How low is too low?

markznyc: about 6 months ago

iMom -- no problem. steve -- actually you never did answer -- you made a smart ass comment about 50% off ask and then went into your usual rent vs. buy rant, ending up with by far the most retarded retort I have ever heard -- "nanny, nanny, boo boo?" What are you, a 92 year old senile grandmother? Time to change the Depends!

iMom: about 6 months ago

markznyc: I'm sorry for going so off-topic from your original post. I simply could not let Steve's warped sense of logic go unanswered.

iMom: about 6 months ago

Steve: "iMom makes a stupid comment "there's a market for everything" and I call her on it."

You called and you lost. Believe it or not, there actually are lenders (admittedly fewer today then there were 12-months ago) that are in the market for no-doc mortgages. I know for a fact that Wachovia, Apple Bank and Emigrant Savings still offer no-doc loans. So you can whine all you want about how they SHOULDN'T exist, but in reality, they DO exist. As you would expect, no-doc mortgages require a higher down-payment, a higher interest rate, higher fees and a higher FICO score to qualify, but the market DOES EXIST, even if it doesn't have the blessing of the all-knowing stevejhx.

This fits perfectly in line with the basic concept of risk appetite, risk premium and free-enterprise recognizing a demand in the market and meeting that demand:

A natural demand exists for mortgages from people who for whatever reason cannot document their income, but have a high amount of equity to put into the deal and a high credit rating --> Certain banks, who have a higher-than average risk appetite, above-average portfolio management infrastructures and historical experience in the no-doc segment, see an opportunity for above-average returns versus making standard conforming mortgages --> These banks begin offering no-doc products to consumers at a higher fee than traditional mortgages --> No-doc consumers can decide whether or not their need for these products justifies the additional cost versus traditional mortgage products --> Lenders adjust and tweak their product and prices according to demand --> and viola....WE HAVE A MARKET!!!!

Why is that so difficult for you to understand? The very fact that such a market actually exists today, in the real world (perhaps not in the World-According-To-Steve) proves that your denial of this market is wrong.

You make blanket statements like "if you can't document your income, you don't deserve to get a loan" as if your own personal lending criteria is the standard by which the entire lending industry goes by. Different people have different risk appetites, risk tolerances and risk-management expertise. You are like a US large-cap value-stock investor looking over at venture capital or private equity investors and arguing that they shouldn't exist. Or that the notion of their entire market is flawed. Guess what, we live in a world where both types of investors can exist simultaneously and both are not mutually exclusive.

Sure some banks have eliminated their no-doc programs recently (primarily the larger, national banks like CITI, CHASE and BOA), but there still are certain lenders (primarily smaller, regional banks that have not been hit as hard by the credit crisis) who are still willing to play in the no-doc space, especially now that there are fewer competitors in this segment and the few remaining players can be even more choosy about who to make loans to and have greater pricing power than before.

Oh...and please keep Suzie Orman out of this, okay? You've more than played-out her saying "DENIED!!!"

stevejhx: about 6 months ago

markznyc I don't post on most threads, so nanny-nanny-boo-boo. They asked what we should offer, and I answered. iMom makes a stupid comment "there's a market for everything" and I call her on it.

90 days on the market is just the start. Watch the inventory numbers go up and up and up and up. Asking prices are coming down and down and down and down.

So just wait. Why is anybody in a hurry to catch a falling knife?

markznyc: about 6 months ago

steve -- why do you have to hijack and derail every thread with the same BS? how about sticking to topic and trying to actually contribute to the question at hand? your insight on that would be appreciated . . . otherwise, it is getting tired . . .

nikeswings: about 6 months ago

I would be curious what some of you think about making offers on new condo developments where units are not moving. Is it possible to go in with a lower than list price offer or will the developer just laugh? My sense is that they would have laughed 18 months ago but that they might not laugh now. Thoughts?

stevejhx: about 6 months ago

"needed necessarily" = "need not necessarily"

stevejhx: about 6 months ago

"There can be a market for anything...."

Who said there couldn't be? What I said is that there needed necessarily be one - so joo don need 2 splain me nufing.

"The fact that risk was mispriced and that institutional controls were not enforced has nothing to do with the most basic premise of financial markets that a market can exist for anything."

I never said it did. What I said is that it caused the market to collapse.

What I DID say - if you read - is that without documentation it is extremely difficult to price the risk, is it not?

"Believe it or not, there are people in this world who have a need (demand) for no-doc loans."

I bet they do. Everybody without money would love to borrow money and not prove if they can pay it back.

"Of course the price for no-doc loans would need to be higher than full-doc - to compensate the seller (lender) for the additional risk associated."

Tell me how you calculate that risk, because it seems infinite - if you can't prove how much you make, you can't prove that you can pay the loan back.

So tell me how you calculate the risk for a no-doc loan: I'm waiting for your formula.

And actually I do like Suze Orman a lot, big old dyke that she is. She cuts right to the chase, and usually figures out how people's screwed up emotions screw up their financial decisions. People on here who are in love with an apartment and just absolutely, positively have to have it regardless of their income, regardless of the market, regardless of cold, hard facts, should take heed of her advice.

iMom: about 6 months ago

Steve: You must have a crush on Suzie Orman or something....you seem to quote her quite often (on this and on many other threads) and you even seem know what she would say. Have you ever called in to her show with a fake question just to be on the phone with her? I bet you would structure your call so that she would have to approve you - like say that you want to buy something for $100 while your savings are like $100,000 or something. Maybe you could go to one of her book signings and have her autograph a book to you...."Dear stevejhx, I approve!!! xoxox, Suzie Orman". That would be so cool for you, wouldn't it?

iMom: about 6 months ago

Steve: Funny how you conveniently (or perhaps selectively) neglected to address my point about 90-days not being a long period of time for a property to be listed. I'll assume it's because you had no response.

>> "Every risk does not have a price. If it did, we wouldn't be in a financial crisis right now"
What are you talking about? The current economic environment has been caused by a MULTITUDE of factors, all unfolding at the worst possible times, culminating in the financial "Perfect Storm" we are now dealing with. The fact that risk was mispriced and that institutional controls were not enforced has nothing to do with the most basic premise of financial markets that a market can exist for anything - stocks, bonds, options, futures, volatility, risk...even carbon credits, art, weather, the likelihood of future Fed rate-adjustments, point-spreads on basketball and football games, the likelihood of a particular horse winning a race (if you had Big Brown, you did well this weekend) or a presidential candidate being elected (if you had John Edwards, you did not do so well).

It makes sense to me now how you currently have nothing to do with financial markets because you are demonstrating how little knowledge you have of them. Let me 'splain-to-joo....

There can be a market for anything...let's take for example...Lime-green Ford Pintos. Though it may not interest you, there ARE people in this world who would buy-or-sell Ford Pintos - for the right price. In this example, since you probably have no interest in a Lime-green Ford Pinto...you, my dear Steve...would not have a market - that is...no price at which you would be willing to buy or sell such an item. However...just because you don't have a market doesn't mean that such a market doesn't or shouldn't exist.

You speak of things that you would do or things that you would not do. But guess what, not everybody in the world sees things the way you do. For example, just because you choose to live in NYC (and probably enjoy living in NYC) doesn't mean that everybody in the world would also. Some people might cringe at the notion of urban life in NYC. Does that make them crazy? No. They simply have different needs or preferences than you.

Same thing with no-doc loans. Just because you wouldn't take out a no-doc loan doesn't mean that others shouldn't as well or that no-doc loans shouldn't exist. Believe it or not, there are people in this world who have a need (demand) for no-doc loans. And guess what...there are also people in this world who, for the right price, would be willing to offer (supply) no-doc loans. Of course the price for no-doc loans would need to be higher than full-doc - to compensate the seller (lender) for the additional risk associated, and some participants might choose not to participate in such a market altogether, but there is still a price nonetheless. The trick is to find the right price that buyers (borrowers) are willing to pay and that sellers (lenders) are willing to accept.

stevejhx: about 6 months ago

"onto some crazy borrower" = "onto some crazy investor"

stevejhx: about 6 months ago

Fortunately, iMom, I don't need to rely on your opinion of me to get my opinion of me.

Stupidest thing said here in a long time: every risk has a price.

Every risk does not have a price. If it did, we wouldn't be in a financial crisis right now (and you should know that since you speak so glibly about the bond market), and it would be possible to get hurricane insurance in Miami. More correct would be to say that quantifiable risks may have prices if they have markets. Though I'm not an actuary I've done some work in earthquake and fire reinsurance, and based on the data they have and use - a ten million-year seismic history of Costa Rica, for example, and detailed data on the value of each, every, and all property in the country - it would seem to me highly difficult to quantify the risk of default of someone who cannot prove his income. More so someone who cannot prove his income and does not have a job, but "thinks" he can get one in a month.

I'm not looking at it from the loan officer's perspective (though I have an opinion on that and the answer is Denied!) I'm looking at it from an individual's financial risk. I happen to have a lot of leverage including a 5-year interest-only ARM (on an apartment that I can pay for in cash that I pay as if it were an amortizing loan) and about $750,000 borrowed on margin at 4%. I understand the risk of all of those things; still, I would not take out any loan that I could not prove I could pay back. In the heady days of the mortgage market BofA tried to offer me all sorts of crazy loan products to get me to spend more than I could afford so they could offload my mortgage onto some crazy borrower because somehow the securities were rated Triple-A. I said no.

NYRENewbie: about 6 months ago

JimmyT, how do you get recent comps? Aren't they based on last year's contracts which represent a completely different marketplace than we have now. Just curious, because I will be facing this soon and it seems like a justification from the realtor for a higher price and perpetuating the status quo. How are others handling the comps?

iMom: about 6 months ago

As for no-doc or low-doc loans, I completely agree that they serve an important purpose. As with any financial market, every risk has a price. It's fair to assume that low-doc loans would carry a higher-risk premium in the form of a higher interest rate but there's no reason why there shouldn't be a market for people whose incomes are irregular or have special circumstances. In the bond market, for example, this is exactly why there is a market for investment grade bonds (that trade at a small spread over treasuries) and a separate market for high-yield bonds (that trade at a wider spread over treasuries). Steve, if you were a loan officer and you made a policy not to offer no-doc loans, that would be your choice and that would be fine. But to make a blanket statement like "If you can't get a loan w/o 'full doc,' you shouldn't be taking out a loan." is terribly narrow-minded and dismissive.

iMom: about 6 months ago

stevejhx: For today's environment, in May 2008, 90 days is NOT a long time on the market. It may not have been considered a long time 2-years ago but we're not talking about 2 years ago, are we? We are talking about and living in....hello....TODAY - the present. Haven't you heard that the market is slow and properties are taking longer to sell, especially the inappropriately priced ones? According to the latest Miller-Samuel report for Manhattan (Q1-2008), the average "Days on Market (from Last List Date)" is 146. So this property has still been on the market 2-months less than the average. There are a ton of sellers who would love to go to contract in only 90-days. Here's an example:

http://www.nytimes.com/2008/05/18/realestate/18sell.html?_r=1&ref=realestate&oref=slogin

I swear Steve, the more I read your stuff, the more I agree with your detractors.

dledven: about 6 months ago

the problem i see, is when you discount for certain factors (like an appraiser), in need of a full renovation, elevator, better or inferior block, then the apts that are selling for less have to really drop in value or the better value is in the more expensive property not having all the issues, better block, not needing a renovation, elevator. thats where the disconnect is, that the sellers with the inferior properties are acting like its 2003. how do you shake them up to reality?

stevejhx: about 6 months ago

You guys are amazing. "90 isn't a long time on the mkt."

BS. 2 years ago you would have said, "90 minutes is a long time to be in the market."

ccdevi, if you can't document your income, you don't deserve to get a loan. I've worked in banks, audited banks, & had my own company for the past 15 years. I can document what I make as self-employed. If you can't, I WILL NOT GIVE YOU A LOAN.

Caso chiuso.

w81, be real. "Can I provide a particular set of documents?"

If you're in business for yourself, YOU MAKE SURE you have those documents. Do you think I'll overpay my income tax just to declare extra income so I can borrow more money?

At 27%, it don't seem worth da money.

"Low-doc and alt-doc programs originally served a valuable purpose."

They served no such purpose. They served to slop up excess liquidity in the market. Learn basic economics / finance.

JT: about 6 months ago

As a seller and buyer, I understand both side of table. Interestingly, I find there are a lot of buyers out there that do not do their homework. Some apartments are overpriced and other are reasonable priced. Bid according to recent comps and a discount for the downmarket. I priced my apartment to sell, and I have some offers that were so ridiculous that it was not worth my time. It seems buyers just come in and take off 10, 15 or 20% off the top without comparing. If you are serious, do your research and don't waste everybody's time. As a buyer, I do my research. I look at recent comps, neighborhood comps, take adjustment to the market, and bid accordingly. Yes, I get shot down (there are some unrealistic sellers), but I very comfortable with my price, and everybody appreciate the research. I found both unrealistic buyers and sellers.

West81st: about 6 months ago

I agree with ccdevi on this one. Low-doc and alt-doc programs originally served a valuable purpose, making financing available on decent terms to people with unconventional or irregular income streams who were otherwise good credits. There's a huge difference between alternative documentation and the notorious "liar's loans". Unfortunately, the capital markets - especially the rating agencies - mispriced the incremental risk, partly because it was in their short-term interest to do so, and partly because originators willfully blurred the boundary.

stevejhx: The important question for a borrower to ask himself isn't, "Can I provide a particular set of documents?" but rather, "Can I get this loan without lying, and will the payments unreasonably stretch my resources?"

As for bidding strategy, I agree with those who say it depends on your read of the seller's situation and your level of interest in the particular unit. Unless you desperately want the apartment, just offer a price you consider good value.

ccdevi: about 6 months ago

"If you can't get a loan w/o "full doc," you shouldn't be taking out a loan. Especially above $1MM."

Thats asinine.

julia: about 6 months ago

It really depends on the seller. If he has already moved out he will probably be willing to negotiate but it's up to the buyer's headset and also if the agent is willing to push the lower price. I found convincing the agent was important.

dledven: about 6 months ago

imom- i agree that 90 isn't a long time on the mkt, however, what i have noticed is that properly priced units move.

what should be the $ psf for a full gut reno 2nd floor walk-up? if you figure that the avg PSF is about $1200 PSF maybe $1300 PSF, how much do you discount for unit needing renovation, and how much do you discount per floor walk-up?

iMom: about 6 months ago

dledven: It's hard to evaluate w/o full details but 90-days on the market (in today's market) isn't really that much time for a property to be listed. I've seen many listings that have been out there for HUNDREDS of days. Given that, 30%-below seems awfully aggressive and might send the signal that you aren't serious. I would suggest starting with what you honestly feel the property would sell for if YOU were the seller. Then bid slightly below that to allow for negotiating room. If the property isn't properly priced, there's a good chance it'll simply languish on the market along with all the other bone-headed sellers who are still in denial about how soft the market is.

dledven: about 6 months ago

steve- i didnt say me, READ, before making assumptions, i meant that the market has changed so many would be buyers are not eligible, i do go full doc with all requirements,

stevejhx: about 6 months ago

If you can't get a loan w/o "full doc," you shouldn't be taking out a loan. Especially above $1MM.

dledven: about 6 months ago

staying on the same subject, i'm looking at a property that has been listed for 3 months, NO price drops, i like the place, but i know he is priced to high, because its a gut reno, especially in todays mkt, where there is no more 10% down on purchases, now banks are requiring 25% down and full doc on over $1Million dollar loans, and i know that takes a pool of would-be buyers out. can i begin the negotiations 30% below asking price? tough, question i keep waiting to see if the price will drop but, price isn't dropping, the broker is doing an open house every week, sooner or later something has to give, and i don't know what to do?

markznyc: about 6 months ago

Thanks, for the feedback, ali. The seller's broker has had relatively mixed feedback -- from "we think it is fairly priced, so we are not that negotiable" to "just submit an offer" . . . Never ceases to amaze me how multi million dollar business deals that I do are dealt with considerably more transparency and directness than my lowly little real estate escapades. Frustrating!

Slee: about 6 months ago

Thanks for the advice

front_porch: about 6 months ago

Markznyc--

I hate to price what I can't see -- there really is an art to this, which is why I have a job -- but the first thing to consider is a factor called "listing discount" -- what price off list are apartments actually selling for?

In the aggregate, you can probably pull this for the neighborhood you're interested in from the Miller Samuel site.

That, more or less, tells you where a motivated seller is going to end up.

If it's roughly 5%, then I'd say roughly 15% off list is about as low as you want to start to try to get into a rhythm.

But it's tough to know how motivated a seller is on an investment property. Slee's experience has been that -15% hasn't worked in Manhattan.

Hubby and I have an investment house at the beach, which we listed a little low because it needs TLC, but we now think we're at a fair list -- and we're not countering anything that comes in at less than 96% of list.

The best way is to get that signal is to ask the seller's agent, he or she should guide you with phrases like "they'll wait for their price" or "bring me an offer."

ali r.
{downtown broker}

markznyc: about 6 months ago

tenemental --

Thanks for the feedback -- good questions, many of which we have found out answers to that work in our favor (thanks streeteasy insider!), hence the push for a lower price (the owner is an investor who had a bad relationship with the last renter and won't rent again). I am sure every seller is different, but that first offer is pretty critical to establishing tempo, so getting a gut check on what will turn people off is unfortunately alot of trial and error.

markznyc: about 6 months ago

tenemental --

tenemental: about 6 months ago

markznyc, I realize you've been around here a while and have probably considered this stuff, but it's an interesting topic for me...

Slee's experience isn't uncommon, but here are a few things to consider when trying to gauge the owner's need to sell: Is it a condo or "easy" co-op where renting isn't a problem, or is it a co-op with typical restrictions? Is the apartment vacant - are the owners carrying two homes? Is it a studio or 1br where there's a high likelihood the sellers have outgrown the space? I went to an open house recently that was a lofted studio (falsely advertised as a 1br, of course) that had a crib in the living room. I wanted to grab the broker by the collar and scream "You idiot!"

You can also check the StreetEasy rental listings for the building and see if they're advertising in both places. Also, have you met the broker face-to-face? It's amazing how so many of their poker faces have softened, and some are coming right out and telling you the seller is motivated.

Slee: about 6 months ago

My expereince is that the sellers rejected my bids (-15%) and refused to negotiate. They'd rather rent it out. The apts I put bids on are still on the market.

stevejhx: about 6 months ago

Better yet, go to nybits.com and find an equivalent apartment for rent, then work backwards toward your offering price - including maintenance, common charges, mortgage payments - and see what you come up with.

You will come up with 50% less.

stevejhx: about 6 months ago

I say insult them - offer 50% less. Tell them it's an all-cash offer (as if it mattered to them where you get your money from).

markznyc: about 6 months ago

OK brokers . . .here is where you can spout off.

I know every sitiuation is different, and every client is different, but considering something that has been sitting on the market for over 8+ months, that is decently, but not overwhelmingly well priced, what is an offer that is "too low to counter". . . -10%? -15%? -20%?

In today's market, has the comfort level changed?