Even if more listings are cropping up as the spring approaches, it’s still a seller’s market, and therefore entirely possible you’ll get multiple offers on your apartment. But oftentimes, the highest bid isn’t your best pick, especially if the price difference between two offers isn't big enough to matter in two years. "What people don’t realize is putting an apartment on the market and getting a contract signed is not as difficult as making sure you have a buyer that’s qualified and will get to the closing table," says broker Amelia Gewirtz of Halstead Property.
So, how do you evaluate which buyer is the surest bet? Here, we round up the most important elements in making a wise decision:
Almost always, the offer that doesn’t rely on a purchaser getting a mortgage is the safer and faster option. That’s because lenders can be deal-killers—not only because they may not approve the buyer, dashing the sale altogether, but also because a low appraisal could require the purchaser to put up more money, or a co-op board could reject a candidate they see as less financially stable. Involving a bank also delays the process by several weeks or even months.
Sometimes a buyer with a shakier balance sheet—higher debt, fewer assets or an irregular paycheck—will offer more money upfront to offset potential red flags. But it’s almost never worth it, brokers say, because the co-op board will quash the deal. (This is less important in condos because the board can't reject a buyer in the same way, but they'll still want to make sure a buyer can pay the common charges, which will slow things down.) “Moving forward with a buyer who may be 'risky' in the eyes of a co-op board” is often a waste of time, says Joan Kagan, a broker with Keller Williams NYC.
For example, Michael and Rebecca, a couple who recently sold their Carnegie Hill two-bedroom co-op, chose not to go with the highest offer they got, but instead opted for buyers who seemed more qualified: They had a longer track record in their current apartment and their jobs and finances were solid. And it worked—it only took about two weeks for the bank to approve the purchaser.
How do you tell if a buyer is on solid financial ground?
- Debt-to-income ratio: Co-op boards generally want a 25 to 28 percent ratio, meaning that no more than this much of a buyer's monthly gross income goes toward paying off debts. Also, keep in mind that “if they own another property and they’re financed on it, that’s a liability," says Kagan.
- Cash reserves: Condo and co-op boards want to know how much money a buyer will have on hand after they purchase the apartment, known as post-closing liquidity. Most want to see that buyers can afford two years’ worth of mortgage and monthly payments, and if the place is a wreck, that they also have the funds to make the improvements.
- Income: How much a buyer earns is important, but boards also want to see a steady income, so are often wary of freelancers or employees whose compensation is largely based on bonuses. “I listed an apartment a few years ago and had two buyers bid over asking price," says Kagan. "One buyer went slightly higher, and while he had a good job, his liquidity and income were not as strong as the second buyer, who eventually purchased.”
No mortgage contingency
While not quite as safe as an all-cash buyer, a bidder who agrees to waive the contract’s mortgage contingency—and walk away from their deposit if the sale collapses because they can’t get financing—is arguably second best. "For a seller, choosing a buyer without a mortgage contingency removes one obstacle of getting to the closing table," says Gewirtz. "Banks take a long time to process paper work especially after [the collapse of] Lehman Brothers. They can also change their mind the day before the closing and simply not fund the loan. It rarely has happened, but it does."
To be sure, you don't have a guarantee that they can finance the purchase, but at least you'll be compensated if the sale falls apart for this reason.
Aligned closing schedules
Usually, the time between an offer and the closing is at least three months for a co-op and two months for a condo (partly because a lot of condo buyers are all-cash), says Kagan.
But if you need to move out ASAP or, conversely, need more time to vacate, a buyer who can accommodate your wishes might be worth sacrificing a hair off the sale price—or might tip the scales between two similar offers. Often, the broker will let you know about their client's timing when they make their initial bid. "Sometimes we'll have buyers who just want to know that they have a place well in advance, but don't mind waiting eight months or so to close," says Gewirtz. Your broker can ask the buyer or their broker what their timeline is like.
Michael and Rebecca, the Upper East Side sellers, got their highest offer from a buyer whose broker seemed unfamiliar with the sales process, who insisted on corresponding by phone rather than email, and was hard to get in touch with. They decided not to accept that buyer's offer because they figured the whole transaction would take longer and in real estate, as in life, time is money.
Of course, you won't immediately know how the other broker operates, but if you get a sense from your own broker that they're unprofessional or difficult to contact, it might be worth evaluating different offers.
Love at first open house
Similarly, sky-high bids from flaky buyers can be a waste of time. "When inventory is low, buyers get scared and sometimes, they make offers when they don’t really want the apartment. Then they get cold feet when they get an accepted offer," says Kagan. "If someone is offering really high, you should be a little wary and try to lock it in quickly before they pull out."
Or, you may want to go with the offer from the buyer who truly wants your apartment, even if their bid is a bit lower. While it can be difficult to tell who's serious, there are some hints. "I gauge it as, do they want to bring in a contractor, bring in multiple visits?” says broker Tiffany Lee of Brennan Realty Services.
Also, if you know they've been apartment hunting for a long time and seem knowledgeable about the market, they're probably not just submitting an offer on the first place they see. Familiarity with the neighborhood is another good sign, as is a desire to move quickly.
Joy, an Upper East Sider who bought a two-bedroom co-op late last year, won out against higher offers, apparently because the seller thought she had the nicest family. That was particularly important for the owner, who didn’t use a broker, because he planned to move to another apartment on the same floor and wanted friendly neighbors.
While this specific situation might not crop up often, selling to a pleasant person who seems like they'd treat your home right is an important consideration, particularly for sellers who feel emotionally connected to their home. (That's why some buyer’s brokers include a love letter with their offer extolling their client’s personal qualities.)
Plus, “nice” can actually affect the sale: Gewirtz once sold an apartment where a prospective buyer offered $300,000 over the asking price, but the sellers nixed his offer because they discovered he’d been rude to the doorman during the open house. “If you’re treating the doorman badly how are you going to pass the board interview?” she says.