Largely ignored during the boom because of their relatively paltry budgets, first-time buyers have suddenly found themselves among the most highly coveted client groups for New York City’s real estate brokers.
With few deals to latch onto, brokers have started paying much closer attention to them and are now giving them first-class status.
In this month’s Q & A, brokers told The Real Deal that first-time buyers now constitute anywhere from 30 to 70 percent of all of their clients. That’s a jump from 15 to 50 percent from before the credit crunch.
While these first-time buyers require far more handholding than those who are on their second or third apartment purchases, they are pulling the trigger in greater numbers. But, as one broker put it, they are still not “ready to get married” right away and are more demanding clients because they want to see more apartments and need tutorials on everything from property taxes to the financial structure of a condo or co-op.
In many cases, brokers must also learn to deal with parents of first-time buyers, who are helping to bankroll them, and friends who may be dissuading them from making the biggest monetary investment of their lives during a recession.
But for many brokers, rookie buyers remain the best bet out there because it’s often easier to qualify for financing on the lower-end apartments that appeal to first-time buyers. And, although they are not looking at multimillion-dollar condos, they can often afford more now than they could in the past because prices have come down so much in recent months.
For more on the discounts first-time buyers are getting and how brokers are targeting them, we turn to our panel of experts.
Robert DeLeonardis managing partner, Fenwick Keats Goodstein
How much more of your business is with first-time buyers these days compared to six months or a year ago?
Currently they make up approximately 30 percent of our business, which is an increase of about 15 percent over six months or a year ago.
How does working with a first-time buyer compare to working with a more experienced buyer?
[It’s] very different in the sense that first-time homebuyers aren’t as jaded. A lot of these first-time buyers will look at a rent-versus-sale analysis and say it costs me X dollars to own this apartment after taxes, which in many cases is less than rent. First-time buyers put more emphasis on that. When you run the analysis and look at the numbers of these sale prices that have come down so dramatically, it makes mathematical sense for them to buy. I think that’s why we are seeing more of them right now.
What are the biggest challenges in dealing with first-time buyers in this market?
Frankly, I find it a little bit easier to deal with a first-time homebuyer. They are actually pulling the trigger.
How much more handholding are you doing to reassure first-time buyers?
There’s a little more handholding in that we are walking through a deal from A to Z from the initial offer through comparables, through financial review, through referrals of a lawyer and mortgage broker. [We are also helping them] coordinate board packages and [with getting] appraisers, as well as with the board interview and closing. Traveling that road for the first time can be a little daunting if you’ve never done it. That’s why the process takes a little longer.
Are you seeing more activity at open houses among first-time buyers? Are they getting more serious than they were a few months ago?
Yes to both. More activity and more deals getting done with first-time buyers. In fact, I can’t remember when I have seen more first-time buyer activity.
How fearful are these buyers that prices will continue to go down and that they will lose out on even more savings?
There is no question that some are nervous. It’s the biggest investment of their life and I think everyone is concerned about making a large investment and losing money. What I tell first-time buyers is if they plan on staying in the apartment for at least three years, they can’t afford to continue to rent. Even if the market goes down, they are still ahead of the game by not throwing money away on rent.
Jennifer Lee director of business development, Aptsandlofts.com
How much more of your business is with first-time buyers these days compared to six months or a year ago?
I don’t know that it’s changed a whole lot [for us], because we work in a market where there are many first-time buyers — mainly Williamsburg, Greenpoint, Bushwick and Bed Stuy. If anything, I would say first-time buyers are starting to feel a little more comfortable than they were six months ago. Interest rates are low, prices are low and things seem to be turning a bit in the market. In Williamsburg, because there are a lot of condos, buyers can put 10 percent down … a lot of people are turning toward FHA loans, which allows for 3.5 to 10 percent down.
What are you doing to help your first-time buyers deal with financing?
You don’t want someone in a situation where they can’t close. It’s happened where people had been in contract for seven months and all of a sudden they are ready to close and the bank policy has changed — [now] they want 20 percent down instead of 10 percent. You have to be in constant contact because things are changing every day.
How bold are first-time buyers when it comes to negotiating on prices?
These days they are very bold. They know it’s a buyer’s market. That doesn’t mean that they are not realistic. People that are unrealistic are not real buyers. If you make an extremely low offer, you can’t get a conversation going.
How fearful are these buyers that prices will continue to go down and that they will lose out on even more savings?
There’s only a certain point to which prices will come down, and when a developer can’t take that much of a hit, they’ll rent it or do something else. Prices may dip a little bit more, but in the long run, I think we are pretty much at the bottom. Obviously, no one can ever predict that, but I also think that if prices go down much more, then interest rates are going to go up. If prices come down and mortgage rates go up, you are still going to be in the same spot.
Peggy Aguayo president, Aguayo & Huebener of 5th Avenue
How much more of your business is with first-time buyers these days compared to six months or a year ago?
A year ago I’d say it was probably 25 to 30 percent. Now it’s 40 percent.
How does working with a first-time buyer compare to working with a more experienced buyer?
A good broker will work with a first-time buyer even if they only have $300,000 to spend. But there are some brokers that will not talk to a potential buyer if they don’t have over $500,000. It requires the understanding that these buyers will hopefully be buyers with you the second and third time around.
How are you changing your marketing strategies to target first-time buyers?
We are using the Internet more and I have younger people doing my marketing, people who are the same age as first-time buyers. We use Facebook, Twitter, art galleries, art shows, design magazines — things that younger people tend to gravitate to, and much less newspaper [ads].
How bold are first-time buyers when it comes to negotiating on prices?
Some of them are too bold and the seller will not respond to bidding of 30 to 40 percent below asking. Most come in at 10 to 15 percent below and most product is priced to sell with a very little bit of space.
How fearful are these buyers that prices will continue to go down and that they will lose out on even more savings?
Six weeks ago people were saying that. Today I don’t get the question anymore. I think they test the waters and make an offer at 10 to 15 percent less. The seller is less resistant to dropping prices and they have become more satisfied that the market is getting healthier.
What price range have you seen first-time buyers looking in and how does that differ from second- and third-time buyers you’ve worked with?
Lower. From the high $300,000s to $780,000. Second-time buyers range from $600,000 to $2 million, because they have different incomes. I am also seeing parents help a lot more. We see that they still have money to help, which stopped for a while as they sorted out their inances, but [this] now seems to be coming back slowly.
Christine Blackburn senior vice president, the Barak/Blackburn Group, Prudential Douglas Elliman
How much more of your business is with first-time buyers these days compared to six months or a year ago?
I would say in the Brooklyn market they make up an even larger percentage, up now to about 70 percent from about 50 percent a year or two ago.
How are you changing your marketing strategies to target first-time buyers?
We created an informational pamphlet to hand out at all of our open houses explaining the new first-time homebuyer tax credit. For new development, we are advertising our preferred lenders much more in order to get buyers comfortable with the loan process.
How are your first-time buyers dealing with financing? How hard is it for them to secure mortgages?
If they have good credit, show solid income and have 20 percent down, financing is definitely available. The biggest hurdle is buyers who have been looking for over a year, and still are under the impression 90 percent financing is available.
What’s the competition like among brokers right now for first-time buyers?
I see many more first-time buyers working with brokers these days. I think that they feel they need a partner to help them. This inherently means more competition among brokers for those clients who are serious about buying.
What price range have you seen first-time buyers looking in and how does that differ from second- and third-time buyers you’ve worked with?
Most first-time buyers are trying to upgrade now from studios to one-bedroom apartments, since they find their budgets stretching further. Where I sell, in Brooklyn, they tend to be looking in the $400,000 to $600,000 range.
Emily Fisher agent, Halstead Property Brooklyn
How does working with a first-time buyer compare to working with a more experienced buyer?
Many first-time buyers want to see everything. They’re not ready to “get married.” They want to play the field.
How are you changing your marketing strategies to target first-time buyers? Are you advertising in new places?
Halstead has a mailing for first-time buyers that tells them about the first-time homebuyer’s tax credit.
How much more handholding are you doing to reassure first-time buyers? What does that handholding entail — tutorials on co-op/condo structures?
Tutorials on co-op and condo structures aren’t new, but what is new is that co-ops are looking more attractive and more stable compared to new construction condos. The falling prices and more stringent financing requirements are erasing the advantages of being able to finance a bigger chunk of the purchase that condo ownership offered.
How bold are first-time buyers when it comes to negotiating on prices?
Sometimes [they are] too bold. If an apartment is well priced, meaning sometimes 20 percent below where it would have been a year ago, a lowball offer isn’t going to be accepted. Even if the seller does counter, it can generate bad will, protract negotiations and mean a buyer can lose out on an apartment.
Noah Freedman principal, Bond New York Real Estate
How much more of your business is with first-time buyers these days compared to six months or a year ago?
Over the past year they went from being around 20 percent of our business to being almost 50 percent. They tend to purchase apartments under $700,000, which makes financing a bit easier.
How does working with a first-time buyer compare to working with a more experienced buyer?
Most first-time buyers have parents involved in the purchase. So not only is it important for the agent to make sure that he addresses all of the client’s questions and concerns, but he needs to communicate with the parents as well.
What are the biggest challenges to dealing with first-time buyers in this market?
Getting them to pull the trigger when friends and relatives are all telling them that now is not the right time to buy. Everyone wants to purchase at the bottom. Unfortunately, the only way to know when we have hit bottom is when prices begin going up.
How are you changing your marketing strategies to target first-time buyers? Are you advertising in new places or changing your marketing pitch?
Since 50 percent of Bond’s business is rentals, we have been making a strong effort to contact our previous rental clients. Very often as their leases are coming up they have decided to buy and … we already have a working relationship with them. One interesting change is that many agents are now focusing their pitch on going after less expensive apartments rather than the big numbers. Less expensive properties are generating more activity and quicker sales.
How are your first-time buyers dealing with financing?
Because first-time buyers typically purchase less expensive apartments, they are not having much trouble getting loans. This, of course, takes into account that they have suitable liquid assets, credit score and job history. But, again, since parents are involved in many of these deals, the mortgage brokers take the parents’ assets and income into account.
How bold are first-time buyers when it comes to negotiating on prices?
It depends on who the decision maker is. If they listen to the agent they are working with, the offers are generally about 10 percent below asking, give or take. But if the buyer is listening to a friend or relative who lives in Florida or California, they are making opening offers 30 to 40 percent below asking. That’s when we need to sit down and have a serious conversation with the buyer and often the out-of-state advisers.
Jessica Buchman senior vice president, Corcoran Group, Park Slope
How much more of your business is with first-time buyers these days compared to six months or a year ago?
They are probably a quarter of my business. I do have a handful of one-bedrooms and small two-bedrooms and I’m getting first-time buyers out on those. The first-time buyer doesn’t necessarily have more money than they had six months ago, but they are able to buy so much more. Their parameters have changed, so now they are in the two-bedroom category because the market has come down probably 15 percent.
How are your first-time buyers dealing with financing? How hard is it for them to secure mortgages?
I am not working with any buyers who are putting down less than 20 percent. That will cover you in most co-ops, condos and condo resales as well. The days of 90 to 95 percent financing have gone; I’m not working with those buyers. Either the opportunity hasn’t arisen or I tell them they need [a larger] payment because they will be more competitive and their interest rate will be more palatable. The first quarter was unbearable, but it got better in April.
How bold are first-time buyers when it comes to negotiating on prices?
Totally bold. I am working on a deal where the buyer has offered $620,000 on a $699,000 deal, not a bad offer right now. They’ve cited another apartment in the building that traded for $619,000 and they will not pay a penny more than $620,000. I had to find the broker that sold the property at $619,000, have that broker send me photos, send the photos to the buyer’s broker to show them it was a duress sale and that the property was not in similar condition to the one we were currently selling. I [also] heard the other day that a buyer would only move forward on a property if they had exclusive rights to the roof, but the roof was actually a common roof … They have expectations that are difficult to meet.
Can you tell us about any recent deals involving a first-time buyer that really illustrates what’s going on in today’s market?
[I had a] deal that was going nicely and then two days before closing I get a note from the buyer’s attorney that the appraisal came in $15,000 short. This is not uncommon in this market. It happens about 10 percent of the time. The bank wouldn’t send out a second appraiser. The bank requested further comparable sales. The second appraisal was $15,000 short. It’s closing at the appraised price, not the price it was in contract for, and the seller is outraged. The buyer is completely satisfied. This is the one deal since the credit crisis that has caused me the most problems. And, it’s a small deal at $360,000.