Better to break the contract?

HI @elliek -
I've been wondering the same thing about an apartment I made an offer on (not yet in contract). I find all the real estate news reports maddening because they all say that the number of sales will drop, but nothing about prices. Basic economics says that prices should drop if demand drops and supply is high. Right now, we have very low supply because the local brokerages have been telling sellers not to list so prices are relatively stable. But who knows if/what could cause supply to increase and not demand, especially if people are not being forced from houses even if they are in financial distress.

I've also been taking a slightly different point of view. Will the city be one that I want to live in if (a) I can work remotely and have no commute time; (b) has significantly less restaurants, shows and other cultural draws; (c) possibly increased crime due to decrease in policing (due to decreasing city budgets); (d) less public services such as parks, subway maintenance, pre-k, quality schooling, etc (also due to decreasing city budgets). The answer to these will likely affect demand, which would impact prices. I think it's unlikely that we'll see a 20% drop. Maybe 5%? Would love to hear others thoughts.

Good luck - it's a hard question to answer.

$1.2M for a not new development 1bd sounds too high even without the ovid

In the old gambler's maxim "don't put anything you can't afford to lose on the table."

Why are you looking to rent it out after a couple of years?

Thanks all. We were thinking about renting it out after a few years since we thought it might be a good investment property. We will be living there for the next few years and were thinking about selling in the 10+ year timeframe.

Deposit was around ~$115,000 which is not a small amount of money so walking away might not be a sensible move... but not sure if the seller (sponsor) would be open to a price cut.

One bed room rents are the highest per sq ft compared so similar larger properties in the city as most new developments (exceptions like 1 Manhattan Square or Fidi) do not have many 1 bed rooms. Also UWS community and desirability (another big factor green space) is strong. Relative to other segments, probably the least downside but I have no way to tell whether the original contract price is fair.

https://www.forbes.com/sites/donnaolshan/2020/05/14/home-buyers-rethink-the-value-of-new-york-with-many-renegotiating-or-reneging-on-pre-covid-contracts/#1c4ecdf81db1

I never thought I'd say thank god for lawyers, but ...a lot of what many of us brokers know about market pricing is coming through that attorney group. Few of us work in enough volume that we can see the entire market. It may reassure the OP (it may not) that none of the discounts mentioned were in that 20% fear range.

To George's point, my anecdata lines up with that Friedberg quote, "the buyers happiest to close are the ones with mortgages." If the cash buyers are looking for discounts of 3-10%, depending on the market niche that they're in, and the financing buyers are looking at a drop in the cost of money of around 8% since mid-February, well, how does that balance out?

ali r.
upstairs realty

I received only 21 responses, but it may be worth sharing the results with all of you.

The average discount asked was 5.65% from the contract price
In 11 cases such requests was approved by the seller. The average discount in accepted cases was 3.74% off the contract price
In 10 cases such requests was rejected by the seller. The average discount of rejected requests was 7.75% off the contract price

The average contract price of all 21 data points was $1,468,333
The average request to lower the contract price was $85,643
The average price of those in-contract where the seller accepted the request was $1,606,545
The average reduction request for those that agreed was $56,182
The average contract price of those where the seller rejected the request was $1,316,300
The average request to lower the contract price for those that were rejected was $118,050

Here is the dataset of all the replies received, and read the comments from your colleagues who submitted the surveys.

The above from Fritz Frigan at Halsted.

Keith
TBG

I think "none of the discounts mentioned were in that 20% fear range" is more an issue of leverage than where the market may be headed. These attorney negotiations are largely based on a 10% deposit so the argument is largely over than.

But also these discounts are on top of what was already negotiated off the asking price. In the example if the East 29th St penthouse, the asking price was $9.25 million. Contract was $570,000 off that at $8.68 million. This negotiation knocked off an *additional* $680,000 for a total of $1.25 million. And note the the post-contract signing negotiation was greater than the pre-contract negotiation, and represented close to 80% of what was probably an $868,000 deposit.

why seller is willing to negotiate after contract signed?

Just on phone with friend who has fled the city with her family upstate. She is seriously considering selling their place in Brooklyn. Her thinking is that NYC real estate will be a bloodbath, and that if she lists now she may get ahead of it, especially if there’s a temporary summer mood lift.

Thanks everyone - and I share the same question as Anton. The contract is already signed and the buyer is contractually obligated to buy at the specified price, so why would seller give a price cut? Is it because the buyer is threatening to not close? But then the seller would get to keep the deposit..

@anton My guess is the seller is negotiating because they realize the buyer might not qualify for financing any longer at the original contract price (due to widespread salary cuts and/or increasing jumbo rates). And they'd prefer to have a sale than no sale.

yournamehere,
I won't disagree so long as "get ahead of it" actually means get ahead of it and not like this:

Corner 2 BR/2 bath gets pulled because it doesn't sell at $1,550,000

https://www.urbandigs.com/building/54-west-16-street/9b

Jr4 gets listed at $1,599,000

https://www.urbandigs.com/building/54-west-16-street/9d

We have not yet felt the effects of the recession but one thing is clear any econometric model shows that in NYC prices should drop more than 15%.

You should break the contract and sue them to return some of the money given their "force majeure" of the situation. If they refuse get them to court and they will cave in at some point because one thing is to cancel a sale and another is to disclose to your lenders that you are being sued with unpredictable outcome for them and their lenders.

Your leverage even increases if you become and activist and gather other buyers on the same issue....

While I agree with the sentiment of your friend in Brooklyn, having also fled myself, I'm not sure there's any benefit to listing now when nobody can see the place. And this summer will *not* be good except in the suburbs, where apparently activity is already up. NYC isn't reopening until Labor Day at the earliest, and then it will take some time for prices to find their way. I'm not sure that you can really get ahead of the flood of inventory when the market today is basically stopped.

This is the leverage that buyers who are in contract have. The maximum the seller can do is keep the earnest money. They can't force specific performance, and the buyer can make a nuisance lawsuit to get the deposit back. Meanwhile if the market really does drop 10-20%, the seller would actually be better off letting you renegotiate 5% off or whatever Fritz says is the going rate today, then closing ASAP.

If I were a seller right now rather than looking for "all cash" deals I'd be discounting my price based on the size of the contract deposit.

My speciality area is sales in the 90's-180's (Central and West, not so much on the East Side). Given the price point and description, I typically only see that price point for 1 bedrooms in a handful of buildings in that area- and I could likely narrow my guess down to 1 or possibly 2 buildings. At roughly $1.15m it's definitely on the higher side of pricing for the area. Since you declined to name the address, I am not going to. That said- I like the building (assuming I am guessing correctly), location and the renovations to both the building and the apartments. No one on this board can say what is right or wrong for you and your circumstances. No one has a crystal ball either. That said- as brokers we can report what is happening in the market and anything beyond that is an educated opinion. Lots of brokers are sharing their experiences and I have to say, my own experiences in the covid market , which are limited, aren't much different from what I have heard reported elsewhere. Fritz Frigan is well known for his data reporting and it generally matches what I have been hearing elsewhere.

Prior to working in real estate- I had a long professional career working in and around trading desks. In all of those years meeting traders, analysts, economists, etc- I only met 1 techincal analyst that repeatedly timed the market accurrately time and time again (was fired from JPMC for recommending clients short JPMC but he was right). I realize you have a lot at stake in this purchase, but I don't recommend you try to time the market. While there is every indication that the market will weaken, no one really knows how much. That said- if you like the apartment, can afford it, and are riding out the storm by holding on 10 or more years- then I think you should enjoy it. I realize this is hard to do so my suggestions might not work for you. I have different advice for different client searches- and all will depend on what is most important to you. For a client seeking a sub $500k 1 bed condo, I don't really see prices being impacted the way someone looking at $5 million new construction could be.

UptownSpecialist, I met a broker who worked for FICC before, was that you?

Nope, it wasn't me. I was a trainer and consultant to the trading desks at multiple firms- but I did work quite a bit for awhile with the FICC group at JPMC.

obelix, I am not an attorney and I am not giving legal advice, but I will mention that I'm not sure that this is a situation where force majeure applies ... these are residential, not commercial, contracts. OTOH... figuring out where this stuff lands ... does anybody want to try that while the courts are basically closed? The resolution, whatever it would be, is unlikely to be swift.

I would try to negotiate a lower price with the seller. Making an effort to do this would support your case if you sue to get your deposit back.

That said no one knows how the courts will view cases where buyers want their deposit back due to Covid. But once the courts open and cases are heard, a precedent will be set giving you an idea if it’s worth it to sue. By then you may be able to get an apartment for a lot less money.

https://www.crainsnewyork.com/real-estate/loaded-cash-real-estate-buyers-wait-sellers-crack

My guess is that a buyer who didn't get their deposit back could probably tie the apartment up in litigation for 3 or 4 years at this point in time if they had the stomache for that much litigation.

So you could still live in the place and the deposit would pay for maintenance/taxes almost like an interest free loan even if you lose.

Lawyers charge big bucks.
Good luck.

stache you can't "live off the deposit" if your attorney doesn't release it to you, which they won't do if there is litigation.

https://streeteasy.com/building/park-royal/607?context%5Bcontroller%5D=%23%3CBuildingController%3A0x0000560c1e8493a8%3E&context%5Bcurrent_user%5D=1004558&hide_if_empty=true&section=sales

Went into contract in January when list was $1.65M. Now back on the market at $1.55M.

How low does it go?

Textbook case of what to expect in this market.

Guess people finally figured out its not very pleasant to have to walk through the kitchen to get into the apartment - at that price point

It's back to the early 2013 price, which is basically the same as the 2009 price. Over a decade of nil appreciation.

And that's the problem I have with building appreciation into a Rent vs Buy calculation.

Park Royale...2% buyers flip tax, high maintenance, NYSC in the basement, stuffy board. What’s to like? Sure, location is great, but lots of locations are great on the upper west side.

But then you'd never buy. Or you'd only buy for emotional reasons.

I feel like walking into the kitchen is not that apartment’s problem for me, but rather the narrow dark rooms. But it does have location going for it in my preference structure.

Walkthrough kitchen: Ugh.
No 'public' bath (you have to go into a BR to get to a bath): Not super desirable.
Long/narrow rooms (potentially dark): depends. Windows are south facing, so that's a plus.
Neighborhood: Not my target area. (unless I can look into windows in the Dakota apartments)

The layout is the dealbreaker for me.

George,
I've probably bought more deals than everyone else in this conversation combined.