What's a "Walk-Through"?

What is a "walk-through", and why is it important?

A walk-through is a physical "inspection" of a property performed by the buyer just prior to the actual closing. Since it often takes months from the time that the buyer has last set foot in the property to the time of closing, a walk-though is an opportunity for the buyer to make sure that the property is in a condition consistent with when they last saw the property. It's a final opportunity just prior to closing to ensure that there is no egregious damage to the premises.

Note that the word "inspection" in the last paragraph is in quotes. Therein lies the rub.

Recently I had a walk-though where the buyer came in with a team of helpers and tested every appliance, the plumbing, all the electrical sockets, the windows, window coverings and inspected the walls, floors and ceilings for imperfections. Naturally this person wanted to make sure that she was getting everything in working order -- which is understandable. (By the way, everything was fine, and the closing went smoothly).

What isn't fine with the "fine toothed comb" approach is that in New York City, properties are generally sold "as-is". This means that if the chandelier didn't work when you signed the contract, there's no requirement for it to work now, just before you close on the property unless you specifically made contractual provisions for it to be fixed. The walk-through is not an engineering "inspection" to compile a punch list of things to be fixed by the seller. (In the special case of purchasing new construction, there really is a punch list, but not in the far more common resale of an existing apartment)

Had this woman found pinholes in the walls from picture hangers, faded paint or stains that were covered up by rugs, inoperative lighting fixtures, non-working air conditioners and almost anything else you can think of, she would most likely NOT be entitled to have the seller remedy these problems or compensate her in any way since the purchase is "as-is". This is a surefire way for there to be bad feelings and resentment at the closing table, and is most certainly not the way you want to begin life in your new home.

All this pain can be avoided. The time for this kind of detailed inspection is before the contract is signed, not after. Check the property out thoroughly before you sign on the dotted line! The walk-through is to verify that there is no unreasonable damage that wasn't there when the contract was signed and to ensure that there is a working smoke detector in the property. (The buyer must sign an affidavit that there is a working smoke detector at the closing, so I always make sure I call attention to it during my walk-throughs)

It is the responsibility of the real estate broker to educate their customers about what to expect from a walk-through. There's nothing "evil" about the sale being as-is, but it's important to know how you can meet all your expectations about what you're buying. Education makes all the difference.

Reach me at: michael.sussilleaux@gmail.com

A Cautionary Tale

A couple recently signed a contract to purchase a modest apartment in New York City. They obtained financing, submitted all the required paperwork, and were good to go. They were all set to patiently wait the month or two that normally transpires between contract signing and closing.

Since this was their first apartment, they decided to make use of this interim time to buy all new furniture so they could hit the ground running when they finally got the keys.

Finally, the time to close was upon them. Unfortunately for them, they didn't know that the bank giving them the mortgage runs their credit for a second time just before closing prior to approving the actual disbursement. Their furniture shopping spree created added debt for the couple, and it was enough to cause the bank to pull out of the deal, leaving the couple unable to close on the property and saddled with a ton of new furniture with no place to put it.

The moral of the story is clear. If you are buying a property, do not do anything that could adversely affect your credit rating/debt until after you have actually closed on the property. Make sure that you have a long talk with your mortgage broker about exactly how the process works so that you understand all your obligations and how to avoid pitfalls such as this.

Reach me at: michael.sussilleaux@gmail.com

Summer is almost here!

Happy June to everyone!

As you may know, summer is typically one of the busiest sales seasons of the year for residential real estate in New York, and things are very busy this year. Since the spring of 2009, when the marketplace ground to a halt, we have seen a doubling in the number of residential sales transactions, with more than twice as many apartments being sold this spring compared to spring 2009.

The resurgence of active buyers has also signaled a reduction in the median “days on market” before a property sells, although it is still takes an average of four to five months before a listed apartment actually closes. This is by no means the “irrationally exuberant“ market of 2004-2007 and while sales volume has returned, buyers are very discerning. The demand for any given property is driven by one dominant factor: PRICE!

Well priced apartments are attracting instant activity and occasionally multiple bids, while over-priced listings fail to generate real interest. When a newly listed apartment launches, all the serious, well informed buyers are able to very quickly weigh its attractiveness and appeal in comparison to other similarly priced listings. Readily available market data on the Internet continues to bring much needed transparency to the market, and no longer can a seller reasonably hope for an “uninformed” buyer to overpay for a property.

Looking forward, while no one has a crystal ball, it is fair to say that the latest market “bottom” is behind us. Manhattan apartment prices have generally risen between 4 %and 7% since the beginning of the year, and both buyers and sellers should seriously evaluate their options.

Enjoy your summer!

Reach me at: michael.sussilleaux@gmail.com

Overpricing

I'll need 18 of those $1,000,000 bills thank you very much.

A small townhouse of "quasi-historical significance" just came on the market in Brooklyn for $18,000,000. It's a small building. By suburban standards, it's minuscule. If this buildings' doppelganger were being sold in Buffalo, NY it might sell for $30,000 or so. Theoretically, you could by 600 of these in Buffalo for the same $18 million that this one in Brooklyn is listed for.

Does this mean that this $18,000,000 townhouse is overpriced?

Well, that's a tougher question than one may think. It really all depends on what someone is willing to pay for it. Comparable sales suggest that it is overpriced, but what is "quasi-historical significance" really worth? More importantly, if you are the seller of a "unique" property, how do you maximize your profit.

Consider the owner of this property. Perhaps a real estate broker came in and valued the townhouse at $4,000,000 based on comparable sales. Let's go wild and assume that ten brokers came in and valued it ranging from $3,000,000 to $5,000,000. Finally, the eleventh broker comes in and says that you can get $18,000,000 for the property. What do you do?

All things being equal, it seems the property is worth $4,000,000, but how can you possibly leave a potential windfall of $14,000,000 on the table? That's a very, very compelling reason to list the property in the stratosphere. Many of us buy lottery tickets, why shouldn't a rational human being try for the moon?

The problem is that if you go for the $18,000,000, and then reduce it to $15,000,000 and so on ... all the way down to $4,000,000 everyone will wait for it to go even lower because you'll have a white elephant that no one wants. You're facing quite a conundrum because the lure of the silly money is a tempting siren indeed. What's the answer?

The answer is this. If you are a seller and you are truly uncertain about the true value of your property because of extenuating circumstances such as "quasi-historical significance" your safest bet is to offer the Pollyanna broker the following: "I will let you list my property for $18,000,000 for 30 days. If you are correct, and this is the price point, everyone benefits. If you have misjudged the market and you are wrong, you are fired."

This protects you from brokers who are "buying the listing". Specifically, they simply want to get your listing whether or not the price is realistic. They do this to attract buyers to see the property who they then woo and guide them to other, more reasonably priced, listings. If they price your property ridiculously high, it is detrimental to them as well because frankly the buyers they're hoping to attract will be angry that they went on a wild goose chase for a clearly inferior property.

The moral:

The more unique and out of the ordinary your property is, the more important it is that you do your homework and try to get the most qualified sales team on your side.

Reach me at: michael.sussilleaux@gmail.com

Missing in Action

Mea Culpa.

It's been a long time since I've written a post. The reason is simply that I've been very busy with the business, and haven't allocated sufficient time to write.

So this is a placeholder. There's lots to talk about. I just have to do it.

Hang in there and as always, feel free to e-mail me if you have any questions. Thank you!

Reach me at: michael.sussilleaux@gmail.com