What are the most common lies brokers tell buyers—and how can I spot them?
While the majority of real estate agents out there are forthcoming with their clients—and in fact, it behooves them to be honest—there are a few areas where it'd be wise to do your own fact checking, says Steven Wagner, a New York City co-op and condo attorney with Wagner Berkow LLP who's been advising buyers and negotiating contracts for more than three decades.
"Most brokers I encounter are honest, but you don't want to rely solely on their information," Wagner explains. "At a certain point, you have to do your own due diligence, and the extra research isn't their responsibility." Below, eight common scenarios in a sale where a smart buyer will start asking follow-up questions:
Lie #1: "You're going to lose the deal"
"An unscrupulous broker will say or do anything to get the deal," says Wagner. "So they might say there's another buyer, and you've got to raise your bid if you want to beat them. Often it's true, but sometimes it isn't."
To help suss out if this is merely a sales tactic to rush you into closing (or paying a higher price, a percentage of which goes to the agent), Wagner recommends asking who the buyer is, who's representing them, and if your broker is familiar with the other brokerage. (As with many fibs, pressing for details should indicate pretty quickly whether or not your broker is telling the truth here.)
If your own broker is telling you this, "ask if they think it's true that there's a higher bid, because sometimes that information is coming from the seller's broker, who's trying to push for a higher price," notes Wagner.
Lie #2: "You can sublet after you buy, no problem"
Even if you don't have immediate plans to sublet the apartment you're purchasing, it's smart to confirm the building's current policy ahead of time. "The broker might say 'don't worry, they have a lenient sublet policy,' but don't rely on them," says Wagner. "It's not even that they're necessarily being unscrupulous, but policies can change, and they may not be aware."
To get the real scoop, ask if the building has an online forum where they post newsletters, meeting minutes, and building policies about things like alterations and sublets. "Lots of buildings do this now, there's usually a place online where you can log in and look at these documents," says Wagner. If not, ask your attorney to look into the sublet policy, or ask the managing agent directly. "The sublet policy should be fairly simple, and it should be something that comes up before you buy," Wagner adds.
Lie #3: "You'll definitely be able to do those renovations"
"Many buyers come in and want to renovate, and certain brokers will tell them, 'Don't worry about it, those updates won't be a problem,' when really they have no clue about the building's alteration policy," says Wagner. "They only way to really know whether your desired renovations will be a problem is to submit your plans to the building."
But you can also get a good idea of whether your plans are plausible by looking at the building's policies (or asking your attorney to do so), and finding out (preferably through the managing agent) whether this type of work has been allowed in the past. If you just bluster through assuming it will all work out, that could spell trouble (and extra expense) down the line.
"I once saw a case where people came in claiming they understood the building's policy, which was that there were two different levels of alterations—minor and major," says Wagner. ("Minor" work in this case including things like replacing appliances or painting, while "major" work constituted knocking down walls, adding electrical sockets, or other projects that involved major utility systems.)
"But then they put in an application only for 'minor' alterations, and went ahead and start doing demolition, and all the other 'major' work they wanted to do," says Wagner. "The building put a stop to it, and the apartment has been sitting for months without work done because there's a dispute with the owners over the work they did without a DOB permit, and the potential fines associated with that."
Point being: renovations require extensive permissions from both your building and from the city, so if you've got alterations in mind, go into your purchase with eyes wide open about the building's actual policies.
Lie #4: "The building is in great shape!"
This is another instance where your broker simply might not have all the information they need to give you an accurate picture of the building's general well-being—and whether or not there will be costly repairs in the pipeline.
"For instance, in my building, we're doing millions of dollars' worth of work on the facades, the roofs, and the parapets," says Wagner. "But up until three years ago, a broker might have sold in the building not knowing this was coming, and the buyer wouldn't have known that they would be facing an expensive assessment down the line."
However, says Wagner, it is possible to plan ahead for these kinds of things, and you should make sure your attorney is looking closely at the building's financial statements. "One thing they should look at is money spent on repairs—for instance, if a building had half a million dollars' worth of plumbing repairs in a year, that could indicate that more expensive work will soon be needed on the building's plumbing. Often, if repair expenditures are high, that means a larger, more expensive improvement is coming."
On the flip side, your attorney should look into the section of the building's financial statement that deals with cash flow, and if they're not regularly spending much on maintenance, that should serve as its own red flag. "I tell people a co-op is like any other business," Wagner explains. "If you're not investing in it, you're liquidating it. As an attorney, if I see high bills but no capital investments, that's a red flag that they haven't been doing sufficient upkeep, and means there's likely to be a big assessment coming."
Lie #5: "Don't worry about buying in a landlease building"
When it comes to landlease buildings—which have a complicated ownership structure wherein the land the building sits on is owned by an outside party—many brokers "absolutely don't know the details," says Wagner. (Keep in mind that these buildings are particularly common in Battery Park City.)
"The leases are very long and complicated and there are different forms depending on when they were created," says Wagner. Why does this matter? Because when the building's lease is up, that could mean apartment owners either have to shell out high prices to collectively buy the land, or that your monthly rent could increase. (Part of the monthly expenses in a landlease involve paying "rent" to the owner of the land.) The state of the building's lease can also affect your ability to get a mortgage when you're first looking to purchase.
In other words, the details here are crucial to your financial picture, and given the complexity involved, you shouldn't simply be taking a broker's word for it. "Make sure this level of due diligence is clearly provided in the services your lawyer is offering," says Wagner. "They should be reading the minutes, looking at the offering plan, analyzing financial statements, and investigating further if anything pops up that might present a problem."
Lie #6: "Your lawyer is holding up the deal"
"As a rule, it takes a couple of days for an attorney to turn around a sales contract, and sometimes during those couple of days, the brokers will be telling their clients 'the lawyers are holding up the deal!'" says Wagner. "And then buyers or sellers get all riled up."
Instead of panicking that your deal is about to fall apart, take a deep breath. "It just takes a little time for a lawyer to read the contract, and put together a rider," says Wagner.
Lie #7: "The taxes will be fine once the abatement ends"
As with landleases, the nuances of tax abatements are complicated, and you shouldn't assume your broker has all the information.
"This is technical stuff, and very often the brokers have no idea about this, so they'll say 'Don't worry about it,'" says Wagner. But while the offering plan will show you the abated taxes, as well as how much they would have been without it, it's difficult to know what the taxes will really be once the abatement expires.
"Taxes go up every year, rates change, so no one really knows what they will be," says Wagner.
Lie #8: "It's a done deal"
While it's not an outright lie for a broker to tell you that the sale is in the bag, Wagner warns, "Until such time as there's a contract signed by both parties, it's not a deal."
Someone could always come in at the 11th hour offering more, and the seller has no obligation to the buyer to stick to the plan if something better comes along. "The seller can go for a higher number until the contract is signed, and it's common to put a clause in the contract saying, 'This is not an offer to sell, and it is not binding on the parties, and will not be binding until a fully executed contract is signed and returned,'" Wagner adds.
All of which is to say that until the ink is dry on that contract, your deal could still change, or fall apart altogether. And in the stressful process of the apartment hunt, managing your own expectations is key to maintaining a level head.
New York City real estate attorney Steven Wagner is a founding partner of Wagner, Berkow, & Brandt, with more than 30 years of experience representing co-ops, condos, as well as individual owners and shareholders. To submit a question for this column, click here. To arrange a free 15-minute telephone consultation, send Steve an email or call 646-780-7272.