Renegotiating at closing time
Emboldened buyers look for discounts after agreeing to deals December 02, 2008 07:17PM By Lisa Abramowicz
Michael Guerra of Prudential Douglas Elliman in Boerum Hill, Brooklyn, where one of his buyers wants to renegotiate a down payment.
Now that buyers have the upper hand amid a weakening New York City real estate market, they are using increasingly aggressive tactics to drive down apartment prices.
The latest move: renegotiating an apartment's price after having already signed a contract and placing a down payment in escrow.
Buyers, keen to the fact that the city's real estate market has grown substantially weaker in the past few weeks, have responded by generally angling for additional discounts and perks in all stages of negotiations. And while many have taken more demanding stances during initial discussions, others have tried to tweak agreements that in past years would have been considered set in stone.
Brokers have seen renegotiations most frequently among buyers who settled on contracts several months or a year ago, but have watched the market decline while waiting to close.
These buyers usually ask for discounts of 5 to 10 percent to compensate for what many believe to be a fundamental shift in the market. Some, however, have demanded concessions like having the seller refinish an apartment's floors.
"People are trying to call the sponsors' bluff and the sponsors are trying to call the buyers' bluff," said David Maundrell, president of Brooklyn-based aptsandlofts.com.
Maundrell, who focuses on new developments, called buyers' attempts to overhaul a deal at the last minute "very frustrating." It throws yet another kink into the mix for brokers dealing with hesitant buyers and a volatile economy, he said.
The last time some brokers saw this magnitude of renegotiations was during the city's last major real estate downturn, which started in the late 1980s.
The renegotiations come while some New York developers have begun offering so-called "price protection programs." As The Real Deal first reported last month, SteelWorks Lofts in Williamsburg and Clermont Greene in Fort Greene are among the developments offering the programs, which guarantee that buyers in their new construction buildings get a discount at closing if other units in the building sell for less than they paid (see Developers staking out new selling strategies).
Michael Guerra, director of Brooklyn sales for Prudential Douglas Elliman, said buyers are having "an emotional response" to the market. "The variables include buyers wanting to negotiate until the 11th hour," he said.
One of Guerra's buyers who had already placed a $58,000 down payment on a $580,000 Boerum Hill condo now wants to negotiate a price decrease, Guerra said.
"There's no incentive for the seller," he said. If the buyer walks away from the deal, the seller gets to keep the down payment while putting their apartment back on the market. He said few sellers give in to these last-minute requests.
But other brokers say buyers and sellers alike may have reason to renegotiate.
A buyer who believes the apartment has declined in value may be willing to sacrifice a down payment rather than go forward with the purchase at the agreed-upon price. Meanwhile, a seller who thinks the market will continue to fall risks losing money by putting an apartment back up for sale — even if it means keeping the first buyer's down payment.
As the market enters the traditionally slow winter months, and as property price drops become more evident, brokers think that even more buyers will leverage their new found power into last-minute discounts.
At issue in all these negotiations and renegotiations is how far New Yorkers believe the city's real estate market will fall. So far, Manhattan's prices have remained fairly stable, while home values in Brooklyn and Queens have fallen further. But the larger instability in the economy and the difficulty in getting financing have shaken the market to its core.
Quarterly reports will not reflect recent price declines until February or March, said Jeff Krantz, vice president of sales and marketing at City Connections Realty. That is when homeowners who have been keeping their properties off the market will start creeping back in, he said, even if it means dropping their prices. "There comes a point when you can't hold on anymore," he noted.
In the meantime, Krantz expects the number of completed sales to drop as sellers hold out for buyers willing to pay prices the sellers consider acceptable.
Even though prices have not plummeted, Gil Neary, managing partner of DG Neary Realty, said, "The people who are out shopping now are the people who are shopping for bargains."
Sometimes a bargain-hunting buyer just needs a small, additional break from the seller as a form of recognition that the market is suffering, he said. Neary described one such buyer who recently bargained for an additional $25,000 off the price of a $2 million condominium in Soho.
The buyer, who agreed to the cash deal in early September, said, "Well you know, it seems like the real estate market is changing," recalled Neary. "I'm seeing other opportunities out there. Would the seller consider making an adjustment?"
In another case, Neary said, a couple that had intentions of trying to renegotiate their agreement has been forced to do just that. The couple, who agreed to buy an $875,000 apartment in the lower part of the Upper West Side, had hoped to pay for the property largely in cash. But in the months between signing the contract and the closing date, the couple's financial situation changed dramatically. Their stock portfolio shrank, and they failed to sell their current apartment, which they had expected to fetch the same amount as the co-op they agreed to buy.
"The buyers are very, very unhappy about approaching sellers in this type of situation," Neary said.
That couple is not alone. Neary said many buyers who signed contracts for apartments in new developments months ago, expecting to get 90 percent financing, have since learned at closing that they were approved for only 70 percent financing. The need to come up with 30 percent of an apartment's cost up front, rather than 10 percent, can easily be a deal-changer — or, in many cases, a deal-breaker.
But frequently, brokers say, buyers who end up trying to re-tool contracts are doing so not because they have no other financial option, but simply because they want to get a better deal.
Some brokers believe buyers are more apt to attempt a renegotiation if they are buying new construction, rather than a resale unit. Many new condos, after all, pre-sell apartments far in advance of the buildings' openings, leaving a longer time between the initial contract and closing.
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Comments
Jack
If the buyer backs out of a contract after it is signed and the escrow deposit made, does the seller have any recourse other than to keep the escrow deposit? Can the seller sue the buyer for breaking the contract?
Comment #1 Posted By: Jack 12/04/08
Tom
I am in a similiar situation on a shore house in NJ. Went into contract over 2 months ago. Obtained a mortgage committement with an apprasial performed in October. Since rates dropped, i had a new apprasial with the new bank and now the apprasial came in 15% below the contract price and the initial apprasial. Can i walk??
Comment #2 Posted By: Tom 12/04/08
Eric
How does the seller "weed out" those buyers hoping to renegotiate due to financial difficulties rather than those who become greedy and want to squeeze as much out of the deal but aren't prepared to walk?
Comment #3 Posted By: Eric 12/09/08
Anonymous
pull out = easy. get a lawyer, esp if its 1 yr from projects costs as outlined in the prospectus
Comment #4 Posted By: Anonymous 12/10/08
Anonymous
re:Eric it shouldn't make a difference whether or not the buyer is trying to get a better deal or out of financial necessity.. the price should be the price and should be reflected by the marketplace regardless of circumstance.
Comment #5 Posted By: Anonymous 12/15/08
Anonymous
what's the etiquette for this? I have signed a contract on a new brooklyn development back in September and I had already negotiated down the price from list to an agreeable level for me at the time but since then I feel the market is lower and I should get some concessions... I have a mortgage commitment but it is contingent on an appraisal and the building being OK'd by the bank. What can I do? I would like some of my closing costs/ xfer taxes covered and this is something he declined to agree to previously...
Comment #6 Posted By: Anonymous 12/15/08
Anonymous
This is mainly about greed. I work on several new developments, and although at least 60% of the projects units are sold, purchasers feel that because the market has taken a slide over the past 6 months, they are entitled to a market discount. This is absolutely ridiculous. They purchased at the pre-construction prices, and have been very lucky to have gotten in, when they did. If the building was way behind schedule, and sales were meager, I could understand purchasers being concerned about whether or not the building would ever be finished, or converted to hotel, condo etc. This would be a good time to reevaluate their circumstances, and confront the sellers, but not when the building is ready to close w/in 2-3 months. Real Estate is like the stock market, you take risks, and hope that you did the right thing. The market will go up, and down, but if you get in early, and hold, you will most likely be the winner in the end. Life is all about risk, and reward, but their is smart risk, and greed. Be smart
Comment #7 Posted By: Anonymous 12/16/08
Anonymous
I'm sorry but it's not right at this point to try and go and re-negotiate. A deal made is a deal made. if the prices went up higher, would the developers have grounds for a renegotiation?
Comment #8 Posted By: Anonymous 12/16/08
Anonymous
in rising markets sellers certainly have been known to reneg on a contract to entertain a higher bidder..
Comment #9 Posted By: Anonymous 12/16/08
Anonymous
I think it's more about fear than greed in a lot of cases..
Comment #10 Posted By: Anonymous 12/16/08
Anonymous
Real estate, like everything else on our planet, is only worth what someone is willing to pay for it. All the posturing (i.e., "lucky to have gotten in") is pure crap and lies. What the world needs is less people, especially real estate brokers, buying their own propaganda.
Comment #11 Posted By: Anonymous 12/18/08
Anonymous
I'm sorry but it's not right at this point to try and go and renegotiate. A deal made is a deal made. If the prices went up higher, would the developers have grounds for a re-negotiation? ---> What a convenient statement, if prices went up by closing time it would be safe to say that the developer did not do such a good job pricing his product and projecting market trends.
Comment #12 Posted By: Anonymous 12/20/08
Anonymous
OOOoof finally a nasty comment about brokers. I am so relieved. Broker
Comment #13 Posted By: Anonymous 12/26/08
Anonymous
have a lease-purshase executed in 07/07 with 01/09 settlement. have 10% deposit in escrow, property has gone from 400K to 240K in 17 months. i can walk, or renogitiate at last minute for somewhere in between. a 10-15% rise/drop in market is general, but at these numbers, it may be less expensive to walk???
Comment #14 Posted By: Anonymous 12/26/08
EofRe
Given the coming depression, prices are going down 40-50% from peaks. Make your decisions accordingly.
Comment #15 Posted By: EofRe 12/28/08
Negotiate ALWAYS
I always negotiate, up until closing, it is simply the practical thing to do. Take some negotiating courses and apply practically. I lowered the price on a building I was buying a couple weeks before closing, and that was because I knew the sellers needed the money and move to another state. That was about $30,000 less than agreed upon price, where else (besides Wall St.) will you ever make that kind of money in such a short amount of time?
Comment #16 Posted By: Negotiate ALWAYS 12/30/08
Anonymous
my wife and i were able to renegotiate the price of our one-bedroom condo in a new-construction building. my advice: get a good, aggressive lawyer (not hard to find in a place like new york city). in the end, my better half and i were able to keep an extra $18,500 from leaving our pockets. this money is going to come in handy, since we're expecting our first child in a couple of months. when times are tough as they are now, the financial security of your loved ones become even more of a first priority. if you can perhaps save a couple of tens of thousands to use for your family, why not hire a lawyer and renegotiate?
Comment #17 Posted By: Anonymous 01/20/09
Debra L. Bauer
Do not let developers and brokers scare you. They're the greedy ones! Review your T's and C's with a lawyer to file for a lower price restructure. Most, if not all, real estate lawyers are more than happy to help you renegotiate your contract price for a reasonable share of the pie. And, the last time I checked (which two months ago, when my husband and I were making our wills), most lawyers offer free one-hour consultations.
Comment #18 Posted By: Debra L. Bauer 01/20/09
bds
20 months ago, put a large deposit on new development. Have to close shortly and cannot imagine that this property is worth the same. We want to renegotiate, not only price, but time...we still have to sell our present property. What are your thoughts?
Comment #19 Posted By: bds 01/29/09
Anonymous
This Guerra guy has no idea how to get things done. I bet the sellers are saying the same thing at 403 Pacific Street. He does not understand that brinksmanship does not work well in this market. Thus, the company has taken a change in managerial direction regarding Cobble Hill office. PDE still has much to finish concerning the management of the brooklyn offices. Perhaps PDE Park Slope rental office is next.
Comment #20 Posted By: Anonymous 04/06/09