The Real Deal New York

NYC buyers’ brokers struggle in seller’s market

As inventory plummets, getting appointments toughens
By Katherine Clarke | August 01, 2013 07:00AM
Donna Olshan of Olshan Realty and Michael Graves of CORE

Donna Olshan of Olshan Realty and Michael Graves of CORE

In a city where only sellers’ brokers have exclusive contracts, representing a buyer is a tough job. And now it’s tougher than ever, thanks to the ongoing inventory shortage afflicting the New York City residential market.

With few new properties on the market, buyers’ brokers are having difficulty finding apartments to show their clients, since many apartments get snapped up even before they are listed online. When a new property does appear on the market, listing brokers said they are immediately inundated with requests for showings and even offers, which means they have to pick and choose which brokers to work with. Meanwhile, many tech-savvy buyers — especially those frustrated by losing apartment after apartment in a tight market — don’t hesitate to contact the listing broker directly, without the aid of a buyers’ broker.

“The market is inundated with qualified — and oftentimes overqualified — buyers who are also quite Internet-savvy, and who may or may not have a buyers’ broker with them,” said Sam DeFranceschi, an associate broker at Nest Seekers International. “When desirable products come to market, [buyers] are quick to reach out for a showing, and in some cases make an offer sight unseen.”

In today’s market, working with a buyers’ broker may even be a disadvantage, sources said, since listing agents often prefer to do a “direct deal”— one with no co-broker to split the commission. And though it’s against the rules of the Real Estate Board of New York, some sellers purposefully don’t return phone calls from buyers’ brokers, preferring to make a deal with an unrepresented purchaser.

According to Donna Olshan, president of Olshan Realty, some listing brokers “are putting off showing until the open house, in the hope that they can land a direct deal.”

A frenzied atmosphere

With Manhattan’s inventory of available homes at its lowest point in 12 years, apartments are selling quickly. It took an average of 4.6 months to sell a Manhattan apartment in the second quarter, down from 7.9 months in the same period of last year, according to a market report from the brokerage Douglas Elliman.

The combination of low inventory and speedy sales has created a frantic climate in the market. Buyers’ brokers in particular said that they are struggling to show apartments to their clients before they get snapped up by another purchaser.

Last month, “a new listing came on the market and it was perfect for one of my buyers,” said Jason Haber, CEO of the brokerage Rubicon Property. “He was literally boarding the Hampton Jitney when I called him about it. He was afraid it would be [gone] by the time he returned from East Hampton, so he got off the bus. That’s the kind of market we’re in.”

According to REBNY rules, a broker has 24 hours after signing an exclusive sales contract to distribute the property information to other brokers through REBNY’s online listing service. But in today’s tight market, brokers often get several offers even before the listing hits the RLS, simply by emailing their contacts.

By the time a buyers’ broker sees the listing online and calls to request a showing, the seller often already has a deal in place. And even when an apartment is still available, busy listing brokers don’t always return calls from buyers’ brokers promptly. Forced by time constraints to prioritize, they sometimes opt to show their listings only to the clients of veteran agents, whom they assume will be better qualified than those represented by industry newcomers.

“It’s a sad reality that some brokers are choosing to give access to apartments to only certain well-known brokers, who have a track record for transacting a lot,” said Michael Graves, a broker at CORE. “You’re more likely to show your property to a high-profile broker than to any old Joe Schmo.”

Prioritizing well-qualified clients is not illegal or unethical. But some agents take it a step further, purposely avoiding co-broking in order to get a larger chunk of the commission. In so doing, they’re violating the law and REBNY’s rules, which require brokers to present all offers to their clients.

Nonetheless, some listing brokers direct their clients more enthusiastically toward unrepresented buyers, industry insiders said. That’s especially tempting in today’s inventory-starved environment, when buyers desperate to find a home don’t hesitate to contact listing brokers directly the minute they see a new listing.

“When representing a buyer, I have seen some sellers’ brokers reacting to inquiries in a slower fashion, and at times not at all,” said David Salvatore, a broker at Town Residential.

DeFranceschi said he recently encountered this problem with a listing at the Essex House at 160 Central Park South. The listing broker, whom DeFranceschi declined to identify, kept dodging his requests to view the apartment, then demanded detailed financial information about his client before agreeing to show it.

“For all I know,” DeFranceschi said, “the seller’s agent just used that as an excuse to deter my buyer because he was working with a broker — me.”

Tired of jumping through hoops, DeFranceschi’s client gave up on the apartment without ever getting to see it. The unit has not yet sold, he said.

There are even some brokers who have dropped their REBNY memberships, or never joined in the first place, in part to avoid the co-broking requirement, according to Isaac Nematnejad, a broker at Elliman.

“I’ve recently encountered a few agents who are purposely not members of REBNY as a kind of loophole to avoid splitting commissions,” Nematnejad said. “This act is a clear indication of how some agents care to collect a maximum profit for themselves, as opposed to gaining maximum value for their clients’ listings.”

Chasing the deal

In the face of these obstacles, what’s a buyers’ broker to do?

Industry veterans advised persistence.“If there are three brokers on the listing, I’d make sure I emailed every single one,” said Mara Flash Blum, an associate broker at Sotheby’s International Realty.

It’s also important to be prepared, brokers said, so a listing agent has no excuse not to show the home.

“You want them to know that you have a viable buyer, that they’ve been screened and preapproved for a loan,” Blum said. “If you just write an email without giving any background, especially when you’re a broker that’s just starting out, [you won’t get the appointment]. Some sellers want to know who’s coming into their apartment, especially if it’s a private viewing.”

In extreme scenarios, brokers can report a fellow agent’s misbehavior to a manager or to REBNY.

But Blum noted that, for sellers’ brokers, doing a direct deal isn’t all it’s cracked up to be. It may mean a larger commission, but an unrepresented buyer usually means a lot more work for the listing broker, who often ends up guiding the buyer through the process.

Plus, direct buyers often “think you’re going to lop half the commission off the purchase price,” Blum said.

But most important, brokers emphasized the importance of networking and forming relationships within the real estate community.

Gea Elika is principal of Elika Real Estate, which specializes in representing buyers. He said he has good relationships with fellow brokers, who give him the heads-up about new listings even before they sign an exclusive agreement.

“I’m lucky to have relationships with [sellers’ brokers] who are quick to let me know if they’re getting a listing,” he said. “Today, it’s more about timing and relationships than ever.”

  • yobaby

    Owners should take advantage of this by demanding only half the commission be given if only selling broker is on a deal. If the broker doesnt agree with this, move on to one that will. Mostly smaller firms will comply but they are affective.

  • broker1

    I disagree with this report. 90% of the buyers want to be represented by a broker when buying an apartment. After the requirement of the State Department that the client has to sign a disclosure form indicating the understanding of representation, every buyer wants representation. As matter of fact, a good broker in today market understand that is very difficult to hold a property waiting for a direct client.

  • broker1

    Let’s not put down brokers when there is no reason for that when the market itself is requesting representation of both sides. It is a new market and a new field. There isn’t space anymore for that.

  • broker1

    Dear Katherine Clarke,

    Please write about the effects of the agency disclosure and representation in the real estate market today. Please go to the open houses and look into the sign in sheet. You will see that almost all the clients have a broker name that they put down when they come to the open house by themselves.

  • Broker2

    I have to agree with Broker 1. This article is ridiculous. It should be dissected by first time buyers, 2nd time buyers, etc. Do you really think someone in a Park Avenue Co-op is putting off showing someone to get a direct? Secondly, although it appears to be a Seller’s market, the fact of the matter is that buyers with cash, good credit and references and with experienced brokers — are the ones that are doing the deals. This market is really bad for new brokers or brokers without contacts and experience. 90% of all deals are done as a co-broke. No experienced broker is so self serving that they are turning away a potential buyer 9 out of 10 times to make extra money. Lastly, most sellers have exclusives with one number as a direct and another number as a co-broke – and everyone knows you want the buyer that’s actually going to close, not the one that throws money around. This is just totally off in every way possible.

  • Anonymoua

    In a deal that I thought might go to a bidding war in an expensive suburb of a particularly inexpensive property that I intended to buy as a rental property for investment, I went directly to sellers’ brokers to buy – with no buyer’s broker. I probably got a below market deal – like $25,000 – $60,000 below market – in the fall of 2012. Interest rates were low, prices were still depressed in the burbs, but the stock market was soaring. Surely enough, lower end properties (up to $1.5) like this one have increased in value a lot since I closed a few months ago. If I had tried to bring in another broker (I have relatives who could have been my broker), I either might not have gotten the deal done or paid a much higher price. There were bidders showing up and trying to outbid me till the end. I probably got preference over the other buyers as a practical matter (especially when we had the contract out) and a better price.
    Would I have liked to give the commission to my relatives? Yes. Was it in my interest to do that? No.

  • Essex House Residences

    We are the on-site broker for the Essex House and must
    clarify a point made in this article. It is our policy to fully cooperate with
    the NYC brokerage community on all of our in-house exclusive sales and rental
    listings —we do our best to ensure all inquiries about our listings are quickly
    accommodated and met with professionalism. However, we are not the only broker
    with exclusives at the Essex House and it’s unfortunate that the listing agent
    in this article did not follow the same level of care that we take with all
    potential customers, whether or not they are represented by an agent.