Working with a Real Estate Broker
Photo Credit / Wicker Paradise
1. Do you have to work with a broker?
No. While the vast majority of NYC apartments are represented by a listing agent (FSBO—or For Sale By Owner—listings are relatively rare in NYC) whose 5-6% commission is paid by the seller, buyers do not have to pick one real estate broker with whom to work exclusively.
Some buyers fly solo and deal directly with the seller's broker because they believe it gives them an edge in a competitive bidding situation; the seller's broker won't have to split a 5% or 6% commission with a buyer’s broker and may help that bid along. In a slower market, some believe they'll save money dealing direct by persuading the seller's broker to kick in a percentage point of the commission toward to the purchase price.
Whether most buyers successfully wrangle that extra percentage point is unclear. Moreover, as this New York Times article explains, working directly with the seller's agent--whose loyalties are divided between buyer and seller--is a bad idea in pretty much every other way. Among other things, you won’t have a real advocate during contract negotiations, and you may not hear about problems with the apartment or the building or resale potential.
2. It’s especially imperative to work with a (good) broker under any of the following circumstances:
- You're busy. You don’t have the time or inclination to manage your search, including researching available properties and comparables or setting up appointments with agents.
- You are a first-time buyer.
- You are new to New York City.
- You are unfamiliar with the neighborhood in which you are looking.
- There are special circumstances about your qualifications, circumstances or desired apartment that will make your search particularly challenging. As in any business transaction, creative deal structuring can save the day. For example, while many co-ops will not approve a pied a terre purchase by parents who intend for their adult child to live there, some will approve a co-purchase situation in which all parties (parent and child) are on the proprietary lease and stock certificate.
- You are buying in a difficult co-op: A good broker will be able to determine the likelihood that you will pass the board before you ever make an offer, which will save everyone substantial time, money and heartache. Also, a good broker will be able to help you craft an application package that caters to the whims of the board so that your chances of being approved are higher.
- You are buying for investment: A good broker with a solid understanding of investment properties should be able to help you develop your pro forma to model anticipated cash flows, cap rates, internal rates of return, and expected net profits. They will also be able to put you in touch with lenders and property managers that specialize in investment property and help you determine the market value of rents. They may also be able to help with leasing after you buy.
- You are buying from a developer: Because this can be much more complicated than the resale process, the sponsor/developer drafts their own purchase agreements (unlike the boilerplate contracts typically used for resales). That often leaves more issues to be protected against and negotiated that are largely unfamiliar to the typical purchaser. Also, a good broker should be able to provide you with some industry insight into the building before you submit an offer.
Photo Credit / morrosv7
3. How to pick a good real estate agent
Here some signs of good agents:
- They are intimately familiar with the neighborhood(s) you are looking in
- They have at least a few year’s experience
- They are busy, but not so busy that they hand you off to an assistant
- They work full-time
- You have a good gut instinct about them (no high-pressure tactics)
- They have experience with condos, co-ops, and new developments (whichever you are focusing on)
- They seem to understand your taste and sensibilities.
- How not to be a real estate agent »
- Signing in without a broker at an open house »
- How to buy an apartment that's not for sale using PropertyShark.com (sponsored) »
- 8 things not to tell your broker »
- NYT warns buyers to get their own broker »
- A who's who (and who does what) guide to buying a NYC apartment »