How much is an all cash offer "worth"?

There are a million possible factors, some of which are totally emotional. Such as whether the brokers haves worked together and liked each other. For my recent purchase, I'm told that the three offers (which came on the same day) were basically the same and the decision was emotional. The buyers got a positive impression bc we showed up on time for the showing (some other bidders were late, then got annoyed that we were there), gave a detailed financial statement, and wrote a short letter which included our LinkedIn profiles so they could see that we are legit. Even though we were financed and at least one competing bid was cash, they were confident that we could close.

The fact that the other bidder was dual-agency may indeed have played a role for you. Typically this saves the seller 1% commission and nets 2% more for the selling broker. It's not unheard of for brokers and clients to have other arrangements whereby perhaps even more was refunded (or never charged), or maybe the broker scared the client about Board hassles to keep the extra 2%.

The problem with financing right now is that banks are still severely backed up and slow to close. If it's not the bank, it's the title company or the appraiser who are delayed. My close last month was delayed 2 weeks by appraisal, which was ridiculous because both appraisals came in at the exact same number and within $30k of the Zestimate.

UWSian, Sorry to hear about what happened. Usually cash deal means earlier closing say 30-45 days early. After factor in commercial interest rates and maintenance, rationally it leads to appx 1 percent discount assuming there is no uncertainly to close with a competing non cash discount. I can understand there is another 1 percent guaranteed close premium for coops. So 2 percent seems reasonable. Plus you mention about buyer not having a broker. That is probably worth a minimum 1 percent. So I would say depending on how strong the market is and how desperate the seller is (perhaps they have purchase pending), for a coop cash discount can be 1-3 percent (perhaps a little less for a condo). Plus no buying broker adjustment.

It's hard to tell without a timeline, but it sounds to me like you may have been the "backup offer" from the get-go and they didn't "beat" you because of cash but because of timing.

UWSian, is this a typical building, or a building with a strict board? (curious; I'm betting the former).

ali r.
upstairs realty

Sorry I previously replied to these comments but can’t tell if it’s awaiting review or just didn’t get posted. These are all really helpful answers, thank you. I am not sure there is going to be much I can do about promising, and certainly delivering on, a speedy closing time given the external circumstances, but that is a good note on the LinkedIn bit, that is definitely something I will use. Front_porch, it was a very small building so I am not sure how strict the board is “typically”. Not a lot of track record out there. 30yrs, I guess I am surprised someone would leave 65k on the table to honor first come first served. And if that was the case, why accept my offer at all? All of this is hindsight at this point.

UWSian, it's certainly a drag to get surprised like that. To serve you going forward, it might help to find co-ops with slightly tighter board requirements (your broker can help here). It may sound counterintuitive, but sometimes those boards like the vetting provided by the lending bank, and you can spin your need for a mortgage to be a point in your favor ("Chase already thinks he's a solid candidate, plus, look at the LinkedIn profile, his employer loves him" etc.) Best of luck on the next one.

ali r.

Interesting point. But banks still aren't great. Apparently there is a scam whereby people take out a cash-out refi for the max amount they can get, sign the docs, then immediately declare bankruptcy before the docs are recorded. By the time the bank discovers the bankruptcy, they have paid the cash out.

UWSian,
As is usually the case in uncertain markets, people are taking "too long" to sign contracts and brokers are increasingly being told to elicit "backup offers." I could easily see the case where someone was sitting on a contract, unsure if they were "doing the right thing" buying at the price they agreed to, and the exact push they needed was to hear from the seller's attorney that they had an offer $65k higher to sign the contract and send it back.

As mentioned supra, there is a decent chance the actual net difference to the seller wasn't $65k. With as many contracts falling apart as we see in the current market, and if in fact the entire impetus of this was a buyer dawdling signing a contract they were sitting on, it wouldn't be to hard to convince a seller to take the "bird in the hand." And if they actually received a signed contract before sending out a new one, there are those who would argue obligations to go through with the deal. I will note that in all the deals my group(s) did as principals, we never simply switched to higher offers which came in later without first giving the original buyer a chance to sign what we sent them.

Should the real reason George won be the selling agent bad-mouthing the cash offer bidder who has dual agent?

30's response shows why having bespoke contracts for every transaction is stupid. Only lawyers benefit. Most sales of real estate are quite standard. Out in Nowhere, the buyer sends the offer in the form of a signed contract with an expiration date. The contract is standardized, with just boxes checked like who pays the title insurance and when the inspection contingency expires The seller accepts the offer by countersigning before the deadline or not. You can be in contract in a matter of minutes from the offer bring sent. No lawyers needed because it's all standard. I find the practice in NYC ridiculous in this regard.

The question is would it merely shift timing and expense of due diligence? Would buyers need to spend money for a lot of due diligence before making offers, or would they choose to simply not do it? From my experience I wouldn't trust the vast majority of existing agents to do due diligence for buyers even though I personally think the should be able to.

The quick contract puts the onus on the seller to make full and accurate disclosures so that the contract doesn't fall through, since a lot of power ends up in the buyer's hands. There is a closing timeline that includes deadlines for earnest money, survey, title, inspection, appraisal, mortgage application, and mortgage commitment, if any. So, for example, the seller prepares the survey and title in advance, and often presents them along with an inspection report listing the known defects and estimates for repair costs. Often this is loaded onto the MLS with the listing. The buyer can do their own inspection but it needs to be in the first week of the contract. So the buyer also has to be prepared to meet strict deadlines.

When I was looking at townhouses in Manhattan, I would ask about inspections and was usually greeted with a shrug and a suggestion to check Acris and the BlS. Sellers hadn't prepared anything.

I like the seller advance disclosure and preparation system in Nowhere. Perhaps 30 knows why it evolved to be different in NYC. Perhaps due to coops prevalence which makes the due diligence more detailed.

Form contracts are easier for single family homes, and things are easier in Nowhere than they are even in the NYC suburbs. A large number, maybe even a majority, of houses have unpermitted improvements, and the same is true for apartments in smaller buildings. In most of the country, no one cares. Around here, that could have dramatic financial consequences. Also, while brokers should be able to wade through some of this, figuring out things like Local Law 11 cycles, assessments, noise complaints, building mortgages, open permits, etc. are things that buyers need to inform themselves about and a competent lawyer should handle, but few buyers equipped to do so on their own. Sure, someone buying in a well-run, conservative coop probably has no need for a lawyer, but is also to be the least cost conscious on that front.

On the main question, I think the likely answer is a combination of all of the above. The discount was probably less than $65k, query whether the seller has a taxable gain and thus the incremental dollars are worth less, and if I were a seller in this uncertain world, speed of closing would be worth a fair amount of cash.

Perhaps it's just different market practices, and I'm speaking from one experience, but I found that going into contract immediately with the buyer having multiple options to cancel or demand concessions post-contract causes sellers to disclose in advance what the buyer might find, lest the buyer cancel after the contract is accepted. When we wanted to renegotiate something, the response was clear: "we disclosed this fully, you knew it, no changes."

Let's just look at single family houses. When I looked at townhouses in NYC, I was regularly told that easily observed structural issues weren't actually problems because of some B.S. excuse/opinion the seller's realtor had - "it's just settling," "that's not actually a leak," etc. Some brokers didn't even know if their listing had a gas boiler or oil, electric to code or knob-and-tube, etc.

In Nowhere, the MLS contained an inspection (which was kind of BS too), a structural engineer's report, and a contractor's estimate to repair a known issue. Another property that had been illegally subdivided included a legal analysis of the bandit unit, an agreement with the city temporarily legalizing the bandit unit subject to conditions, and an architect's analysis of what could be done to legally reconvert the house to single family.

Again, maybe it's just market practice. Maybe NYC brokers of $5m properties are genuinely as clueless as they often seem and this is OK because lawyers make up for it. (What then are brokers actually doing for their $300K aside from opening the front door?) Maybe seller disclosure laws are different in ways I don't appreciate. Or maybe REBNY should revisit the difficulty and high costs of transacting in NYC and how they discourages buyers. Having bought and sold in NYC before, I realized I didn't relish the experience again, and this had an impact on my decision to put a few million into Nowhere rather than NYC.

If the standard Nowhere contract gives buyers multiple options to cancel or demand concessions, then it would make more sense to compare it against the "accepted offer" phase of the NYC process, not the "under contract" phase.

IMO a lot of the gap comes from information asymmetry. Someone should build a consumer-facing tool that takes on Titlevest (etc), like Streeteasy did to broker websites. I know of a few that use NYC open records to collect records from 311, DOB, etc but they're all aimed at renters, and are pretty immature.

FWIW, I think NYC system is nothing more than byzantine procedure designed to protect entrenched service providers. I do not find merit in any of speculated substantive reasons (quirky regs in NYC).

I have purchased in multiple markets across the country, and NYC stands far above any other I have purchased in in terms of inefficiency and pitfalls.

Bottom line IMO: The average consumer is no match for the machine. Proceed with extreme caution. If prospective purchaser doesn't bank on any appreciation and treats the purchase as a liability in terms of ongoing taxes and CC (or at best a depreciating asset), then all will be well. Otherwise, enjoy the casino!

30, I humbly think I am way better at due diligence than most buyer's agents for a number of reasons (I've owned a house so I have a pretty good sense of what can go wrong with a structure; I tend to only work a couple of areas so I can get familiar with specific buildings and their boards; I like numbers and detail so I'm happy to read and explain financials, just to think of three.)

And I still wouldn't want to touch having the "responsibility" for due diligence with a ten-foot-pole. For one thing, an unhappy buyer would pull the "you were just trying to get your commission and weren't really on my side" on you, and for another, it seems like one could fall easily into the "unauthorized practice of law."

Of course, I've also never met a real estate attorney who would do a zoning check for a buyer, and that I think is generally the biggest missing piece of due diligence in the City -- "what happens to my view in a few years?"

ali r.

So if buyer's broker doesn't do it, and buyer's attorney doesn't do it, then who does it? And when?

Re: checking zoning, etc., how do you thing the prior owner here feels?
https://streeteasy.com/sale/1409039

Well, you know the answer to that, 30... buyer's broker does a third of it, buyer's attorney does a third of it, and then buyer sinks into the chasm of the third that didn't get done, a chasm that appears to get wider during a sinking market...

Just trying to make the point that George's scenario may make it "simpler," but not necessarily "better" or "safer" for buyers, especially when so may buyer's brokers don't do a good job at their 1/3.

MCR nails it: "Bottom line IMO: The average consumer is no match for the machine."

I've discussed previously my experience buying new construction in nyc and what a disaster it became. Talking to brokers at townhouses we were interested in, we got no comfort that it would be different this time around. Most were clueless about the properties they were selling beyond the fact that there were Gaggeneau or Miele appliances, which is the least of my concerns.

The deck in NYC is stacked against consumers/buyers bc, as MCR said, it's deliberately byzantine. That's tolerable when the market is rising, since even if you get ripped off, you can sell for more to a greater fool. Now that the music has stopped...

This is yet another reason why I think people are underestimating how much the market is going to fall. We are already seeing how much longer it is taking to get contracts executed. What happens during that time frame? Not just hand wringing, but a lot of times doing some of the due diligence that they can't do when the hot market causes a time crunch. This is resulting in many more deals falling apart.

BTW what are the first words in the Coop sales contract and who do you think got them put there?

Like a physician who poisons his patient so patient has to turn to the physician for treatment, RE lawyers have made themselves indispensable. NYC RE transactions are the only RE transactions where we engaged an attorney because we had no choice; it is built into NYC’s unique process. We are attorneys and gained nothing from engaging the requisite attorney (other than a new and interesting acquaintance - we quite like our RE attorney).

I think one of the reasons we've been so successful is we've put together a very good team. We have three excellent home inspectors who also happen to be licensed engineers. We have an excellent team of real estate attorneys, expeditors, a well-known architect who specializes in Brooklyn brownstones, contractors have been more difficult to nail down though we do have a few we're comfortable working with.

Christian Bari who works with me, specializes in townhomes and brownstones. When we go on a showing we know what to look for, and simply whether or not this is a property worth pursuing and going to the next step with an engineer or passing. We've also identified a number of 'flippers' and the brokers who represent them, when we come across one of these listings we immediately alert the client they should just pass and why.

On our end we know what structures attached to brownstones tend to not be permitted or legal, we know when bedrooms that are below grade can't legally be considered or used as bedrooms. We always do a search through the department of buildings records to make sure that any extensive renovations were permitted, those permits were closed out. (That said your title company can do a deeper dive into the dob records and find things that won't be on the consumer facing website). Of course we're also going through our titlevest account and property shark for additional information we can share with our clients. Although they usually line up, don't be surprised if an open permit turns up from 14 years ago that wasn't on the dob's website.

So it's simply just about putting together a very good team and everybody working together towards a common cause. We've put together our process based on years of experience working with other brokers/agents that were unable to provide basic information, from not knowing the sublet policy, to bigger issues. A broker at a large firm recently marketed a property with three completely illegal bedrooms, in an otherwise beautifully renovated brownstone condo. In this case you were officially buying a one bedroom that was 2,800 square feet...
So we do our best to provide as much information about a property as we can to a client, and of course if George bought a brownstone with us for say 4M, you get a check from me for about 80k at closing, that can help with some incidentals. We're personally not living or dying deal to deal, especially since the client's rebate is typically bigger than my own commission. Although we don't do any advertising, we have a strong referral base and connections with some very large investment Banks and technology companies to provide a steady stream of clients. So we're never afraid to be critical of a property and tell somebody to walk away. We do about 40 to 50 plus deals a year between me and two assistants, so we are familiar with all sorts of situations that can arise.

The machine is what it is, you just need to find the right people to help you navigate it. Fortunately most people buying these expensive homes in New York City are quite educated, though the system may be Byzantine, it's not rocket science buying a property here.it's just when the barrier to entry into real estate sales is so low, you need to be very particular in your own due diligence while looking for a team to work with.

That said there are plenty of brokers especially some of the Brooklyn brownstone brokers who understand the products that they're selling, this is always very refreshing. A number of the better brokers live in the community and live in brownstones. My ex owns a brownstone, I learned quite a bit living in it, maintaining for about 12 years. I also learned quite a bit building my own vacation home in the Catskills, I literally built it.

I've also bought and sold property in States where the contract was a simple form with checked off boxes. However I think when you really dig into it you're opening yourself up to a lot more risk than you may think. But for the most part buying a single family home is a bit more straightforward, then maybe buying a 100-year-old brownstone or an apartment in a pre-war co-op building. I've recently bought and sold a few properties in Florida, and although I didn't need an attorney I did have an attorney look everything over and give his blessing.

Keith Burkhardt
TBG

Keith, I liked reading your long post. What is a ‘flipper’ and what’s wrong with them?

https://www.investopedia.com/terms/f/flipper.asp

I know what flipper is but don’t understand why one should steer clear of them? Don’t quality flippers exist who actually provide something of value? I’d happily pay a flipper $500k for a $350k renovation if it would spare me the considerable work/headache/time of renovating.

Some flippers are absolutely fine.they are essentially people who buy a house that needs work, renovates it and resells it. I think there are few shows on TV about flipping?

When parts of the Brooklyn Market started to open up, especially Bedford Stuyvesant, there were investors purchasing many of these homes, and many were in pretty severe disrepair from years of neglect. Think of the term 'lipstick on a pig', many of these renovations are strictly surface/cosmetic. Leaving in place outdated plumbing and electrical systems, sometimes even structural defects, and usually a lot of this work if not all of it has not been permitted. And most of it's been done in a shoddy fashion, with unskilled tradespeople. It won't always show up in the photographs, but upon an actual walkthrough you start to notice all the little things. The situation was much worse and prevalent about 8-10 years ago.

That said there are also some minor developers who purchase, renovate these homes and do a fabulous job. they do the renovation as if they were going to live in the house themselves, and they have very high standards.

I agree with Keith that simply knowing who the players are can save buyers a lot of time and the expense of paying for inspections/engineering reports where you know what's going to come up. And even what they may not find because the seller isn't going to let your engineer open up walls, roof, etc which is the only way to really examine some of this stuff.

I've also noticed some of the brokers I'll bet Keith is talking about sending out tons of email blasts trying to move some of these properties.

Main work in Townhouse reno is infrastructure (Plumbing, electrical, hvac), structural, reconfiguration to add bathrooms as needed, and windows. A good broker should be able to give their buyer an idea before calling inspection which is of course needed. I saw a very nicely renovated one in Bed Stuy for around $2.7mm.

Perhaps we should start a new thread on what does a townhouse Reno entail.

Thanks for the clarification, all.