What's with this market?

((From my weekly newsletter on 9.30.22))

It’s strange! It's difficult!

Real estate speculation has led everyone to believe their home will appreciate wildly, that they are entitled to this. Sellers who couldn't or didn't list in 2020 and 2021 are now staring at a vastly different landscape but expecting the same prices. Many buyers simply cannot pay the amount they would have when rates were lower, because monthly costs have gone up. (Remember, you don't live in the purchase price, you live in the monthly payment.

So we have sellers with unrealistic expectations met by buyers constantly pummeled with news of layoffs and uncertainty and rising costs across the board. It's caused a slowdown, which we honestly needed after the past two years. But it's a bit like pulling an emergency break and everyone's adjusting.

The slowdown hit co-ops and apartments that need renovation more than condos/mint properties. It's hit uptown more than downtown, because uptown was already slower. It's hit Manhattan more than Brooklyn, for a combination of reasons but lower monthly costs and more flexible purchase options in much of BK influence this.

But it's not all bad! It's bad for agents who don't know what they're doing and can only thrive when everything is easy. It's bad for sellers who have non-prime properties but want prime prices. And it's bad for buyers who were rate-sensitive and may no longer qualify for the home they want, especially if they were looking at co-ops. 

So who is it good for? A lot of Brooklyn sellers. It's good if you are selling a downtown Manhattan trophy property and buying something else. It's good if you are a buyer who can handle the rate increase, especially if you're looking uptown where things are slower and there's more negotiability. You can actually take your time and feel like you have options. And it's good for agents who treat this like a systems-heavy business rather than "brokerage" (more on that at the end).

Why do you care though?

Honestly what DON'T I care about? I care about market conditions because it impacts my role in peoples' lives, how to handle listings and buyers, and it's directly tied to our housing crisis. I'm also fascinated by the ways that human behavior shapes our housing market, and even things like mortgage rates are tied to consumer actions. 

So where do I see this going? Brokerages have been pushing teams for a few years now over individual agents. And a big reason is how the role of an agent changed in the past decade. Once upon a time you were the only one who had access to for-sale properties, and you just had to be a successful gatekeeper. With the rise of accessible information, our role has shifted much more into a consultant and facilitator position, and more volume is required as splits and commission percentages have dropped. Some agents are terrified of this, because it's hard to earn peoples' trust and convince them to work with you if they don't technically need you. I'm fortunate that I do not have to cold call or try to convert unrepresented buyers; I just do things like this. We're seeing a huge increase in "being your own brand" and social media, creating content for buyers and sellers. Was I doing this from day one? Yes. Are you going to see more and more from other agents, especially video? Yes. But where I need to step it up is acting more like a true business owner and being willing to take on responsibility for other people. I need to hire in order to scale, and that is scary! But we're doing it.

As far as where our market will go, NYC is its own beast and I think we've gotten back to normal post-COVID lockdown. By which I mean prices are not swinging wildly and will be impacted by all the normal factors: interest rates, buyer sentiment, sellers' willingness to budge, elections, policy...this is why it's impossible to know where things will go. Remember when Putin invaded Ukraine? We could not have planned for that a year in advance, nor do we know what the Fed or other government bodies will do. 

But that's why you're all here, right? If you read this far you seem to be invested. So I'll keep the updates and info coming, and you can promise me not to try to "time the market" too much. 

What's with due diligence?

In NYC, an accepted offer is NOT legally binding. It's basically a handshake agreement that either party can leave if circumstances change, a red flag is uncovered, or for any/no other reason. It also means that another offer could come in that the seller decides is better than the original, and the buyer could lose the home.

(As a seller's agent you are legally bound to present all offers to the seller, whenever you receive one. This includes after a unit is already in contract, but accepting a new offer at that point would incur financial penalties).

So, as a buyer, you are trying to get as much information about the property as quickly as possible while the attorneys write up a contract. You'll confirm you absolutely want to move forward before putting down a big chunk of change. But you'll also try to do so before anyone else can swoop in.

This information comes from a few sources:

- Home inspection

- Offering plan filed with the Attorney General

- Building financial statements

- Board minutes

- A questionnaire completed by building management

- Dept of Finance, DOB, and HPD 

Once it has all been collected, a buyer's attorney will review it and flag any potential issues, as well as go over the contract with the buyers line by line. If all looks good, the buyers sign and wire 10% of the purchase price to an escrow account. But that's not the end of it -- you aren't OFFICIALLY in contract until the sellers also sign and the attorneys distribute a fully executed contract. I have heard of buyers recently losing units after they sent the wire, because someone came in with a much higher offer at the 11th hour.

Why do you care though?

Well I kind of have to care because it's part of my job. Apparently many agents are really hands-off during this period, because it's mostly on the attorneys to handle. But I am not great at feeling in the dark when it's my deal to quarterback to the finish line (I'm so sorry to everyone who cares about sports).

But things do come up in the due diligence that can lead to a re-negotiation of terms, and if I don't have a clear understanding of what those things are (an open permit, an upcoming assessment, LL11), how can I help re-negotiate?

And, unlike attorneys, we agents are very keyed into what is happening with a specific micro-market and the even more specific property. An attorney who doesn't realize (or care) that you won a 12 way bidding war can lose the place for you by being slow. Whereas a badass attorney can 

At the very least, your attorney should have your agent cc-ed on any due diligence that comes in that they're sending to the buyer. But, unfortunately, that's not always the case. So work with good ones! Whichever agent you choose to work with will have a bunch of recommendations for you.

What's with Appraisals?

If you are getting a mortgage from a bank (or refinancing), said bank will order an appraisal to confirm that they're down to fund the purchase price on the property. Appraisers are separate individuals who go into a house/apartment and compare it to "comps" in the area to come up with what they think is the "market value." This value determines how much the bank will lend. For example, if a home is in contract for $1m but the appraisal comes in at $800k, the bank will only lend on an $800k purchase.

The issue is that, while there are certain market data truths, an appraisal is subjective. And some appraisers are, in technical terms, dumb c*nts. I love having a 60 year old man from Schenectady tell me he knows the UES one bed market better than I do, when I'm the one who literally just found a buyer for the apartment (and the second appraisal came in at ask, so suck it!). And some banks, allegedly, intentionally offer buyers low rates but then give low appraisals. That way they can woo buyers with these "great products" but then screw them on the back end. And make my life hell for like basically no reason.

OF COURSE there are situations where the purchase price is above what the lender can justify, and they shouldn't lend the full amount. This is common in either a bubble (NOT currently NYC) or a rising market (currently NYC). There is, however, a difference between protecting a bank from too risky a loan and actively f*cking a new family. And when we are in a market like today, where you basically have to waive your financing contingency to win a bidding war, the appraisal has way too much power. Shit is arbitrary.

But you don't have to take my word for it! Exposes have shown that appraisers will give a lower price to a home with pictures of a Black family than a white family. You can get two banks to do two appraisals on the same property on the same day and get vastly different prices. And any good mortgage provider will tell you that appraisers are the luck of the draw. So it's wild to me that we put so much stock/faith in something so obviously not set in stone.

Why do you care though?

Because racist people who suck at their job acting as gatekeepers and stopping people from buying homes is so annoyingly American and I am so tired. Appraisers are not unbiased people and they have the ability to singlehandedly stop a purchase through these biases. Since home ownership is one of the best ways to build generational wealth in this country, it can be a form of structural racism that continues to perpetuate a HUGE wealth gap.

And I recently found out through unfortunate lived experience that if you "appeal" an appraisal, it isn't an actual appeal. At least in our case, all they did was send our appeal to THE SAME APPRAISER to be like "what do you think?" Can you imagine if you were submitting a legal appeal and the original judge was the one who got to decide whether his ruling was correct or not? Think he'd ever say "oh lol my bad no you're right"? No, he wouldn't. 

And also, after the predatory lending that banks engaged in prior to the 2008 crash, I hate that we are worried about "protecting them" if the buyer is financially sound. Like I get it -- don't mansplain my job to me -- but a home is kinnnnddaaa worth what someone will pay for it. It's not worth what John from Albany thinks it's worth on a day that he was cranky. 

Obviously it's complicated and banks shouldn't just lend whatever amount with no due diligence, but we need to make changes. First steps?

1. Every bank does two appraisals per loan to counteract individual bias.

2. Appraisers have to take anti-bias training and are occasionally audited by a government body.

3/4. Make appraisals themselves more regulated with the adjustments/criteria and make appeals actual appeals, where a third party group (can still be at the same bank) reviews it, rather than the original appraiser.

Like that's just basic 101 shit. You're welcome.

What's with real estate marketing restrictions?

The first thing is targeting: you can't target people by age, location, interest, or really any of the million ways ads can specify who they're trying to go after. This is because of fair housing policy, and I support it, but it means I don't pay for ads. There's no point in my boosting a post about NYC real estate on IG if it's just going to send to a bunch of random men in CA for them to slide into my DM's.

Then, for similar reasons, there are a lot of regulations around HOW you can advertise, and the info requirements on any ad. Assuming you're the agent representing the buyer or seller, you need to include your real licensed name, your brokerage, the address and the price. If you want to advertise a listing that isn't yours, you ALSO need explicit permission from the listing agent. And then you must also include the listing agent's name and brokerage, and the address and price on the ad. Technically, if the price ever changes, you're actually supposed to go back and update the prior ad accordingly.

The exception to this is open listings (which could technically be rentals or sales, but I’ve never seen an open sales listing), which agents are able to advertise themselves. If you're a rental agent trying to grow your business, advertising these is actually a great way to do it.

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What do you care though?

Some of it is my annoying dedication to transparency, and a frustration with agents who act as gate-keepers rather than actual value adds. I want people to WANT to work with me, not feel that they have to because I misled them.

Any agent can show you any listing, from any company. That's it. You do NOT need to choose a certain agent for access; you choose them because you like them and trust them and know that they'll do a good job. Yes, some people are better at finding off-market listings than others. Some firms have more "pocket" listings than others (which still doesn't mean only they have access). But anyone who tells you that only THEY can get you XYZ, they're lying.

And at the end of the day, this does nothing to help anyone get a home, learn anything about real estate, or make people hate my industry less. If your only value as an agent is blocking information and lying until someone works with you out of confusion, I don't get it and I don't support it.

What's with home inspections?

Home inspections are common in most markets, but in NYC they happen AFTER an accepted offer but BEFORE you sign contracts and put down 10% of the purchase price, during what we call the "due diligence" period. Attorneys review board minutes, offering plans, financial statements, certificates of occupancy, violations, etc, and a licensed home inspector gives an honest evaluation of the property.

I do inspections on almost everything, but some agents don't bother with apartments in most cases. I find that an inspection gives a buyer ownership over the home and tells them a bunch of cool info they may not otherwise know, so I always leave it up to them. I insist on inspections for any small building or standalone house, but will usually pass if it's a large co-op and not a first time buyer. Condos vary but I almost always recommend it, because you are more on the hook for repairs on these than co-ops.

Unless it's new development, you're buying the home "as is," meaning that there may be some wear and tear. That's not the point of an inspection. What you're trying to figure out is whether there are leaks, electrical issues, or something else that could be a big expense in the future. Inspectors don't open walls, but they will use things like moister readers to see if there is water damage hidden in ceilings. It's not a guarantee of no future issues, but it's part of a risk evaluation process that's important when

And unlike in other parts of the country, I'm not seeing buyers being asked to waive inspections EXCEPT for in some very competitive townhouse situations, or "do not approach" short sales.

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What about for renters?

When you're moving into a rental unit, you don't get an "inspection," but there are things you should look for when viewing. Does the lobby have signage stating the super's information? Does everything seem clean or is it all broken and in disrepair? What does it say about the landlord on OpenIgloo?

You are guaranteed to move into a broom-swept apartment, but the landlord doesn't have to deep clean it before you move in. Unless it's newly renovated (and sometimes even then because of dust), I recommend being ready to do a deep-clean on moving day, or hire a cleaner to come in the day before.

You should also learn from my mistakes and take a video of the whole apartment before your furniture is there. Many landlords provide a checklist where you can write down any known damage, and better ones like Akelius will actually do a pre-move walkthrough with you. But the point is you want to make sure you have a record of any damage, so you aren't on the hook for it when you move out.

What's with bidding wars?

Bidding wars, or "multiple bid situations," are common in NYC but have become the norm in many segments of the market as inventory lags behind buyer demand. While you're less likely to find yourself in a bidding war in a co-op than a condo, and more likely on a "mint" apartment than something that needs significant work, it's really case by case.

And it's also case by case how these are handled, and which bid the owners pick. The classic system is calling for "best and highest" bids by a certain date/time, and then one bid is chosen, generally with a couple others held as "backup." We don't have escalation clauses in NYC, so it's really a personal decision to choose the number where if you get the apartment you're elated, and if you lose it because someone bid $25k more you're ok because that was just beyond what you'd be willing to spend.

In condos the winning bid does tend to be the highest number, while co-ops have to consider a lot more factors (including debt to income, post-closing) in order to pass the board. But even in condos it's not JUST the highest number; it's the highest number without risky contingencies (risky for the seller, not the buyer) that also seems able to close. Because a number without the ability to deliver is just a number. I'll refer you to when a 10 year old child was negotiating with me on the back porch of the standalone house I sold. And another agent texted me "we'll do full ask" with no pre-approval, proof of funds, or terms. Obviously neither was an offer I could accept. Is Million Dollar Listing teaching people this is how real estate works? It isn't how real estate works.

In 99.9% of cases it makes sense to work with your own buyers agent, and in these situations it becomes increasingly important. I have been on the receiving end of many offers, and it is eye-opening how much better crafted and explained some are than others. The worst thing you can do is work with a bad agent. The next worst thing is to go into a multiple bid situation solo. And the best? Working (almost always for free) with an agent who knows wtf they're doing and makes it clear to the seller/seller's team that you will actually be able to make this purchase happen.

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Are there bidding wars on rentals, too?

Unfortunately, the answer is yes. And much like with sales, it is due to both an overall shortage of housing and people with money not wanting to compromise on amenities, neighborhoods, or space/light. So you have 10 people fighting over every renovated apartment in the West Village, every cute Parlor floor unit in Fort Greene, and then an apartment on UES with a shower in the kitchen that's been on the market for 100 days below $2,000 a month. 

At the end of the day, people with "fuck you money" can come in and overbid $500/mo to live where they want. If you aren't in that position and you keep getting outbid, you can keep pounding the pavement (if you have a flexible move date or plenty of time) or you can look elsewhere/give up some of the amenities you want. The "best" properties will always be competitive, and I saw bidding wars back in 2019 as well. The exception was May to October of 2020. For a brief, beautiful moment, tenants had all the power. And naturally I chose that time to run 300 rental units for a landlord.

What's with interest rates?

After two years of record-breaking low interest rates and trillions pumped into the economy (and by economy I mean small businesses but more-so families of congressmen, the Catholic church, and all the other massive companies that applied for forgivable PPP loans they didn't deserve), the Fed has announced they will increase interest rates several times this year.

There is not a perfect correlation/relationship between what the Fed does and mortgage rates, but it is fair to assume rates will be higher than they were last year, and that's what we've seen so far. Of course, everyone loves a clickbait headline so there are a lot of exaggerated claims. But I think this is more of a "back to normal" move than anything.

What we saw in 2020 and 2021 was an environment with the lowest mortgage rates on record. I know people who refinanced or got new mortgages at 2.6%, which seemed to be the floor. And then banks decided it wasn't worth letting people borrow money any more cheaply (also they ran out of manpower to handle the volume of loans). We have already gone up about a point since the actual bottom.

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Will it impact the market?

Yes and no.

Despite what non-experts in my comments section yelled at me, interest rates on mortgages are not expected to hit astronomical highs this year. Depending on which economist/real estate strategist you ask, rates are expected to end the year between 3.4% and the low 4%s, meaning they will be similar to what we saw pre-pandemic.

Because we aren't suddenly expecting a jump to 6%, it is unlikely to cause any real pricing changes, and while it will decrease the purchasing power of some buyers, especially first time buyers trying to stretch their budget while fitting a co-op's requirements, it shouldn't eliminate the majority of buyers.

Do I expect a slightly less frenzied market? Possibly. But it will also be hard to differentiate what is a seasonal fluctuation and what is rate-related, since the spring market is always the busiest part of year. So people "getting in while rates are low" and people "buying in the spring because new inventory is coming on market" will be indistinguishable.

As always, the best time to buy is when it makes sense for you, your finances, and your life. When that time comes, my job is to put you in the best position possible. You can't time the market; you can't time rates. Just do you, baby.

What's With Co-ops?

Co-ops get a bad rap, and some of it is definitely deserved. Because they are allowed to turn down sellers for a multitude of reasons and don't have to say why, some bad actors reject buyers for reasons that violate fair housing. They will even tell the parties involved, while being careful it isn't in writing so they can't be sued.

Also, the same mechanisms that protect the buildings and have kept our housing market so stable over time -- 20-25% + down payments, 28% debt-to-income ratio (when mortgages accept closer to 40%), and two years of post-closing liquidity -- have placed an impossible barrier against ownership for the majority of New Yorkers.

Without family money (gift or loan) and/or a two income home with little or no student debt, it's very difficult for a first time homebuyer, especially a young first time homebuyer, to get over the down payment and liquidity hurdles. I'm not saying these mechanisms are bad, but because we have failed to build enough non-hyper-luxury additional housing, prices have increased to the point where we are asking people to have more than $350,000 in cash and earn about $250,000/yr to purchase a $1m apartment (so like a 2-bedroom in Manhattan). When these apartments were $250,000 (and salaries weren't THAT far below they are today) this was a more attainable prospect. 

There are simply too many Millennials and Boomers trying to own at the same time, and not enough inventory for the both of 'em.

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Is there an upside?

Yes, co-op prices are still well below condos of the same basic caliber, so if you are able to save like crazy or have a family member who wants to help you out, you can get in much more cheaply than for a condo. Co-ops continue to keep our market stable, and stop investors from purchasing every square inch of Manhattan. The legislation that would require co-op boards to explain why they rejected a potential purchaser is gaining traction, meaning we could see an end to board rejections based on sale price, source of income, marital status, or other illegal reasons.

And the great irony of co-ops is that they started out as tenants organizing to purchase their rental buildings, which were often in disrepair, only to end up as gatekeepers blocking people from joining them as homeowners. That's the only way most young people hear about co-ops -- the gatekeeper part, not the origins.

About a year ago I saw a 20 year old on TikTok pitching people to join him in purchasing a huge property out West and all co-owning it as one group. He essentially, without realizing it, was selling people on the idea of a co-op. I hope that as we continue to push back against the commodification of housing (it can definitely be an asset but it's a home first), people will stop demonizing co-ops and see the positives as well.

Off-Market Deals

Inventory is LOW, so low, across the board, for both rentals and sales. Some of this is simply time of year: fewer people list apartments over the holidays, and there are fewer people leaving their homes than there are "new year new me" people moving to NYC.

We also have a more general lack of available units, as sellers try to figure out when they can get the maximum price (and buy something else with that money), and buyers try to sneak in before the expected mortgage rate increases. And as I've said before, rentals got pushed off of their normal summer lease cycle when units sat vacant until the end of 2020. Add to this a recent COVID wave that has quarantined agents (and owners) sidelined, it's unsurprising we're feeling a crunch.

Because inventory is low, buyers' agents are increasingly advertising themselves as "able to do off-market deals," but literally all of us can do that. Being at a company like Compass (or in an organization like NYRAC) may give some of us an edge, because we can see what our colleagues plan to bring to market, and but I'm not going to pretend I'm the only one who has this access.

And the most important thing to remember about off market deals: they aren't "deals." You are paying a premium to basically skip the line and buy without the unit coming onto market. Is it possible you'll get a good price from a seller you find who doesn't want to go through the effort of cleaning/listing? Perhaps. But they're going to need to do that before they move out anyway, so it may not be the motivator you think it is, especially when we're in such a strong sellers' market.

Finally, before you think that you can just reach out to owners and get something without any agent involvement, take a moment to realize you'll still need an attorney, a mortgage provider, and a deep knowledge of how to close a sale. It doesn't have to be me, but you should almost always have a broker by your side if you're buying.

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What About Off-Market Rentals?

Unfortunately the one thing I can't do is create inventory where there is none. Aside from some large, luxury buildings in "less-desirable" areas and rent-controlled/stabilized units that are being intentionally given to friends/family (more on that later), landlords aren't currently holding units vacant. We just have a TON of new transplants, and people who would normally buy aren't able to because our vacancies are overpriced new dev "luxury" and co-ops (more on these things also, later). All this to say, there aren't enough rentals for the people who want them, at prices that people can comfortably afford.

If you want to find an "off-market" rental, you're going to have to do a lot of legwork. You can walk around and see if anyone has posted "for rent" signs. You can scour Craigslist (just be sure not to get scammed), Facebook groups/marketplace, and subscribe to Listings Project. You can ask your current landlord or your friends to find out about other, upcoming inventory.

Long term, if you want to solve this issue, tell your representatives that you want more non-luxury (and not ONLY affordable/income restricted; it's a "yes and" situation) housing ASAP.

Co-op Calculator

I’m still working on making this embed-able, but you can click the link below to get access to the co-op qualifying calculator. Because debt-to-income and post-closing liquidity are important!

Access the calculator here!