The Real Deal

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Buyers and sellers playing new head games

Without any hard numbers yet reflecting closing prices of deals struck last fall, apartment sellers are finding themselves in a tough spot as they face off against capricious buyers.

With no one in New York certain just how far apartment prices have fallen from their peak in 2008, apartment sellers are learning that if they don't advertise a discount, some potential buyers believe they're being scammed. Some simply laugh in their faces.

Yet if sellers do give a big discount, apartment hunters are demanding an even steeper one or simply fading away.

Kathryn Higgins, an associate broker with DJK Residential who has a master's degree in psychology and has taught it at the college level, said, "We're seeing two psychologies: the passive-aggressive and the approach-avoid."

The passive-aggressive buyer enters negotiations appearing to be unsure, saying he or she is just looking or trying to get a feel for the market. Then he or she makes a lowball offer — so low the seller may not even counter, Higgins said.

"Then the buyer gets very aggressive, saying, 'What do you mean? I offered you good money. You're lucky you're getting anything in this market. You should be offering an even bigger discount,'" she said.

Buyers exhibiting approach-avoid behavior engage sellers because "they need an apartment and want to buy it," Higgins said. "They negotiate, and they can afford the price. But suddenly they go into avoidance mode, because they read something in the paper or see something on television that scares them."

Brokers throughout the city are seeing such behavior among buyers who are confused about exactly where prices should be.

"We had one couple that was very enthusiastic about an apartment, and we thought for sure they'd put in an offer," said Jacky Teplitzky, a managing director at Prudential Douglas Elliman.
Note: Correction appended.

"But we didn't hear from them for 24 hours, so we called, and they said, 'We're just too nervous. Everyone around us is telling us the market is going to fall even further, so we're just going to rent.'"

The root of the problem is "bottom fishing," a phenomenon fed by sellers who are desperate to offload their properties.

"Unlike other markets, where most people were reasonable sellers, we have a wide variety of people who want to sell for different reasons," said Kathy Braddock, co-founder of Charles Rutenberg Realty. "So what buyers are going to do in this market — and it's not unethical, just uncomfortable — is put in multiple low offers, because in their minds, they're looking at several different sellers who have different strategies in mind."

Those bargain hunters, or bottom fishers, are hoping to expose the seller who has to sell because of financial distress and who will take the best offer received, Braddock said.

"It's like the lottery," she said. "They might find the person who's desperate, but they're not going to know until the offer is accepted."

Such behavior, Teplitzky said, is creating market chaos. "The problem right now is you can see, in the same building, apartments trading for completely different numbers," she said. "The bottom fishers are putting multiple offers — three, four, five [offers] — on units without any emotional attachment."

Teplitzky said that in early March her team received a $1.5 million offer on a $2.5 million apartment. "Basically, these buyers are trying to see who blinks," she said. "And there are some sellers who are blinking. So in the same building, in the same line, you can have accepted offers that differ by 10 to 20 percent."

Some brokers are exacerbating the problem, she said, by listing apartments at unrealistically high prices or without a discount at the behest of the sellers they represent. "They're creating huge discrepancies in prices and making buyers more confused, because the brokers that are pricing these apartments are still not pricing them right," said Teplitzky, who used an unusual approach to price one of her listings in early March: She invited 20 of the top brokers from competing New York brokerages to a tea at the luxury apartment to get their feedback on pricing.

No data are available yet on bottom fishing in the current market, only reports from brokers, because the deals haven't closed yet, Teplitzky said. When these bargain-basement apartment sales do close, they will create "comparables" in the building that will reduce all residents' property values, Braddock said.

For that reason, desperate sellers in co-op apartment buildings may arrange a deal with a bottom fisher only to have it nixed by the co-op board, she said.

"The co-op boards don't want to unrealistically lower the value of their apartments for themselves," Braddock said.

John Reinhardt, president and CEO of Fillmore Real Estate, said that in early March he encountered a buyer who, only a couple of hours before the closing, suddenly demanded that the seller cut $25,000 to $30,000 off the price of a house on East 71st Street in Bergen Beach, Brooklyn.

"They went to contract four months ago, and the buyer was still trying to beat up the seller," Reinhardt said. "But the buyer was willing to take a chance on losing a deal, which they normally wouldn't, and the seller was a bit nervous about not accepting the deal because of the market uncertainty. So they settled for $10,000 off the price of the house."

Oddly enough, Reinhardt pointed out that sometimes the buyer and seller fomenting the market chaos is the same person.

"We have an interesting client right now who is selling a property and asking, I would venture to say, about 20 percent higher than the market is worth, while at the same time looking to buy something and offering about 40 percent less than the asking price," he said. "You have to ask this guy, 'What the heck are you thinking?'"