How do you know you’re at the bottom of the market?

• You can track headlines
• You can make an educated guess
• You can note mortgage rates softening
• You can measure increasing sales volume
• You can talk to economists and people smarter than you

We have done all of the above. Heck, we did it last month. That’s right, we already called the bottom.

But this month, I prefer to use anecdotal evidence. Yeah, the kind of stuff that people like to poke holes in. The tales that get spun after an election is won or lost. The stories that seems too specific from which to extrapolate any kind of conclusion.

Yeah, those stories.

But since I’m an active real estate agent and am in the trenches, I’m going to do it anyway. Because after I did all the data crunching, the stories are confirming what I already see. And they’re more fun to share, too.

But Bottom Feeding Is Different Than Calling the Bottom

Yes, that’s true. We called the bottom. And now we’re seeing evidence for being at the bottom. And bottom feeding is the act of trying to get the best deal possible while we’re at the bottom. It requires people. In real estate, it requires a buyer and a seller. It requires an aggressive buyer and a somewhat-reluctant seller, doesn’t it? Well, for me to call it bottom feeding, the story requires a few components:

• A buyer who combines a bit of confidence, a willingness to walk away, and has an offer to present
• A buyer agent (or buyer, or both) who throws caution to the wind and really gets negative with the seller side
• A seller agent (or seller, or both) who is willing to entertain the offer, even if just for entertainment purposes.
• Someone willing to tell the tale. In this case, I’ll take up the challenge.

So, not a lot of components, but a few. With that in mind, let’s have some fun with the stories that, to me, show that we’re at peak bottom.

The Evidence That We’re At Peak Bottom

Do we call it “peak bottom” feeding? It’s like jumbo shrimp. The very highest lowest point. It doesn’t make complete sense, but what else should we call it? Ok. Let’s stick with peak bottom feeding for now, at least until I figure out something else. I won’t want to change the title, because it’s a combination of annoying and intriguing. That might also be a good description of my dating life before I met my wife 20 years ago, but I digress.

Type 1: The Unqualified Bottom Feeder

If we’re at the bottom, let’s start at the bottom. These are the bottom feeders who, even when sellers are down on their luck, aren’t really qualified to purchase what they want to buy.

I’ll explain the qualification part first. Their income will allow them to carry monthly housing expenses of about $5000. In this mortgage environment, that means they can afford a $500,000 mortgage. Then, it’s all about how much they have to put as a downpayment to get them there, and ensuring that the apartment’s monthly charge doesn’t put them over the top.

What do they want to buy? They want a Classic-6, a property that gives them at least 1500 square feet, two bedrooms, with a very large kitchen. In a stronger market, and in good condition, this kind of property sells for about two million dollars in some parts of town. Take the Upper West Side, for instance.

In this particular case of bottom feeding, we have a listing that has been on the market for a few months. It needs major work, and few buyers are excited at the prospect. Renovation costs have gone up, yadda yadda. I’ve written about it ad nauseum. The sellers are expecting a lower price than we had hoped for months ago, but are not heartbroken about it, either. The valuation today? $1.25-1.3mm. I know, shocking. But if you study it a bit more, the market is down about 15-20%, of which the construction plays a very big role.

They bid $1mm, so far below the market value, that they stand no chance. But it’s not only that. They have barely enough funds to put the $700-800k down on the purchase. Never mind that they will need to spend another $400-500k to renovate. So…it ain’t happening.

To make sure that the story qualifies based on my criteria, however, I do need to add a few more details:

• The buyer does not apologize for their low offer. They raise it to $1.050mm and tell us that it’s their best. Frankly, it really it about as high as they can go.
• The buyer agent in this case was apologetic, not brash. But he did make sure to tell us that his buyer feels that this is the best the property is going to get in this “terrible market.”
• We, the listing agent, certainly entertained the offer. But we suggested to our sellers to politely decline it, and encourage them to look elsewhere.

We have many other listings. And we’re seeing lots of unqualified buyers taking their best shot. It’s mostly amusing, a little frustrating, but in the end, fine. It’s a sign that people still believe in the impossible. And that makes me happier than you know. Dream big, people. Dream big.

Type 2: The Bottom Feeder With Blind Spots, Part One

In a market when so many sellers are bummed out, and brokers feeling disheartened, too, I must say that I have enjoyed this kind of bottom feeder. That I have seen this behavior multiple times in the past few weeks means that it has got to be rampant.

Who is the bottom feeder with blind spots? It’s the buyer who has no idea what they are buying. Just that it seems like a good deal. From what I can tell, they are accompanied by an agent who has no idea, either. We have two sales that fit this description—one condominium, and one cooperative.

The first is a condominium, where the buyer is all-cash, qualified, and moving to New York from overseas. The broker was highly aggressive in her negotiations. So aggressive, in fact, that we didn’t know that her first offer was her best offer, until we responded with a counteroffer. She was none too pleased. “Do you want the deal or not?!?!?” was what I remember her saying, though it’s hard to convey how surprised she was that we didn’t intuit that her buyer would never, not in a million years, present an offer that was of the take-it-or-leave it variety.

The seller might not have been thrilled, but they also have other, better things to do with their equity. We struck a deal at a level below 2008 prices in the building. So, a good deal for them, and a reality check too: This was the first sale of this “apartment line” in many years, after many other sellers tried and either rented out their units, or just took their apartments off the market to fight another day.

The blind spots showed up after the buyer had signed the contract. The buyer is moving to NYC from another city, so you can’t fault them for not knowing the ropes. However, their broker had no idea that the buyer would need to complete a purchase application in order to get condominium signoff, either.

This is hot off the presses as I’m writing this, so I’m really enjoying the agent’s shocking lack of market knowledge. I think she was more surprised about this than the counteroffer. She thought we would be closing on the sale next week. “Isn’t this something that the attorneys do at the closing?” she asked.

We have encouraged to tell her buyer the closing will be in about a month. And we’re going to hold her hand until the deal is done.

The Bottom Feeder With Blind Spots, Part Two

The second deal we’re doing is in a cooperative building. Standard coop, requiring standard approvals, just like we outlined above. Buyer came in, made their case about the market, how poor it is, and that their all-cash offer was, like Obi-Wan in the original Star Wars movie, our only hope.

Our seller was hardly entertaining the offer. And she was right to push back; we got another competing offer at the same time (that was not very qualified, by the way. See Type 1 above, ok?).

We struck a deal that was a bit higher with some negotiating, and some furniture tossed in. Everyone was happy, everyone was annoyed. It was the best of times, worst of times. You get the point.

It was also a deal with a buyer agent who hadn’t done a cooperative sale in THIRTY YEARS. The agent told me that all he does is sell buildings. So why was he representing this buyer? Because the buyer trusted him to negotiate all of his purchases and had also trusted him to sell a lot of buildings. We’re going to be a doing even more handholding here. Cooperative applications are not as straightforward, even in the least strict buildings. I’ll have to tell you how it goes.

Type 3: The Qualified Hog Bottom Feeder

Of course, we’re starting to run out of time, so I’l keep this short.

This is the buyer who is all-cash, VERY qualified, but is completely resistant to advice. And we’re representing two of them. We have found some fabulous deals for them, recommended offer levels, and backed our advice up with data. And the buyers want to offer 20-25% below those levels.

You know the saying, “Pigs get fed, hogs get slaughtered?” Well, in this case, pigs get the bottom feeding deals (they are bottom feeders, after all), and the hogs miss out, because they’re too greedy.

We’re in the process of firing all of our hog bottom feeders.

Type 4: The Qualified Pig Bottom Feeder

Now, our final bottom feeder. Remember the first bottom feeder? The buyers who are just hunting in the wrong woods, because they can’t really afford the properties they want? Well, if you have an aggressive buyer who is qualified, who comes in with a low-but-not-too-low offer, and sticks to his guns, what do you get? Well, my friends, you get an accepted offer and a very good deal. The sellers aren’t thrilled. But the buyer and his agent secretly are. They know they got a great deal. They know they negotiated as much as they could, to the brink of killing the deal, and not one step further.

The Winners, and the Losers

These are the bottom feeders that win in this market. And since I already called the bottom, I’m going to tip my hat to these buyers. We have some of them. We hope to bring around a few more to take advantage of opportunities. Because not every property is a steal, and not every property lost the same amount of value.

Some sellers, in fact, are very happy with their sale prices today. We just sold a unit where the seller made a small profit, having just completed a renovation 3 years ago.

But that’s not the exciting part. She purchased a new unit at a price 10% below what the sellers paid BEFORE THEY RENOVATED. By my calculations, she bought her new home at a $1mm discount to what she would have paid 3 years ago.

To learn more about how you can win in this market, be in touch. -Scott & The HRT

So it’s a disappointing situation in which the buyer’s agent