More on the state of the apartment market
This is a verbatim quote from an email from an agent listing an apartment building in a nice part of the Valley:
“Yes, it is available, but seller is now asking $50k over listing price. Need an offer all cash at listing price or above no contingencies. That is the only way.”
I’m keeping the name of the broker confidential, because he’s a very nice guy and he doesn’t control his clients any more than I do. But let’s unpack the wording above, to see what he means:
- “Seller asking $50k over listing price” – Pretty self-explanatory; seller has seen a lot of action on his property, senses the direction of the market, and is now greedy.
- “Need an offer all cash at listing price or above” – The reason the offer needs to be all cash is because no bank is going to finance more than 50-60% of the acquisition price because otherwise there’s not enough NOI to service the debt (see this article on debt service coverage).
- “No contingencies” – I’m asking you to come in and either (1) do your inspections without having the building in contract, meaning you risk your time and money with no assurances that you’ll actually be able to buy the property, or (2) Be totally insane and offer to buy without doing any due diligence.
I don’t claim that this one email is any sort of scientific sample of the state of the market. But, boy, do the sellers seem to have the leverage these days!
can sellers say both “no contingencies” and “inspection only after contract” ?
G-Nice
08/15/2012 at 4:04 pm
Those are two different concepts.
With apartment buildings, it is standard for the inspections to take place after the contract is signed. The buyer will typically have 10-14 days after the contract is signed to investigate the property and determine if he wants to buy it. He can cancel during that time and receive his money back from escrow (less any cancellation fees).
Every once is a while, you see a seller asking for non-contingent offers. This means the seller is asking the buyer to make an offer that does not include any inspection period. This is very risky for both buyer (who may end up being a property with big problems) and seller (who may be sued by buyer after the deal is concluded). So it’s usually only done when the seller is selling at a fire-sale price, so that the buyer knows that there is enough margin for him in the deal to fix any problems he might encounter.
mjkagan
08/15/2012 at 4:18 pm