What kind of discount should I expect by cutting out the Broker?

1. I would never hold myself out as a professional in contract law. There is zero chance you are going to buy this apt without overpaying. SE posters assume you are savvy. Rule #1 of SE posters..Thou shall not overpay, make the bitch suffer! So. What will happen, is that the owner will tell you to fuck off on your bid, list with an agent, 6 months later owner will say, hey renter, you still want to buy this place?......However, something I have seen and been a party to is the following. Tell the owner to put in BOLD LETTERS in his listing agreement that if a tenant in his building is the purchaser that commission will be a flat $5,000 or 1% or whatever you want. This will prevent any future headaches with the dregs. Broker will definitely agree to the language.

Patient09, I think what you just described is a 'carve-out' in contract speak. You can also ask your landlord to give you right of first refusal if he gets a serious offer. But first, do your research, know what comps have gone for (any in your own building?), and then offer a number under comps when you make an offer. Be prepared for him to say no and stick to your guns.

I think the apartment would be marketed at $1M. I guess my question is how much I should offer as reasonable considering the expense and hassle the landlord would be spared? Does anyone know how much brokers charge in such a transaction? If I make him an offer and he jumps at it, I will always be wondering if I overpaid. I just don't want to start to high.

Brokers charge 6%. SO you can discount 60%.

aptnyc: One other point before another glass of wine and can't type. July '09 is light years away, current market vs July will be like comparing East Hampton to the Berkshires. The sexy way to do this is let time drag. Talk, but drag it out, instead of talking this Friday, make it next, be friendly. But let it drag on, you don't even wan't to talk price till May or so...its all gravy after that. good night..

he really cant charge you a significantly less amount than he would pay a broker on the sale price bc the co op board wants the building to appraise properly etc

you should talk to a broker anyway bc it may be a good deal within the building but there are tons of deals out there right now- buyers who dont have guidance from brokers really usually end up overpaying- he is correct he will save on a brokerage commission but there may be a comparable building or space that is priced better- etc.. you have to go by what the market feeds off of- also he may give you a fact like something just closed in dec for 1.1M and it is the same as his- but then you have to look at well when did it go into contract.

if that was before bernie madoff and lehman , etc- and the buyer got board aprooval and made it an all cash offer- than just bc it closed recently it is NOT a good comparable...

6% will not make or break a coop decision.

jlnyc50: "Buyers who dont have guidance from brokers really usually end up overpaying"

Is there any evidence to support that statement? Seriously - if it's true, I'd like to know.

yep- when u go directly to a broker with a listing without a buyers broker u dont always know what else is availabe in the building- temporarily off the market, etc- its like putting 1million into the atm and not going to the teller for that extra assurance..as an example- email me if you want exact examples i will gladly tell u

I think you need to think carefully about how well you KNOW the market for your apartment. Your margin of error in your decision without any third parties taking a look and putting in their own bids is slim - let's go with a 6% brokerage commission. So, presumably your room is up to 6%, but the closer you get to taking the full 6% to your side, the less incentive the seller has, so let's say that you settle on 3% savings on both sides. That isn't a great margin of error at all, especially in a slow and illiquid market. You may be 1-better off in actuality, and 2-better off for your own long-term feeling about you not having overpaid, IF you suggest only potential interest now but still point the owner to hiring a broker - then, you'll have the benefit of, while not directly seeing the prices people bid, you'll see how much traffic there is, you'll get a sense of how quickly there is interest - generally how much competition you have, and THEN you can put in your bid. In this market, it is unlikely that you'll end up paying more by encouraging this route. So my suggestion, take it from this anonymous person on a message board, is to let the owner create a market and then make your decision. If anything, if you've met some of the co-op members, and have behaved yourself, you will be more likely to be approved by the co-op board, something the owner will understand and therefore be more inclined to take a bid from you, all other things being equal, even later down the road.
Good luck

jlnyc50: Of course there are gross examples of buyers overpaying, both with and without representation. That's not the question. I asked whether there is any evidence to support your claim that most unrepped buyers wind up overpaying.

It's a serious, important question, so let me express it more specifically: Is there any well-controlled research on the question of whether a typical buyer achieves a better result with or without a broker? My guess is that no such research exists, and that your statement, "Buyers who don't have guidance from brokers really usually end up overpaying" is, at best, your honest opinion from personal observation.

here's the problem, aptnyc. you tell us that the apartment would be marketed at about $1 million, but in this market that means we are talking about a property that might generate buyer interest at anywhere from 600k (or lower, but this seems reasonable) and the full $1 million. that is, go out and look at the comparable apartments out there that are actually asking $1 million. how many of them are going into contract right now? i can save you the hassle of looking because the answer is very, very few. many of those apartments will eventually sell for something far, far less than $1 million.

look, the owner tells you he wants to sell the apartment to fund a move. but if he bought a long time ago i assume that your monthly rental payments are greater than his monthly cost of ownership. not to mention the fact that he is living somewhere else, and he could sell that other property, or give up his rental payments on it, to fund his move. the most likely reason the owner wants to sell the apartment to you at a supposedly discount price is because he sees an opportunity to get out from under a rapidly depreciating asset and you are the convenient dupe. there is absolutely no way you should go along with this plan. let's say you could get a 3% savings to the price at which it would be marketed by doing this no-broker inside deal. that savings is basically nothing in a market down 20% or so overall, and much more than that on individual units, and where most apartments still aren't selling.

at a minimum, do this: when the owner quotes you a price, take that price and add 30%. then do a search on street easy of all apartment selling for less than that x+.3x. go see the 10 apartments in that range you like best. if any of them seem as good as the apartment you currently live in, do not do the deal. there are a lot of apartments out there right now that can be had for significant savings off asking price. let the owner put this thing on the market and watch it get no interest. but my guess is that if you don't buy it he won't even list it. he probably knows how bad the market is right now.

last thing. saving yourself the 'headache' of having to move is only worth it if you are exceptionally rich and only choose to live frugally. sure, if you have $20 million in investible assets, then the 200-300k you will most likely be wasting on this deal might be worth it to stay in a home you like and avoid the hassle of moving. but if the million dollars is a lot of money to you, the you have to ask yourself how much it is worth to avoid the hassle of a move.

You don't say how much you've really been investigating & staying on top of the market; be sure that you do so. Also, come May or June we'll all have a better idea of where the RE market is going so you don't want to make this deal now. Probably most importantly, be sure that you have a good RE attorney to work with. Good luck!

I would discount aggressively (at least in your opening bid). WHy not? You are saving that landlord a ton of trouble, work, etc. by purchasing the place without his having to list it, float it while its on the market and ultimately take his chances on it not selling at all or selling for a steep discount.

You don't need a broker - just some common sense, a good attorney and the desire to do a bit of homework on the comps in your building/area.

West81st: "jlnyc50: Of course there are gross examples of buyers overpaying, both with and without representation. That's not the question. I asked whether there is any evidence to support your claim that most unrepped buyers wind up overpaying.

It's a serious, important question, so let me express it more specifically: Is there any well-controlled research on the question of whether a typical buyer achieves a better result with or without a broker? My guess is that no such research exists, and that your statement, "Buyers who don't have guidance from brokers really usually end up overpaying" is, at best, your honest opinion from personal observation."

There you go again...looking for facts. Crazy. TIC

Depending on how the unit was rented, i.e. through a Broker there might still be a commission owed to the listing Broker. When you sign an exclusive to list a rental you also state you will pay a commission should the rental person purchase the unit.

Best study I know of is the popular Freakonomics study, showing selling brokers keep their own house on the market 3x longer than they keep their clients houses on the market. I know that's not a buying broker study, but if your claim is "ok ok selling brokers are mostly crooks, but buying brokers, they yield real value" - I think the burden of proof is on you, not us.

I just don't think that individual consumers do a very good job of valuing properties, especially in an illiquid market. My suggestion if you don't want use a broker to do that is to use an appraiser -- the two big firms in the city are Miller Samuel and Mitchell, Maxwell & Jackson. That should give you a starting point -- I would then guess that you can shave roughly 2-3% off that price in consideration of the fact that the landlord is not hiring a broker.

Since this is probably not the deep discount that either you or the landlord are looking for, the landlord will probably then take the apartment to market. Because that's a likely scenario, the suggestion above that you snag the right of first refusal is a good one.

ali r.
{downtown broker}

Wow. Thank you all for your considered and thorough opinions. Definitely there are a few issues I hadn't considered AT ALL, like whether the coop board would deny approval for a low-ball sale and whether the landlord would have signed up with the rental broker for some kind of sale commission. I don't think my landlord would market the apartment while we are still living in it, so I had always considered that he would be saving himself some money by selling to us rather than letting it sit vacant for 6 months. I have considered that it is unlikely he will market the apartment unless we agree to buy it, just because the market is so bad and I know he is only renting where he is at the moment. So he has no real pressure other than wanting to get in on a good deal where he is.

Do you have any thoughts as to whether a better deal would be had buying before summer comes (when my lease is up)? From what I have heard, summer is the best time to sell. I had been thinking about trying to arrange something prior to the good weather just to minimize the competition.

aptnyc, forget about what you heard. We had appreciating market for 15 years - we don't have it anymore. Appraisers mark their reports as declining (not even nuteral). In the declining market appraisers look at comps that are 90 days old. So if I were you, I would start looking at Open Houses for similar apartments (cheapest intertainment in New York anyway). By the time your lease is up, you would have better idea on what is available in your sub-market and for how much. You may get better deal somwhere else. The rest is negotiation (a good broker may help a lot)

Best regards
elena
(broker)