The coming collapse/price cuts?

WSJ "Tale of Two Housing Markets" piece:

https://www.wsj.com/articles/home-prices-housing-market-trends-east-west-83c9eb56

***

The problem with return-to-office, Nada, is that it's too slow and it's not complete enough.

The January data we have* shows that only 9% of employees are in office five days a week.

If I'm part of the other 91% and I think my corporate masters are contemplating layoffs, sure, I'm going to get my tail into the office four days instead of three. That's important, and I personally believe it needs to happen for the long-term economic health of the city.

However, as long as there's some expectation that workers are producing *significant work product* when they're *not* in the office -- whether that's an attorney who is still WFH on Fridays or anybody with kids that's expected to be doing some work in the 8 pm - midnight slot, to cite the first two examples that pop to mind -- then those workers need a place in their apartments to put themselves and also their stuff -- their office supplies and their reference whatevers.

So part of the spectrum to RTO, as I see it in my limited glimpse of the elephant, is that RTO, described by percentage of utilization,* can rise for quite a while ... during which demand for home office space does not subside.

To use personal anecdata, everyone's favorite, I have a lovely office in Tribeca; I go into it sometimes, but I still stay home and type from couch often (*waving*) while shuttling around my apartment looking at the reference materials that I have here. And as a result, my co-op is still "too small" during the days that Mr. Front_Porch and I are both WFH and have Zooms at the same time.

ali r.
{upstairs realty}

*a commercial broker I work with -- she's wonderful, everybody holler if you need her -- uses both the Kastle Systems report and the Partnership for the City of New York data, not the just-launched REBNY data, when she talks about occupancy.The 9% figure cited above is PCNY.

I think RE & non-RE people are talking past each other at this point

RE - everyone else needs to get back to their offices & also WFH demand will still push residential RE up further from here

non-RE - see rents down & sales are frozen in own buildings / our firms have long since settled into hybrid steady state for 18 months and any move-backers did so at least a year ago. companies have invested in hoteling/hotdesk setups, reservation systems, etc.

Given the air has been taken out of tech compensation, now likely bank compensation, consulting compensation (actually doing layoffs).. and funds are not doing so hot.. it's hard to understand who the marginal buyer is to push up prices, especially at these mortgage rates.

And remember if rates do get cut in 2023, its going to be because the bottom has fallen out of the economy, so that's bearish not bullish.

Steve, What does the data I posted above say about rents? Are you saying in the last one month, the rents have come down as the data only covers Feb 23?

The market feels pretty normal for the most part. Our recent rentals in Brooklyn have all gone very quickly. The response to our latest sales listing has been very positive. Recently put two townhouses into contract, one of them fully executed today.

Pretty big comp. for a brownstone in Cobble Hill that we missed out on (we bid 400k over ask). I was told two competing high cash offers got into a mini bidding war on their own. Brownstone market remains strong in brownstone Brooklyn, especially for the best properties.

Certainly plenty of stuff sitting if not priced correctly, or just generally unappealing because of condition/location etc.

It certainly not gangbusters, but we're busy.

I'm just getting used to the new layout over at Urbandigs, the sales data looks good, not amazing, but certainly good.

What's really surprised me is the fact that interest rates have stayed in the high fives low sixes.

Bonus story: recently had a couple of families from the San Francisco area buy apartments for their kids / 'investment', a place to stay when in New York visiting. One of the referrals have been working with us for about 2 months. He called me today to say they were giving up on trying to find a place in Brooklyn, they're going to now start shopping in the Bay area.

Keith Burkhardt
TBG

Separately, forecast time for SE index Manhattan 7 month % change from 02/23 revised print (current print 1081687) to 09/23 first print. Picking 09/23 (appx June/July Sales) as it will capture peak season before the August slowdown. It looks every one will forecast down.

300, my comment about rents starting to their downtrend is about current rents rather than from a few months ago (which is what the SE index really reports due to lags & averaging). I could be wrong, but that’s the sense I have on it.

>> Black Monday was October 1987. Prices didn't move much till middle of 1989. Bottom didn't come until 1992.

I’ll also note that for those who look at real prices rather than nominal prices, Manhattan has still not found its bottom from the 2008 peak. The nominal bottom took around 2 years, with a 14% drop. But here we are in 2023, and on a real basis we’re still 11% lower than 2010. And likely dropping still for the time being…

Another phenomenon that makes any decline slow / muted is the fact that some people have been left flush from the mania-du-jour. A lot of people find RE to be the right place for them to park their gains, spend, etc. The timespan between the gain and the purchase of RE is not instantaneous.

Just curious how / why you correlate Black Monday 1987 to the decline in real estate? If I remember correctly the week of the crash the market recovered quite a bit, and within 2 years it went back to pre crash levels.

Did mortgage rates go up? Did the city lose a lot of jobs? Not debating that the real estate market declined, just curious why you peg it to 1987 Black Monday. Although I will say comparing 1987 New York City to 2023 is beyond apples and oranges.

"I'm just getting used to the new layout over at Urbandigs, the sales data looks good, not amazing, but certainly good."

March 2022 Contracts Signed:
Manhattan 1,513
Brooklyn: 1,010

Last month Contracts Signed:
Manhattan 1,001
Brooklyn 598

I heartily recommend walking around Midtown and talking to retail business owners regarding the office occupancy issue and their views on how the NYC economy is doing.

I think there is more than one Louis Rossman like story to be told (although we can see what happened to his YouTube view count).

>> Just curious how / why you correlate Black Monday 1987 to the decline in real estate?

I think this is a question for 30yrs, not me, right? It’s his statement. I was just making a comment of how long it can take to find a bottom.

Steve, I like your distinction between RE and non-RE ... I was not meaning to argue that it's not slow ... 30's posting of the UD volume numbers certainly speaks to that point.

But I did want to address Nada's point "that WFH will wane" -- I think that for a certain segment of workers -- many of whom post on this board -- fear of layoffs will chill them, but there are still lots and lots of employed people. Did I see a stat that 55% of the deals that are being done are cash at this point?

and those people fighting over the "good" inventory -- which there's not much of -- will support prices, which overall are probably on their way down, but my prediction is that isn't going to happen quickly.

The target apartment that would work well for my family is usually around $1.8mm, with an impaired version of it being $1.6mm; during High Covid we missed out on something that would have worked for $1.5mm, because it was the one piece of good inventory in the neighborhood and it was scrapped over; we lost to a buyer who was capable of moving faster.

I just recently saw something impaired that I think would have worked for us for $1.5ish. But I'm certainly not seeing any magical land where the apartments that were $1.8mm at 3% rates have come down 20% or more in price as rates have doubled, which is what economic theory indicates "should" have happened.

And I can't tell what's happening with rents; I just haven't been in the field there recently.

FP, do you think demand for WFH will be stronger or weaker over the next couple years compared to the past couple of years. That’s what I mean by “wane”.

I think that demand for WFH space WON'T wane -- I think it will stay level . I'm just trying to caution against *assuming* that it's waning if you are an observer looking at office-occupancy numbers and watching them go up, which I predict they will (though not, unfortunately, at a strong enough pace to help the city.)

So I'm predicting that the graph of office occupancy, past and future, looks something like a check mark, while WFH demand, past and future, (if we could tease it out and measure it, which as far as I know, we can't) starts out being a mirror image of office occupancy and then flatlines out, like a mesa.

@FP

I think you are right on the general chart shape for office occupancy & WFH demand for sure.
I do think the city needs to figure out how to manage its finances in a way that comports with how its residents actually want to live.

I don't think we should be cheering for white collar office workers giving up gains because the city can't adjust to the new normal or so our REITs go up.
City has been around 100s of years and the current model of white collar office workers in midtown towers driving the economy only goes back a few generations.
God forbid a few overextended CRE landlords go bankrupt.

I think some of the "get them back at their desks" vibes from the top comes from senior exec management who is uncomfortable seeing the masses of office workers have the flexibility they have always had. I crack up every time I think of that article on CEO DJ Solomon being upset when he bumped into a GS analyst in the Hamptons on a workday. Pot, kettle.

Right now depending on industry, there tends to be a range of hybrid-ness, with outliers in each direction. Employees can offer their services to the companies that more closely align with their preferences, or pay them to exceed their preferences. Free market for employment.

The last thing I want to see is state & city government trying to force collusion between industry participants in enforcing more and more draconian return-to-office, to make up for government inability to budget / paper over their CRE donors losses.

FP, if we go back a couple of years, office workers were largely dealing with 5 mandatory WFH days. Now they’re dealing with 2 optional WFH days. I figure the demand from the 5 mandatory WFH days era was higher. Now perhaps there’s some pent-up demand that was not met, but I figure that most people who were unable to pull the trigger at 3% rates under the demand of 5 mandatory WFH days are not gonna all of a sudden pull the trigger at 6% rates and 2 optional WFH days.

Sure the demand will be higher than 2019, but will it be higher than 2021? Doubtful.

>> Did I see a stat that 55% of the deals that are being done are cash at this point?

That does not surprise me. Like I said, some people came out flush at the end of an over-stimulated couple of years and have a penchant for spending. For whatever reason, forgoing the ability to accrue 6% interest on $1.8M does not quite feel the same to many people as paying $1.8M interest. But as the market works its way through the cash buyers willing to forgo 6%, will there be more flush cash buyers behind them? Or 6% interest-paying buyers?

Re: dearth of "good" inventory

Back in 1986 Rochelle Bass would walk into the Bellmarc Greenwich Village office daily and loudly pronounce "There are NO 2 bedrooms in The Village!" while selling 2 of them a month. And that kind of sentiment hasn't changed through up and down markets in over 35 years.

What most agents/brokers mean is the market is relatively efficient and they aren't being served up bargains to easily sell. I think a LOT of agents are going to be surprised at actually having to understand Real Estate soon and not going to get away with "marketing" because buyers are going to make more informed decisions.

Tonight I had a dinner at the Cornell Club. So beforehand I walked around the Herald Square / Briant Park area and spoke to over 30 kiosk operators asking them how they thought return to office was going and how their business was. I simply gave them a binary choice of businesses is good or business is bad. Only five said business was good.

I can also tell you at all the Asian massage places have raised their prices to keep up with inflation, but at the same time are crying about lack of business.

>> because buyers are going to make more informed decisions

Ever the optimist!

>> And I can't tell what's happening with rents; I just haven't been in the field there recently.

Maybe you should consider looking? $1.5M at 6%, plus $3K monthlies, puts in the realm of blowing $10K/mo on housing. The options for blowing that kind of money on rent look a lot more appealing than what you can buy for $1.5M. A quick browse found this asking $11K:

https://streeteasy.com/building/the-alden/801

With a buy comp a couple floors higher in newer condition asking $5M (at least $1M too much IMO, but whatever) plus $4.5K monthlies:

https://streeteasy.com/building/the-alden/1001

I don’t know your preferences & finances, but isn’t it worthwhile to at least track it?

I think the problem for a lot of people with this rental, although I do think it looks very nice and the pricing is very compelling. It's in a co-op, and that will mean a very limited sublease. Not ideal for those with children.

We've taken on quite a few rentals, Currently have a $7,500 four bedroom two bath in Brooklyn across from the museum. I think we already have 10 appointments scheduled for the first open house on Sunday, and they're still coming in.

We also just rented out a brownstone in Park Slope, very nice! 13,000 a month for a 28 month lease with no increases.

We had another rental last week, $6500, we had four applications after the first open house. Glad we have expanded into rentals!

And of course we save you money with our rental commission structure.

Keith Burkhardt
TBG

It’s always something…

How about this one? Seems like a cash investor looking for a nice family to occupy long-term:

https://streeteasy.com/building/the-westly/14c

https://streeteasy.com/sale/1615608

$10.5K ask on new dev that just sold for $3.225M with $3.5K monthlies (which I’m guessing is under-set like all new dev). Better than Keith’s offer, the only commission I’ll charge is that you’ll have to host me on occasion at the rooftop pool.

Too flashy & small? How about a sprawling 2800 sq ft asking $12K? I don’t think river views count as flashy.

https://streeteasy.com/building/280-riverside-drive-new_york/4a

This is a rental building, and the last time it was on the market (publicly) was in 2009. So I think they’ll be fine with long-term tenants.

Point being, try finding anything like these in the $1.5M-$1.8M range.

Why do you think people buy versus rent? Especially if there are less expensive rental options available. Ali?

Some of the things I hear, just not enough good quality long-term rental inventory in the neighborhoods that some of my clients want to live in. These are people that won't consider a sublet in a co-op or a condo, too unpredictable.

Just an FYI, Nada has been kind enough to list these rentals for you, the actual listing agents may want to collect a commission from an incoming tenant.

Keith, with all due respect, I don’t give a rat’s ass about your clients. I’m just showing my friend some alternatives for her consideration, from a market she doesn’t follow. These might not work for Ali, but it’s up to her to explain (or not).

I don’t understand why you get so worked up anytime I show alternatives on how people can spend on housing. The lady doth protest too much, methinks…

I can assure you I'm not worked up at all. Not sure why you think that? I didn't realize you were having a one-on-one conversation here, I was just participating in the thread.

And as I've said many times I'm not in the business of telling people whether or not they should buy or rent. And to paraphrase you I don't give a rat's ass which they choose
; )

Keith, I was just giving you a light ribbing. Ali seems a bit frustrated by her purchase options, so I suggested she consider other options. But then I get this:

>> Why do you think people buy versus rent?

Who cares what I think? If I knew what was going on in Ali’s head, I wouldn’t be engaging in this conversation with her. I’m interested in what _she_ thinks, not what _I_ think she thinks. If your clients were here to discuss specific choices, I’d love to hear what they think too.

Just to be clear the question wasn't directed just at you but the other six or seven people participating here : )

And personally I think all the rental choices that you listed here are very nice, and could be a good fit for the right person. I'm surprised he last one on Riverside hasn't rented yet!

inonada,
Stop poking the permabulls.
They'll just bore you with rhetoric/dogma.
Oops I misspelled gore.

What is this fantasy that you have conjured up in your mind about perma bulls? Nothing I said was bullish. This is a discussion about why people buy and some people choose to rent.

Curious why Ali decided to buy instead of renting, when NADA has pointed out the financial differences between both. Namely that you can rent 1.5 million home for less money then you can buy it. I'm curious what the motivation is, I've pointed out a few things I've heard from buyers.

Let me say this David loud and clear, real estate markets go up and down like all markets. And buying is not only a financial but an emotional decision that grown ups make for themselves.

This is the usual " I never make any recommendations about anything" while giving opinions about what to do about anything. Like telling us all sorts of things which are going on in New York from your Florida bunker.

Keith,
You can pretend all you want making umpteen posts about how great adjustable rates have been over the past few years and insinuating that people should buy because of that and then still claim it wasn't the recommendation. But I don't think anyone's buying that BS.

Or even fixed rates in general.

But please tell us again how great the market in Brooklyn is doing with a 40% drop in contract signed this month YOY.

I also find it funny how offended you and 300 get when I call you out on anything considering the vast amount of personal attacks the two of you have made on me over the years.

Please respond by telling me about all the stuff I posted here in 2008 again.

You're blowing a lot of BS David, it's such a distortion of what I've ever said, from rates, to the Brooklyn market. I'm not even going to bother defending my actual comments, since they're here for everybody to read. It's hardly worth getting upset over a real estate forum with maybe a dozen people on it.

Vast amount of Personal attacks that I've made on you??? For the most part I ignore you, I really just can't be bothered. You made a comment referring to me as a perma bull, which is pure BS. Honestly I've got better things to do with my time then get into arguments on social media.

Keith Burkhardt
TBG

I made a comment about permabulls. I guess a guilty conscience needs no accuser.

"It's hardly worth getting upset over a real estate forum with maybe a dozen people on it."

Obviously you've found our forum because you've posted on it:
https://www.urbandigs.com/forum/index.php?forums/real-estate-discussions.2/

Perhaps it's the 9,363 members, the 5,990 messages or the almost 30,000 views on our most active thread you find so attractive.

OK, let's breathe, everyone.

Nada, thank you for giving me some rental options, they look beautiful.

Keith, while I'm sure many people on this thread appreciate your commission model, it's not the only dimension of real estate service -- the fact that I still have happy clients under a different model speaks to that -- and you don't need to point out to me, who has been a key sherpa for more than a decade, that if I were to take a listed rental I might owe brokerage fees. That said, I'm happy for you that you're having a busy Sunday showing. I'll probably have my head buried in doing some careful zoning research for a potential buyer, so I'm jealous.

30, I am very impressed with the way you grew the UD Forum. That must have been a lot of hard work. Please say hi to Noah for me.

Can we talk about the Mets now?

ali r.
{upstairs realty}

Screw the Mets, we wanna fight!!!!!

>> I'm surprised he last one on Riverside hasn't rented yet!

Yeah, it’s a nice option for a family. 3 nice-sized bedrooms, another small one (office?), plus a maid’s room (another office?), plus formal separated dining & living rooms, plus a separated entry foyer. That’s a lot of apt, on a very pleasant location with views into the park.

I kinda look at the $1.8M options at 6%, “impaired” or not, and am left extremely underwhelmed in comparison.

Ali, for conversation’s sake, can you post an example of a $1.8M target apt and/or an impaired version? Maybe I’m looking at the wrong things.

>> I think the problem for a lot of people with this rental, although I do think it looks very nice and the pricing is very compelling. It's in a co-op, and that will mean a very limited sublease. Not ideal for those with children.

If you had actually bothered looking at the listing rather than dismissing it quickly, you’d have seen it’s been rented out since 2013:

https://streeteasy.com/building/the-alden/801

A casual browse of other rentals in the building reveals a similar story.

Emory Roth / Bing & Bing apt with direct Central Park views, no fee, arbitrary rental term. No love….

>> Namely that you can rent 1.5 million home for less money then you can buy it. I'm curious what the motivation is, I've pointed out a few things I've heard from buyers.

To be clear, my suggestion was not to rent a $1.5M apt rather than buying one. Rather, when faced with “scrapping” over $1.8M apts and “impaired” versions of it, why not consider renting a $3-4M instead? I’m not trying to save Ali money, I’m suggesting she consider an alternative that takes her out of the rat race she seems to be stuck in.

Ali

So the Mets former ownership used to range in the $5mm to $5.8mm per square player ($130-$150mm payroll / 26 man roster) and now averages $13/14mm per square player

While the higher cost doesnt guarantee greater views of a trophy case, it does give them greater access to the neighborhood and it greatly raises it's interest rate.

On a serious note, I have mixed feelings about whats going on. I always wanted an owner that focused on a blend of homegrown players and being in "true" contention to sign the one or two top free agents in any year. In addition, being able to retain any homegrown player reaching free agency.

Right now we're kind of like the Yankees I used to hate, trying to buy an all star at every position.

Im hoping this is just a honeymoon phase and an effort to instantly put the team in contention, and the future focus will lean heavier towards player development.

"I'll probably have my head buried in doing some careful zoning research for a potential buyer"

Oh, so that's the type of stuff you get when you don't use a discount Real Estate Waiter to place your order.

truthskr10,
People need to pay more attention to the Real Estate play around the stadium. Willets Point was an amazing bastion of small business until Mayor "We Only Care About Billionaires" Bloomberg liquidated the ghetto to hand it over to his billionaire pals. Building the new stadium they "needed" 50 acres of parking so they used eminent domain FOR THE BENEFIT OF A BILLIONAIRE (just like for Barley's Center) so they kicked out hundreds of vital small business owners. Now that they got that, the new claim is that all that parking is a waste so Cohen should be allowed to build a Casino on public land.

Not dissimilar to Hudson Yards where the City gave billions in subsidies. Various things like a school, affordable housing, parks were promised in return. But the public benefits were allowed to be put off for Phase II - the Western portion. Plans for that - which were claimed would be completed by 2024 - are now on hold indefinitely. But what are we seeing? A proposal to build a Casino there instead.

>> Oh, so that's the type of stuff you get when you don't use a discount Real Estate Waiter to place your order.

Not to indicate that FP would be anything but completely ethical in her work, doesn't this create even more conflict-of-interest? A buyer's broker is incentivized to get a deal done, meaning they will promote a purchase even when it may not be in the buyer's interest. You get worked up about this on the financial side: a broker is incentivized to paint a rosy picture of the financial wisdom of a purchase. But isn't this sort of work the same thing, but another level? Maybe the broker tells the buyer they've studied the zoning, and everything's fine, but can the buyer really trust the broker? Maybe the broker just wants to get the deal done and glosses over the fine print.

This makes me think the following. Perhaps people like the buyer's broker rebate model for the following reason. All brokers are financially incentivized for you to buy. It doesn't matter if you have one (seller's) or two (seller's and buyer's). Given the incentives, you better not believe anything they say. Really, you'd rather have one (the seller's), just pay them the 2-3%, and ignore everything they say. You can't really do that, so in steps Keith as a mechanism for paying the seller's broker 2-3%. Keith charges 0.x% for this service, and you simply ignore everything either of them say.

This still leaves room for someone to provide the service of independent advice. Rather than constantly cast aspersions on Keith, perhaps you should consider adding your value to the ecosystem. For example, charge an hourly fee as a real estate advisor. You get paid whether or not a deal happens, meaning you're not incentivized either way. You can then happily advise on what a POS properties are from various aspects. Should one make it past your filters, or at least the buyers tire and simply accept the one you've given the imprimatur of "This is the least POS out of the dozen options you've brought me", they buy through Keith.

Of course, one can accuse you of being incentivized of calling everything a POS forever, raking in more hourly fees constantly. But people that's all you're doing, people will tire of paying you, and you'll receive no referrals. I.e., that keeps you honest in your advice.

https://www.reuters.com/legal/us-real-estate-brokerages-must-face-home-sellers-class-action-over-commissions-2023-03-29/

I absolutely agree with ignoring everything Keith says though.

Especially when he claims he did due diligence on a loft on East 6th Street and didn't even realize that the co-op was getting substantial revenue because they owned the store space.

But it also sounds like you're trying to say that since attorneys, accountants and doctors have all been convicted of malpractice, we should stop listening to the professional advice that any of them have to give. It's kind of endemic in this forum for people to act like there's no such thing as real expertise and that all real estate brokers are absolutely the same. Now if you really believe that that of course you going to go for the cheap one.

You could also buy "designer" handbags and Rolexes on Canal Street and then complain that they're no good. I think it's kind of a cheap cop out from doing some research and getting the real thing. "They're all the same" is lazy - Is everyone in your profession equal?

You have not read / understood what I wrote. The issue is not about a lack or non-existence of expertise. It’s about the financial incentives. If I’m contemplating getting into X, and I pay the attorney by the hour to advise, great. They have no horse in the race. If they only get paid if I do X, then they have a horse in the race. I find another attorney.

Not that I work with financial advisors, but I would never use or recommend one who got paid on commission. I’d go with the ones you pay hourly.

Currently, there’s no way to pay for real estate advice in a way that is not tied to closing a transaction. That is a problem & opportunity at the same time.

Have you read the various articles about the current lawsuits against NAR, etc? The commission model will likely be changing. And some of us have been working on fixed fee, hourly billing, etc billing for quite some time. But generally speaking that only works with professionals, institutions, etc it's the retail consumers who refuse that model. Especially buyers because they think Buyers Brokers are "free."

I can't wait to see these the lawsuits be successful and the looks on their faces when buyers are told the need to start compensating their own agents. It's going to be bedlam. We are going to see tons of buyers trying to go "no agent" and the past 2 decades of Dept of State insisting on there being 2 agents on every transaction will unravel.

But to be clear this is what I've been complaining about for a long time. Most agents don't even know what fiduciary duty is. We see a bunch right here disclaiming any responsibilities with disingenuous statements like "I don't tell anyone they should buy or what to buy." It's another cheap copout for giving the proper guidance to buyers in order to get more deals done.

But if you think we are all like that you're dead wrong. Example: I have known for almost 40 years had her sister and brother-in-law call me because they wanted to buy their newly graduated daughter an apartment in Manhattan. They had seen an HDFC co-op on West 24th Street at an attractive price and maintenance. I could have simply given them comps and done the deal but instead I educated them on the issues with HDFC co-ops were and they ended up buying nothing, she rented instead, even though that was totally against my personal financial interests. This is why I object so much when you try and lump us all together because there actually are some of us who do the right thing.

Just to remind everyone I have been certified by the Bankruptcy Court of the United States, Southern District of New York as "An Expert in the Practice of Real Estate in New York." I challenge you to find another with that designation. And that work is based on hourly rate (often with performance bonus).

There has been an unfortunate tendency on this forum for posters to celebrate and defend the worst broker behavior. For example, there was a unit on 57th Street where reality TV stars made the claim that they had sold the unit. When all I did was point out that those shows are fiction and the agents were spewing bullshit I got attacked as a "loser" for simply pointing out flat facts.

30, I don’t lump brokers all together. I believe some are knowledgeable while others are not. I believe some do the right thing while others do not. I’m simply pointing out that the commission structure broadly creates a misalignment of incentives across the industry.

I also think it wrong / problematic when you receive no compensation for your work in advising someone not to make a purchase, like in your example. As things stand, there is no way to both pay someone for work & advice AND not buy anything.

People pay lawyers $1000/hour all the time to receive advice of the from “Don’t do X.” Why not you? I understand that’s not going to happen with a $200K HDFC client. But the higher-end you go, the more receptive the audience will be IMO. But I don’t actually know, just sharing a thought.

I’ve just never seen anyone hanging out their shingle as “Pay me $1000/hour for work & advice, and should you buy, I’ll rebate 100% of the buyer’s commission”.

I'm actually in the middle of that right now except it's a lump sum and " should you sell."

It's much more difficult on the buy side because as I said above buyers currently think buyer's brokers are "free." So how do you convince them to pay anything? If the lawsuits I mentioned are successful and buyers will be forced to compensate their brokers directly under some model then your suggestion stands a chance.

The thing that has worked several times in the past was scouting foreclosure auctions for buyers and getting a lump sum success fee. Because there is no sellers broker or commission to begin with.

>> It's much more difficult on the buy side because as I said above buyers currently think buyer's brokers are "free." So how do you convince them to pay anything?

If they buy, you rebate the full buy-side commission. Not everyone will understand it, but perhaps enough would. The buyer is the only one bringing cash to the transaction, they’re paying for everything anyways. The potential buyer pays hourly for the work in lieu of the 2-3% transaction fee coming out of their pocket. Honestly, I don’t think your skills & advice would make sense to people who don’t get that and think buyer’s brokers are “free”.

There’s a saying: you get what you pay for. Some people may be willing to pay for unvarnished research & advice. As it stands, one can only pay for a transaction and hope to get unvarnished advice along the way.

Ok Nada, if you buy and you want to use me, I'll charge you $1000 / hr for advice and rebate the buyer's brokerage fee. Problem solved.

The trouble with that model in general, though, is that there are some tasks where the buyer's perception of "how long it should take" and the experienced broker's perception of "how long it takes" are quite divergent.

If I have a particularly complex board package, I'll take a week to do it. Nobody would want to pay me $30K directly to do a board package, even though there are lots and lots of buyers who feel like they're ok paying $500 for one -- but then they yell the loudest if they pull a turndown.

ali r.

Well, the problem with your proposition is that I’m neither a buyer nor are you displeased with the current brokerage ecosystem!

I hear you on clients thinking it should take less time than it actually takes. I don’t imagine your typical client being the target audience for the hourly advisor model.

Those lawsuits are excellent news, thanks for sharing. 

I think the problem debated here needs to be separated into transaction service and something like investment advice. The two are quite different. 
Opening doors and showing houses/apartments, then opening the door, doing the same for home inspector, filling out some standard paperwork are all transaction services. These can be covered by some flat success fee and almost all agents are capable in this department. These agents should be prohibited from dispensing their “investment advice”.

Figuring out zoning, curating board packages, advising on market timing and buying vs renting etc should be separate. Most agents aren't capable of this anyway. So those that are and are not should not be lumped together. 

By the way $1000 per hour is not a fee that most people pay to lawyers. A corporation may pay that, or a very rich person, but majority of lawyers advising regular people charge far less. 

My experience with realtors outside of NYC was a lot more pleasant by the way. NYC is full of agents that want to get astronomical commissions for doing no work and despite being completely incompetent. To my surprise, this is totally different in other states.

Let's take Arizona. My agent advised on advantages of various neighborhoods and local preferences, and provided sales and rental comps for each house. She drafted the contract when it was time to make an offer, including advice on contingencies and bidding strategies (while leaving the actual numbers to me). There was no lawyer involved in the transaction - AZ realtors handle all the relevant legal aspects. Once in contract, she opened doors for an inspector and an appraiser, and then stopped by the house a few times to make sure the seller the few things that were agreed to in the contract. After the remote closing she picked up and delivered to me the keys. When I asked her about cap rates, she said this is a question I need to figure out for myself and she cannot advise me on anything related to this, though she can provide inputs. In the end she rebated about 20% of commission on a purchase that was valued close to US average house price (so a lot lower than in NYC).

Let's take sellers agent for a studio in my building. He lied (or is ignorant) about a few features in the apartment and whether or not they were to code, did not know that a comparable apartment in the same line in the building sold for 100k less than list price, and when I mentioned the interest rate environment, he said mortgage rates should not have anything to do with apartment values. Also, he yelled at me that when I suggested that since I am not using a buyer broker he could perhaps reduce his commission from 6% to 4% to make the deal work for the seller who has had this apartment listed on the market for about 12 months. The seller agent said that no reputable broker would do that, especially not his firm, Douglas Elliman. (Note that when we purchased our current apartment, the seller agent was also from Douglas Elliman, and she reduced the commission from 6% to 4% without us even asking, so again, he is LYING).
The studio apartment is in bad condition and is listed for more than the newish 4br Arizona house.

>> Opening doors and showing houses/apartments, then opening the door, doing the same for home inspector, filling out some standard paperwork are all transaction services.

A listing agent seems perfectly capable of doing this for a buyer. I’m not sure why I’d care to pay for these services. And I’d kinda need the person dispensing advice to actually see the listings.

>> By the way $1000 per hour is not a fee that most people pay to lawyers.

I dunno, I’m staring at a rate sheet of some local RE firm. They’re fine lawyers, but this is not exactly an Ivy league white shoe law firm. From the emails they send about various recent rulings, they engage in plenty of salt-of-the-earth work. Rates start at ~$300 for first-years to ~$900 for the big-dogs. Sometimes a first-year is fine, sometimes you want the big-dog. Sometimes you have a matter that needs the big-dog at a white shoe firm and have to pony up $1200. Honestly, a scale of 4x between the greenest and the best in a profession is not that high.

Krolik, on the studio, why didn’t you just use Keith or someone equivalent? Getting your 2% back that way seems less painful than trying to bring religion to the RE world.

Random post providing discreet data points: There are four apartments for sale in my building, all owned by Master-of-the-Universe- Wanna-Be's ranging in age from 35-70 (read Finance Bros young and old). Two have been trying to sell their apartments off-and-on for 4.5 years now, and the other two for about a year (a fifth one took his off after a six-month listing). Why won't these types just let their apartments go for what the market will bear? It just gets worse for them as time goes on. Hold periods range from 9-20 years. All but one are looking at loss of capital. Some in the building think they might be trying to organize to liberalize rental policy, but honestly, I can't imagine with the $$ to pay rent equal to even the carrying costs of these apartments would choose our building. What is up with these guys? Is it just ego that they don't want their colleagues to see how bad they are at their chosen profession?

*discrete

One more bizarre notes: One of the four is showing "under contract" with a "DEAL FELL THROUGH" opening the description. According to the Managing Agent and a board member, there is no current buyer for the apt in question nor has there ever been. Is this some sort of weird real estate agent marketing ploy?

Final thought: I have been checked-out of NYC RE discussion and analysis for quite some time now, but each time I have focused on the topic over the past 14 years, my conclusion has always been the same: Individuals would be far better served by viewing purchase of NYC real estate as consumption rather than investment.

Krolik,
Perhaps I've been less than clear but many of the issues you pointed out are what I've been posting out for years.

inonada,
It seems like your point is "try to pay the least possible for incompetent service." But some people don't want incompetent service and competent service is clearly available. How does saving 2% on buy side commission trump saving potential disaster which can translate into significantly more in time and $. Seems pennywise and pound foolish.

Here is a not directly congruent example:
I just closed on a house out in Richmond Hill which was a contentious estate sale. I represented the sibling living in the house. The other siblings were receiving no benefit so they wanted the house sold. We put the house on the market for and attractive price hoping bidding would yield more.

I never even got to show the house. Bids started coming in over asking. My estimate is that we would have ended up between $825k and $850k. But the siblings wouldn't even respond to the offers. Instead they started a partition action. They consulted a broker who "guaranteed" them he could get $900k.

The house ended up on the market for $900k at the end of September 2022. We just closed for $770k. Again it's not directly comparable but saving 2% would have been $15,400. Bad broker advice was $55,000 to $80,000.

{waves at MCR}

When buyers need to start compensating brokers directly I think a fixed fee model makes more sense. I am happy to discuss my existing fee schedule with those who wish to use me in this capacity. But it's more than 1% because generally speaking you can't provide competent service at that level and you don't get it.

Krolik,
How would you feel about vastly increasing the requirements to become a licensed agent/broker in New York State?

In Arizona agents need a 6 hour contract writing course included.

But the biggest reason NYC agents don't write contracts like just about everywhere else is that attorneys want to generate more fees. The closing I did this week had some incredibly bad attorneys, and they were all Real Estate attorneys. It was like they never did a single closing before. There were a lot of issues but the most comical was when the seller's attorney's paralegal kept insisting that they hadn't generated a contract when it had been sent to the buyer's attorney and already signed by the buyer.

I'll also note that back when we had open listings there were frequently creative commission structures used. When exclusive listings came along, listing agreements were codified and put in writing, multiple agents involved (at the insistence of Dept of State) that's when agents began their hard line stances, etc

So as I've said before, the actions promoted by Broker's associations and our government, however well intentioned they might have been, have actually led to this inflexible environment and the current commission lawsuits.

Remember when no one had an exclusive you only got paid if you actually did a deal. To some extent exclusive listings are anti-competitive.

>>>"Krolik,
How would you feel about vastly increasing the requirements to become a licensed agent/broker in New York State?"

Very supportive. % commission in New York is the same, the $ value of commission is a lot higher, but the service is much more limited. Therefore, I think what goes on in New York is ridiculous, while rest of the country has this figured out. In New York, buyer agent answer to any question is "your attorney will do diligence once you have an accepted contract". ?!?!!?! (I typically want most of diligence done before I decide whether to make an offer.)
Also, brokers in other states sent me legible contracts via docusign, while every real estate lawyer in New York that I dealt with sent me the same photocopy of a photocopy of a photocopy of a photocopy of a contract from the 90's with few hand-written scribbles, including contract price and any clauses removed or added. I have not seen anything more unprofessional. The contract is practically illegible.

>>>"Krolik, on the studio, why didn’t you just use Keith or someone equivalent? Getting your 2% back that way seems less painful than trying to bring religion to the RE world."

1) Keith does not offer services below a certain price point, and this one would definitely be below the cut off.
2) Convenience. You do have to have the discount broker show up to appointments and handle communication (or else listing agents don't want to share the commission). That means no sporadic showings even for listings in my building, and a lot more scheduling headaches. It is easier to have fewer people involved if seller broker can simply reduce commission.

Normally seller broker makes 3%, but when there is no buyer broker, they often agree to reduce commission, usually from 6% to 4%, which is still 33% better for them than having another broker on the transaction. Some agents get greedy though and want the full 6%. And you have to go through them to buy, since they have the exclusive listing.

inonada, most RE lawyers in NYC offer services in exchange for a flat success fee. The fee is typically between $2000 and $4000 (and sometimes includes a lesser flat fee for an unsuccessful transaction). Attorneys do not go to see the property, the contracts are fairly standard, so its not a ton of work for the money (although they do have to go to the closing). The attorney I used on my last transaction upcharged me about $150 for each hour he spent above X hours allocated to the transaction, which I thought was fair.

In addition to contracts, attorneys also read building financial statements and ask management few due diligence questions. Again, this in my opinion is better handled by the commercial side. Attorneys, while not completely incompetent, really are not experts in financial statements. If there are detailed questions on zoning or property taxes, a decent attorneys know where to look for answers, although unless they are paid per hour, they might just send you a link to the website and tell you to look for answers yourself.

Basically, I think you could have 30yr look, or Ali, or an attorney provide this exact service. But in my personal opinion, it is really something that is best handled by realtors (if they were competent) as in other states. NYC set up makes very little sense to me and creates some very lazy RE brokers whose answer to every question is "your attorney will do the diligence".

>>> inonada: "A listing agent seems perfectly capable of doing this for a buyer. I’m not sure why I’d care to pay for these services. And I’d kinda need the person dispensing advice to actually see the listings."

1) Outside of New York city, listing agent rarely even comes to showings, the house is empty when buyer and buyer agent arrive. Buyer agent arranges all appointments, obtains keys, and takes buyer on a tour of a few houses that the buyer is interested in. If listing agents were doing the showings, the buyer would have to communicate with each listing agent separately and make the schedule, which would be an extra hassle.

2) You need buyer agent to draft the contract from your side, advise on bidding strategies, and advise on typical clauses, deal sweeteners, etc. If seller agrees to fix any issues, buyer agent can go to the house and confirm this has been done. These are all transaction services that cannot be done by the listing agent for the buyer.

3) Board packages are in transaction services category as well, although I don't see issues with listing agent helping with a board package, as there is no conflict of interest at that point.

If you'd like to know whether a certain house is a good deal, whether it is better to buy/sell or to rent, or zoning questions, I think these questions are not properly handled by most RE agents.

30yrs, I’m all for paying for competent advice. I was just pointing out that no one offers a way to pay for, or makes a business around, advice ending up at “Don’t by any of these POS’s”. Maybe there’s no market for that, I dunno.

Krolik, thanks for sharing your thoughts & experiences.

A lot of NYC attorneys don't do thorough due diligence because it doesn't make economic sense.

MCR, on your neighbors not selling at a market price, go look up “loss aversion”. More often than not, I’ve noticed this sort of behavior from “finance bros” (as you call it) in the midst of a career setback, likely an (effectively) career-ending one. Some people handle such setbacks with a level head, some people behave erratically.

My best guess is that people just need a mental “win”. The “victory” can be pyrrhic and make no economic sense, but they need it nevertheless. Finance bros groom themselves from childhood, viewing themselves as machers with a sure-headed swagger. But finance is a tough gig, and markets don’t give a rat’s ass about your swagger and if you were “born for this”. That can be a tough pill to swallow.

In one of my old buildings, one such person had an apt listed for 4 years, originally asking 20% more than the purchase price. It finally sold earlier this year. The original purchase included tax (new dev), so the 8-figure sale price was not round. But it was $5,XXX away from a round number. The sale price was that round number plus $5,000 but missing the additional $XXX.

I can only imagine the negotiation. Buyer bids something. Seller insists that he will not accept anything less than purchase price. Buyer says “Fine!” and bids the round number. Seller insists on the additional $5,XXX. Buyer says “Fine, here’s the additional $5,000 you miserable prick, on an 8-figure sale!” Seller says “No, you need to come up $XXX”. Buyer balks “No way I’m not getting a lower price than you paid”. Seller says “Fine, deal’s off”. Brokers, shaking their heads, insist that if they kick in $1000 to the seller, they’ll both “win”: seller will have sold it for more than he paid, buyer will have bought it for less than seller paid. Buyer & seller begrudgingly acquiesce.

Meanwhile, the real macher in the building sold one unit 22% below ask and 16% below purchase price after 6 months on the market. The market spoke; he listened and moved on with life. He’ll also have no problem dumping the trophy unit at what I guess will be 25% below his cost, if a willing buyer shows up.

@inonada - yes, the loss aversion has to be the explanation. I just have to leave any conversation where I hear these types pontificate given their obvious mediocrity. One who had a lot to say during the 2019 coup in our building has had to eat his words and has the had the good sense to just stay quiet. Rumor has it that he might have a buyer at 72% of what he paid for his place 9 years ago. Here's to hoping he takes it and just goes away. Another has lowered asking price to 90% of what he purchased it for over 10 years ago; while I don't think that will be enough, at least it is a start. All just painful to watch, but at least I am watching from a distance. None of them live in the building anymore; fine by me if the apartments just sit there vacant. I also have no problem with their renting them out as long as the building takes a healthy cut.

@30yrs - hi!

BTW when an attorney sends you the umpteenth copy of a standard Blumberg contract, they're kind of steeling from Blumberg.

More on the giveaway to Cohen:
https://therealdeal.com/new-york/2023/03/23/state-legislation-could-buoy-redevelopment-around-citi-field/

Apartments for sale in my Harlem building are just sitting right now. Our tenant just renewed the lease at a 12% increase (they were coming off a 2 year lease). Got free pricing advice from our old realtor who we’ve used for 13 years and lives in the neighborhood. Very hard to predict the future of rents or sales prices.
Haven’t posted in a while. What’s with all the venom towards Keith?

How come only 12%? I think I have a vague memory that you got a pretty good 2021 rent, as in not down terribly from pre-COVID, so is that it? OTOH, one of my previous apts just got rented after cutting to within 4% of late 2020 asking rent (which was itself down ~20% from 2014).

Sales at the top end seem super-frozen. Out of dozens of listings I’m casually tracking, not a single one has gone into contract for at least a month. Like watching paint dry. Some chopping off prices, some pulling off listings, some conversions to rent, but no sales.

The venom toward Keith is uncalled for. It’s one thing to engage in healthy debate, but there is no need to question the sincerity and integrity of people expressing their opinions here. Keith, if you felt attacked by what I was intending as “a light ribbing”, I apologize.

There was an absolutely ludicrous personal attack on me which rather than clarifying, Keith piled on and then refused to answer questions about the actual facts. So I have no remorse about returning the favor.

Hi Inonada
Current rent is about 3% above pre-Covid rate. Our agent thought the market price would be several hundred more but we have great tenants who pay in time by ACH every month. Avoiding a broker fee and a possible empty apartment is worth several thousand to us. Our agent agreed.

harlembuyer,
Sounds like you made the right move. My mother-in-law has a unit in the East Village where they have to send the tenant a renewal imminently and my advice was to accept a few hundred a month less than market to keep the current tenant.

Thanks, harlembuyer. That makes sense.

The year over year drop in Contracts Signed for April is pretty extreme. But the usual suspects are still soft pedaling it.