Dispatches from the Desert
Doing my best to enjoy a vacation in Scottsdale, it did not surprise me to read Noah Rosenblatt's March 2 post on Urbandigs, in which he reported that contract signings in February were the highest since 2008. Dodging emails, scans, phones and faxes the entire time I was away, it was clear to me that Manhattan deal activity continues to increase. Since old habits die hard, with increased volume, there is a certain deal madness rapidly returning that has been dormant for the past 36 months. Brokers seem perturbed at purchasers who attempt to live the lessons learned from the real estate meltdown, by not buying apartments with financial baggage and other problems. Multiple bids are welcomed back and there is a false urgency once again to all things real estate. There's no question that it's been a rough patch for both sellers and their agents, so a feeding frenzy at the deal trough is understandable. Annoying, but understandable.
Memo to Buyers: Do Your Homework and Stay the Course
Notwithstanding election craziness and world affairs that could change local real estate economics in a 24-hour news cycle, all signs point to improving conditions and greater pressure to get deals done faster. Buyers are well advised to avoid all the pre-2008 bad habits that often resulted in limited or rushed due diligence in order not to lose the apartment.
Transaction Reality Check...
Accordingly, here is a 2012 checklist for all you eager buyers:
Bulk Up on Banking -- Make sure you have the right lender for your purchase. With co-op and condo underwriting front and center with all lenders for the immediately foreseeable future, it is imperative that you research your lender's history with the co-op or condo being considered. Mortgage and funding contingencies are essential in almost all transactions. No matter how much you want the apartment, don't rationalize going forward without financing contingency protection.
Finesse the Finances -- Increasing carrying costs for co-ops and condos will be a big issue in the coming years and will greatly impact the salability of apartments over the course of this decade. Buyers are well advised to research the physical and financial wherewithal of their proposed homes, as uncontrollable line items such as real estate taxes and fuel expense will be driving monthly carrying costs in only one direction -- skyward. Low reserves and required capital improvements are a recipe for recurring assessments and impediments to marketing the apartment for sale.
Manage the Managing Agent -- One of my clients was recently required to pay $175 for the privilege of submitting a "customized questionnaire." Translation: you have to pay for the managing agent to answer questions that go beyond the generic information provided on the building questionnaire. Ironically, the purchased answers from the property manager included a number of "I'm not sures" and I don't knows." As they say on SNL, "Really?" For a variety of reasons, completing due diligence for the buyer has become more difficult than ever at a time when it has become more necessary than ever. Although getting accurate information on the building can be like pulling teeth sans Novocain, buyers should not go forward with a proposed purchase, if due diligence questions are not answered to their reasonable satisfaction.
Know Thy Sponsor -- As discussed recently with Jill Urban of NY1, a new construction purchase can be fraught with hidden risks for the uninitiated. The deck is stacked against the buyer, with liability of the sponsor greatly limited after the purchase is completed. I can't emphasize strongly enough that a buyer must research the track record of the sponsor and all potential risks as outlined in the offering plan.
Residential Reality: Measure Twice, Cut Once...
With the spring selling season around the corner, if March contract signings equal or exceed those in February, things could get pretty crazy around here. But let's look forward to a good crazy.