The couple’s budget was reasonable: a one-bedroom apartment in a doorman building on the Upper East Side for about $650,000.
But they didn’t want to face a brick wall, take on major renovations or pay more than $2,000 a month in maintenance costs. And after several months of hunting, they had come up empty-handed.
“We were stuck — there wasn’t anything there,” their broker, Bond New York’s Margaret Garvey, told The Real Deal.
So Garvey took a somewhat unconventional step: She sent about 100 letters to apartment owners whose units matched the couple’s criteria. Before long, she’d visited about six potential homes for her clients, and one of them fit the bill.
The couple ultimately paid $618,000 for a one-bedroom at the Plymouth House, a postwar building at 235 East 87th Street. The sale closed on Dec. 20.
“I thought I was just going to do something a bit different to try and see if I could shake out a property for them,” Garvey said.
And she isn’t the only broker contacting the owners of unlisted homes. More and more agents these days are seeking to persuade homeowners to sell, even if they initially have no intention of moving.
Call it a scavenger hunt or “investigative brokerage,” as one veteran put it. The strategy is one that brokers have used for years to satisfy clients looking for those needle-in-a-haystack properties. (This is in contrast to “whisper listings,” where homeowners are looking to sell but have not publicly listed their homes.)
But as inventory has shrunk in the last year — and plummeted in recent months — it’s a tool that brokers are employing more often these days, insiders said. And rather than searching only for rare gems in exclusive buildings, brokers are now also looking off-market for even run-of-the-mill homes, provided they have a desirable mix of amenities and a good location.
“These are fundamentally off-the-market transactions,” said Ray Schmitz, a broker at Rutenberg Realty who has several of these deals in progress. “And unless you pay attention and really dig, you might just not notice how much this is going on.”
Unearthing listings
Gea Elika of Elika Real Estate
In the fourth quarter of 2012, the number of Manhattan co-ops and condos listed for sale plunged to 4,749 units — about a third fewer than the same period the year before, and the lowest level since 2000, according to the most recent market report from appraisal firm Miller Samuel.
The dearth of inventory is partly the result of an ongoing shortage of new construction since the credit crunch, compounded more recently by a burst of winter sales in advance of the fiscal cliff deadline.
Faced with these conditions, brokers are employing a host of strategies to unearth off-market apartments for their clients: mailing letters, making phone calls, tapping social networks and seeking tips from building residents and staff (who may know of recent divorces, deaths or job transfers).
“What you do as a broker, if you’re good at what you do, is you start digging,” said Kirk Henckels, the director of private brokerage at Stribling & Associates.
“If you don’t have the inventory, then you have to find it,” he added.
The Verona
In a recent high-profile example, Sotheby’s International Realty broker Roger Erickson reportedly convinced financier Jeffrey Sobel to sell his penthouse at the Verona after mailing a request on behalf of a client who already lived in the Upper East Side co-op but wanted a larger unit there. (Another of Erickson’s clients, real estate investor Stephen Meringoff, ultimately paid $21 million for the spread. Erickson declined to discuss the transaction, citing confidentiality agreements.)
Gea Elika, whose firm, Elika Real Estate, works exclusively with buyers, said he sends personalized letters to homeowners he hopes to convince to sell. He said he typically includes details on the would-be buyer, such as their financing situation and time line for moving, as well as a personal note from the client himself. A follow-up call is sometimes a second step.
Town Residential’s Dana Power used this strategy recently on behalf of a client. She mailed a letter to the owners of all eight units in an exclusive Fifth Avenue building. A “prominent billionaire” was willing to sell, she said, although her client did not end up buying the apartment.
Town Residential’s Dana Power
Rutenberg’s Schmitz, meanwhile, prefers to use the phone. After doing some hunting for a phone number online, he calls the potential seller at work or the office. “This is not random prospecting for anybody that wants to sell,” he noted. “It’s very, very targeted.”
Not surprisingly, homeowners react differently to these requests: Some jump at the chance to make a quick buck, while others hang up the phone. Schmitz said that he often calls 20 people before getting a bite.
But the most prevalent reaction is skepticism — with good reason. It’s somewhat common for brokers to target homeowners, promising a ready and willing buyer, when in fact no such buyer exists — they are simply “fishing” or “farming” for listings, insiders said. This technique is generally considered unethical, not least because it involves lying to potential clients.
So how can brokers avoid having homeowners mistake their intentions? Industry veterans recommend targeting only the homes that fit the buyer’s needs and budget, researching those units in depth and communicating specific information about the buyer to potential sellers.
“You need to try to make this not a cold call,” Henckels said. “You need to try to establish your credibility because you’re only going to get one conversation.”
If brokers are lucky, they’ll stumble upon someone who is already contemplating moving — the kids are at college, or the commute has changed.
Sometimes a recent death or divorce can help a broker’s cause. For example, Schmitz had one Chinese client who found the perfect Murray Hill co-op, but was unwilling to live on the unlucky fourth floor. He called owners with units on the fifth floor and above, and within 24 hours had arranged a deal with the son-in-law of a recently deceased resident.
And if all else fails, it’s worth remembering one real estate rule: “Everything is always for sale at the right price,” Power said.
Tricky deals
Convincing an owner to part with their apartment is only the beginning. Once a broker finds a homeowner willing to sell, the deal becomes similar to a for-sale-by-owner transaction, which can be more complex than a broker-on-broker deal.
Negotiations can be difficult, brokers said, because the seller may have no idea what comparable properties are worth. And though buyers often pay a premium in these situations, some sellers get the impression that they will be willing to pay any sum for their dream home and adapt their bargaining strategies accordingly.
Another tricky point is the question of broker representation, which can be confusing for sellers who don’t have a listing agent. The broker working with the buyer is required by law to explain up front that they are solely representing the interests of their client, the buyer, and working on the seller’s behalf.
Once this is explained to them, some homeowners decide to have their attorneys represent them, while others hire a broker to negotiate the deal. That can complicate the transaction, especially if the new broker convinces the seller that putting the unit on the market and advertising it to a bigger audience would fetch a better price, experts said.
For all these reasons, brokers recommended evaluating the potential seller as closely as his or her apartment before making an offer. Garvey suggested asking questions like: “Is this person realistic? What kind of money are they asking for their unit? Are they going to be able to handle the transaction?
“If they’re not,” she added, “they need to have an attorney or another agent handle it.”
CORRECTION: In a February issue story, “Not-for-sale by owner,” The Real Deal incorrectly stated that a client of Town Residential’s Dana Power had purchased the apartment of a “prominent billionaire.” In fact, the client did not purchase the apartment.