Sep. 1, 2009 - (bad) quote of the day / lawyer stumbles in NYT real estate Q&A

was the nuance edited out?
The Sunday Real Estate section of the New York Times regular feature by Jay Romano, Real Estate Q&A last week posed a complex question and provided an overly simple answer from a lawyer who represents the Westchester Board of Realtors®. I wonder if the lawyer provided a more complete answer that got edited down. Indeed, I hope so, because the simple answer quoted (and then amplified) can give real estate agents (and the lawyers who love them) a bad name.

The question is also a little confused: 

the [seller's] broker for this apartment [I might buy] is also the broker whom I wanted to use to sell my own apartment,... Should I avoid listing with the same firm because of a conflict of interest?

The question is confusing because the Questioner has TWO potential relationships with the agent who represents the apartment s/he might buy, but asks explicitly only about one. The Questioner may bid (buy) the apartment the agent represents, and the Questioner may want that same agent to represent Questioner when s/he sells his/her own apartment. The lawyer's simple answer (below) is particularly superficial for not dealing with these two potential conflicts of interest.

simply wrong
The simple answer to the not-so-simple-question was:

No. [identifying information omitted] Always list with the person who is most effective and has your best interests in mind.

The correct overly simple answer is "it depends on what you want and why you value this agent, after you understand it". But at least this simple-but-wrong response deals with the Questioner's precise question.

Bear with me here (or bail out now), as I can't find a simple way to approach this, other than step-by-step. (Regular readers know this might be a good time to freshen up that cup of coffee.)

answer that does not match the question
Remember that the Questioner asked about a conflict if s/he listed his/her apartment with the same agent that was representing the other seller. The lawyer's extended answer, paraphrased by Romano, 

the broker [acting as "dual agent"] works for the seller and the buyer with the informed consent of both. “Effective people get the job done,” he [the lawyer] said.

He noted that a dual agent cannot absolutely guarantee undivided loyalty. But such loyalty, he said, might not be as valuable as having a respected, honest and effective agent working on your behalf.

No part of that extended answer addresses using the same listing agent, but this whole answer deals with buying through the agent who 'represents' the seller. Best to begin at the end, then, with that Dual Agency thing before dissecting that legal train-wreck of a (paraphrased??) comment "a dual agent cannot absolutely guarantee undivided loyalty".

"dual" agency is an odd duck, best served well-advertised
The NYS official disclosure form for real estate buyers and sellers is accessible here (pdf). (The form is not required to be signed for coops and condos in buildings with four or more units, but the substance of the disclosure is still required to be given to buyers and sellers by agents.) The key provision of that disclosure about an agent "representing" both buyer and seller in the same transaction indicates that this idea is ... fraught (I put some of the heavy words in bold):

An agent acting as a dual agent must explain carefully to both the buyer and seller that the agent is acting for the other party as well. The agent should also explain the possible effects of dual representation, including that by consenting to the dual agency relationship the buyer and seller are giving up their right to undivided loyalty. A buyer or seller should carefully consider the possible consequences of a dual agency relationship before agreeing to such representation.

With that disclosure mandated by New York law in mind, refer again to the simple question asked (essentially, should I avoid the conflict?) and simple answer given ("No. ... Always list with the person who is most effective and has your best interests in mind."). Nothing particularly "careful" about that answer, with no indication that there may be possible effects other than the one I will get to ("a dual agent cannot absolutely guarantee undivided loyalty"). To be pedantic, nothing like, "after the agent carefully explains the risks and benefits, you should carefully consider whether that is best for you, or whether you prefer to work with an agent who can give you full-fiduciary-level services". 

consider the alternative
If an agent represents only one party in a transaction, that agent can be a full fiduciary with the following duties (per the form) to the buyer or to the seller: "reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account". Of these five fiduciary duties, the most problematic in a Dual Agency situation are Undivided Loyalty (as the form itself notes) and Full Disclosure. Keeping the train-wreck (Undivided Loyalty) aside still, the duty of Full Disclosure would be lost to a "client" of a Dual Agent.

With an agent who owes me (a seller) Full Disclosure, if my agent learns something about a buyer that might give me a negotiating edge, that agent is obligated to tell me, to use it to my advantage, and has no obligation to protect any of his secrets. This topic lends itself to Big Picture (vague) pronouncements, so I will try to be concrete.

more concrete scenarios
Let's hypothesize that my agent (as I am a seller) overhears or figures out that the buyer has some time constraints (a lease is ending, or some parent gift-money must be given by the end of the year), or that there are only two viable purchase candidates for this buyer and that the other one just went into contract. My agent's job is to exploit that information for my benefit. If, instead, "my" agent morphed into a Dual Agent, that agent would owe the buyer Confidentiality and I would never learn of these factors.

Or if I am the buyer, my agent might learn that the seller is under contract to buy something else so is under pressure to make a deal to sell. My agent's job is to help me leverage that intelligence to get the best deal possible for me. But if, instead, the agent who was "my" agent became "our" agent (a Dual Agent), the agent would have to hold that information in confidence.

Worse for the seller whose agent goes from Seller's Agent to Dual Agent: if there is a very comparable competing listing on the market that goes into contract during negotiations between buyer and seller, the parties will want to know what the contract price is (if they can find out). If the agent somehow learns that the contract price would advantage the seller (because it is very high), the Dual Agent would be prohibited from telling the seller this information while a Seller's Agent would be duty-bound to use it to put the screws to the buyer. Once you get the idea of how significant Undivided Loyalty is in a negotiation, more fertile minds than mine will come up with more powerful factual scenarios. I will offer just one more.

the Negotiating Eunuch
Even without any special factual nuggets that a seller's agent might exploit, the entire negotiating dynamic is different with a Dual Agent. One of the reasons that some people use agents is to get that important emotional distance in a negotiation; another is to take advantage of the experience of someone who negotiates coop or condo purchases for a living. Whether that takes the form of hand-holding ("relax; that last gambit only seems personally insulting; are you really willing to walk away because the Idiot Buyer wants your drapes??") or is more strategic ("I think they are bluffing and that they will make another counter"), the seller often asks the agent "what do you think?" or "what does that mean?"

But if "your" agent becomes a Dual Agent there is a reverse-phone-booth effect: the formerly powerful tool you had becomes a mere transcription service.

Seller: how much more do you think I can push this Buyer?

Dual Agent: I can't say. What should I tell the Buyer?

Seller: well, I can counter by dropping $50k but that is close to my Absolute Bottom Line.

Dual Agent: don't tell me that unless you want me to tell the Buyer.

Seller: I thought you worked for me!!

Dual Agent: I used to, but then we agreed that I would act as Dual Agent.

Seller: why did "we" do that?

Which leads us back to the lawyer's comments and the question: if Dual Agency can only be created by agreement of all parties, why would a Seller agree?

back to that train-wreck of a comment
Romano edits the lawyer's answer to put these words into the lawyer's mouth about the Loyalty of a Dual Agent (though he does not quote the lawyer): "a dual agent cannot absolutely guarantee undivided loyalty". Doesn't that weasel set of modifiers ("cannot ABSOLUTELY guarantee...") suggest that you might get some loyalty, and that -- in some circumstances but we can't promise in advance -- you just might get that Undivided kind of loyalty?

Instead, the NYS disclosure form is clear that when "your" agent becomes a Dual Agent, you "give up your right" to Undivided Loyalty. You had it. You lost it. No, "we might be able to provide it, depending ..." stuff.

Any "careful" explanation (as required by the disclosure form) should -- it seems to me -- include the Negotiating Eunuch. Some people don't need help negotiating; they may do it every day at work, in transactions involving many, many more dollars than an apartment or loft sale. So some sellers will maturely conclude that they can handle the entire negotiation on their own. But what do they get for "giving up their right to undivided loyalty"? In most cases, I expect that the sole benefit to a seller of "their" agent going in to the reverse phone-booth is that the agent believes the buyer and agent share a rapport and that the transaction can be expected to be "easier". No risk of misinterpretation between two sides if the same agent is in the middle.

I am trying to think of another "significant" "benefit" to a seller.

Still trying ....

When "carefully" explaining all this to "my" seller, I want to be very clear that I would owe neither party much loyalty if the seller and buyer agree that I should be a Dual Agent. I would owe both of them honesty, reasonable care, obedience, and confidentiality, but otherwise I am playing it straight down the middle. I would want to be so sure that "my" (soon-to-former) seller "gets it", that I would never be wishy-washy about Loyalty by suggesting "well, I can't absolutely guarantee you undivided loyalty, but ..." and then leave that pregnant ellipsis hanging and hope the seller draws his/her own conclusion.

Nor would I want a buyer to think -- after careful explanation of Dual Agency -- that I had his/her best interests in mind ("[a]lways list with the person who is most effective and has your best interests in mind"). Because if that is what the buyer thinks, there was something wrong with my explanation, no?

But then I am not a lawyer representing a Board of Realtors®.

more common scenario in Manhattan: dual agent with designated agency
It is much more common here for a slightly different potential conflict to come up. The seller of Beautiful Loft represented by a Brokerage Firm (let's call it "Corco"; although you could equally well call it "Prude"). The buyer has been working with a different Corco agent, and becomes interested in the Beautiful Loft. As a firm, Corco has a conflict in that setting unless the buyer knows (agrees) that s/he is unrepresented for purposes of the Beautiful Loft (in which case only the seller's agent participates). If that buyer wants to be "represented", both parties must agree that Corco is a Dual Agent and that the seller's agent is "designated" to work with the seller, while the buyer's agent is "designated" to work with the buyer.

a bit of a swamp
As the disclosure form says, this is another opportunity for a "careful" explanation. I have seen precious little practical guidance here over the years, but this is what the form says (in part):

I take this to mean that the two "designated" agents can go at each other on behalf of their respective principals, but if they choose to get guidance from their supervising broker, everybody knows that the supervising broker will give advice to both "sides" equally. I admit that I am a bit fuzzy about the "designated sales agent ... like the dual agent under whose supervision they function, ... cannot provide undivided loyalty" part.

Frankly, I would love to hear more specifics about what "designated" agents can and cannot do, but each time I have asked a lawyer or association executive I have gotten boilerplate responses that are not very useful in the real world.

What is clear is that there has to be a "careful" explanation of this. While NYS law does not require that the disclosure form be provided in most cases in Manhattan, I will use it and get my "client" to sign it.

who cares? why??
There is a sense in which none of this matters to agents in the real world except under three circumstances.

(a) The Department of State exercises its ability to audit firms for compliance and (in the absence of a form in the file) may start asking questions of the buyer and seller that could have embarrassing repercussions.

(b) Something bad happens to the deal after the fact, and sharp-eyed lawyers are paid to dig through the deal's carcass.

(c) A painful situation that came up in the last few years, the details of which are lost in my memory but the outline of which I saw reliably reported when there was litigation. At the closing table of a deal in which there was only one agent involved (the seller having a written agreement to list with that agent's firm), the seller's lawyer overheard a remark by the buyer about something the seller would have liked to have known, but did not (maybe it was that the buyer would have spent more??), although the agent knew. The attorney asked the agent if there was a NYS Dual Agent with Designated Agency form signed (of course not) and refused to deliver the commission check (a rather large number, as I recall). Teh firm sued for the commission, and lost because it appeared as though the agent had some loyalty to the buyer but had never explained to the seller about Agency. (Anyone else remember the details? I think it was one of the "S" firms....)

There is a sense in which this matters a great deal to a buyer who thinks that the agent who really (and exclusively) represents the seller somehow has the buyer's best interests at heart. And a sense in which a seller should never give up a right to undivided loyalty unless the seller truly does not care or if the seller gets something in return of real value (still can't think of another example).

to sum up
This is a complicated topic, hardly suited for simple answers.

This is a wordy MLG post, and your coffee is probably cold.

I wonder if that lawyer will write in next week to "amplify" his remarks.... Whatever, he is the source for my Bad Quote Of The Day. Congratulations. The certificate is in the mail, c/o the Westchester Board of Realtors®.

Jun. 19, 2009 - power of a coop board to reject a deal as "too low"??

protecting shareholders from market value???
The Real Deal on-line June 16 flagged an interesting little item in a relatively obscure periodical that is mostly read (if at all) by Manhattan coop and condo boards, Habitat Magazine. With a tip of the hat toTRD and apologies to Carol Ott, the article is online here. It touches on the (undeniable) power of coop boards to approve or reject purchase applications, but in the specific context of whether the coop board can or should decide based on the contract price. This is one of those back-in-the-day topics, where Manhattan real estate veterans might regale (bore) newbies in (say) 2006 with stories about the Bad Old Days (early 1990s) when coop and condo prices in Manhattan were at best stinky and stagnant. Things go 'round and 'round....

Habitat found an actual Manhattan coop board president faced with an actual dilemma and a 7-member board split 3-3 (pending the president's vote) on whether to approve or disapprove a purchase. In broad terms, there was a shareholder with a contract to sell, who had been trying for quite a while to sell, and who presented a contract for approval at a price that some board members felt was "too low". The board clearly has a fiduciary obligation to act to protect "shareholders", but that duty -- simple to state -- is not so easily applied.

the law is a ass
Apparently there is court precedent in the Bronx and Manhattan that is different from the court precedent in Queens and Brooklyn. A lawyer described the decision pertaining to Queens and Brooklyn as "to turn somebody down because his price is too low is an unreasonable interference with a shareholder's ability to sell his apartment", while the one covering Manhattan and The Bronx "said that it's not unreasonable because a board was within its rights in making decisions in the best interests of the building". As one sighing lawyer said, in turning on-the-one-hand-on-the-other-hand to the other hand: "you do have an obligation to protect the property value for the rest of the people." Neither decision is controlling (they must have been by low level courts), but I am less interested in the legality per se than in the stupidity.

coop boards protect value like Canute protected beaches
Having been a coop board president in a small Manhattan loft building for ten years, I can't think of any other 'reason' for the board to reject a deal because of price than that articulated by the sighing lawyer: the board absolutely has "an obligation to protect the property value for the rest of the people." My considered judgment is that the solution (rejecting a shareholder's application to sell and get out because remaining shareholders will be struck with a bad comp) has nothing to do with the purported problem (fear that units will be worth less after the sale than before it); even putting aside for the moment the harm the board would do to one specific shareholder and the risk that other shareholders will be left dealing with a fellow shareholder who may be financially strapped (after all, is selling at a 'distress' price) and will be emotionally pissed.

In the case of the president about to cast a deciding vote, the shareholder had been in the marketplace for quite a while and found exactly one buyer, at the best price the seller could negotiate. Whether the board wanted to keep it secret or not, that contract price was the value for that coop at that time (if it was really worth more, someone else would have paid more, no?). A board who decides that this is a bad comp and wants to protect other shareholders would reject the deal not to protect value, but to protect a secret: the secret that one unit was worth 'only' $X. In a world in which information was available (e.g., if an appraiser -- such as the one probably involved -- knew the deal had been rejected), the lending community (at least) would use that deal in assessing value (in this case, probably as a ceiling).

For a board to insist that market value contracts will not be approved actually says this about units in the building: they have no value because they are unsaleable; any price that is low enough for The Market to accept is too low for us to approve.

So I think that the best argument in favor a board rejecting a deal on the basis of price is that they think that other shareholders benefit from keeping this arm's-length transaction a secret. So I think that this (best) argument is stupid.

practical consequences
As noted, a board rejection will likely render units in this coop illiquid until The Market shifts. But at that point the utility of a 'bad comp' is limited by the then-current (improved) market conditions. But what else will happen if the board rejects that deal?

One shareholder is very definitely screwed -- nothing conjectural about that. And -- if that shareholder is less financially responsible than the rejected buyer -- the coop may be screwed as well, if that shareholder can't afford the maintenance, or can't contribute to an assessment for needed building improvements. Not to mention that the social fabric of the building may be at risk from a severely screwed shareholder's interaction with the board and other shareholders.

If the board approves the sale, they trade one shareholder for another and they acknowledge (not set, acknowledge) that The Market value of their coops has declined. People may not be happy with the facts, but they at least know that if they need to sell, the board will not interfere with The Market. Isn't that likely to be a happier building than one in which people feel locked in, perhaps desperate?

If the lower court decision taking the contrary view were readily available I would be curious enough to read it, but I cannot imagine that there is any better 'analysis' than is presented here. The only conceivable reason for a board to reject a deal because the price is 'too low' is to protect other shareholders from the facts in the marketplace, notwithstanding the actual (potentially huge) harm done to one shareholder and the potential harm to the coop from losing the opportunity to trade a weak shareholder for a stronger shareholder.

I don't mean to pick on coop boards, just on stupid coop boards. I have talked before about coop board authority, and public commentary or analysis of that authority, so this post joins a list. (By the way, that actual Manhattan coop board president in the Habitat article faced with an actual dilemma and a 7-member board split 3-3 [pending the president's vote] on whether to approve or disapprove the purchase did the right thing: that board voted 4-3 to approve the deal.)  See my other posts about coop boards:

Nov 21, 2008: picking on coop boards but in need of editing (NY Post) (about a crappy NY Post article and coop boards tightening standards in a changed market)
March 16, 2008: coop boards behaving badly / 32 Gramercy Park South edition (about a coop board lawsuit over a shareholder's holiday decorations)
May 29, 2007: advantages to the much-maligned coop ownership, vs. condos (about one advantage of coops compered to condos -- the ability of aboard to deal with misbehaving owners)
Feb 9, 2007: coop boards behaving badly / can you imagine? (about ways in which some coop boards do bad things, sometimes)

then, vs. now
Back in the day, this low-price-dilemma was last an interesting topic but in a very different world. (In my loft coop, shareholders who bought in the late 1980s were under water for 5 to 7 years; in which time there were few transactions, but there were some.) That was a world in which coop prices were still (largely) secrets -- known only to those in the know and not publicly available anywhere. The power of a negative comp probably had more of a bogeyman aspect, and boards could more legitimately think about keeping secrets. But those days are long gone....

The Market is The Market, is The Market. Coop boards have no positive effect on market value, but they can make units unsaleable (or, to reduce the actual value of unit) by rejecting deals for reasons having nothing to do with the financial qualifications of the buyer. If they want to increase shareholder value, they should run a tight building and not do things that have little benefit but make it more difficult to sell (such as making open houses difficult or impossible, or preventing shareholders in dire financial circumstances from sub-letting, or discriminating against buyers who are ... different). End of rant. Resume normal Manhattan Loft Guy reading....
 

May. 7, 2009 - counting errors at Soho Mews / "lofts" + 2 BR "apartments"

look away to avoid a rant
When I do my regular weekly report of sales and new listings for Manhattan lofts as of Sunday, the report will include 2 "lofts" reported today within the inter-firm data base as having sold at Soho Mews, 311 West Broadway. But it will not include 5 sales in the same new development also reported today, because those sales were characterized as "2 BR" instead of as "loft". Arrgghhh.

All 7 of these units are marketed by the same firm. 6 of the 7 are in two lines, with identical floor plans within each line on these floors, yet one of 3 is designated a "loft" in each of the two lines, while the others are "2 BRs". I hate when this happens.

The website for the project makes it clear that the developers think they are selling "Lofts, Townhouses and Penthouses" and none of these seven units is a penthouse or townhouse. Especially with smaller numbers of sales of late, this kind of thing screws up the data. (But I still think it is right to avoid making my own judgments about what to include as "lofts", because doing that is [a] introducing yet another level of uncertainty, and [b] much too difficult.)

End of rant. Resume normal scrolling.

© Sandy Mattingly 2009

Mar. 27, 2009 - more on agents behaving badly (or is that moron agents behaving as expected?)

paging Claude Rains
I just updated my ever-so-popular February 23 post, What's Wrong With These People? agents who speak out of their ... to reflect that the Manhattan loft in question has not sold (or entered into contract), but that the price has been cut 8%. It still has a ways to go, methinks.

Everyone who is surprised should immediately pay full ask for the loft of their choice. Cash, if at all possible.

© Sandy Mattingly 2009

Feb. 23, 2009 - what's wrong with these people? agents who speak out of their ...

Manhattan Loft Guy truculence unleashed: caution
I toured some Manhattan loft open houses yesterday with buyers, and saw some interesting lofts. The "highlight" of the tour was a visit to a loft with a terrific skeleton -- clearly a total gut renovation with a lot of potential (handsome building, high ceilings, big windows, good light), offered by a pretty well-known agent. In the eyes of my buyers (and to my own eyes) the agent was an embarrassment. Farcical, at first, but overall an embarrassment to the firm and the licensing authority.

Feb. 4, 2009 - the (boring) details about building financials that can prevent your loft from selling

Banks of all sizes are now carefully reviewing the insurance policies that co-ops and condominiums hold, specifically to see whether a building has fidelity bonding, which is insurance against theft by property managers or by the building’s board of directors; whether its insurance has an A rating; and, if a building is in a flood zone, whether it has adequate protection.  

“It’s gotten torturous,” said [a mortgage broker whom I will not name here] with offices in Manhattan and Brooklyn. “It’s still possible to get a mortgage, but the documentation required now is monumental because the questionnaires and insurance documents needed have to come not just from the purchaser but from the building, too.” 

Because most banks will agree to do only one loan in such a small building, his loan officers have to get mortgage information from every other homeowner in the building and then find a lender that has no loans there but is willing to work with a small building.

Nov. 21, 2008 - picking on coop boards but in need of editing (NY Post)

it is their job, dammit

Why do people pick on Manhattan coop boards? Because it is easy and because they sometimes do dumb things that make the newspapers. And because they are an easy target on a site like Curbed, such as yesterday's Those Crazy Coop Boards, which riffed on yesterday's NY Post article Cuckoo for Coops. There is a lot of fodder in that article; I will chew on a good bit today, and may revisit this again soon (best laid plans??).

Having been president of a small Manhattan loft coop board for ten years I am confident that nearly all coop boards are trying to do their job when they review purchase applications: protecting their shareholder-neighbors. Granted, that in the case of the snooty-snoot coops along Fifth Avenue, Park Avenue, Central Park South or West "protecting" shareholders involves more obstacles and a folks-like-us approach, but those boards (easily caricatured) are hardly typical. Typical boards want simply to protect their own equity and living environment -- and that of their neighbors. (Of course there are the occasional individual board members who are nut jobs, but as a whole, boards are pretty rational.)

selling newspapers (or attracting website eyeballs)
Especially with the turmoil in the financial markets these days,everybodyis nervous, including coop owners and coop boards (aren't you??). And if their job is to protect shareholders, wouldn't you expect coop boards to change their approach when the world changes so dramatically? (Of course you would.) And you would expect that changed approach to generate some commentary, if not controversy.

but why is that NY Post article so poorly edited?
The Post talks about a number of things that have changed in how coops deal with purchase applications, most of which have been part of the coop board approach for years: (1) putting maintenance in escrow; (2) more frequent rejections; (3) "six months of financial records" instead of one or two months; (4) longer applications (40 pages was described as unprecedented); and (5) "some boards are requesting a second set of financials just before the signing of a contract to ensure that no nest egg or job has disappeared since the buyer initially made the offer".

Two things in particular in the Post article stand out to me. The last item I mentioned above (" some boards are requesting a second set of financials just before the signing of a contract to ensure that no nest egg or job has disappeared since the buyer initially made the offer") simply makes no sense. I find it hard to believe that Katherine Dykstra wrote it that way (she's been covering Manhattan real estate for a while), and harder still to believe that this sentence got through editing. The "some boards" noun in that sentence should be "some sellers" because boards don't get information until a contract has been signed. (A seller would get a buyer's financial information when an offer is made and may prudently ask that it be updated before signing a contract, but that is not what this article is about.)

If they mean that some boards require updated financial information before closing, that would be dramatic. And cumbersome. But it makes no sense as written, since no coop board gets any information from a buyer before a contract is signed. Simply absurd.

9 references; so what?
Then they hold up the poor Chattopadhyay family as the subject of (by implication) ridiculous scrutiny because each of the three had to get three references ("[w]hat makes this even more remarkable is that Chattopadhyay and her husband didn't take out a mortgage"). Nothing remarkable about this. The only thing different about a coop purchase application from a cash buyer is that there would be no mortgage application submitted, no mortgage commitment and no Aztec recognition agreement. If the application requires three personal references and two business references, they would be required for each purchaser. Here, apparently, there were three Chattopadhyay purchasers. Nothing unusual about that, at all.

more data in more perilous times; so?
The Post may be right that more coop boards now ask for more historical information from buyers. ("Boards now have less faith in the value of stock portfolios. In some cases, potential buyers are being asked for financial records that go back six months, rather than the month or two that was common a year ago.") I have not seen instances of this changed requirement, but am willing to believe that the Post is right. It is just not a big deal (and probably not so useful, but that's just my opinion).

In the old days (say, April 2008), some boards asked for "financial records" that went back only  a month or two, but other boards already asked for more history, if by "financial records" the Post means account statements. Many, many coop boards have long asked for two years or more of tax returns, but there is more diversity about how many months of bank and securities account statements have been required. In a more stable Dow Jones environment, additional monthly statements are irrelevant -- requiring older statements just makes it easier to find out if there has been a sudden infusion of cash or stock into a buyer's account (such as, from parents who park assets in an adult child's account for purposes of improving a purchase application; yes, it happens) -- because the value is the value is the value. Now, it may be more interesting to a board to see how an applicant's portfolio is doing over a longer term, without having simply the shorthand of Dow 11,000 to Dow 7,500.

But this is hardly dramatic, and hardly cumbersome, in a world in which most people can print most account statements from the web (and in which most coop boards accept web-generated statements). It may just be that boards are being better fiduciaries in perilous times.

coops v. condos / downpayment convergence
One point in the Post struck me as interesting, though they did not take it far enough. In thlnking about how coops may now be better "values" than condos (definitely a flip, if true), they point out that the down payment advantage that condos traditionally enjoyed may have vanished under changing lending standards. While most coops require at least 20% down, some condos required only 5% (the norm was 10% in my experience), so buyers used to be able to buy condos with less cash up front (ignoring the higher closing costs for a condo, but that gets more distracting).

While the Post says that "many condos are now requiring 20 percent down, just like a co-op would", I have not seen that (it could well be true). I have seen banks require 20% down in condo purchases, rather than 10%. But the Post's analysis leaves out the fact that coops will still require that a buyer have certain liquid assets left over after closing, while condos typically don't care. So a cash strapped buyer is still going to be more attractive to a condo than a coop (assuming they get a mortgage in the first place).

huh?
The Post ended with what looked like a favorable comparison of coops to condos, based on the notion that coops may now represent better"value" than coops. But can anyone follow the logic of the closing sequence here:

As Jorden Tepper, executive director of sales at Century 21 NY Metro, says, it's "basic supply and demand." More properties on the market should bring prices down, he notes.

"People in co-ops don't want to see their properties realize a depreciation in value," Tepper says.

So ultimately, those pesky boards will need to approve someone.

(1) Supply and demand should bring prices down, but (2) coop owners don't like "depreciation" (he means "declines" in values, right?), so (so??) (3) boards need to approve someone. Huh?

Fact is, coops don't "need" to approve "someone"; they should approve a qualified purchaser. Without a qualified purchaser, they should reject everyone. So (so!) that 'conclusion' is both wrong and illogical (it does not follow from the premises). Who is being nit picky now?

one final word
(This has dragged on, hasn't it?) In contrast to coops, of course, the only power that condos have in response to a complete application is the right of first refusal. That means that the condo seller who signs a contract is almost certain to sell (to the buyer or to the condo), as opposed to a coop seller, who goes back to square one if a buyer is rejected. Short term, that makes condos more valuable because they are more liquid than coops; longer term, I could make an argument that coop values should hold better because there is greater protection about new shareholders' finances, but that's for another day.

© Sandy Mattingly 2008  

Sep. 19, 2008 - Brown Harris vs Brown Harris / 25% drop in coop value at the top already??

Sep. 12, 2008 - no country for old FSBOs? no Manhattan lofts above $1mm

Manhattan sellers pay to sell
It has been quite a while since I parsed the NY Times online Manhattan residential real estate listings for brave for-sale-by-owners of lofts (last was December 13 no loft FSBOs for the Holidays; before that July 10, 2007  where have all the loft FSBOs gone? nary a two on NYTimes.com ), but I did it yesterday.

Searching in the range of $1mm to $5mm, NYT has 742 Manhattan loft "listings" (more on that below), none of which are offered for sale by owner (other than one offered by a broker selling her own loft, which is not really a FSBO). Not one. Perhaps that is a sign that sellers appreciate that the market is a not more difficult for sellers, so that it is worth paying for some help. Or -- given that none of the 677 lofts I searched in December on NYT were FSBOs -- it just says something about there being few Manhattan FSBOs in general.

one flat fee listing, seller does the work
I thought I had one at around $1.5mm in Flatiron, actually, until I did some digging. Turns out that the NYT listing that looks like a straight FSBO is being marketed through a Century 21 affiliate that does flat fee "listings", as it is in our inter-firm database offering 3% commission to a buyer agent.

Not surprisingly, when I expanded the NYT search up to $10mm there 93 lofts listed but will still no FSBOs. But I did find 2 or 3 out of 305 listings for lofts from $500k to $1mm (2 are plainly FSBOs; one might be but sounds suspiciously like an agent is involved without the required legal disclosures).

1,140 lofts for sale in Manhattan? not so much
How concerned am I that last Sunday's count of Manhattan loft inventory offered from $500k to $10mm (Manhattan loft inventory as of September 7) was 'only' 702 compared to the 1,140 found in the New York Times on line yesterday? Not very.

I talked about the fuzziness in counting "lofts" in the inter-firm data base in my May 19 post about counting inventory, but the difference between my 702 and the NYT 1,140 is less about problems with the inter-firm data as it is about problems with the Manhattan real estate business: my 702 is pretty reliably actual lofts actually offered for sale by agents with exclusive listing agreements, while many of the 1,140 in the NYT are for lofts that have already been sold, lofts that don't exist (or are not really for sale), are real lofts offered for sale by another real estate firm, or are duplicate ads.

Jun. 18, 2008 - the problem with anecdotes / reports from 40 Bond Street and Time Warner

At 40 Bond, the resale asking price on a three-bedroom triplex was cut by $1 million in late May, to $10.9 million, or about $2,900 a square foot. Dennis Mangone, a broker at the Corcoran Group who recently had three listings in the building (one was just rented), said that competition between the sponsor (there is still one unsold one-bedroom ) and individual owners had “cannibalized resales” and that he expected prices to appreciate considerably in the next year.

I read the story line of this piece as Manhattan-showing-signs-of-slowing. Here was the set-up for Barbanel's use of the 40 Bond and Time Warner anecdotes:

asking for the moon
Meanwhile at the Time Warner Center, one of those million dollar price drops was from $32mm to $29.995mm (it has just been dropped again, to $29.65mm) for a duplex (high floor, park views? you bet), the two original units of which were purchased for a combined $9.5mm in January and February 2004. I don't read a lot of market negativity into an asking price that is three times the 4 year oldpurchase price.

Again, StreetEasy is your friend,  with interesting building info for the two Time Warner towers here and here.

Again, not bashing Barbanel here. Just wondering about the specific "facts" offered to support a story line that don't quite do the trick. Though I would expect that an experienced reporter like Barbanel would ask about the sales history of the specific listings he uses to support his story line. Maybe next time....

Apr. 10, 2008 - why a gag rule within REBNY about specific listings?

Apr. 9, 2008 - end of an era for Manhattan Loft Guy / a new day dawns?

Mar. 16, 2008 - coop boards behaving badly / 32 Gramercy Park South edition

"Rules are rules, that's part and parcel of living in a co-op," said Michelle Quinn, a lawyer for the co-op board. "If you want to put up holiday decorations, go live in a house somewhere."

Dec. 13, 2007 - no loft FSBOs for the Holidays

Sep. 25, 2007 - REBNY's paltry portal launches Friday (yawn)

Jul. 9, 2007 - where have all the loft FSBOs gone? nary a two on NYTimes.com

Jun. 14, 2007 - recycling week / tragedy of the half-assed REBNY public web portal

Jun. 11, 2007 - recycling week / that pesky 80/20 rule for coops

Jun. 4, 2007 - why can�t I find all my feet? / measuring square feet with same rulers, different lines

May. 29, 2007 - advantages to the much-maligned coop ownership, vs. condos