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Think an accepted offer means you're all set to buy or sell that apartment of yours? Not always.
In the high stakes game of New York City real estate, the road from accepted bid to signing on the dotted line can be full of hairpin turns. While experts say that the vast majority of accepted bids lead to sales, deals can indeed fall apart for a number of reasons even after a price is agreed on.
Here are a few of the most common deal killers:
1. Financing problems for the buyer
When a buyer needs a mortgage, there's always a chance that the financing won't come through, and that the deal will fall apart as a result.
If you're the seller, the best way to avoid this kind of deal killer is to accept an all-cash offer.
If you don't have any all-cash offers, the second best option is to vet buyers ahead of time and make sure they're pre-approved for a mortgage and have gotten a pre-qualification letter from the lender. (Note: To increase the odds that a pre-qualification letter means what it says, make sure it states that the lender has checked the buyer’s credit and income, “otherwise it is based only on verbal representations of the purchaser,” Roberta Axelrod, a real estate broker and asset manager at Time Equities, recently told Brick.)
That said, Deanna Kory of the Corcoran Group says she's only had one deal fall through because of financing issues in her 30-year career. "The reason is because I qualify people before they sign the deal, and the banks qualify the building based on their own internal standards or Fannie Mae requirements," she said.
Real estate broker Donald Brennan of Brennan Realty Services, who specializes in Brooklyn brownstones, says that when it comes to houses, outstanding building violations can (occasionally) lead to bank turndowns. "There was a period of time—two or three decades ago—where people took ownership of brownstones with violations, like sidewalks needing repairs or inspection problems in place." Nowadays, he says, "banks are really, really sensitive to any violations" and less likely to sign off on them.
2. Buyer's remorse
And while she admits that there's not a whole lot the seller can do to change a buyer's mind, a good broker can help. "They can anticipate it. In our business, it's often about talking people off the ledge," she explains. "When a person is in an emotional state, unless you’re skilled, it’s very hard to change their mind. I always say that the best sales people are people who are good psychologically."
3. The seller reneges
Generally speaking, sellers are less likely than buyers to get cold feet, especially since, by the time they accept a bid, they've already gone through the long and arduous process of signing with a broker, putting their apartment on the market and showing it.
But if the seller has a problem finding a new place to live, that can have a domino effect.
Kory estimates that this happens in about 10 to 15 percent of the cases where a deal falls through after an offer has been accepted.
You can't protect yourself much if you're a buyer, though if a contract has been signed, you're entitled to your deposit back, and may have grounds to sue if the seller doesn't return your money.
Kory also suggests you ask some questions about the seller during the negotiation process, like why they're selling and whether they've already got a new place. Of course, this can't protect you from last-minute problems, but it can help prepare a bit more.
4. A last-minute higher bid
"I always say that the best way to get another bid is to accept an offer," says Kory, because once ambivalent buyers see an apartment is coveted by someone else, they think it's worth buying.
So how can a buyer with an accepted deal protect themselves from a higher offer coming in?
To borrow lingo from the legal biz, time is most definitely of the essence.
"Make sure you have an attorney that can get you into contract as quickly as possible," says Kory. "It’s hard to do it in less than two days, but 24 hours is ideal. If you give it two days to a week, that gives plenty of time for another bidder to come in and derail the deal."
Another way to avoid getting an apartment swiped from under you is to tell the seller how much it means to you.
Kory often helps clients compose "impassioned, but properly written" letters to the sellers explaining why they love the property. Obviously, this tactic will only work for a seller who's emotionally invested in the home, not someone who's selling an investment property. "If it's a seller who loves their home and has lived there for a while, it'll strike a chord," she says. "Communication is really important. By showing that you’re invested in the process and the apartment, the seller is more likely to feel guilty taking that other offer."
Be sure not to go overboard and squander your negotiating ability, though, she adds. Having a broker who can help you carefully word the letter to sound eager but not desperate and willing to pay any price will certainly help.
But, remember that this being New York, and the human race, it often just comes down to dollars and cents.
The best you can do? "Be prepared to match the offer," says Kory.
5. Board rejection
Co-op board turndowns are not as common as you might fear, but they do happen. "You see them more in buildings on Park or Fifth Avenue than you do on the Upper West Side or downtown," says Kory.
The vast majority of buyers are turned down before their board interview, based on the financial information provided in their application.
"The best way to avoid a turndown is making sure you do an amazing board package," says Kory. And do it before you sign the contract.
Lots of assets without income—and vice versa—can prompt a refusal, since boards are looking for the most financially secure applicants they can find. (What would happen if you lost your job? Or what if somehow those assets were lost?) Another issue Kory sees popping up and affecting board approval has to do with buyers who own their own businesses.
"A lot of times they consider that their income is whatever they take into the company. But the IRS sees that as corporate income. Accountants during tax season do everything to minimize these people's incomes, which is good for taxes, but bad for co-op packages," says Kory.
6. Renovation glitches
If a seller has done a significant renovation in their apartment or combined two units, they need to file a Certificate of Completion with the Department of Buildings. Before a seller lists, they should make sure that all paperwork is filed with the DOB (most attorneys can do it, or an architect can give you a letter, Kory says).
As a seller, you may need to get your architect or expediter to follow through with this. And you'll want to allow two to six months to complete the process.
"Banks will not lend if two apartments are not legally combined," says Kory. And most banks will hold off on closing until the certificates are done.
7. Problems with the building
Issues with the building can hurt a buyer's chance of getting a mortgage, and can also turn a buyer off.
"It's really important to manage a buyer's expectations when it comes to the building," says Ari Harkov, a broker with Halstead Property.
Oftentimes, buildings will levy a monthly charge for repairs above and beyond maintenance fees, which is known as an assessment.
"If there’s an assessment in the building, the seller's broker needs to make sure it’s all clear upfront--on the website, printed brochures--and they should mention via word of mouth. Monthly assessments may not seem like a lot, and sometimes the seller will negotiate to pay them, but it's important to be transparent so it doesn't come as a surprise to the buyer," says Harkov.
Likewise, litigation or other issues that show up in board meeting minutes should be disclosed upfront so they doesn't surface when you're reviewing the contract, he says. And buyers should always have their attorneys look carefully at board minutes.
When it comes to brownstones, major structural issues and problems with the foundation can pop up and cause complications. In fact, south-facing brick walls are a particular problem, says Brennan, and may need to be rebuilt. While this issue doesn't usually derail deals, it can instill fear in a buyer. Likewise, external things like a large construction project coming in next door can scare off purchasers, says Brennan, who says he's also seen buyers who planned to convert five-or-more-family homes into single-family homes backing out over tax implications.
8. Sometimes it's the little things