Bamberger Answers

A Real Estate Blog Where Experts Give Answers

Due Diligence - The Value of A Real Estate Attorney

So you found the perfect apartment, bid successfully, and had your offer accepted by the seller. Few could blame you for thinking the rest of the process will be smooth sailing from here on out. But in reality there remains the long and crucially important stage of contract negotiation. Is the building you've been smitten with in sound financial condition? What if that recently remodeled kitchen shows signs of shoddy workmanship after you've taken ownership of it? And what about that mortgage – do you have a complicated financial story to tell? How will you prepare yourself for the mortgage closing?

All these hurdles (and more) are common and necessary steps to survive a residential real estate transaction, but retaining the services of an experienced real estate attorney can make a world of difference as you navigate each delicate phase of the deal. This week, we interviewed Jerry M. Feeney – Attorney at Law, Gwen Chelidze of Kanen Law Firm, and Daniel Gershburg of Gershburg Law, P.C. Topics include the trials facing first time buyers and sellers, how to talk to your new co-op board, and how a diligent attorney can change your experience in a real estate transaction.

[The Bamberger Group] What are some basic ways you'd recommend a first time buyer exercise due diligence?

[JF] I think their due diligence is better spent finding an experienced lawyer. One of the mistakes that first time buyers often make is that they think that the lawyer is sort of a commodity, and they just shop for whoever has the cheapest price. They don’t realize that there’s a whole skill set and a large range of services that are offered. And they just assume that lawyers put together the paperwork for the closing, and that everybody does the same thing. But where they differentiate tremendously is in how robust their due diligence program is [when] representing buyers. It’s always shocking to me how many lawyers don’t review board minutes for co-ops and condos. Or maybe they’ll send their clients to review the board minutes, but clients don’t know what to look for. It’s bizarre.

[TBG] Do you have any advice for prospective purchasers or new shareholders who are inexperienced in dealing with a co-op board? 

[JF] You hear a lot of the time brokers say things like, “Never tell the co-op board in your interview that you’re going to renovate,” even if it’s your intention to renovate. And I really discourage that tactic. First of all, you’re not being candid and truthful. And if they approve you and on Day One you come in and submit an alteration package for a gut renovation, you immediately begin your relationship with that board on a deception. Moreover, if it’s an apartment that hasn’t been updated in 40 years and it’s an estate deal, then obviously you’re going to renovate it; they’re not stupid. So coming in and lying to them and saying, “I’m not going to renovate” is absurd. And I tell brokers, it’s not really serving their client’s interest. What I’d rather have the buyer say is, “As I’m sure you’re aware, this is an estate apartment. It hasn’t been updated in a number of years, and we do plan to make some improvements to the apartment. We’ve reviewed the building’s alteration policy requirements and we plan to comply with them to the T, and we won’t start anything until it’s approved. We do want to make some updates to modernize the apartment and make it a prettier space.” I think that’s fine. I think a board appreciates that.

[TBG] You also represent lending institutions, is that correct?

[JF] Yes, I do.

[TBG] Can you speak a little about their perspective on a first time buyer? What are some ways buyers can prep/organize their application to keep the lender happy through till closing?

[JF] The financing process is the trickiest part of real estate deals these days, and it’s definitely the part that I think generates the most frustration for buyers, and for first time buyers in particular. The level of detail and documentation that banks require on a mortgage is staggering. Banks will inevitably ask for the same documents that they’ve already asked for before. People will sometimes melt down about this and get really angry. And I say to them, “Look. There’s a lot of documents flying back and forth. People make mistakes. If they need a copy of this document and you’ve already sent it, you’ve already got it scanned– just send it over, rather than getting into a big to-do about it.” You want the banker to be your ally. You want the banker to be your friend in the process. You want to make their life as easy as possible so that they are more inclined to work on your file as opposed to somebody else’s.

"You could have two buyers, and they both end up closing on the same day... one of whom, their expectations were not managed properly; the other, their expectations were managed… they’ll have a completely different take on the transaction."

So first time buyers have a big misconception about: What does it mean to get “approved for the loan?” When I talk to people about financing contingencies, and how the case of risk in a contract shifts between buyers and sellers depending on the contract language, buyers will inevitably say, “I’m not going to have a problem with the mortgage; I’m already pre-approved.” And educating them about terminology, and understanding what pre-approval means, what pre-qualification generally means, what a loan commitment means, what underwriting additions are, what clear to close means… just explaining to them the language of banking, can really manage expectations. You could have two buyers that are similarly situated, and they both end up closing on the same day… one of whom, their expectations were not managed properly; the other, their expectations were managed… they’ll have a completely different take on the transaction, even though they both closed within the same timeframe.

[The Bamberger Group] What are some common misconceptions among homeowners who are selling for the first time?

[Gwen Chelidze] What I always discuss with my [seller clients] is, I know that it is very appealing to choose the highest offer that you have on your property. But you really have to look further, and look at the buyer themselves. Especially in Manhattan, when we’re talking about co-ops and condos. Because it might be the highest offer, but it might not be the most qualified buyer. And a lot of the time you may be wasting your time by choosing the highest offer. And then you’ll get a co-op board rejection, or the buyer cannot obtain a mortgage for financing, and you just wasted two weeks of your time and have to do everything all over again. So find out what the financial situation of the buyer is, and of course a cash buyer is always preferable. So again, learn about your buyer– [don't just accept] the highest offer you get.

[TBG] Do you have any advice for purchasers or new shareholders who are inexperienced in dealing with a co-op board?

[GC] There’s no right or wrong answer to this, because a lot of the time you don’t even know what the co-op board wants. But one piece of advice I give is, think about what kind of neighbor you would want to have if you were in this board’s position. So think about that, and then act accordingly. You really have to learn about what kind of position they are in. In Manhattan you have so many different people with different lifestyles, different incomes, so all of this matters. If you want to blend in and feel more comfortable around these people, you may want to learn more about them and act accordingly.

[TBG] Can you share a story that demonstrates “Buyer Beware” or “Seller Beware?” We'd like to hear about a transaction in which things did not go as planned, either due to an oversight by a party to the transaction, or due to something beyond anyone's control. How were you able to help get things back on track to closing?

[GC] One thing that comes up over and over again is that sometimes the seller is selling the property “as-is.” A lot of times buyers ares so eager to sign the contract and secure the property that they’ll agree to everything. I have to explain to my clients that they have to really first do some background research. They just want to sign the contract immediately. And the issues come up at closing, after the walkthrough, because there were things they didn’t pay attention to before, because they were rushing to sign the contract. One of them is: in Brooklyn a lot of properties do not have a Certificate of Occupancy, because they were built prior to 1940. It’s not an issue unless you want to enlarge the building or change the occupancy of the building. So I had a transaction where I explained this to my client, and she said that she’d take this property, didn’t care about any of this, she loved the neighborhood and she didn’t want to wait a day later because the seller had other offers as well. And she signed the contract “as-is.” And it turns out that the seller had made some alterations to the building that were not approved by the Department of Buildings. And this we found out after the contract signing. So she had to either cancel the contract or go through with it because it was an “as-is” sale. And we were able to negotiate some kind of credit for her, but she was devastated because now she had excess expenses that she had to endure. And she didn’t want to cancel the contract, she still wanted to go through with it. So at that point it all comes down to negotiation. If both parties are willing to meet halfway, then you have an outcome… in this case, this ended well. We got some kind of credit, and the client was still able to purchase the property and renovate, and get a Certificate of Occupancy later for the building.

[The Bamberger Group] What are some basic ways an inexperienced buyer or seller can prepare themselves for a real estate transaction?

[Daniel Gershburg] For sellers, the most important thing to do is to keep your emotions in check. Everyone thinks their place is worth more than what it is, and that’s because they have an emotional connection to the place. What they should be doing is be speaking to at least one or two real estate brokers in that specific area that they’re dealing with, to get a sense of what that place is going to go for. The reason is that brokers– if you get a good one– take a sober look at what’s out there. They’re going to look at the particular building, they’re going to see the comparable units are in that building. They’re going to say, “the unit above you sold for $1.2 million, and it’s been freshly renovated, so yours is probably going to be more in the line of $1.05 million.” So it’s incredibly important for sellers to have someone else that’s not connected with the transaction tell them what they’re going to be selling for.

"Like anything in life, the more familiar you are with the process, the less stressful it’s going to be. Familiarizing yourself [with the buying process] and putting together a good team, as cliche as that sounds, is a really good step."

On the buy side, when you’re buying your first place, there’s no such thing as too much research. I would spend some really good, quality time on Brownstoner, on Curbed, even on Trulia and Zillow, just to get a good idea of what it is you like, and what you don’t like. And then again, just to echo this: back in the day I thought real estate brokers didn’t bring much value to a real estate transaction. I was horribly wrong. If you get a good one, they can navigate you and help you find something that you actually like. Everybody and their mother wants a place with big closets, bright lights, a good neighborhood, a doorman– oh, and also it should be pretty cheap, and you should be able to do whatever alterations you want on the place. These places don’t exist. So what you should be doing is doing research on what is important to you. And you list those priorities: everything from space, to proximity to a good school, to proximity to trains, and you say, “This is what is the most important thing to me, this is the second, and this is the third…” Because that will allow you to break down specifically where you’re looking and what you’re looking for.

And you could speak to couple attorneys, too. I have many clients that sit down with me, prior to them even searching for anything, because they just want to know what the process is. Like anything in life, the more familiar you are with the process, the less stressful it’s going to be. Familiarizing yourself [with the buying process] and putting together a good team, as cliche as that sounds, is a really good step.

[TBG] Do you have any advice for purchasers or new shareholders who are inexperienced with dealing with a co-op board? 

[DG] On a purely general basis, my advice to you is: anything the board wants, goes. Absent any specific pattern of discrimination based on race, sex or [any other protected class]– whatever the co-op wants to do, it will do, and you’re not going to make them stop. So if a co-op wants to reject you because they don’t like the dress that you’re wearing, so long as they’re saying it has nothing to do with the dress that you’re wearing– then you have no recourse whatsoever. That’s one of the cons, and one of the pros, when it comes to a co-op. So if you’re applying to a co-op, and you’re going into the interview, you have virtually zero power whatsoever. You can be incredibly nice, incredibly sweet, but if the co-op looks at your financials, and they don’t like the fact that you have three kids and two of them are newborns– and they think they’re going to make a ton of noise– there’s not much you can do. Go into the process eyes wide open, knowing that there’s a potential for the co-op to say no, and it’s just because the co-op is the co-op and they have their own preferences. The co-op at 2 Main Street may not like something, and the co-op at 1 Main Street may be totally OK with it. Just roll with the punches.

And there’s nothing wrong with getting to know your neighbors once you’re in there. You want to get alterations done? Say hello in the elevator. I’m not even kidding, if you make pies for people in the building, or you bring coffee– you’re just being a normal, decent human being– that goes a long way I’ve seen, with some of my clients. And honestly, the one thing you should really think about doing is running to be on the board. Once you’re in that building, and you want to have a say in the way it’s run, get on the board. There’s so many people that complain about board politics, but they’re just shareholders. They never run for positions of power, and so they become victimized by it rather than actually saying “You know what, I want to change the way things are run,” and getting a position on the board where they can have a say in the way things are run.