Brooklyn Secret Agent: Buyer Torture

Today we bring you the eleventh of an anonymous weekly column about real estate by one of the most experienced agents in Brooklyn:
With short inventory now the norm in all of our brownstone neighborhoods, it is very difficult to be a buyer. I’ve started to advise buyers I’m just beginning to work with to expect a tortuous process. They need to expect bidding wars, reneging by the sellers, unpleasant financial scrutiny and more.

A young couple with a new baby wanted to move from their one bedroom apartment in Soho to one of several Brooklyn neighborhoods. Over the course of a year they submitted offers on five properties, mostly houses in need of restoration. After the first one failed, they started making offers above the asking price in ever larger increments. Their mortgage approval was sound and the jobs were solid. They were outbid all five times. As their broker, I failed in two ways: I counseled caution on the ever increasing offers, and I did not help them get a house. Finally, in disgust, they bought a coop in Soho where they faced no competition at all.

In another instance, the owner of a house I had listed in Park Slope had accepted an offer on their home. It was disclosed to everyone that I represented the seller only. After the inspection was completed and lawyers were engaged, another buyer who had seen the house weeks earlier called and wanted to put in a bid. Since it was in the sellers’ interest, I, of course, presented it. The offer was higher and all cash. The sellers wanted the new deal and wouldn’t even allow their first buyer to match or better it. The original buyers were crushed and will hate me forever. I don’t blame them.

Another high-level stress regularly inflicted on buyers is the demand to waive a mortgage contingency. Sellers feel, correctly, that they will be insulated from a low appraisal if there is no contingency. Buyers know that if they waive it, their 10 percent deposit is very much at risk should anything go wrong. But when competing with all cash offers, the pressure is strong to waive it. Very often after taking the plunge and making a non-contingent offer, the buyers’ attorney will try to talk them out of it. Or, the buyers will attempt to get an appraisal done during the contract negotiation period to assure themselves of the value before actually signing. In any case, a non-contingent offer is risky and highly stress-producing for the buyer.

At the outset, I try to prepare buyers for all of this and tell them not to take these things personally. It never works — there are always tears and recriminations when bad results occur. The popular belief is that brokers heartlessly inflict this pain on buyers, but it is not so. Unfulfilled clients are never good for business. However, there will be lots¬† of them until there are more houses and apartments on offer. The best we can do is to prepare them for the oncoming storm.

48 Comment

  • Life must be hard for people who have to settle for SoHo! I don’t think I have a violin small enough to play them a sad song.

  • >The best we can do is to prepare them for the oncoming storm.

    No, actually the best that can be done is to change the archaic rules. In the first case, an ‘accepted’ offer should put the property in stasis (no other offers entertained,) until contract or breakdown (as in many other states.) In the second, an appraisal should be a mandatory.

    >The popular belief is that brokers heartlessly inflict this pain on buyers, but it is not so

    I’m sorry, it’s hard to feel sorry for brokers who get tens of thousands of dollars for little work and minimal representation.

    • people like you who begrudge a persons living without doing it are the real problem – how about taking someone around – educating them on market conditions and then they buy a FSBO (For sale by owner for the uneducated but love the process) where is the compensation for work hours …..do you go to a professional and negotiate their fees too?

  • sophienose

    correct me if I’m wrong, but once “the lawyers get involved” isn’t the seller liable to a suit for breach of contract for backing out of a contact (assuming that’s what you mean)? – in the UK it’s called ‘gazumping’ and the penalties are much less, but here it leaves you in the sights of a big fat lawsuit

  • We had a brutal time trying to buy a place. Even with solid jobs and a large downpayment, we lost out on 7 offers. Many times we were outbid by people paying all cash. It’s horrible to be in a situation where you’re told that you need to make your “best and final offer” and that you’re competing with five other buyers.

    The only reason that we were finally able to buy a place was because we were the first ones to see it (the day it was listed) and made an offer on the spot. The sellers – lovely people – accepted our offer and refused everyone else who came along, even those offering to pay any price. I hope there are more people like that out there!

    (by the way, we found our place without a broker. Just sayin’.)

  • Is a broker really obligated to take an offer to their client after they have a verbal agreement with a buyer and it has progressed to the point where lawyers are negotiating a contract. When you get a call from someone interested in the house you tell them there is already an accepted offer but you’ll call them back if it falls through. I don’t see how that would breach any duty to the client.

  • BoerumHill

    “Is a broker really obligated to take an offer to their client”

    YES

  • BoerumHill

    By law a listing agent is required to present every offer to his or her client for as long as the listing is Active or Under Contract. This includes verbal offers and counter offers and continues until closing or the listing is no longer valid. The exception would be if the listing agent has written instructions signed by the seller directing them to do otherwise.

  • daveinbedstuy

    Ive bought two homes with no mortgage contingency and where i did not have all the cash. They were different times. I would not do it nowadays.

    Also, for what its worth, although iv e purchase and/or sold close to 20 properties ive never ever done it without an attorney, no matter how simple it may have
    Looked

  • slopefarm

    “Is a broker really obligated to take an offer to their client”

    “YES”

    Well, this is where the bedrock principle that a contract is made through offer and acceptance meets the adage that an oral contract is worth the paper it’s printed on. Is it no longer the case that brokers tell their clients that once there is an accepted offer, they ought in good faith be moving toward contract and closing?

    • BoerumHill

      The agent is legally required to present all offers.

      What are you suggesting? Sellers should respond with “No, leave the money on the table, I already verbally accepted an offer. The closing is only 30/45/60 days away”

      You’re not fishing, right? You actually mean that?

      “I could have gotten more for my place when I sold it, but morally I felt obligated to the prospective buyers.”

      - said no seller ever

      • When I sold I would not have entertained or taken a higher offer while I was negotiating a contract with someone else. Even if the agent has a duty to bring an offer after the seller has already accepted another offer (which I’m not convinced they do), IMO the seller should honor the agreement they’ve already made even if it’s not reduced to writing. Keeping a clear conscience has to be more valuable than a few thousand dollars.

        • BoerumHill

          I understand where you are coming from, and I would agree that is the honorable way to conduct business. There is a simple solution for the seller, then: instruct the agent to not bring offers post-acceptance. By law agent’s have to present all offers – unless instructed otherwise.

          By the way, if you’re not convinced that is what the law requires, you could always try Google, if you’re really interested in what NY state law states.

      • Obviously agreed that the agent is legally obilgated to present all offers. And, until the contract is signed, buyers have a legal right to accept another higher offer. In my view, if they do so after the buyer has engaged a lawyer and engineer, they are ethically challenged. If they do so after there is a signed contract, they will be liable for damages and/or subject to a suit for specific perfomance. Best advice to the buyer, engage a lawyer who can turn around the contract quickly and run away from a seller who seems to be stalling.

      • I am happy to say we bought from older-generation sellers who stuck to their commitment for precisely that reason–morality (not to imply that older people have a stranglehold on morality, but still)–even though the broker told us two higher and more cash-plumped offers had come in after ours had been informally accepted.
        Of course, in my state of paranoia at the time I thought the broker might’ve been lying about the other offers to get us to sign the contract, but having read all this I’m more inclined to think he was telling the truth, and also feel very lucky that we didn’t get into a bidding war.

    • Slopefarm, this is a matter of New York law. Oral contracts are enforceable except when a statute requires them to be in writing (this is commonly referred to as the “statute of frauds,” and the joke is that it’s really a “statute for frauds”). A contract to transfer real property is one of the types of contract required to be in writing to be enforceable.

  • If a seller pulled what yours did on me, I would never try to match or exceed the new offer made after the seller accepted mine. That seller cannot be trusted, period. Why deal with them? When I was looking ten years ago, the seller pulled the same scam, the new deal fell apart, they begged me to buy the house at the price we’d agreed. I said yes on one condition — that they pay my costs if they backed out a second time. They refused accusing me of trying to take advantage of them! Really? Fool me once . . . . Obviously, no deal. It cost me legal fee and engineer fees, but it was a lesson well learned.

  • Please lets just drop this feature. Through 11 columns, there has truly been no insight offered, nor even an interesting anecdote.

    Really, I think the only value to this column is that it reinforces what buyers need to know. The seller’s broker has absolutely no obligation to the buyer. He is obligated to take higher offers to the seller and his duty is to maximize the sale price (and therefore his commission). If as a buyer you want someone working for you, hire a buyer’s broker.

    Of course, the columnist attempts to confuse this by stating “as their broker” and “Unfulfilled clients are never good for business.” Buyers are not his clients. The seller is his client.

    • Read closer. The agent was the buyer’s agent for the soho couple with a new baby and the seller’s agent for the park slope house.

      • Noted. Then he was a failure as the SoHo couple’s broker. No wonder he’s anonymous.

        Finally, there is no question here that a seller’s broker has a legal obligation to bring the seller better offers. What I think is troubling some people is that sellers continue to entertain offers once accepting an offer but before contract. That’s a decision the seller is making, not the broker. As others have noted, if the seller tells the broker no more offers, then the broker is under no obligation to continue to market the property. We can accuse brokers of lots of things, but getting the highest sale price possible is not a character flaw, its their job.

  • minard

    what I have heard from friends is that the system is rigged. There are organized groups of flippers in Brooklyn that will buy anything the first day it is offered. Sometimes they get into bidding wars with each other.
    These guys have cash by the suitcase and just buy to flip after making cheap upgrades. Right now, in Brooklyn, the only way around these vultures is to buy directly from the owner through a friend or other connection. Any house that is in the open market, except for the high-end ones, is already bought by the time the first open house happens.

  • daveinbedstuy

    alexadeholme has a bit of an attitude and sounds like a broker. Don’t worry bob, it’s she who doesn’t get it

  • daveinbedstuy

    In every neighborhood with every sale, Minard???

  • brownstoneshalfoff

    “The original buyers were crushed and will hate me forever.”

    Crybabies. This market is for grown men and women. Although, they’ll love you forever when: a) they find something better; or b) they find nothing before this bailed out market eventually suffers an even bigger crash than what was coming in 2009 before the bailout.

    “Unfulfilled clients are never good for business.”

    They’re not your clients as you have disclosed. They’re your marks.

    “However, there will be lots of them [unfulfilled clients] until there are more houses and apartments on offer.”

    At which point the unfulfilled clients WILL be yours for a very long time until there are less houses and apartments on offer again. The boom/bust cycle is not complete, just delayed. The can kicked down the road is now a hydrogen peroxide filled drum. Not too many more rolls before kaBOOM! (debt ceiling, dormant Eurozone issues, etc etc etc)

    “The best we can do is to prepare them for the oncoming storm.”

    You should be preparing the buyers for this. Get it?

    • Any idea why there are so few buildings for sale on the market? It seems to me that if we had an impending market collapse then more people would be looking to get out while they’re ahead.

      • brownstoneshalfoff

        “Any idea why there are so few buildings for sale on the market?”

        So few because of a sluggish foreclosure process, a well sold dream of perpetually increasing brownstone riches and a cash infusion from a rising debt ceiling with all the corresponding Wall St fee-skimming and local economic trickle-down that chases these exponentially increasing prices, snapping up anything that has the audacity to make it to market.

        “It seems to me that if we had an impending market collapse then more people would be looking to get out while they’re ahead.”

        Like the stock crashes of 1929, 1987, 2000 and 2008-09? People ARE getting out. THEY’RE the smart money. Most of us are dumb money. We try to get out, all at the same time. When it’s too late. Most people don’t know that what we’re experiencing now is temporary relief. They actually think that what we experienced in 2009 has been fixed.

  • East New York

    To me, this is the best of these columns. Interesting.

  • I just heard of a situation where a seller’s agent told two separate buyers that they had an accepted offer. The truth didn’t come out for weeks. There is some shady stuff happening right now.

  • Actually, I’m curious, Brooklyn Secret Agent–DO brokers ever lie about other offers? Could one get license revoked for that?

  • seems to me that if you are a buyer there is no reason not to have a broker (unless they are apt to screw up the deal). better to have someone that is gunning to get their portion of the commission to help get the deal done for you. at the end of the day the seller is paying everyone’s cut. I guess the main downside for the buyer is that your own broker is potentially trying to make you pay as much as possible.

  • slopefarm

    Of course, Prof Robert, Statute of Frauds, Real Property etc. But all the legal argument in the world does not alter the bad taste the buyer is left with. Obviously you can’t force a transfer of the property on an acceptance of an offer but the notion that a seller’s acceptance of a buyer’s offer means absolutely nothing is a troubling one, even if fully supported by the law. IMHO it ought to mean what I understood from realtors 10-20 years ago that it meant, that there is an expectation the parties will both work in good faith toward a contract. Realtors I knew then would continue showing a property until contract but would advise propsective buyers that there is an accepted offer and that the showing was for backup, and they advised their clients to move toward contract, not to keep marketing. I suspect there’s less moral restraint now, based on some of the realtors’ responses in this thread.

  • Sounds like 2004/2005 all over again.