By Ian Slater | April 15th, 2020
The way a real estate transaction works in New York is a bit different than how it works in other areas. We do not “present a contract,” put “earnest money” that is a relatively small amount, and often we don’t have inspection or financing contingencies that are easily triggered.
A negotiation begins as a verbal, purely non-binding negotiation. A buyer brings an offer, verbal (or by email), and a seller has the choice to accept, reject, or counter-offer via their broker. Because an offer comes with no financial commitment, a buyer has the right to often offer whatever they please.
Something I am witnessing and something that we in the industry must be prepared for due to the COVID crisis are non-market based, incredibly low offers from buyers who feel they can capitalize on the scenario to source a well under-market deal. There are situations where this is completely valid, and there are certainly sellers who are and are going to be under pressure to sell.
But what normally ends up happening when a buyer brings a tremendously low offer and it is not into a situation of duress, is we end up with a valley between the seller and buyer that feels (and often is) insurmountable. We can try to trek through that valley and meet in the middle but often times, the seller is simply not willing to (not yet, at least) meet a buyer where the buyer feels willing to transact. We must be prepared for many proposed transactions and offers to fall into this valley in the coming months because many sellers and buyers are going to be on different pages-- and the market will be much less transacted than normal.
This will result in a large amount of confusion around “where the market is,” because there will not be a lot of transactional data to go off of and most of it will be anecdotal.
Over time, and with the proper education and guidance of professionals, one of two things will happen: one, buyers will understand that the market is potentially not as bad as they envisioned, and they will begin to raise their offers to meet it. Two, sellers will understand via a drip, drip, drip of offers, that the market may very well be where the buyers are proposing-- and will be forced to reckon with the choice of selling or holding.
For all of its inefficiencies, emotions, hype, and fear-- the real estate market is in all honesty a relatively efficient place in a city like New York, and in time, becomes more efficient as technology and data become more easily accessible.
The most important way to bridge this valley is consistent data collection, speaking to professionals in the business and across markets to hear and understand what they’re seeing, know where offers are coming in and where they’re transacting, and understanding the psychology of the seller and buyer pool.
Always remember the quote from one of my favorite songs, “ain’t no mountain high enough, ain’t no valley low enough, to keep me from getting to you!” In time, this mountain or valley will become much more surmountable!