How "offensive" is a low offer to the seller if the apartment needs a total gut renovation?
I am contemplating buying my first apartment in a co-op in Brooklyn, so I’m new to the process. I am interested in submitting an offer on an apartment in a multi-unit co-op that needs a lot of work…basically a gut renovation becasue the building is nearly 80 years old and the apartment has never been renovated. The asking price is competitively priced for the area, but knowing that there is a lot of work (for both the apartment and the building itself) I am inclined to submit an offer about 80K (or 15%) below the asking price simply becasue I know it needs upwards of $150K in renovations just to make it livable (and this is bare bones minimum). My buyer’s broker told me that anything below about 10% of the asking price would be considered offensive to the seller and would probably never be accepted…Is this true even for fixer-uppers? What should my strategy be knowing that I probably would never buy the place at 10% of asking anyway? Should I submit a number close to 10% just to get an accepted offer, then wait for appraisals and inspections to show it is not valued as high, and then reduce my offer accordingly? I assume adding appraisal and inspection contingencies will protect me, but I wonder if I need to cover myself. Thanks!
iamnowhere
in Real Estate - Sales 13 years and 4 months ago
10
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10 replies
Kateruba | 13 years and 4 months ago
Offensive??? How about the buyer being offended at the asking price when so much work needs to be done?
callalily | 13 years and 4 months ago
Ancient boiler, roof problems, leaking in basement — walk away from this. Really. These are big enough problems if you are buying the whole house, but in a coop it signals bad management and financial problems. Don’t get yourself into this. I would have said that the broker knows the apartment will go for more than the list price, and is encouraging you to not lose out in a bidding war, but after hearing about the problems with the property, I think not. I think you should walk away.
Snezan | 13 years and 4 months ago
it’s quite possible that your buyer’s broker has spoken to the seller’s broker and that is where the “offensive” comment is coming from. Why don’t you ask him/her? No broker in his right mind would consider the commission on a 5% difference in price ($1k?) over the best interests of their client.
bullfrog | 13 years and 4 months ago
Don’t worry about offending the seller. On a place needing a gut reno i would say that an offer even more than 15 percent off asking is reasonable. The seller can always counter.
daveinbedstuy | 13 years and 4 months ago
This sounds like way too much work for a first time buyer, especially what you mentioned about the rest of the building, of which you have little control over. If it’s gotten to that state, there must be something very wrong with how the coop is governed
iamnowhere | 13 years and 4 months ago
Hi dave and mopar…Thanks for your responses. Very helpful. I have to admit I thought it was odd that he said that also. He actually has been very helpful so far, but up til this point I never had reason to question his motives. I realize the higher the sale value the greater his commission…so I know I need to watch out for myself even with those that are supposed to be on my team. I know the apartment needs a gut because my friend is a contractor and was with me for the open house. It’s a duplex…The kitchen is in a cellar now (which I know is illegal) and would need to be relocated to an upper floor. Even the seller’s broker acknowledged this. There is waterproofing damage throughout the cellar and needs to be re-waterproofed and get new flooring. Both bathrooms need to be gut becasue fixtures and finishes are crumbling and disgusting. All electrical is outdated and needs to be replaced. And all radiators need to be refurbished or replaced. I saw the common boiler and it is ancient. Looks like it’s been there since the 40’s, so it’ll probably need to be replaced soon. And we were told by a different broker that a previous offer was withdrawn becasue apparently the roof is in disrepair needs to be replaced soon also. Mopar… you say inspections are unlikely to help us…but if an inspection comes back and reveals lots of work needs to be done that wer weren’t aware of, doesn’t that mean we can renegotiate the offer? Also, if we request an appraisal and it comes back lower than our offering, isn’t that also an opportunity to renegotiate? Pardon my ignorance…I’m really new to this. Thanks again for your responses.
daveinbedstuy | 13 years and 4 months ago
Yes, with a condo or co-op you need to know when things were last replaced and what is anticipated in the future: Roof Boiler Windows Hallway redos Brick pointing Lobby redo A cable upgrade Most importantly is how much $$$ is in the reserve account and whether or not the operating expenses are being covered with cash flow every year.
callalily | 13 years and 4 months ago
Since you are a coop buyer, inspections are unlikely to help you with price. Typically only the bank inspects for a coop purchase (and they are looking for something different). You can hire an inspector if you want but it’s a little bizarre since the coop is responsible for systems such as roof, plumbing, foundation, and electrical. Of course, you want to be sure the building is well maintained. Find out when the boiler and roof were last replaced.
callalily | 13 years and 4 months ago
Fifteen percent off is not offensive. Ten percent off is standard. Keep in mind that you should offer what the apartment is WORTH, not some arbitary percent off the ask. Is the ask reasonable? If the ask is already what the apartment is worth, I might offer ten percent off but I would quickly agree to the full price. Do your homework and know what other comparable apartments in the area have recently sold for. It’s very unlikely that any apartment in the world needs a “gut renovation” unless you are combining two apartments together. Are you saying the baths and kitchens need updating? That’s not a gut. Is the plaster cracked or peeling? You need a skim coat. Use mesh throughout or the cracks will come back. Does it need painting? Do the floors need finishing? Those are standard on every move in. If this is truly an estate sale with all the original details and the apartment is pre-war don’t be surprised if you are outbid by someone putting down 100 percent cash. If this is just a standard looks like crap apartment, welcome to New York. So do they all.
daveinbedstuy | 13 years and 4 months ago
I really don’t think 15% below is offensive. Did your buyers broker just get his/her license in 2005 or thereabouts???? How the hell does he/she know what will or will not be accepted?? You have nothing to lose. Just be prepared for a counter and determine what you will pay. But, you should determine exactly what you would pay and offer below that and then expect a counter. If that’s 15%, then offer 17% or so lower. It’s a back and forth process if the seller is at all interested. Maybe it’s an estate and they are just looking for anything quick. If your broker refuses to submit it then dump her.