for doing what they’re doing. But, he added, “We sometimes confuse legal commitment with moral commitment.”
Not to mention the fact that leaving buyers with the impression they might soon have a new home is effectively lying. “Truth-telling is valuable for every culture,” Mr. Gray said. “It helps individual groups and civilizations progress.”
Then again, when told about the feeding frenzy that has erupted in New York real estate in the last few months, Mr. Gray couldn’t resist adding, “it’s great to hear the market is on the rebound.”