Real estate brokers must regularly ask their clients a question that most people consider to be the height of rudeness: “How much money do you have?”
But buyers’ brokers need to find out what their clients can afford — and what they are worth — before showing them apartments or submitting their financials to a co-op board. “We’re a city of 80 percent co-ops, [and] bringing a perspective purchaser to a co-op if you haven’t asked about their net worth is a waste of time,” said Kathy Braddock, co-founder of Rutenberg Realty.
That’s especially true in today’s strict lending climate, in which banks have stringent requirements for mortgages.
“You have to be informed about your clients, because you have to navigate this very different real estate market,” said Brenda Hersh, a senior broker at Buchbinder & Warren. “If you put a bid in and find out that you can’t get the financing — you don’t want to go there.”
Such a stumble can kill a broker-buyer relationship, so brokers have to make sure they get the numbers they need. But eliciting that information must be done delicately. The Real Deal asked several real estate brokers how they approach this touchy subject.
How do you broach the subject of net worth?
Deborah Fredericks, Deborah Fredericks Realty: “The best way to ask is to suggest that certain buildings want a certain ratio of the value of an apartment to net worth — some want three times the assets after you close, for example. Then [you can] ask, ‘Would you be able to look in those buildings?'”
Daniela Kunen, Prudential Douglas
Elliman: “I develop a rapport with them … then tell them that I have to ask personal questions such as what is their liquidity, their income for the last two years, and their debt. They’re invasive questions, but no one wants a board turn-down.”
Brenda Hersh, Buchbinder & Warren: “I have them fill out the net-worth statement from REBNY. And I also tell them I’m going to ask personal questions, but it’s confidential.”
Susan Forrest Reynolds, Rutenberg Realty: “I bug them up front. Rutenberg has documents about what to expect when you’re buying that I have clients read, so I’ve prepared them. The question sounds more awful than it really ends up being.”
Kevin Ferrara, Bond New York:
“I explain up front what they can expect. … I [don’t want] to have them say, ‘You didn’t tell me this earlier.’ I also use the REBNY form.”
Gea Elika, Elika Associates: “I ease into it. … If it’s a client who’s looking at an apartment that’s $5 million or above, I ask, ‘What do you do for a living?’ and try to validate it without it being too personal. If it’s essential, I ask their accountant to supply a letter of net worth. I don’t make them fill out REBNY forms; if they’re legit buyers, they will answer the questions.”
Wendy Sarasohn, the Corcoran Group: “I grew up in a family where money was not discussed, so it’s always been an uncomfortable subject for me. And when my client is a man, I always feel that it’s almost like asking about the size of his penis; it’s easier for me to make a woman comfortable with the question. But in either case, I usually say: ‘Because we’re going to be asked financials, I’m going to send a REBNY form and you can have your accountant fill it out.'”
Do you ask over the phone or in person?
Elika: “If I sense the person is hesitant because we haven’t met face to face, I suggest we meet.”
Sarasohn: “I do it over the phone, so there’s a buffer.”
Ferrara: “It’s definitely an in-person conversation.”
Fredericks: “It all depends; if you’re discussing it over the phone, you do it then. More and more clients are talking to you via e-mail, so that’s a great time to do it too, because you can pose a series of questions and they’ll answer you.”
How do different kinds of buyers react when you ask for this information?
Kunen: “Foreign [buyers] have a very hard time understanding the whole process — why [a co-op] could turn you down when you’re paying cash for an apartment, for example. They’ll say, ‘I’m putting $10 million down for an apartment; don’t they think I can pay $5,000 a month?’ They normally buy condos.”
Ferrara: “I think people who don’t have a lot of money take it personally, thinking they don’t have enough. If they’re … worth $10 and $25 million and up, they’re used to the process.”
Sarasohn: “One person didn’t want to fill out a financial form because he felt he was above it, but then I mentioned a few names of people who had done it who were higher up on the Forbes billionaire list, and he was okay with it. Some clients also think that if they tell me how much they have, I’ll try to sell them a more expensive apartment.”
How do you ensure that the information you’re getting is accurate?
Fredericks: “You never know; you have to trust them.”
Hersh: “I ask for bank statements and mortgage statements and their financial broker’s number, and the client signs a waiver that the broker can send me statements if needed. Most clients understand that this is a different era of showing real estate. If they don’t want to go through this process, then they’re not a serious buyer.”
Reynolds: “I usually trust that clients have no reason to lie. What would
be the point of lying? But I go through the paperwork with a fine-tooth comb.”
Kunen: “I assume they’re being straightforward, because they don’t want to be turned down. I will say that there is sometimes confusion as to what is liquid and what is not. For example, trust funds — what are the terms and conditions of invasion of that fund? Can recipient access funds anytime they want, or do they need to ask two other people for permission?”
Elika: “Over the course of 10 years, about 10 percent of clients have turned out not to be legit.”
Sarasohn: “In the old days people would say one thing but the board package wouldn’t match. … [Now], most people can be Googled.”