Non-starters just a year ago, deals dependent on mortgage financing show buyers gaining strength

30-day mortgage contingencies make a comeback

Jan.January 02, 2015 01:00 PM
From left: Julia Boland

From left: Julia Boland, Jeff Schleider and Mary Lou Currier

For the latest sign that Manhattan’s residential market is returning to normal after last year’s frenzied pace, look no further than sales contracts, where 30-day mortgage contingencies are experiencing a revival.

Mortgage contingencies, which allow buyers to walk away from a deal if they’re unable to secure financing, were considered deal breakers last year, when cash was king, inventory was tight and the market was squarely in the sellers’ corner. The return of contingencies signals a shift in favor, according to brokers and mortgage lenders.

Noah Rosenblatt, founder of real estate analytics firm Urban Digs, said that over the past month or two, “Most of our clients are getting deals done with a contingency in place.” That’s a marked change from the spring and summer, when a contingency was a “non-starter.”

Sellers are no longer expecting that they’ll have multiple offers and sell their apartment in a week with no contingency attached, he said. “They know that’s not really the market anymore … they don’t want to lose a good deal, because the bid has a contingency.”

Julia Boland, a broker at William Raveis NYC, said contingencies are still rare in new development, though they are “the first lever developers pull when they don’t want to play with prices.”

But Rolan Shnayder, director of new development lending at H.O.M.E. Mortgage Bank, said he thinks buyers would be hard-pressed to find a developer who would refuse a mortgage contingency, if the buyer is paying full price. (He qualified the statement by noting that super-luxury buildings would never accept a contingency.) 

“It’s a function of supply and demand,” he said. “If there’s no supply and a lot of demand, the seller can do whatever they want. Why would they go for a mortgage contingency when they don’t have to, if there’s another buyer right behind you?”

The influx of new development product set to come online in 2015 is playing a role in the shift. Already, overall inventory in Manhattan rose 27.6 percent during the third quarter of 2014 to 5,828 listings, according to real estate appraisal firm Miller Samuel. (Fourth-quarter data wasn’t available by press time.) Some 6,000 new units are set to hit the market in 2015, up from around 2,500 units that came online in 2014, according to data from Corcoran Sunshine Marketing Group.

According to Jeff Schleider, CEO of Miron Properties, sellers have been more willing to negotiate in recent months. “We are seeing good volume in contracts,” he said. “Similarly, buyers are able to have a bit more sway in the transactions, which has led to a lot of contracts in this last quarter.”

A seller’s agent, Mary Lou Currier of Bond New York, said she has allowed contingencies in recent months. But in those situations, she advises her clients to insist another protection be included in the contract. For example, she might suggest a provision that states the buyer will go through with the purchase, even if the appraisal is low, as long as the appraised price is within a certain range of the contract price. “It’s your time, your buyer’s time, your seller’s time,” she said. “That becomes a factor.”

Currier said she has to manage the expectations of her sellers in a slightly less favorable market. “It’s not this big rush” like last spring, she said. “It’s not like 10 people are putting in offers and almost all of them are cash and not contingent.” 

Karla Saladino, managing partner of Mirador Real Estate, said buyers and sellers feel “they have time to wait things out.”

“We are seeing lots of traffic coming through our properties,” she said, “but many have no urgency.”

Rosenblatt noted that the median number of days a property is on the market is also increasing — another sign that the market is shifting. As of Dec. 28, the median number of days on market for Manhattan properties was 65, up 27.5 percent from the prior month and up 38 percent from mid-May, when days on market plummeted to 47.

“Is it a buyer’s market? No,” said Rosenblatt. But, he added, “There’s been a normalization in the market, in the sense that the leverage … that used to be strongly in favor of sell side is now in favor of buy side.”


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