New York City Real Estate ANNecdotes
Avoid Shortfalls in New York City Real Estate 2023
After 24 years selling real estate in New York City, I am amazed at how I am constantly learning something new, and encountering new challenges in every market. This summer, I was working for buyers from California looking for a second home in New York City. My buyers had very tight search parameters. They were looking for a second home with one bedroom, close to a park for their two large dogs. They had an aversion to elevators, both had good jobs and income, but relatively low post-closing liquidity. After an extensive search spanning Park Slope in Brooklyn, the Upper East Side, and the Upper West Side, we found a charming, renovated one-bedroom apartment in a co-op building on Riverside Drive, on the Upper West Side that appeared to meet all their criteria. We negotiated an acceptable price, their attorney completed due-diligence, and they signed a contract to purchase. Even after a contract is signed, I always tell my team of agents, “Don’t count the money until your deal closes and the check clears.” In this case, I took my own advice and am glad I did.
After the contract was signed, they applied for a mortgage, but the bank appraisal came in 10% lower than the contract price! The bank appraiser was unfamiliar with the Upper West Side and did not use the comparable sales that we had provided. Instead, they used comparable sales which were incomparable. Challenging an appraisal is rarely successful as this requires that the appraiser admit that the comparable sales were not relevant, and this admission would undermine their future credibility with the bank. I had encountered a low appraisal 15 years ago, but not in this market. In an effort to save the deal, the seller was willing to reduce the contract price to cover a portion of this shortfall and the buyers agreed to apply to a second bank. We provided the new loan officer with the most recent co-op financials which were almost a year old, and the buyers received a conditional pre-approval. Fortunately, the second appraisal came in 10% higher than the last appraisal and slightly higher than the renegotiated contract price. Unfortunately, the new co-op financials were just released, and they showed a large shortfall between the co-op’s income and expenses. In addition, the underwriter had concerns about a structural issue that the co-op had planned to rectify, but had not completed. After the building collapse in Surfside, Florida, lenders are now looking much more carefully at buildings with outstanding violations and potential structural issues. The bank approved the buyers but declined this co-op and the financing fell through. As a result, my buyers decided to back out of this deal. We found them a rental and they will reconsider purchasing their second home next summer.
This is a very unusual situation, but in today’s real estate market, pre-qualifying the New York City condo or New York City co-op building is equally as important as getting yourself pre-qualified for a mortgage.