For the last 9 months, we have been telling our buyers about the shortage of available inventory for sale in NY and how that will play out in the market. Well, Bloomberg finally picked up on the trend with its recent article titled: “Manhattan Homes Under $3 million Never Harder to Buy”. The article and accompanying video discusses the factors that created this inventory shortage and the resulting effect on buyers. In essence, the rising price expectations by sellers and lack of new development in the non-luxury segment (developers have only focused on more expensive luxury and ultra-luxury condos starting around $2,400 per square foot, a result of rising land prices) have caused this shortage.
As with any inventory shortage, we are now finding lots of bidding wars, seller’s accepting cash-only buyers, and short closing and contract signing periods. While, indeed, it has never been harder to buy a property in the under $3 million, there are a few things a buyer can do to make sure they are at least in the game. First of all, you need to trust your agent in this market. We are in the trenches everyday and know the market and inventory very well. Our job is to provide you with all the required data to make a decision and guide you to success. Some things to keep in mind when buying property in NY are:
- Cash is king – Be prepared to pay cash for your purchase. You can always finance the property after the closing, or even just before closing, if you have everything in order with your bank. With such high demand, sellers are not allowing for mortgage contingencies in their Purchase Contracts.
- Forget about getting a deal. First, you only find “deals” in distressed markets. Manhattan has never been and will never be a distressed market – not even during the recession was it in distress. It is also a very transparent market, which does not allow for arbitrage opportunities. Investors interested in wealth preservation and reasonable long-run capital appreciation (5% to 6% per year over the last decade) find Manhattan real estate as a very low risk asset class with decent returns.
- No lowball offers. Make your first offer solid. Gone are days of 5% to 10% discounts. If you want the property, a full asking price should be considered. If the property has multiple bids and it comes to a bidding war, you will NOT win with a full asking price offer. You will have to go higher! Sorry, this is just the way these things work.
- Move quickly. Don’t hesitate if you like a property. You may not find another that you like more – inventory is low, so the city is not overflowing with options. Try to be first in line with an offer if you can, as sellers will often give the buyer who comes with the first offer preferential treatment. Believe it or not, some sellers don’t like to move to a bidding war and just want the deal to close quickly.
- Submit proof of funds with your offer. This will give you a leg up, although it might be a requirement of the seller to even consider your offer. This is especially true for people from regions where there are foreign currency controls (like in some Asian countries). Experienced NYC brokers have had accepted offers fall through because a buyer “couldn’t get their cash out of their country”! Providing proof of funds will alleviate any fears that the deal won’t be able to close.
- Don’t delay in signing the contract. If the contract isn’t signed within one week of an accepted offer, you can kiss the purchase goodbye. Sellers don’t need to wait. For every condo on the market, there are 8 buyers looking to buy. In NYC, the buyer and seller are not obligated to one another until the contract is signed and 10% deposit is made. So, time is of the essence to get the executed contract ASAP.