Ask the Experts – Mortgages: What You Need to Know

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In 2010, Congress transformed consumer lending. But what does that mean for potential real estate sellers, and homeowners to be?

Great question. This month, we interviewed Matt Jablonski, Loan Officer at Citizens’ Bank, to find out. Matt set the record straight on loan officer commissions, rate negotiations, and whether it’s best to buy now…or wait.

Myth: Loan officers profit from higher rates

Before 2010, loan officers often received higher commissions for more profitable transactions. Naturally, this gave loan officers the incentive to hike interest rates: at your expense.

Then came the 2008 financial crisis. To safeguard the public from future harm, the federal government signed the broad-ranging Dodd-Frank Wall Street Reform and Consumer Protection Act into law. Among other things, the law prohibits profitability-related commissions for loan officers. “The lender I work for has to pay me exactly the same amount, no matter what terms are offered,” said Matt.

What does this mean for the borrower? “You are better protected than you’ve ever been,” Matt said.

Myth: You can talk the loan officer down to a lower rate

While Dodd-Frank is a significant step forward in terms of protecting borrowers, it comes with a downside, too.

“An individual loan officer doesn’t have the power to negotiate like they used to,” Matt said. In other words, you can’t haggle your way to a cheaper rate.

But there’s still one way to secure a lower rate. “A bank is allowed to offer better terms than what they have in place under one set of circumstances only: and that is for competitive purposes,” Matt said.

If a lender can document that a competitor is offering a lower rate, they can adjust their rate accordingly. But it has to be an apples-to-apples comparison: loan amount, purchase price, property type, FICO score, loan program, and fees must be the same; and the rate estimates need to be given at or around the same time.

That said, if all the criteria fit, a borrower need only show a loan or preliminary cost estimate from a competitor to, potentially, secure a matching mortgage rate from any lender.

Myth: Now is a bad time to get a loan

Because mortgage rates are currently on the rise, many people assume we’re headed toward a correction of sorts, and that as such, it’s best to hold off on taking out a mortgage until the market recalibrates.

Matt dismissed that notion. In spite of rising rates over the last few months, he said, rates are still impressively low. And if the current trend continues, those rates won’t be coming down again any time soon. In fact, this loan officer—and others we speak with—expects rates to be higher six months from now, and for that trend to continue. With that in mind, he recommends acting now.

There are multiple reasons to do so. For one thing, New York’s economy is booming. With tens of thousands of tech jobs coming into the city (witness Amazon’s upcoming move), this likely means higher demand. It’s impossible to predict how and when the market will be impacted, but suffice it to say interest in New York City will only continue to grow. Of course, there’s also the cost of waiting to buy. Waiting for prices to re-calibrate means building in a 12-24 month period for the market to adjust (sellers don’t drop prices overnight), all the while paying rent somewhere else and in the meantime if rates continue to rise, it will by default mean you’ll have less purchase power. You are probably better off using your time wisely and taking advantage of the current market dynamics: negotiate, negotiate, negotiate.

“If I was on the fence about buying, I would buy now instead of waiting,” Matt said. “It wouldn’t surprise me if we were in the low fives, or five and a quarter, before 2019.”

From what we have observed and understand, Matt’s words reflect a consensus among industry veterans and insiders. With rising interest rates still astonishingly low, now is in fact the ideal time to buy. Of course, only history is 20/20…but we are certainly bullish on this market, as you’ll read, and we think Matt is right.

 

ASK THE EXPERTS | HOW HAS THE NEW TAX LAW EFFECTED NYC REAL ESTATE?

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Trump’s Tax Reform and New York City Real Estate

 The Tax Cuts and Jobs Act signed by President Trump on December 22, 2017, has initiated numerous changes to how residential property owners can write off their local taxes and mortgage interest payments on their federal tax returns. It caps state and municipal property tax deductions on federal tax returns at $10,000, reduces mortgage interest deduction caps from $1.1 million to $500,000, and prohibits such deductions on second homes.

But what does this really mean for the Manhattan and Brooklyn real estate markets? Well, we’re here to ask the experts just that: does this new tax law have any effect on the real estate market here in NYC? Initial views on this were mixed, and current market trends reflect those prognostications.

The fourth quarter of 2017, when New York buzzed with a mix of suspicion and sanguinity about its native President’s impending tax overhaul, saw Manhattan housing sales activity at its lowest fourth-quarter total in six years, Douglas Elliman and Miller Samuel reported. This included a 12.3% sales volume softening from Q4-2016 to 2,514 closed sales from 2,868 in Manhattan real estate, an average sale price drop to $1,897,503—the first below-$2M figure in two years—and a 13.2% increase in luxury listing inventory to 1,439, the first increase in nine consecutive fourth quarters. To circumvent the lack of tax-write-off incentives for homeownership the Act would create, cash buyers purchased 51.2% of all co-op and condo units sold.

But why? These trends were due largely to the market cautiousness the Act’s reduction of tax benefits provoked in the minds of many buyers, Miller Samuel’s CEO Jonathan Miller told The New York Times in January. Our very own Steven James echoed this sentiment to Bloomberg and Newsweek: “The buyer is very worried about overpaying.”

The Brooklyn market fared a bit better, perhaps due to its up-and-coming status in New York’s higher-end real estate market compared to Manhattan’s long-established one. Brooklyn’s Q4-2017 closed with 2,627 sales, a 1.7% increase from 2,582 in Q4-2016, causing a 23.1% reduction in inventory over the past year. Brooklyn’s $948,706 average sales price was up 0.1% from Q4-2016’s $947,553, and its median sales price rose 2.7% from $750K to $770K over that period. Its luxury median sales price, however, went down 1.9% to $2.4M over that time frame.

Now let’s dive into the 2018 numbers. Elliman and Samuel’s Q1-2018 reports generally indicated continuation of these cautious trends. Manhattan’s home sales dropped 24.6% from 2,892 sales in Q1-2017 to 2,180, which included a 24% fall in luxury home sales. The average sales price dropped from $2,104,350 in Q1-2017 to $1,933,198 (slightly better than the Q4-2017 showing, however). Brooklyn’s market growth slowed its pace but remained strong: the average sale price reduced from $993,955 to $982,093. Then we have the luxury sales, where the median sales price fell 4.7% to $2.425M.

These reports painted quite a different picture from Dezeen’s rosy reportage that Manhattan’s high-end residential real estate market was “booming, thanks to President Donald Trump’s economic policies and tax cuts for the wealthy,” with a reported overall 27% sales volume increase by the beginning of March. Whatever truth those findings hold may be partly attributable to the downward pressure the market’s highest end was already under, pricing-wise.

Prices in the over-$8M+ market have dropped significantly over the past 18 months, possibly to move inventory faster in light of the Act’s diminution of homeowner tax benefits, even though many of these sales involve cash purchases that make the lowered interest expense write-off irrelevant. (In fact, 90% of Q4-2017’s over-$5M sales were cash transactions, Elliman reported.) To boot, some buyers are actually using Trump’s tax reforms to bargain down home prices so they hopefully won’t get socked with higher taxes once the sales are closed, The New York Times reported in June.

Manhattan’s individual neighborhoods varied in RE market sales percentages over the first half of 2018, most showing incremental increases. Downtown consistently held the largest share of the borough’s market, 36% in January and 40% by May. The East Side carried 19% in January and 20% in May. The West Side went up from 18% to 20%, Midtown increased from 16% to 20%, and Upper Manhattan dropped from 7% to 4%.

Brooklyn’s market softened slightly as well. Q2-2018 sales were 5.7% down from last year’s second quarter, from 2,845 to 2,683, the first such decline after ten consecutive year-over-year gains, though sales increased 11.3% from Q1. Inventory rose 18.5% from Q2-2017’s 2,257 to this second quarter’s 2,675, which was up 30.9% from Q1. This significant inventory expansion followed 11 consecutive quarters of year-over-year depletions. Median and average sales prices both dropped from Q2-2017—$997,654 to $984,047 and $795K to $780K, respectively—with very minimal differences from Q1.

With all of this data being enough to make your head spin, what does this mean to our buyers and sellers who are uncertain about the effects of Trump’s new tax law on the NYC real estate market? The answer is, of course, nuanced, like any complex market. Because of the multiple up-and-down pressures the real estate market must weather consistently, assigning responsibility to any individual cause, trend or force wouldn’t be fair and/or accurate.

“External influences outside of the vibrant city economy such as rising mortgage rates, the potential impact of the new federal tax law, and an unclear direction of the national economy have continued to remain a concern of market participants,” Miller reported in the Q2-2018 Elliman Report on Manhattan sales. Another external influence could be a predicted mass exodus from New York to lower-tax states like Florida, where “you can save a million [dollars] a year,” our own Richard Steinberg told The Real Deal.

So there you go. No omens of a recession or bubble-burst are on the horizon, but cards are being played cautiously in NYC real estate investment, yet with hopeful signs that Brooklyn could be a worthy “Trump” card for the homebuyer or investor. Looks like we’ll have to stick around and see what happens in Q3 and Q4.

Sources

ASK THE EXPERTS | WHAT NEGOTIATIONS IN REAL ESTATE LOOK LIKE

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As seasoned real estate brokers here at Douglas Elliman, we are often asked the question of what it’s like negotiating during the buying or selling process. People seem to want to be a fly on the wall to hear exactly how the magic happens, so we thought we’d pull together a sample scenario that does just that: realistically conveys the back and forth between seller, broker and buyer (because let’s recall:  the broker isn’t just negotiating with buyers but is always also negotiating with the seller in terms of what the market can bear).

Therefore, we welcome to the first micro-episode of “Ebb and flow: negotiations in real estate.”

Broker: We have run the comps on your apartment, and after visiting the apartment various times and assessing its value, we believe that the apartment should be listed at $1.495M, considering that its value ranges from $1.3M-$1.6M.

Seller: I have lived in this building for over 22 years and I am not selling it for under $1.6M.  Plus, it’s a renovated apartment.

Broker: We understand, however your renovation is over 5 years old now and no longer feels new to prospective buyers.

Seller: But everyone wants to be in this building; the parquet floors and the location are real attractions.  This apartment has fantastic space! I am not selling it under $1.6M so let’s price it high so then we can absolutely get the $1.5M you’re talking about.

Broker: Mr. and Mrs. Seller, nothing has sold in the building for over $1.5M but we will price it where you want it.  We do want to reiterate, that buyers today are knowledgeable and research savvy – brokers are even more so…If we go on the market at that price, we will get offers on where the property should actually be priced.  Not to mention that when buyers are researching properties below $1.5M, your property will be missed despite it being overpriced.

Seller: Let’s try $1.6M

(Hits the market at $1.595M…)

Broker: Mr. and Mrs. Seller, our Open House was well attended with 30 people.  We received four offers, one at $1.3M and three at $1.4M.

Seller: The number has to start with a 1.5 in front of it.  We put $300,000 into the renovation.  I have to have a number starting with 1.5.

Broker:  Mr. and Mrs. Buyer, thank you for your offer at $1.4M but my client is countering at $1.5M.

Buyer: The trades don’t support that price.  There is a unit in the same building, on the same line that is trading at $1.3-$1.4M.  We can come up to $1.43M

Broker: I will revert back to my client with your counteroffer.

Seller: I know what my apartment is worth and we must have a 1.5 in front of it.

(A few weeks later)

Broker: Hi, Mr. and Mrs. Buyer – I have good news, my client has lowered the price to $1.45M.  Are you still interested in the property?

Buyer: I’m sorry but we have moved on.

Broker: Mr. and Mrs. Seller, we need to move on from that offer, they have already placed an offer elsewhere.

Seller: Great, because I want an offer with a $1.5 in front of it anyhow.

 

TO BE CONTINUED…

ASK THE EXPERTS | To Sell and Buy Real Estate Simultaneously: Can it be Done?

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The answer is yes, it can be done! However, it’s very important to know that there are many factors that go into making a situation work where someone is selling and buying real estate simultaneously, especially when there’s the need to use the funds from the first transaction to purchase the new home without having to rent an apartment in between. Today we ask the experts, Howard, Marie and Jeff of the MARGOLIS ESPINAL ADLER Team if this can be done, how it can be done, and what the key factors are that go into making sure their customers are successful in buying and selling simultaneously.

Q: How many deals have you done where a customer is buying and selling at the same time?

Howard: “We’ve been doing this for years since we’ve been together. We’ve been working together for eight years and as partners for six years and we’ve done these “sell-buy” at the same time deals every year, but for some reason 2017 was the grand-daddy of all years on this. I mean, we did four or five deals, and maybe that number doesn’t sound like so much, but you have to think about all of the moving parts that are involved.”

Q: Do you think people are hesitant to sell and buy real estate simultaneously?

Jeff: “It’s so incredibly daunting and stressful for a customer who wants to buy something better and bigger, but needs to sell what they already own in order to make that purchase, and doesn’t want to rent in between. There’s a lot of detail that goes into that and a huge amount of hand-holding and this is Marie’s thing. I sit there and I’m thinking “no, they can afford a rental in the interim, and let’s do this in isolation”, and Marie just forges ahead and you’ll see from our customer testimonials how happy people are with the outcome.”

Q: Do you see a pattern of any sort with price/time of year/etc. when people will sell and buy at the same time?

Jeff: “It seems to be really common where the buyer essentially needs the funds from the sale of their current home before purchasing the new home particularly in that $1.5 to $3.5/4 million range. Someone purchasing a $6-7 million dollar apartment, in our experience, likely doesn’t need the funds to be moved so quickly. Sadly enough, a $4 million budget, while still luxury, is a middle kind of market in NYC, so it’s all financial and not about the calendar.”

Marie: “Adding to that, even though the customers normally looking to do this are extraordinarily well-qualified, with (on average) a combined income of .5 million and $1 million, they are still having to structure it this way because of the need to tap into the capital funds. In the end that’s what it all translates to – you have somebody that wants to make a move either for personal reasons, for example their family is growing, they’re having another child, etc. or they’ve been living in the same apartment for 5 years and they want change, and they simply cannot afford to go buy something without having that money from selling their current home, yet it’s a conundrum because if they rent in the interim, they are out $50-$60,000 for various moving expenses and rent for a year afterwards.”

Q: How exactly do you ensure your client will be approved for the apartment they’re applying for since they’d then be in contract with their previous home?

Jeff: “The whole other part of this equation are the banks and the buildings, right? So the mortgages are based on income, not money you have in the bank. So when they’re based on income, you have to be able to get a mortgage. Also with co-op boards, they’re all over your finances. They want to see what your monthly expenses are, what your debt-to-income ratio is, all of these things. So you really have to walk a very fine line and build a narrative to make our buyers look as attractive as possible to these buildings so they’ll get through the approval process. That’s where Marie’s background in finance comes in and my background in customer service comes in. This is 24-7 hand-holding and it can seem daunting. A transaction doesn’t happen in 15-30 days, it can take 60-90 days and when you’re doing a sell and a buy at the same time, you’re talking 4-6 months before both transactions are completed, although we have done it in less time.”

So what exactly does the process look like? Jeff, Marie and Howard give a breakdown on how the process should go with a few easy guidelines. Disclaimer – even though these are set up in easy-to-follow strategies, the process is a lot more complicated than one may think! The customer should always keep this in mind when choosing a broker to work with and make sure they’ve already been through the “sell-buy” process numerous times.

Determine your timeline.

Determine what timeline works best for you and then work backwards from the timeline you’ve created with your broker. Take into consideration any work events, life events, family events, etc. that may be scheduled to happen during this timeline that could alter plans. Is someone in your immediate family getting married? Is someone having a baby? Is someone going on a long business trip/vacation? These are all things to take into consideration when creating a timeline, because once it’s created, sticking with it is imperative.

Selling-Side

Lay everything out on the table with regards to financials, etc.

Laying everything out on the table for your brokers is something that can’t be stressed enough. Questions to ask: Are there enough assets in place to have a down payment or do we truly need to wait until the property is sold until we can tap into the cash from the previous property’s sale? Being honest with your brokers will only help the process!

Evaluate the market/agree on pricing.

Pricing correctly is everything. Working from the timeline you and your broker originally came up with, research and evaluate the market and work strategically with your broker on pricing the apartment to sell and to maximize your return in an efficient period of time. Example: Customer “A” has a six-month timeframe to be in their newly purchased home. Since that’s a constricting timeline, Customer “A” and their broker need to make sure everything is going to run smoothly by ensuring they have every detail of the process figured out. From day one, make sure the property is priced accurately and that all pieces of how the apartment go to market are thought out. Also, it’s imperative to make sure that the apartment is staged properly, the photography is spectacular, the narrative for the listing description makes sense, and that it’s going on the market at the right time. All of these factors will affect how the property does on the market, and will ultimately determine if it sits, or if it sells.

Hit the market and follow the pulse of the listing over the first month, then reevaluate if needed.

In general, it’s easy to know very quickly how the listing is doing based on client feedback. Be sure to listen to what prospective buyers and their brokers are saying about the property and how they’re engaging at open houses, etc. Usually if things are done correctly, an offer will come in within one to two weeks if there are no building issues, such as maintenance, assessments, legal issues, etc. As a rule of thumb, the barometer for knowing if anything needs to be shifted is two weeks. If no offers have come in and there are no serious prospects, it’s time for the seller and the broker to address the issues and talk about how to fix them in a timely manner. Remember: time is of the essence!

Typically in these situations, within one month (and possibly up to 45 days) the property is in contract. Once the home is in contract and the terms of the contract are understood, then creating a narrative and building a story is the next part for the customer purchasing the apartment they’re interested in. Keep in mind this entire time, the broker and customer have been viewing apartments and generally have their eye on one or two homes that they love. They have also done their due diligence and are ready to move forward once their current place is in contract.

Buying- Side

All along this process, the customer and broker have been looking at properties to purchase and will act on a property of interest once the previous property goes into contract. Once the customer is in contract on the new property, they will go before the board in their interview, which is when it’s imperative to create a story to ensure they’re approved.

Create a narrative (for Co-Ops)

It’s all about positioning a buyer strongly, in a packaged and very buttoned-up way, and creating a narrative where their qualifications are properly laid out in front of the board. All of this is built into the financial rhetoric and whoever is on the receiving end of the offer is usually much more comfortable with the financials that are being presented, especially if the funds are not reflected on the bank statements.

Close!

If all goes well, the broker ensures that the timing works out where the customer will close on the original property. Then shortly thereafter, they close on the new property with the proceeds from the sale of the other property.

Over the course of their six-year partnership, Howard, Marie and Jeff have done a significant number of transactions where their customers are buying and selling concurrently. When asked what the most important factor is, Marie says, “If you’re thinking of selling and buying simultaneously, make sure you are working with a seasoned broker who has been through the process numerous times. I can’t stress that enough: Always work with a really seasoned broker! It’s not something I would recommend doing on your own, with a broker who is just starting out or without proper guidance in general. Your broker has to understand all of the red flags and all of the little things that that need to be caught, which will happen if they’re familiar with the process.  Problems do come up every so often and things do go wrong, but in the end, things always work themselves out and our clients are very happy in their new homes once the process is done.”

Ask The Experts | “How will the tax reform affect buyers and sellers in a real estate market?”

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With April right around the corner, and with the first significant tax reform passed since Reagan’s in 1986, taxes are on everyone’s mind. With good reason, as its implications could be significant, depending on your profile.

We thought we would take the time to outline the specific changes at play.  Note: this may be worth a forward to family and friends considering buying and selling real estate in 2018. Importantly, as you may imagine, none of the below will affect you when filing 2017 taxes as the new laws will be first applied in 2018 (filing in 2019).

*Please note that the opinions below are derived from our team brainstorming and analyzing together — the final outcome from these tax cuts is still under consideration and consulting a tax specialist remains the best route to take while tax planning.

So let’s take these changes one by one, and see what’s in store:

  • SALT deduction gets salty: The existing state and local tax deduction, or SALT remains in place for those among you who itemize your taxes, however with a $10,000 cap. As of this new bill, real estate taxes are now grouped together with SALT, and thereby also capped at $10,000.   Previously, you could have deducted an unlimited amount for state and local property taxes, in addition to income or sales taxes; alas, no longer (which has Albany scrambling to create fixes or legal loopholes to bypass this material added burden for coastal blue states, including classifying taxes as charitable gifts … stay tuned on this front)
  • Lower mortgage interest deduction: Those of you who already own a home, you’re in the clear and grandfathered in.  The new home buyers among you will only be able to deduct the first $750,000 of your mortgage debt, down from $1 million previously.
  • No more deducting moving expenses: You won’t be able to expense your U-Haul costs if you relocate for work (did anyone do that?) TBD on whether exceptions will be made for the military.
  • The corporate tax rate is coming down: The corporate tax rate has been slashed from 35% to 21% starting in 2019 – that’s material and has prompted many to call foul.   The alternative minimum tax for corporations has been thrown out altogether, prompting many to call a double foul.  The greatest impact will likely be on stock holders, as earnings are expected to go up as a result of these corporate goodies; lots of debate exists around how much this additional wealth will make its way to employee salaries, if at all.
  • The endangered species of the estate tax: Prior to this tax bill, a paltry number of estates were subject to the estate tax, with the first $5.49 million being exempt for individuals and a whopping $10.98 million of transferred assets exempt for married couples.  Now, those thresholds have doubled at $10.98 million for individuals and $21.96 million for married couples … so who exactly will be paying this?
  • Pass-through entities will also get a break: Pass through entities, meaning owners, partners and shareholders of S-corporations, LLCs and partnerships (who pay their share of the business’ taxes through their individual tax return) will now benefit from a 20% tax deduction.  Although the legislation includes a rule to ensure these owners don’t game the system, tax experts remain concerned about abuse of this provision.
  • AMT minimized: The Alternative Minimum Tax came about from the intention to ensure that people who receive lots of tax breaks still pay some federal income taxes; since, it’s ensnared many W2 filers, accused of taxing working income far more heavily than investment income (aka the truly wealthy).  While the AMT will remain in place for individuals, fewer people will have to worry about calculating their tax liability under the AMT moving forward, as the exemption has been raised by $70,300 for singles and $109,400 for married couples.
  • Tax bracket simplification? Not quite: Americans will continue to be placed in one of seven tax brackets based on their income, but the rates have been lowered: 10%, 12%, 22%, 24%, 32%, 35%, 37%.  While individual provisions in the new legislation technically expire by the end of 2025, many people “in the know” expect that a future Congress won’t actually let them lapse.
  • Doubled standard deduction: Lawmakers want fewer people to itemize their taxes and so they’ve doubled the standard deduction.  Single filers’ deduction has increased from $6,350 to $12,000 and joint filers’ from $12,700 to $24,000
  • Bye bye personal exemption: No longer can you claim $4,050 personal exemption for yourself, your spouse and each of your dependents to lower taxable income.
  • Bye bye alimony deduction: Alimony payments codified in divorce agreements for ex-spouses who earn less money are no longer deductible for the payer.  This provision will apply to couples who sign divorce or separation paperwork after December 31, 2018 so … hurry up and get divorced??? That feels like an off recommendation.
  • Homeowner loss deductions toughened: Losses sustained due to a fire, storm, shipwreck, or theft that aren’t covered by insurance were deductible if they exceeded 10% of your adjusted gross income.  Now through 2025, you can only claim that deduction if you’re affected by an “official national disaster” … hmmmm.  It makes you hope that if your house is destroyed by a fire, it’s by the California wildfires and not little Johnny playing with some matches.
  • Lower inflation adjustments: The new legislation uses chained CPI to measure inflation, a slower measure than previously used; over time, this will raise more money for the federal government, but deductions, credits and exemptions will be worth less.
  • Homeowners’ profits unchanged: Homeowners who sell their house for a gain will still be able to exclude up to $500,000 (or $250,000 for single filers) of capital gains.

Phew!  Quite a list.  We hope this is a helpful compilation of the new tax legislation for you and those dear to you.  We’ll keep you updated on any updates to these changes or related information as it all unfolds.

Ask The Experts | “What is Happening With StreetEasy?”

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Question: I am seeing all of this talk about brokerages and StreetEasy… “What is happening with StreetEasy?”

Answer: For years now, brokers have had a love/hate relationship with StreetEasy.

The pros until now have included:

  • For Buyers: Helping to engage the client in the search for their new home, by creating a real-time communication channel with their broker in terms of what they’re seeing and what they like. The site also helped to set clear expectations of what buyers could expect to pay for a certain level of quality, amenities or neighborhood.
  • For Sellers: Helping to level-set pricing expectations by having a real sense of competitor pricing, availability and a sense of comparison to one’s own listing.
  • For Renters: Helping to see in one quick view a majority of rentals available in the market at any point in time, along with setting pricing expectations of what one should assume to pay.

The cons have included:

  • For Buyers: Constantly chasing the next best thing, waiting with bated breath for that alert to arrive in their in-boxes, with the hope that the next listing will do the trick.
  • For Sellers: Giving them the false sense that they could list on their own and that StreetEasy could somehow be a substitute for brokerage services.
  • For Renters: Stale listings used to bait renters into calling the listing agent, or feeling overwhelmed by the sheer number of listings, not knowing which are real.

You see, the name of the game hasn’t been about access or hoarding of knowledge for years. Over the last decade, the brokerage model (for successful players that is) has been defined by a trusted advisor relationship, where the real work happens in the process of getting the deal done. This means strategically preparing the buyer to put their very best foot forward; effectively advising the seller on the right pricing strategy, vetting buyers who are most qualified and would have the highest chance of having the deal materialize. For both buyers and sellers, a broker partner will manage all of the numerous parties involved in a deal (think lawyer, other party, other broker, bank, appraiser, inspector, board, you name it) to ensure no one drops the ball and that the deal actually comes to fruition.

And now, recent platform changes on StreetEasy only serve to highlight the very important role that intelligent, proven and strategic brokers play. These changes are making it difficult to find proper agents online. Furthermore, many brokerages have pulled down their listings altogether which now make searching for a property online woefully incomplete. This doesn’t even touch on the fact that total rental inventory dropped to a fraction of its previous size literally overnight.

Don’t get us wrong: this is not a disparaging post towards StreetEasy. It is a “must-know” reach-out to our readers to highlight the always and ever-present importance of a real partner in the world of NYC real estate. And now, based on these changes, that partnership is even more important to ensure you have access to all of the inventory that’s actually on the market as a buyer, and access to professional marketing support as a seller.

Now, more than ever, your very first search should be focused on finding a real estate broker who can maneuver through the various platforms, in either buying a home or selling it, and manage all the moving pieces to make it happen in your best interest!

Ask The Experts | “Ready To Sell” To-Do List

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So you read our piece last month about now being the time to plan your sales strategy for the fall, and you’ve decided “yes, I want to list my home in September.” Great! “And I want your team to be my partner.” Even better! “What should I absolutely do now to make my home sell faster when I do list?”

What a great question! We wish more savvy sellers like yourselves would be open to truly embracing the answers to this pro-active question. There are several things to tackle that, if you do so now, will play to your benefit come fall.

  • Have us walk through the property with you. A broker walk-through will give you all of the tips you need to have your apartment look as fresh and appealing as possible when you pull the trigger. This way, you benefit from the daily experience we have showing and viewing properties, to help your place stand out (or at the very least meet the bar) in the market.

 

  • Paint. You know that incredible hue of red you and your partner found together that just screams “you”? Well that’s precisely the kind of shade that may scream “run” to one too many prospective buyers out there. Although it may seem bland and boring, the primary purpose of the paint is to create as neutral a palette for the apartment to appeal to the most number of people. This is not the time to squeeze your creative juices or exercise your interior design courage.   The secondary purpose of the paint is to help the place look crisp and clean, so it pays to hire someone truly qualified to make sure those edges are sharp and the coats are even.

 

  • Fix. You know that chipped baseboard corner that you stubbed your toe on more times than you can remember? Or that cracked mirror in the bathroom? Or how about the nicked kitchen countertop? Now is the perfect time to fix those little things that you think only you notice. They, in fact, accumulate little by little and add up to an “eh” feeling from buyers walking through your property. There should be as little as possible left for anyone to “fix” when buying the place; you want to make the apartment turn-key, making the decision to buy as seamless as possible.

 

  • De-clutter. We’ve said it once, and we’ll say it again, and again, and again. The minute you decide to list your apartment for sale, it is no longer “your” apartment but a product to sell. You are looking to create a neutral space that when others walk in, they think “aaaaah, I can live here.” This means a picture of you on a sailboat or of your parents in Paris shouldn’t bring that vision to a screeching halt. Those kinds of personal items serve as an heavy reminder to others that someone else lives there, an obstacle to their seeing themselves in the space already. Further, look at all of the “things” you have in your place, and try to get rid of 20-40% of it. The extra shelves, the extra side table, the excess seating, the storage containers … and the closet contents, especially the closet contents. You want to leave room for additional clothing to go in there, sending the message “oh, the closet it so big, they didn’t even fill it.” Ultimately, you are looking to create the physical and mental space necessary for others to insert themselves into it. (Yes, we’re often psychologists in our role.)

 

  • Photograph. Schedule a photography session of your apartment now. “Now? But we’re two months away!” you say. Yes, but flowers are in bloom and the light of the summer sun always helps to show your building off, especially the exterior. Further, you benefit from photographers being far more available now, with more flexible schedules, than they are when everyone is rushing to list in the fall. Take your time, do it right, do it when the time suits you best, and you’ll be better off for it.

Ask The Experts | “How Do I Make My Home Sell Faster?”

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Last month, the question we received most was “how is the market?” We hope you have a good sense of what’s happening on the ground in NYC after our last post (which can be found here).  Over the past few weeks, we have heard a consistent set of questions (mostly from referral prospects) around, “how can I make my home sell faster?”  We hope the following helps those among you who are currently looking to sell or on the market, but not getting the results you seek.

We’re going to split our answer into the three driving factors behind the speed of the sale. We believe that the following attributes combined are responsible for how long a property sits on the market.  When you get their combination just right (often as much of a science as it is an art) then you create the perfect storm of selling in a short period of time, for the right price, via an uncomplicated transaction as possible.

Price

First and foremost, pricing is the single biggest factor in determining how long your property is on the market.  Period.  Now that we’ve gotten that proclamation out of the way, let’s expand.

You may have heard us or other savvy brokers say “the market prices your property, not you.”  And this is true – kind of.  Ultimately, “the market” is, indeed, the overarching determinant of how much your property will sell for.  But who is this magical, know-it-all “market”? It’s the sum pool of buyers looking for the kind of property you are selling, and their collective wisdom around what that property is worth.  The more buyers in your market pool, the quicker the market will be to price the property and the more “accurate” it will be in doing so.  There are always outliers, of course, which tend to sway this market price one way or another.  Generally speaking, the market is pretty intelligent.

That said, there are ways to maximize your desired outcome (and there are definitely ways to shoot yourself in the foot).   As the market is made up of human beings, who are not hyper-efficient decision makers individually.  And they tend to influence one another (think herd mentality, group-think and peer pressure).  Natural cognitive biases kick in when stakes are high, which influence market pricing.  This means when people walk into an open house with 20 other prospective buyers walking around, they perk up and feel a need to act if they’re interested.   This also means that if buyers see a property has been on the market for more than four or five months, they feel that something must be wrong with it and don’t include it into the mix.

All of this said, the optimal pricing strategy for a property is to come in at or just below the market price.  This does not necessarily mean that this will be where you end up. It’s easy to say “well, if we start there, then we’ll only negotiate down from there.” Not true!  If you price slightly below the market, the strategy is to get enough volume going to get multiple bids which then drive the price up and shorten the time on market simultaneously. This strategy also maximizes the “new kid on the block” benefit at a right price, by luring buyers in at an attractive price.

Makes sense, right? It still takes some courage or faith that the strategy actually delivers (believe us, it does) and so you shouldn’t be surprised to learn how many sellers price their properties above the market only to see cobwebs form on their listing.  Buyers think they’re not a serious seller, they forego seeing the property, not enough volume generates no offers, and the listing becomes stale in no time, preventing new buyers in the market from seeing it because “something must be wrong with it.” The vicious cycle is fulfilled.

Timing

Timing is everything:  when you list, how often you host open houses in the first two to three weeks of the listing, how often you accommodate buyer viewing requests during that time … all of this matters.  You want to feel a sense of urgency from your broker when you hit the market.  You, in turn, want to make your apartment as available as possible, as often as possible, to give as many buyers the opportunity to include your property into their finalist list.  Volume and frequency are your friends when you list, which is why listing during a peak time makes a difference.  (Remember: once you decide to sell, your apartment is no longer yours; it becomes a product that you must help move.)

Now, on the flip side, if you’re the nicest, smartest kid on the block when few other kids are around, then you can shine, as well.  This requires a modified strategy of maximizing the scarcity of inventory and standing out as the shining star.  Buyers are in the market year-round, some needing to act sooner than later.  There’s always a way to make sure that timing is on your side, and this is where that trusted broker relationship comes in.

Appeal

If you’ve ever seen any cable real estate shows, you’ll be hard-pressed to make it through one episode without hearing about “curb appeal”.  Clearly this is less directly applicable to urban settings but the underlying message still applies:  your property needs to show well.  What does this mean?

It means that buyers need to be able to see themselves in the space; they need to envision themselves living in your place.  Tangibly, this means you must remove as many peculiarities and specificities about you that are in there:  photos of you, eccentric colors that “so express your unique personality”, that funky wallpaper that the two of you picked out on your honeymoon reflecting the inside joke none of your friends ever got … you get the gist.  You need to neutralize your property to make it appeal to as broad an audience as possible.

Further, decluttering is key, as is cleanliness.  You want to create a clean palette that allows others to paint their own pictures of themselves.  Anything stained, torn or broken should be fixed.  Smells should be pleasant (no, you don’t need to bake cookies), and lighting should be inviting.  People make up their minds about a space as quickly as they do about a person: in less than 30 seconds.  “Do I want to continue walking through and discovering this place, or is it not worth my time?”  Eliminate all the possible obstacles to someone saying “no” in their minds.

Especially in this regard, listen to your broker. (S)he sees dozens of apartments every week, if not every day. (S)he has a great understanding of what works and what doesn’t, what will turn buyers off and what won’t.  Once you hire this expert (assuming, of course, you’ve done your due diligence and picked the right partner), listen to him/her.  And if you’re not willing to listen, find someone else, because as fast as this world can move, it’s more of a sprint than a marathon, and you want to make sure you have a trusted advisor by your side, through thick and thin.

Ask The Experts | “How’s The Market”

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When was the last time someone asked you “how are you doing?” and you answered back the auto-pilot response “good, thanks” … regardless whether “good” was an accurate answer?

That’s how we feel about the question of “how’s the market?” It’s very easy for most brokers to have a canned answer that projects conditions that incentivize the inquirer to either sell or buy. However, if you know us by now, you know what we’re going to say: “it’s not that easy, and the primary reason for this is that there is no one market. There are a gazillion ‘micro-markets’”:

  • Geographic: Tribeca, Dumbo, UWS, etc.
  • Stakeholder: Seller, investor, occupying owner, etc.
  • Property type: Co-op, condo, single family, etc.
  • Property size: Studio, 1-beds, 2-beds, etc.
  • Pricepoint: <$600, $2MM, $6MM, $10+MM, etc.

And these micro-markets are not stand-alone; they are matrixed, with many different possible combinations. Dumbo investment 1-bed condos <$2MM, UES owner occupied 3-bed co-ops > $4MM, LES investor studios <$800k … you get the gist.  NOW ask us how’s the market. It doesn’t make sense, right?

But you’ve done your research and are ready to get into a full-out debate with your broker on “the market” with a few handy and often sophisticated statistics up your sleeve. Great! Now the only issue is that the data you have, by definition, lags the market. It takes 2-3 months for a closed transaction to appear in public record, after 2-3 months of a closing process post signed contract. We’re talking 4-6 months or more of lag time, which is everything when it comes to having real-time, actionable, intelligent data at your fingertips. For as instantaneous data is, its currency is far from it.  It’s like Venmo: it looks like you just paid someone instantly but that’s a mirage; the payment doesn’t actually occur for 3-4 days. Do not mistake instantaneous access to data for instantaneous relevance of data.

This is where intelligent, observant brokers really make a difference. By being in the market each and every day, through anecdotal data about micro-markets, after understanding historical building data and trends from experience versus charts, brokers continue to be the best source of real-time information. The market is still “old school” in these ways and it takes someone who can put these pieces together to turn it to your advantage and translate all this data into wisdom.  After all, data is just that: pieces of information. You want to not just have the right data, but partner with someone who can harness its power to help you make the right decision at the right time.

Ask The Experts | The Wealth Report Takeaways

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As many of you have seen, The Wealth Report was just released, which provides the global perspective on prime property and investment around the world. We’ve been asked several times to share the key takeaways for the investors among you, and for non-investors who are merely seeking a macro perspective on their home ownership in The Big Apple.

So here’s what you can learn:

  • NYC is the leading city that’s home to the wealthiest individuals from across the globe, with 6,570 Ultra High Net Worth Individuals (UHNWI) It’s even outranking London, in that regard. That said, it’s noteworthy that London and NYC ping pong between #1 and #2 in the world for Current Wealth, Investment, Connectivity and Future Wealth, with LA, San Francisco and Chicago all making it into the Top 10.

 

  • The US and the UK continue to be the most attractive investment environment for the UHNWIs, with Lifestyle and Security as the primary driving factors, followed by Safe Haven for Capital and Education for Children. It’s not hard to see why the prediction is that the US and UK will continue occupying the #1 and #2 spots for some time to come.

 

  • We have to mention our published quote on NYC neighborhoods: In NYC, one of the more promising investment opportunities lie on the “Lower East Side, “where gritty meets trendy”, offering authentic New York without the whitewashing. The neighborhood between Houston and Delancey and east of Bowery to the East River is undergoing a transformation, with modern glass-fronted condos springing up alongside century-old red brick tenements, and projects such as the US$1bn Essex Crossing development acting as a catalyst for wider gentrification. Due for completion in 2024, this nine-building project will encompass a 15,000 sq. ft. public park, retail and office space and will be the new home of the Essex Street Market, reflecting the area’s burgeoning reputation for gastronomy and artisanal crafts.”

 

  • In NYC – luxury prices proved resilient (rising 3.5% year over year) – despite the hiccups felt by locals and the local real estate industry. Remember, everything is relative on the global stage, so you always need to look at global investment when you consider future prospects for NYC real estate.

 

  • The promise of federal investment in the US infrastructure has led to expectations of higher inflation and interest rates – pushing the dollar higher. While this does serve to put a short-term damper on foreign investing, the long-term outlook does not appear to be weighed down by such currency fluctuations.

If these highlights piqued your interest, you may want to take a deeper look into the report. There are fascinating insights into what the UHNWI’s are worried about, their shifting spending patterns and much more. Enjoy!