Analysis paralysis affects many NYC property buyers and stops them from making an offer. There are so many things to take into consideration. Prices are high and closing costs are often more than half a year’s salary. Then there’s the prospect of being on the hook for a mortgage payment for 30 years. It’s daunting. However, sooner or later you’ll have to take the plunge if you want to get on the property ladder. Here’s what to consider when choosing a number that is compelling to a seller.
Is it a buyers’ or sellers’ market?
Knowing what market you’re in is key. If it’s a sellers’ market and bidding wars are breaking out like wildfires in the California brush during dry season, all your careful calculations won’t count for much. You’re likely to get lost in the multi-offer stampede and lose out. However, if it’s a buyers’ market be prepared to be hounded by listing agents. In fact, sellers would gladly come to your house and wash your car and make your dinner if it meant they could get an offer! Okay, an exaggeration but you’ll still have a few things to weigh up before submitting a number.
Does the property need repairs?
This is by far the most obvious thing to take into account when making an offer. If you’re buying a condo in a new development in a strong market you can be sure of two things: The condo won’t need much in the way of repairs and your room to negotiate will be virtually non-existent. However, if you are buying an older property in a buyers’ market, then prepare for a back and forth with the seller. After your home inspection, you will get an idea of the condition of the property. Based on that and how badly you want the property, you can make an offer. If you’re low balling, don’t be insulting. Back up your offer with some reasoning based on the repairs. Of course, comps in the area and the advice of your broker will be paramount in your decision. You should also take into consideration other factors such as location and whether the property has already taken repairs into account in its pricing.
All cash offers will put you at the front of the line
Even with a credible pre-approval letter, it can be a fraught, nail-biting experience waiting to get a lender’s clear to close. Sellers, too, hate this process. An all-cash offer may actually buy you some wiggle room in the offer you submit. A seller may be willing forgo a higher offer from someone who needs a mortgage in lieu of a sure bet. All-cash buyers still need to show the board they have a steady income and money for taxes and maintenance. So, don’t spend every penny you have.
Negotiate ways to save money to enable you to make a higher offer
There are a few different ways that you can save money when buying a condo in NYC. If you get your ducks in a row and strategy in place ahead of time, you may be in a position to make a more competitive offer. A savvy buyer’s agent will be aware that they can legally split a portion of the commission they have earned with you to help cover your closing costs.
Buyer’s agent services are free for home buyers. In NYC it’s the seller who pays a fixed commission (traditionally 6 percent). A buyer has the choice to go directly to the seller’s agent in which case they will net both sides of the commission. If a buyer’s agent receives part of the commission they could agree to split it with the buyer — a strategy known as a broker’s rebate. That will leave more money on the buyer’s side of the ledger, which in turn could enable them to offer a higher price.
In the case of new construction, this is not such a risky move as the property has already been inspected by the city to receive its Certificate of Occupancy. You can still do an inspection to satisfy your own due diligence but it will have no bearing on the purchase price. As previously stated waiving a mortgage contingency and buying all cash will always be held in a favorable light by a seller.
In a hot market take a holistic look at all things associated with your purchase
If you really want a property in NYC and there are multiple offers already you’ll have to weigh up the pros and cons of throwing your hat into the ring and going above the asking price. These are some of the factors you will have to consider:
- Is the market rapidly appreciating and likely to do so for a while? If so, even by bidding above asking, you’ll likely recoup your investment fairly quickly.
- What are the reasons for wanting to buy the property? If it’s for a job that is paying more than your last position, it could be worth the trade-off for a higher salary. Similarly, if you are trading a high rent for a lower mortgage payment, bidding slightly above asking shouldn’t make a huge difference in your monthly payments and could be worthwhile for the net savings.
- Can a part of your new property be used as a rental or Airbnb? If so, the added income might allow you to entertain a slightly higher mortgage payment incurred by proffering a higher offer.
- A shorter commute. If the new property is closer to work, saving you valuable time and money commuting, consider putting the savings into a higher offer.