The long winter of real estate's discontent may be over, but the aftermath is not pretty. As far as the eye can see, the landscape is littered with cranky sellers, irrational buyers and a gaggle of real estate professionals about to lose their collective minds.
Seller's Exact Their Revenge
Sitting on the sidelines since Lehman went bye-bye, invigorated sellers are putting buyers through their paces, just for the fun of it. Even though many apartments will not rebound substantially from the 30 percent hit on value that Manhattan experienced during the crash, at least disgruntled sellers are finally able to sell, with hordes ready, willing and able to purchase at the still reduced pricing. Many disappointed buyers who have uttered "final and best offer" two and three times or more, are still getting the dreaded calls from their brokers, that their best was not good enough...
An Insidious Practice Becomes Commonplace
Added to this mix, is the odious practice of simultaneously sending out contracts to multiple buyers. Driven by jacked up sellers and misguided broker enthusiasm to get the best possible price, no matter how it's achieved, lawyers are forced to mislead colleagues about the status of deals and to negotiate multiple contracts. Long frustrated sellers demand that buyers go through the entire due diligence process and submit signed contracts... and then "the seller will decide." Despite all we have theoretically learned, buyers go along with this practice as if the crash never happened. The scourge of the double dip is a classic sign of an overheated market... and we all know how that usually works out.
It is fascinating to observe the willingness of buyers to part with millions of dollars, with only a Kodak quality snapshot of what they are actually buying. Nobody buys a business for $5,000,000.00 without thoroughly vetting every aspect of the deal, but that result happens daily with co-op and condo purchases. And this decision to purchase must be made under unrealistic deadlines established by sellers and their over-zealous agents. I'm thinking of creating a Warhol inspired performance piece of voice and e-mail messages I've received over the past six months repeating the same question over and over: "Is it signed yet?" Whenever someone is told to sign a contract within 24 hours, rest assured, the best interests of that person are far down the real estate food chain.
Dwindling Due Diligence
From the front lines of representing buyers comes this: one of the prominent managing agents has recently changed its policy and will no longer answer due diligence questions from the buyer's attorney. The rationale from the owner of the company: "We don't have to." According to the head of the closing department, the buyer's attorney will be forced to rely on the often outdated Offering Plan and sanitized Board minutes in order to satisfy due diligence concerns. Even monthly common charges will not be confirmed unless a generic questionnaire is purchased at a cost of $150.00. It's official: the inmates are running the asylum.
Crimes and Misdemeanors
No one would argue that the co-op board approval process works well. It is a cumbersome and tired analog process that has lost most of its meaning in our digital world. Yes, it is an opportunity to confirm the financial bona fides of a potential purchaser. But the board's ability to turn down an applicant without explanation, can be an opportunity for unfairness, arbitrary decisions, and sometimes, discrimination. Like the flowers starting to bloom, once again, the city council is attempting to impose some basic regulation on the co-op board approval process. As pointed out by my friend Malcolm Carter, in his comprehensive reportage on the proposed legislation and the cries and whispers in the council chamber, the usual suspects expressed their shock and dismay at even the thought of implementing minimal rules on the co-op approval process. For many reasons -- economic, social Darwinism and plain old country club dynamics (with a just a hint of Mean Girls), co-op board approval is the third rail of Manhattan real estate and is not to be touched. Getting legislation approved to minimize the pain inflicted by co-op boards and their indifferent managing agents has about as much chance of getting to reality as comprehensive gun control. It's just not going to happen.
Sponsors Have More Spring in Their Step
It's springtime for developers and they are rocking and rolling. With 20 percent deposits, no financing contingencies, disappearing closing cost concessions and endless pricing amendments (with the prices finally going in the right direction), it's almost like the doldrums of 2009 never happened. Yes, folks, the model apartment is open for your viewing pleasure and sponsors are writing reams of paper. Cue the soundtrack for the onsite sales person's ubiquitous "Yay!," as another purchase agreement is inked. Buyers are once again willingly walking into the lairs of high pressure developers, buying apartments in buildings that have yet to come out of the ground. For some reason, the optics of the high end stainless steel appliance have a kryptonite-like effect on the typical condo buyer. But better hurry, the sponsor is only holding the apartment until next Tuesday...
Residential Reality: Fasten Your Seatbelts, It's Going to be a Bumpy Transaction
Without question, a revitalized real estate economy greatly benefits New York. As we have learned all too often, however, a frothy market can produce disastrous results and unintended consequences when buyers have more money than sense...