HOW TO INTERVIEW A REAL ESTATE AGENT
- Let’s start with how NOT to pick a real estate agent…by the numbers. Exaggerating your apartment’s market value is literally the oldest trick in the book — it’s known as “buying a listing”. Fall for this and you are setting yourself up for months of price cuts and the frustration of keeping your place in showing condition while making yourself scarce at a moment’s notice. All realtors have access to the same comparable data. If one agent comes in with a figure 7% or more over the others, you should ask them to show you the comparables that support this opinion. Common sense goes a long way when it comes to pricing.
- Interview multiple agents and whatever you do, think twice about going with someone because they gave you the highest price. Go with the agent who you feel has the experience and a plan to get you the highest price. Nearly anyone can sell an apartment in a great market, but in a transitioning or down market, you want to go with an agent that has been through up and down markets before. A seasoned agent knows how to adjust, and pivot to change direction when your first strategy fails to produce the expected results.
- Alternatively, if an agent comes in much lower than the rest, this may be an indication that the agent is a top producer and closes a high volume of sales. For some agents, having just one listing is a very big opportunity and they may manipulate the numbers to impress you with a high selling price (only to come back to you down the road asking for a price reduction after it fails to sell). The opposite is true of a top producer; they will usually give you the number that is in line with where the comps are trading at, a number that will move your property.
- Good agents focus on comparable listings that have actually sold, not just active listings currently on the market. Closed sale prices are much more relevant in determining the listing price of your property. There really are two ways of looking at pricing: you can price your home where it gets a lot of activity and sells, or you can price it where it sits.
- One way to see through the bad advice is to develop an accurate sense of what your apartment is worth. Research online for comparable sales in your building and neighborhood to make sure your expectations (and a broker’s assessment) are reasonable. Most importantly, spend time with your agent to ask questions about the comparables. If they can’t explain to you in a compelling way why it should sell for the price they have proposed, then how are they going to convince a buyer later on?
- When interviewing an agent, be sure to ask questions like how many listings do you currently have? What have you sold recently? No listings may mean the agent is not successful or it may mean they just closed three deals the month before or they tend to work mostly with buyers. Listings can also give you insight into the markets the agent is most familiar with. For example, if they have four listings in the Bronx and you’re in the West Village, you might have reason to be concerned.
- How long have you been working as an agent? Be wary of hiring anyone with less than three years’ experience unless they are a junior member of a larger team with lots of experience.
- Do you have any other listings in my building or any listings comparable to mine? Similar listings are a positive because the agent can easily push buyers your way. But keep in mind listings come and go; even if the agent does not have something on the market similar to your property, it is important to ask if they have sold something similar in the past.
- What education do you have that prepared you for a career in real estate? New York City is not Iowa. A multi-million dollar property is likely to be best represented by a highly educated person. You should expect at least a college education; there are a lot of brokers with law degrees, MBAs, masters in real estate development and more. These people not only tend to be highly competent agents, but they also tend to relate better to Manhattan and Brooklyn buyers.
- Do you have an assistant or team? You want to know whether the agent has the infrastructure to service your listing. What if they’re busy? What if the agent has to work with a buyer on a Sunday and you need them to run your open house? What if they have multiple listings to service? Someone with a team, a partner, and/or an assistant is preferable because one agent can’t do it all if they’re actually a busy agent. As a seller, you are looking for a team that will be able to honor 99% of all showing requests. If the agent can’t agree to this, then you are probably speaking to the wrong agent. Getting as close to 100% of the inquiries on your property in for a showing is the single most important thing you, as a seller, can do to improve your odds of success.
- What happens if you’re unavailable and a buyer or their broker calls for a showing? Do they have a call service or assistant? What are your showing hours (will you do before- and/or after-business hours)? Again, there’s no magic answer but you should be aware of what your agent can and will accommodate in order to make informed decisions. There is no secret to those agents that sell more listings: generally, they simply work harder.
- May I see your marketing plan for my apartment? Some, but not all, agents will give you a marketing plan before the exclusive listing agreement is signed. This will reveal a lot about the level of the agent you are dealing with. Promises are one thing, but seeing what an agent has done in the past to sell a similar listing is a great indication of future success. At a minimum, ask, “Assuming I sign with you, will you provide me with a copy of your marketing plan so I can follow the plan as time goes on?” If they say no, then they may not really have a formal plan.
NEGOTIATING THE LIST AGREEMENT
When you hire an agent, you will be asked to sign a listing agreement with their brokerage that covers, in part, the following:
Duration: In today’s brisk market, it takes 110 days on average for a NYC apartment to sell. Since an agent doesn’t get paid or able to recoup expenses (on advertising, for instance) unless the apartment sells, most will insist on six months or more to feel confident the job will get done.
Commission: Antitrust laws dictate that there can be no “standard” or “required” commission — in other words, commissions are legally negotiable. That being said, agents are not required to accept less than what they ask for, which, in Manhattan has traditionally been 6% (split two ways if another broker brings in a buyer). Most top brokers will negotiate very little, if anything, on listings under $2,000,000. The expression “You get what you pay for” should certainly cross your mind if a broker is offering a 4% fee.
Keep in mind that getting your agent to agree to a reduced 5% commission is not necessarily a good thing because it reduces the amount the buyer’s broker will receive in a “co-broked” transaction is from 3% to 2.5%. (That may not sound like a lot expressed as a percent, but on a $1,000,000 sale, it’s $5,000.) If an agent is taking a buyer to see ten properties that are offering a 3% co-broke, that agent might not even bother to show the one that only offers a 2.5% co-broke. Within a brokerage’s listing database, discount listings will be literally flagged in red (indicating they are offering a less-than-standard commission to the buyer’s agent).
Exclusivity: You will be asked to sign an “Exclusive Right to Sell” agreement. That means the agent you hire will be managing the entire process for you, and all showings will have to be scheduled through them. Nearly every firm co-brokes their listings (shares them) so no qualified buyer or broker is ever excluded from showing your property. If you are considering selling to your neighbor or someone in your building, you should explore this potential prior to signing the listing agreement. Once you enter into the agreement, even if you find a buyer yourself, you will still owe the commission to your exclusive agent.
PRICING YOUR HOME
In the most basic of terms, your apartment is only worth what someone else is ready and willing to pay for it at a given time. The real estate market is a moving target with inventory and buyer sentiment constantly changing — so does the value of your apartment to some extent.
Accordingly, the best way to estimate market value is to put your apartment on the market and see how much buyers offer for it. The problem with this approach is the almost universal tendency to overestimate the value …and then let it linger without appropriate, quick price cuts until it gets stale and ultimately fetches less than it would have if priced correctly. The longer a home sits on the market without selling, the more likely a buyer is going to question why it hasn’t sold, and wonder if something is wrong with it.
To estimate market value as correctly as you can before listing your place, find a recent sale in your building online (look up your building’s sales history on StreetEasy.com) and then adjust for variables like views, floor, condition, windows, etc. There are lots, and lots, and lots of approaches—and mountains of guesswork–when it comes to comparing sales. At the end of the day, pricing is always more complicated than it appears at first glance. You should ideally work with an agent who will be able to educate you on the market and empower you to decide what the smart listing price is.
As a seller, there is much more of a chance of overpricing something than underpricing it. With nearly 35% of all listings selling at or over the asking price, anything that is priced even slightly low will receives multiple offers and sell for over the asking price. When in doubt, the best advice is to price your home at the level of your most relevant comparable sale. Remember: the market determines the value of your home, so price it where you will get a lot of activity in the crucial first 4 weeks and you should get great results.
It may also be helpful to attend open houses of comparable apartments in the neighborhood to see how yours stacks up, and you can make the appropriate price adjustments.
For very unique or ultra-luxury properties, you can request that your agent bring in a “pricing team” of several real estate agents to hold a focus group to get multiple agents to offer their opinions on price. If you are working with a high-level agent, this should not be a problem.
SIGNS YOU'VE PRICED YOUR HOME TOO HIGH
You can tell whether a property’s been priced properly in the first three weeks. Your (agent’s) phone should be ringing often or, at the very least, you should have 5 to 7 buyers come through in the first week.
If after the first two open houses you don’t have at least 10-20 buyers come through, it is time to speak to your agent as something might be amiss.
You have shown the apartment to anywhere from 24-40 buyers and you have not received an offer? Yup, you guessed it…you are probably at least 5% off where you should be. Buyers tend to balk on submitting offers on properties that are overpriced by more than 5-7%. Instead, they just write them off as overpriced and keep an eye on StreetEasy for a price reduction.
If you are coming up at around 100 days on the market and you don’t have any offers, price may be a factor.
The bottom line is that an experienced agent will be able to “read the market” and truly understand why your unit has not sold.
At the end of the day, pricing is more of an art than a science. Generally, agents with more experience are a great benefit in this process. Even if you price your home at a level you feel is reasonable and you get only a handful of inquiries in the first three weeks, you should discuss with your agent and promptly adjust the price. Inquiries and private appointments are the best indicator of the healthiness of a listing.
With the exception of the last two weeks in August and the last two weeks in December, we rarely advise sellers to wait to list their property. There are always serious buyers out there shopping in NYC.
WHEN IS THE BEST TIME TO PUT MY HOME ON THE MARKET?
Typically, the spring selling season has been the best time to put a home on the market. It’s a time of new beginnings and the nicer weather gets people out of the house. For families with children, they generally prefer to move before school starts, especially if moving to a different neighborhood. But keep in mind this is also when inventory is the highest and you will be competing against more properties.
Historically, September and October have also been popular months to sell. However, there are always buyers looking for homes all year round, especially in NYC. If a home is priced and marketed right, it will sell no matter what the season or state of the market. Your agent will evaluate your home, prepare a comparative market analysis for you, and work with you to decide what the best strategy and timing is for putting your home up for sale.
HOW CAN I IMPROVE THE OUTCOME OF MY SALE?
Preparing your apartment for sale: Your agent should help you identify what you need to do to prepare your apartment for sale in order to command the highest price possible.
For most sellers, this involves, at a minimum, a lot of purging to make your apartment feel better and so that buyers can imagine themselves living there. Our team has even been known to bring in professional declutterers in certain instances and even Feng Shui advisors.
Depending on the condition and appearance of your apartment, you may need to do some repainting, regrouting, and even minor renovations (such as replacing a bathroom sink or kitchen countertops, refinishing floors, or upgrading appliances). Your agent may also recommend that you hire a stager to rearrange your possessions (and occasionally fill them in with borrowed items) to maximize the aesthetic appeal of your space.
Simple things like having your windows professionally cleaned and upgrading the wattage of your lightbulbs always make a difference. Do what you need to do to put your best foot forward.
Videos and photos: When it comes to photos, do not compromise. Insist on high-quality professionally shot photos, and invest in the time, effort, and minimal expense necessary to primp your apartment beforehand.
Showings: It’s your responsibility to keep your apartment in “showing” condition and to accommodate showings. Making showings difficult will make selling your property difficult.
Among the things that can sabotage showings are pets and children and their respective belongings, and tenants who don’t care and may even be antagonistic. Vacant apartments are sometimes harder to sell and usually sell for less so they may need to be staged.
Your broker needs to be as accommodating to buyers as you are — ready and willing to show your apartment when requested. An agent that has a team of two or more agents is more likely to accommodate all showing requests than a single agent.
NEGOTIATING WITH THE BUYER
Don’t accept the first offer as-is. You may be leaving money on the table.
Always counter any offer within 10% of the asking price and don’t get insulted by a lowball offer. Every buyer has a different style of negotiating. The fact that someone took the first step and put in an offer should always be looked at with an open mind. The goal of a seller should be to see how high they can get the buyer to increase the offer. If this is a number that works for you, then great; otherwise, you don’t have to accept it, and can keep looking for other more suitable buyers. Some buyers are just “testing the waters” and may immediately come up even if your counter is just below your original asking price.
A counteroffer around 1-3% usually shows you’re being reasonable.
Always insist that the prospective buyer provide a mortgage pre-approval or proof of funds if they intend to pay cash. This should be done at the time the first offer is submitted.
Understand that negotiating for the purchase of a home is often an emotional experience for both you and the buyer. Always take a step back and put the transaction in perspective. Try relying on the two-year rule: Ask yourself if the point being negotiated will matter to you in two years. If the answer is no, it probably makes sense to give in on it.
Don’t focus exclusively on price. If you’re deadlocked, consider whether to bring other issues into play like closing costs, the purchasing timeline, and dropping contingencies. If you receive multiple bids, compare the offers closely. Are they all relying on financing or is one planning to pay cash? (In the currently fickle credit environment, all-cash is king, with all other things being mostly equal.) Do they already have their financing lined up? Are they at or near their maximum loan amount?
If you’re selling a co-op, you will also need to scrutinize the prospective purchasers to determine which is most likely to pass the board. In any co-pp purchase, a standard two-page REBNY financial statement must accompany any offer.
Don’t blab about personal information. Your broker should not be sharing your reasons for selling (such as pregnant with twins, getting a divorce or job transfer) because a well-prepared buyer’s broker will use all such information against you when negotiating a deal.
WHAT HAPPENS AT A CLOSING
All of your paperwork will be with your attorney when you go in for your closing appointment. You have a right to review your paperwork in advance of this meeting. You’ll need to bring a current photo identification with you to the closing, typically either a driver’s license or a passport. Also, bring any paperwork you feel you might need to refer to during the closing, such as your original deed, warranty information, repair receipts, etc. Ideally, all of these items should have been reviewed and accounted for well before the closing time, so this is just precautionary. Some amounts owed may need to be paid by certified check; ask your attorney. For co-ops and condos, the closing is usually held at the office of the management company of the building and is attended by the buyer, buyer’s attorney, you, your attorney, lender’s attorney, a representative from the managements transfer dept., and the agent(s). For condominiums and townhouses, the closing is ordinarily held at the office of the seller or lender’s attorney, with the buyer, buyer’s attorney, you, your attorney, lender’s attorney, title company closer and agent(s) in attendance. Checks are exchanged for the keys to the apartment or house. If you are an out-of-town seller, in many circumstances, your attorney can sign on your behalf if you legally give them power-of-attorney to do so. This is fairly common.
It’s been months and your apartment still hasn’t sold. Here are some possible explanations and suggested approaches:
It’s overpriced. There is no single strategy for how to handle this. If your property has been on the market for 30 days and not received an offer, you will need to re-evaluate your pricing and determine if it’s the asking price that’s dissuading buyers. However, you or your broker should be periodically checking on your competition. If they adjust their pricing, you should be prepared to do so as well. This question should be asked again every few weeks if your property continues to remain on the market. Price reductions can be by as little as 1% or as much as 10% percent. Large price drops occurring all at once should not be required if the listing was properly priced to begin with. However, if you decided to “test the market” with a high price at the outset, consider getting back on track with your first price adjustment.
Lot-line windows will be permanently bricked up soon due to construction next door. Cut the price, or take the apartment off the market until the windows, and possibly the construction, are done.
There is a huge construction site next door. Drop your price and/or install soundproof windows, or take your apartment off the market until the construction is done.
Your co-op has a land lease that’s about to expire or an underlying mortgage about to come due. Cut the price, or take the apartment off the market until the new lease or mortgage is in place.
The maintenance or common charges are too high. Reduce the price and/or consider offering to pay 6-12 months of these costs as an incentive.
There are pending lawsuits in your building. There’s no easy solution. You can only control the price, which may have to be adjusted to compensate for the perceived risk. Consider disclosing these early on to a serious purchaser and have a good understanding of the issues being litigated. There’s no point in having it come out for the first time when contracts are out with the attorneys. You might also want to have your agent speak with several lenders to see if the lawsuit will affect a buyer’s ability to obtain financing in your building.
There are too many apartments for sale in your building. You will need to really stand out. Consider non-price options such as staging, catered open houses, etc. However, you will need to be priced more attractively than the rest of the pack to elicit offers; see also #9 below.
There’s nothing special about your apartment: There is one surefire way to get more buyers to at least consider your apartment: make it stand out to their brokers. Offer to pay the buyer’s broker a higher commission–say, 4% instead of the standard 3% co-broke. Add a deadline to spur even more interest.
The board turned down your buyer because the price was too low: This is more common than you think because boards–whose members also own apartments in the building–engage in a possibly misguided effort to preserve property values. Courts have ruled that boards can turn buyers down for any reason except illegal discrimination. However, your attorney may be able to restructure your deal in a way that pleases you, your buyer, and the board.
SHOULD I CONSIDER A 1031 EXCHANGE?
In real estate circles, an IRC known as the Section 1031 exchange isn’t just well-known, it’s downright beloved. If done within the guidelines of the code, it is a way of deferring a taxable gain on an investment property.
It works like this: under Section 1031 of the IRC, when you sell an investment property (key word here is investment)—say, a rental unit—you’re able to defer payment of capital gains taxes if you turn around and re-invest the proceeds in a similar or “like kind” asset within a certain time frame. In other words, if you sell an investment property and then use those profits to buy another investment property quickly enough, you can put off paying taxes on them.
Of course, as with most freebies in life, this potential perk comes with plenty of strings—and red tape— attached. First, note the term investment property in the definition. This means you can only pull off a 1031 with some sort of income-producing property (as opposed to your personal home or primary residence).
There are also strict rules and regulations as far as what happens to your money in-between the sale of your former property and the closing on the next one. You need to place your profits with what’s known as a “qualified intermediary,” usually your real estate attorney. The biggest mistake people make here is that they close on the sale, put the money into their own account, and then try to do an exchange. The minute you take what’s known as “constructive control” over the funds, the game’s over.
There also must be language added by the seller’s attorney to the contract of sale indicating that a 1031 exchange will be done.
Arguably the biggest snag with 1031s is the tight time frame required to get one done. In order to comply with the rules, you have to identify a potential property to buy within 45 days of the sale closing. The simple rule is that you identify three properties you might intend to buy, and then you purchase at least one. The next deadline is that you have to actually close on the sale of your replacement property within 180 days of the sale, which can be tricky if you’re trying to use a 1031 exchange to buy in new construction buildings where delays in construction, the delivery timeline, and the status of the Certificate of Occupancy are all common.
A little bit head-spinning? Undoubtedly. But if you’re looking to get into the investment property game, the 1031 is an essential strategy to have under your belt. Again, an experienced agent should have done a number of 1031 exchange sales and will be able to recommend an attorney who knows the lay of the land.