Offer accepted then lower your price?

You are already in contract which would assume you first read through everything that was available. Also unless you were purchasing with a mortgage and had a mortgage contingency clause, I am not sure of your out. Was yours a cash offer?

Square footage has always been a major issue and is never a reason to get out of a signed contract. Everyone knows that there are many different measurements going on and the only way to figure it out is to determine on your own if it is enough space for your needs and not be worried how it was measured.

When you made your offer on this apartment, did you not look at the comps in the building and the area to determine a fair price?

As I said if you already signed a contract and gave them a deposit, assuming you were paying cash, if you attempt to get out of the contract, they will keep your deposit.

if by "in contract" you mean you signed the contract--before a through review of details and the offering plan, including clarification of conforming mortgage eligibility--your lawyer is a complete imbecile.

We thought the price was fair until we found out the building will not qualify for a traditional mortgage. This was the big discovery we didn't find out about until we went to 3 banks and were told the building is illiquid!
I would think this lowers the value of the property since it limits the number of buyers substantially? We do have a financing contingency so we can pull out but I am curious if we can get a more appropriate price instead.

The sqftage is just salt in the wound.

if the contract is in review but unsigned, you can do whatever youd like.

use your lawyer to transmit the lower bid and any info s/he feels appropriate and legal as you proceed.

Broker is more irrelevant at this stage than usual. leave him/her out of things, if you want to procedd intelligently.

yikes is correct. If you haven't yet signed the contract you can do anything; renegotiate, walk, whatever. I'd probably choose to walk in this case, given all the issues, but if you love the place then by all means play hardball.

Your broker is probably not being helpful because a lower sales price = lower commission but if you tell her/him the plan is to either lower the price considerably or walk away from the deal I imagine his/her tune may change.

Our lawyer does seem like an idiot. He say he didn't realize he was looking at all of their documents and thought they had only sent him a "sample" of what they would be sending to the bank.
We do have a contingency in the contract so we can walk away if the building is not approved so we should get our deposit back.

I am unsure how to revalue the property.

Walk away. Why would you take a risk that the (highly irresponsible) banks won't take? For the hope-springs-eternal "remedy" that you state with absolute certainty "can" happen?

YEs walk away. But if you want why not just say, here we will give you 16% less. Take it or leave it.

I agree with Alan Hart despite what I found when I googled him. I disagree with Ottawanyc's spite filled strategy which will end up hurting you the most.

so what service did you lawyer provide? He obviously didn't do any due diligence or didn't inform you of what was important. How could he miss these major issues? Who is this guy so we avoid him\her? Can you say on a public forum? Any lawyers out there? lol

it could be a good thing if you take the apartment and the value rises because it becomes more liquid later. the real question is why is deemed unloanable by so many banks. if that many, the reason should be obvious and leads to an appraisal of whether it can be remedied.

if you want to lower the price, you have to use your impending mortgage contingency as leverage- tell Seller you would be rejected (because the mortgage contingency is a big loophole- you don't have to apply to more than one bank) and would be willing to move ahead with many banks if incented- or else the deal is dead and he has to find another buyer in a bankless environment

but this assumes that you really would be rejected. this isn't clear- nothing abnormal about a bank not selling a loan to the govt and keeping it on their portfolio.

The building was declined twice and I have said that we are reconsidering our offer price but We are only being offered the option of a portfolio loan if we maintain a 6-figure balance in accounts with the lending institution.

I kind of want to know the percentage price difference between ad liquid and illiquid building especially since. No one, my lawyer, my broker etc. seems to have any thoughts on that. I don't want to be unreasonable but I was told this apartment had no underlying financial issues and now it appears that was untrue.
Kenneth Jones is our lawyer. He is nice but I don't think real estate is his best area. He was not great mainly because he was a friend of a friend. We should have used someone else.

Can you give us more info without revealing too much so we can weigh in on value? ie: general location. type of building, size of apartment?

You better hope the seller/broker/lawyer don't read this board because they will know it's their transaction now that you named your lawyer and that you have a chance at satisfying the mortgage contingency now with one bank.

It was tricky property to sell because it is a fixer upper with the seller living in the property and unable to prepare for open houses. We will need to renovate. The building is less than units n Cobble Hill.

Now that we know the building is illiquid, how much less are illiquid properties worth? How much would a sellers broker be prepared to accept?

It does sound like you were a little ill-served by your entire team (for one, the banks keep computerized lists of buildings that they approve, and usually your buyer's broker or your mortgage broker will encourage you to run a check on a building pre-contract signing; for another, the discrepancy between listed sf and offering sf should have been uncovered during due dilgence) but I'm with crescent that you are in the pipeline of this already, and you should look at the building's becoming more liquid over time as a possible premium that you will capture as you live there.

How much value is that? ... Well, can't you back into an illiquidity discount by taking the difference between the cost of a traditional mortgage and the cost of a portfolio mortgage? Seems like [(Cost of monthly mortgage payment at Portfolio Bank - cost of monthly mortgage payments at Nonportfolio Bank) * 12 + (annual opportunity cost of holding six-figure balance at Portfolio Bank)] is the delta you're looking for, right?

ali r.
{downtown broker}

How many units? Keep in mind the fewer the units the more likely you'll have a major burden if another shareholder defaults. Banks hate low-unit buildings for a reason.

To me seems like a lot of work to back into a price. Maybe I missed above, however what exactly is the underlying problem in the building that you are led to believe will be corrected in a few years? If this is really the case, then you will always have the option to refinance at what I assume will be a lower interest rate even if rates rise over the next few years.

Also, number one rule these days is that while you may have a broker and a lawyer, it does not hurt to do some research of the building on your own. This site is a great resource for seeing past sales, potential previous comments on the building, etc.

Does this building have a financial statement audit each year? If it does all the information of any major problems would have been disclosed there and this is also something that should be asked for and looked at prior to signing any contract.

I still think with the mortgage contingency clause that you have and that it hopefully states regular loans and not any loans, that you should probably walk away. I can't see how any apartment is worth this sort of a headache where there are no guarantees.

Jumbo loans have been cheaper than conforming for almost 6 months. Don't know about superconforming or portfolio loans in conforming amounts, but one reason is that Dodd/Frank related fees rose at the regulator, FHFA. Another is expanding balance sheets at healthier banks. So maybe you got a line at some banks or the real reason is higher risk of the building.

The problem is a lack of management and division of ownership. If we moved in we would have to get on the board and vote to have annual financial statements, which they do irregularly, and stop allowing investor buyers and maybe limit the sublet policy

The bank just decided they are willing to give us a portfolio loan based on our credit and funds and it will cost the same as if the building was approved. I still feel like I am taking on extra risk when we try to sell later if the problem isn't fixed.

Our broker said we couldn't have any contact with the coop board until we finished our loan process. However, I don't want to go forward until I know the coop is aware the building is illiquid and hear some sort of response to that. (I do not know if the building knows or if they are concerned, if they are planning on limiting investment, etc.)

I'd also like to have our coop board meeting first so I can meet them and see if they are any really obvious red flags. Due to the illiqiudity and the small size of the building, I will probably have to work pretty closely with them.

Our bank says the conditional approval letter they gave use should be enough the get the coop interview. The broker says we need to have our final loan documents and be ready to disperse funds before we can schedule a meeting with the board or have any contact with them, make any requests for information etc. . Does this sound unusual to anyone?? What is the usual process?

Thank you so much. You guys have been so helpful

Even though this building/board is small and seemingly informal, there is no assurance you can get a meeting / they will want to meet with you.

You are in deep the second you notify the Seller that you have a Loan Commitment Letter, which you are supposed to do if you are using the standard NYC co-op legal form (and it wasn't changed by a rider).

So you better get your sales concession and your info from the Board (if that is even possible) before that Letter comes out (if it didn't already - whatever this conditional approval letter is).

There is no reason the Board would spend any time with you prior to a final package being put together. Since it appears it is a coop and if you do not care if you kill the deal, if you reach out and push they would probably reject you anyway.

There are a bunch of things that I do not understand why you did not account for to begin with. You state that it is an investor friendly building, this will cause the banks never to allow as once you get over a certain percentage of Owner occupancy it is a red flag to them which they do not like. I assume you knew that they had a liberal sublet policy and were investor friendly prior to making an offer.

Now assuming you are a small building and there are a majority of investors, there is no way you will ever be able to change the policy. No investor is going to want to take away their investment return. So even if you got on the Board, there is no saying you will be able to change anything.

Either way it sounds as if you have a mortgage commitment from the bank and therefore have zero leverage to negotiate or back out of the contract.

I would think at this point you be happy with what you found and try and change things once you are there.

No, we didn't know because the division of ownership we received from the coop before we signed the contract was incorrect and the broker told us the only investors were the ones int he apartment we are buying. They also have a limited sublet policy, in writing, but don't apply it.

Small buildings CAN correct these problems. My building did years ago (prior to me), but it took a lot of effort. You need to be crystal clear on what's needed to change the policy (e.g., majority board vote? 2/3 majority share vote?) and assess the likelihood of that happening.

I thought, based on one of your prior posts, that your seller was an investor, and that by buying into the building you would be increasing the owner-occupancy percent. If that's not the case, and if you're not changing the investor mix of the building, it's a different story. You may be asking the turkeys to vote for Thanksgiving, which is not going to happen.

My building was at one point, 3 units owner-occupied and 4 rentals. The three owners, fortunately, added up to 51% of shares outstanding. They got onto the board of five, stopped allowing non-owner occupants, voted 3-2 to make investors' lives as unpleasant as possible, and eventually got the building to full owner-occupant status with an extremely restrictive sublet policy that protects all of our abilities' to get financing.

You really need to understand the investor - sponsor (if applicable) - owner-occupant mix, both in terms of number of apartments and number of shares, to figure out if you have a shot at something similar. And, even then, there are no guarantees that all owner-occupants are going to go your way....

I suggest that you are severely weakening your position if you seek to renogotiate, rather than pulling the mortgage contingency clause and walking. After you get your deposit back, if you want to resurface, that is up to you, but do not do anything now to jeopardize your position that you tried in good faith to get a mortgage that meets the conditions in the mortgage clause without success.

get a knowledgeable new lawyer immediately--whatever you paid the complete imbecile you initially retained needs to be forgotten--review situation with new lawyer asap before doing anything more.

and dont dont dont speak to your moron broker any more.

of course as a potential buyer, before you sign anything, you have a right to information required to properly understand the financial and other circumstances opf the building--a normal lawyer will ask for audited financial statements, minutes of last several board meetings, and other documentation. if said doesnt exist s/he will inquire of the board by letter. Dont touch this building until proper due dilly has been engaged on your behalf, and if your accepted offer was based on misrepresentations of the building's financials, other circumstances, or conforming mtge eligibility, lower your bid! of course! doye! you were bidding on something very different in terms of value and risk than you have since learned. and that the value will catch up and youll reap the rewards is a moronic concept. who knows what will become of the building?--all you know is that now it is uniquely in a position where it is at greater risk of failure than others--it should be priced accordingly.

get a competent lawyer asap. and cease communication with "your" broker until you have consulted your new lawyer.

>>I'd also like to have our coop board meeting first so I can meet them and see if they are any really obvious red flags. <<

Doesn't work this way. They meet YOU to determine if YOU pose any red flags, not the other way around. Keep in mind that if the board does reject you after a meeting (they may not like your attitude of putting them on the spot) your seller could successfully argue you intentionally sabotaged the interview and keep your deposit. Tread carefully.

Good thoughts you guys! I really really appreciate it!! Thank you!

Keep in mind that the mortgage contingency is not whether you actually ACCEPT a mortgage. If you are offered a mortgage with a loan commitment letter, your contingency is completed and you have to make it to the finish line (closing table) or you are at risk of losing your deposit. As others have said, tread carefully and good luck.

With a small building, your attorney should have very carefully reviewed the mortgage contingency clause in your contract. Although ACRIS showed recent loans from big banks in our building, our attorney modified the mortgage contingency language to protect us from a situation where we had to go with a portfolio lender at a higher rate. I can't remember the language he put in, but a good attorney would think of this when dealing with a small, self-managed building -- especially if there are red flags.

You probably won't get to meet the co-op board first, but with a small building, it's easy to get the list of owners. You could do basic Google searches on them, and perhaps even a background check if the Google search turns up anything untoward. I went into my co-op board interview knowing a basic bio of each person living in the building -- age, how long they lived there, what they did for a living, etc. just from public internet sites. WIth a small building, you need to do this. The building's problems will become your problems.

It's really too bad, both from a buyer's perspective and a board member's perspective, that there isn't more of an initial "feel each other out" meeting between existing residents and new residents in small buildings. It's in no one's interest for someone to buy into a small building where they won't like living.

true all that lad says.

but you need to reboot your process. all of the questions you ask speak that your lawyer is worthless, and that you need to get one to bring you up to best speed possible now--you have signed a contract, and seem to now be learnign the implications of what you have signed, from a msg board, where people have not seen your contract and know little of the infinite variables a real lawyer would ferret out and advise you about.

are you nuts?

dont do anything more without retaining a lawyer who can do a proper job for you, and accurately assessss the position you are in now.