Buy It – Page 2 – From The Stoop

I work for you (but I don’t work for you)

Let’s get something straight – you and me. I work for you. I am contractually obligated and have a fiduciary responsibility to you. Just you. I promise to always have your best interest at heart. I am your agent and you are my client. This is even true if I don’t like you (rarely) or you don’t like me (occasionally). I take our relationship very seriously and I always explain it carefully so you will too. What you tell me in confidence always stays between us – you and me. If you tell me you will accept less than the asking price or that, for some reason, you need to sell your home immediately – that stays between us – you and me. Anything you tell me that would reveal your negotiating position is just between you and me. These things are never revealed to the other side – the other you – the you who I am about to address.

Now as for you. I don’t work for you. I work with you. You are not my client, you are my customer. We have no contractual agreement and my only obligation to you is to treat you fairly and honestly. I take this particular obligation very seriously, and always fulfill my end of the bargain. I usually like you, and we often get along swimmingly and you can trust me. However, none of that changes that I don’t work for you. So, please don’t ask me if the owner is negotiable, or what can you get this place for. Those questions are all going to get you the same answer. The answer is that I work for the seller, and I take that obligation very seriously, and because of that I’m not going to answer those questions. However, if you need to know if the seller is negotiable, or how much you can get a property for, then make an offer. I promise to present your offer to the owner promptly, and get back to you with his or her reply. And this, in no uncertain terms, will answer your question.

Me? I’m a broker. I work for you. That is, the you who is selling your home and you, who has signed a contract with me. My job is to get you the best price for your place -. the absolute best price that the market will bear. I take my job very seriously. On the other hand, I don’t work for you. You, who has a lot of agents telling you that you should only work with them, that only they can find you the perfect home, that they are your agent, that they are your broker, that they are your best friend. Me, I don’t understand how they can say this to you. They have never signed a contract with you, they know that New York State law says that they don’t work for you, and they know who they really work for. They know that we all work for the seller. But that’s just me, telling you and you, like it is. Thanks for reading.

Pre-Qualify Yourself

By far the most effective strategy for moving a sale from accepted offer to contract is to be prepared – a.k.a do your homework, a.k.a have all your ducks in a row – or as we are calling it here: pre-qualify yourself.

What does it take? Being pre-qualified means that you have an understanding of your financial affairs, your papers are organized in such a way that you could sign a contract within a week (if you had to), and you have identified your real estate team. Specifically,

and most importantly, hire a lawyer. If you are a buyer you need to do this before you begin shopping for a home. If you are the seller you need to do this before you put your property on the market. For more on this see What Happens Now?
You have made, or accepted, the offer in writing. This is not a binding contract; this is just the offer, in writing, to cut down on the ambiguity. Why in writing? Here are some things that I have actually heard people say – “that’s not what I offered;” “I only said 10% down;” and “no, I meant $559K, not $595K.” If you are the seller, you should have a pre-printed Offer to Purchase Form ready to be filled out. If you are the buyer, you should have your own Offer to Purchase Form, in case the seller doesn’t have one. At a minimum you should fax or e-mail the other party the following information: your contact information; the offer amount; the amount of down payment; where the down payment is coming from? (i.e. is it coming from the buyers’ savings or are they borrowing it); and any contingencies (i.e. the buyers need to sell their own property/home in order to purchase the one at issue).
If you are a buyer, you have obtained a pre-qualify letter from a bank or mortgage broker. If you are the seller, you will ask the buyer for this – if he or she doesn’t have it, then the sale is a no go (unless of course the buyer is paying all cash, in which case you just won the lottery!). Besides having a letter to present to the seller, this process will inform you about how much of a house you can afford.
If, you wish to inspect the property before going into contract then you have hired an engineer. This means that you have spoken to them and they are aware that you may be scheduling an appointment soon.
You have sat down and gone over your finances – for example, if you plan on liquidating assets to put toward the down payment, you know what is involved and how long the lead time is.
You have located the documents you will need to give the mortgage lender, such as pay stubs and bank statements.

There is a lot more that can be said on this topic, so feel free to leave your own tips/suggestions as a comment at the bottom of this post. Thanks for reading, Jim.

The Accepted Offer

After Last weeks post, “What Happens Now?” I received a lot of questions about what exactly an accepted offer is. Here goes:

An accepted offer is defined as a verbal agreement between a buyer and a seller whereby a property owned by the seller will be purchased by the buyer for the agreed on price and terms.

Admittedly, Atticus Finch I’m not; but you do get the general idea: two people are agreeing to go forward with a transaction. It’s very important to note that this is almost always a handshake agreement. Further, it’s an agreement that either party can walk away from -anytime, for any reason. Buyer’s walk away when they get buyer’s remorse (and Oh Boy, do I need to write a post about that), find another property they like better, get divorced, lose their job, etc. Sellers walk away too -often because they have received a better offer. Point is, that no one is legally bound to sell or buy a property until both parties sign a written contract (and usually after a little bit of good-faith moolah, is handed over by the buyer). This is because, in New York State, there is a law called the Statute of Frauds and it essentially states that certain contracts (i.e. agreements) must be in writing in order for them to be enforced. In New York State, a Real Estate Contract of Sale, also know as a Purchase Agreement, happens to fall under the Statute of Frauds.

(Please Note: I’m not suggesting that you behave like a real estate monster. It is impolite to willy-nilly present or accept offers just because you can. Let me stress, beg, plead, implore, and appeal to your sense of decency by asking you not to verbally commit to a transaction unless you mean it. Besides the business reasons, you shouldn’t do it because it’s downright dishonest. )

Next week, I’ll write about how best to get yourself from Accepted Offer to Contract. Thanks for reading, Jim.

Make an Offer

Probably the question I field most frequently is, “How flexible is the owner?” in other words… “Is there some wiggle room in their price?” in other words… “How much do you think they’ll come down.”

My answer is always the same: Make an offer. You’ll find out very quickly how flexible the owner is.

As a matter of fact, you should be making lots of offers on lots of places. It’s the only way to make things happen. It’s the only way to get the negotiation process started. It’s the only way you are going to find a bargain.

Here’s how I see it. If you really like a place, then you should always make an offer as long as you can meet the following criteria: a) you are sincere (it’s not nice to mess with people); b) you are making an offer for no more than the property is worth to you (this is not necessarily the market value); and c) you are making an offer for what you can currently afford.

Finally, try to remember that you will always catch more flies with honey than vinegar. Be respectful and polite when presenting an offer – especially if you are speaking directly to the owner. You want them to want to work with you (return your phone calls, take you seriously, etc.). Here’s an example of how I’ve always presented offers in the past: “I think this is a great house (or apartment, or brownstone, etc.). I really love it. I know that the offer I’m making is below asking, but I want you to know that it is a serious offer. I have been pre-qualified for a mortgage and have retained a lawyer and so am prepared to go forward immediately. That all being said, I’d like to offer $XXX,XXX for your house.”

So make an offer! You’ll be surprised at the results. Thanks for reading, Jim.

The 650 Rule

At least once a week I’m asked by a prospective buyer to estimate the monthly mortgage expense for a specific property. Usually, I look up at my forehead, pause a second, and produce a fairly accurate figure. Sometimes, during a slow open house, I show off by computing the calculation for a number of down payments.

I’m neither a math genius nor a savant. What’s my secret? It’s the 650 Rule and you can use it to do the same calculations in your head. Simply stated, for every $100,000 you borrow, you can estimate a monthly mortgage payment (a.k.a. Principal and Interest) of $650. Borrow $200,000 and your payment is $1300. Borrow $500,000 and you’ll have to cough up $3250 a month. Want to verify it? Just go to any standard mortgage calculator , enter $100,000 for the Loan Amount, 6.75% for the Interest Rate, and 30 years (or 360 months) for the Term. What do you get? OK, admittedly, not $650 spot on, but would you read a post called The 648.60 rule? One other thing, 6.75% is a little higher than today’s average interest rates, but we’re erring on the side of caution.

Remember this estimate is just for the money you’re borrowing not the entire purchase price. For example, you are purchasing a two bedroom Condo in Crown Heights for $500,000 and are putting 20% down. What is your monthly mortgage payment? Answer: $2600. How did I calculate it?

Down Payment = $500,000 X 20% = $100,000
Amount Borrowed = $500,000 – $100,000 = $400,000
Monthly Payment (applying the 650 rule) = 4 X $650 = $2600

There are other monthly expenses (fodder for another post), but the 650 Rule calculates the bulk of your expenses and is a damn good estimate in a pinch. Thanks for reading, Jim.

The Elusive Perfectly Priced Brownstone

Let’s talk about the Elusive Perfectly Priced Brownstone: a rarely seen, near extinct animal that any respectable house hunter would love to bag. Why so hard to find? There are at least two answers to this question. As an agent, I have first hand experience about one of them. That is, once a property hits my desk, it gets advertised at the market price or I’m not doing my job. That’s right, my job! We, the licensed, are all contractually obligated to the seller and committed to selling his or her property for the most money. This is what we do. As a result, we are always inadvertently driving prices higher. Have I ever seen an Elusive Perfectly Priced Brownstone? Sure have. Chances are I’ve seen a lot more of them then you have. That’s because I counsel the owners to sell it for the market price (because that’s my job…). Now that being said, it’s not all my doing. Another factor driving prices up is the Internet. The existence of readily available and frequently updated sales information makes it so that even the casual surfer can accurately value their own home. Bottom line – the vast majority of properties sell for what they are worth.

But not all of them. With a bit of elbow grease, you can find a property below market value. Stir in a little luck, and maybe, just maybe, you can actually find the Elusive Perfectly Priced Brownstone. I bought the limestone my wife and I own for much less than market. It took over a year and I treated the search like a second job. In the end it was worth it. I purchased a great house at a great price. I also learned a hell of a lot. All of which I’d like to pass on to you. Here’s my list of suggestions.

Get pre-qualified by a bank or mortgage broker. Don’t worry, this won’t commit you to anything, but what it will do, is give you a damn good idea of what you can afford. This will save you mucho time by focusing your search only on those properties that are feasible for your budget. It will also allow you to act more quickly if you do find a property you want to buy (remember you are not the only house hunter out there).
Start looking at listings. The best and most efficient way to do this is via the internet. There are a lot of sites out there, but if you only use the following three, you should be able to cover 90% of the market. They are: The New York Times, Craigs List, and Trulia. (If you find something else cool out there, please pass it on. I’m always looking for new sites). If you are just starting out (and can stand it), do this for 5 to 7 days without answering any of the ads. Just look for a while. This will give you time to soak it all in and get a feel for the market.
Go to open houses. The more you do this, the more educated you’ll become and the quicker you’ll be able to recognize a bargain. A cool thing is that some open houses are poorly attended and so the agent hosting the open house has time to answer your questions. Take advantage of this. Brokers and agents are around real estate all the time and are a wealth of information. If the open house is being hosted by an owner, it still may be an opportunity to ask questions, but you should be polite. After all, it’s their home.
Find some agents you like and keep in touch with them. At least five, but as many as you can handle. Don’t be disappointed if most of them don’t return your phone calls. They may not be overly enthusiastic about working with you because they won’t have what you are looking for (re-read the opening paragraphJ). Just keep calling them. If they have what you want, they’ll call you back. The smaller firms often have the bargains, so don’t just call the big firms. Another reason for working with many agents is that no brokerage in Brooklyn has access to every listing. Brooklyn doesn’t work this way. Fact is most Brooklyn realty firms don’t share their listings or belong to a Multiple Listing Service. Also, and just as important, no agent can say that they are your agent and that they can show you everything. If they do, they are flat out ly– let’s just say they are being a bit disingenuous, and you should feel free to call them on it. We (brokers/agents) are all contractually obligated to, and working for, the seller. Incidentally, the seller is also the person paying a commission to the agent who has claimed to be your agent. If you are a buyer, you technically have no agent and no agent is representing you — not even your agent (your lawyer is your representative, but that is a discussion for another post).
Make offers. When you see something you want make an offer. Make an offer for what you think the property is worth and what you can afford. The only way to really find out if an owner is willing to negotiate is to make an offer below asking price. Don’t worry about offending anyone. If the offer is made to an agent, than that is his or her problem. If the offer is made directly to an owner and they become offended, then they should have hired an agent. I’ve made lots of offers on lots of places and believe me it’s a great habit to get into and the only way you are going to make something happen.
Repeat Steps 1 through 5 frequently (at least once a week).

Here are two more caveats I learned the hard way.

Look for problems because problems can be fixed. When I bought our limestone, it had an illegal apartment in the cellar, the cellar had extensive flood damage, and the garden apartment was occupied by a section-8 tenant. These things scared a lot of people away, but it gave me an opportunity to purchase the property for a good price.
Hire an attorney before you start looking. I’ve seen more than a few deals fall apart because prospective buyers needed extra time to find a lawyer. By the time they had hired someone the seller went ahead and found another buyer. Better to be prepared before hand.

That’s it for now. Please feel free to email your questions or even your own favorite tip. Thanks for reading, Jim.