Why Deals Die and How to Avoid These Problems
It’s an unfortunate reality of the New York City marketplace that not all deals end up closing. But given the amount of work it takes to successfully market a property and find a willing buyer, just as much effort should go into ensuring that deal gets from the handshake to the closing table. Let’s start at a point where everyone is happy and wants to do the deal. This typically happens after the price negotiations are done, and both seller and purchaser are motivated to get the deal done. Here are some of the top pitfalls that occur after that point and how to avoid them.
Taking Too Long To Sign: It’s a simple fact that time kills deals, and given enough time, buyers will often talk themselves out of a deal. Just watch an infomercial if there is doubt about that. “Order within the next 10 minutes and get two vacuums for the price of just one.” Why that offer? Because of the reality that nearly all purchases of products from infomercials occur within 10 minutes after the commercial finishes airing. Without that call to action, even the most committed consumer will come up with reasons not to buy and no sale will be made. Real estate is more complex, but that fundamental reality remains. If the deal is one you want to do, be sure your buyer gets to the point of signing quickly, before they change their mind. And buyers need to remember that the deal is not theirs until a contract is signed, so don’t start buying patio furniture for your new terrace before you get a signed agreement as another buyer may outbid you in the meantime. And savvy brokers recognize this and keep everyone – including the attorneys – moving toward contract signing promptly.
Undisclosed Facts: Suppose you go into your car dealer and spend an hour haggling over the price until, finally, you come to a deal and settle on a number. The dealer types up the sale contract, and then turns to you and says, “Let’s talk about the tires, they are $400 each.” Clearly this was not expected. When you reached your number with the dealer you assumed – quite reasonably – that the tires would be included. It feels the same way when a buyer agrees to a purchase price, and then finds out two days later through his lawyer’s due diligence that the monthly maintenance on the apartment is really $850 / month, and not $765 as advertised. Careful sellers and their brokers will verify information like taxes, assessments, common charges/maintenance before marketing to keep mistakes from happening. And what about issues concerning the property that the buyer is likely to discover on his own? There may be legal obligations to disclose these facts, but I’ll leave that to another day to discuss. From a business perspective, it makes sense to get out ahead of these issues and raise them to the buyer during the negotiations. For example, suppose your roof is on its last legs, not currently leaking but during the last repair your roofer told you that a new roof is needed in the next year. Instead of letting the buyer discover that – and they surely will during their professional inspection – bring it up during the negotiations, and take it into account then. This avoids the transaction derailing when the buyer gets the engineers report. And often buyers grossly exaggerate the cost to do repairs because they simply don’t know and their inspectors take conservative approaches by providing highball estimates.
Board Rejections: There is no question that board rejections are picking up pace, and nothing is more frustrating to both the buyer and seller than learning at the 11th hour that the coop will not approve the deal. While it’s impossible to totally avoid this problem, careful sellers will ensure that their brokers have properly vetted the buyer’s financial qualifications to ensure they will meet the guidelines. Some managing agents will informally review a scenario before a deal is presented. And many sellers have friends on the board who will at least review a hypothetical applicant’s financial profile for suitability. If a board indicates that the buyer will likely be asked for a maintenance escrow, then put it in the contract to require the buyer to fund the escrow if asked. Coop does not permit interest only financing? Put it in the contract to prevent the buyer from securing such a loan and then being rejected on that very basis.