Buying a coop without a broker is not as difficult as real estate agents make it out to be. In this article, we’ll explain how the process works and what you’ll need to do to successfully purchase a coop apartment in NYC without a traditional real estate broker.
Why is buying a coop without a broker a bad idea?
You’re giving up “free” advice and guidance from a seasoned industry veteran. No doubt you’ve heard by now that buyer agent services are free for home buyers. In NYC the seller pays a fixed commission regardless of whether you are represented or not. Therefore, the cost of your representation is included in your purchase price!
This is the primary reason why over 90% of home buyers end up working with a buyer’s agent. Especially if this is your first purchase, why would you give up free advice and guidance for one of the most important and expensive purchases of your life?
Real estate is an especially opaque industry. Even the most avid do-it-yourselfer will have some unanswered questions when it comes to buying a coop in NYC. Why not consult an expert for free when it could mean the difference between screwing up a board interview and getting accepted?
Pro Tip: Don’t ask any questions at a board interview, even if the board asks if you have any questions at the end of the interview. Why? There’s a chance that the board is testing whether you’ll be a potentially troublesome shareholder that will cause them unnecessary work and hassle. You can ask questions after you’ve become a shareholder!
You’re giving up a buyer’s broker commission rebate. The primary reason to use a buyer’s agent to buy an apartment in NYC is the ability to receive a split of the commission earned by your buyer’s agent.
The typical 6% broker commission paid by the seller will automatically be co-broked (i.e. split) half and half with a buyer’s agent. If for some reason a buyer decides to forgo representation, the listing agent will keep all 6% of the commission. This does not benefit you in any way as the listing agent’s fiduciary duty and loyalty is to the seller and the seller does not receive any sort of break in commission because you’re unrepresented.
The only way for you as a buyer to gain some of the broker commission is through a commission rebate from your buyer agent. The listing agent is legally obligated to present all information and offers to the seller. Won’t you be able to beat the competition if you’re able to pay more because of the commission rebate you’ll be getting?
Why is buying a coop without a broker a good idea?
No risk of having a potentially incompetent middleman delaying or messing up your deal. With over 30,000 licensed real estate agents in Manhattan alone, there are bound to be quite a few incompetent agents running around with barely a high school education under their belts. And you want this person who can barely write a complete sentence to handle the biggest purchase of your life?
Not only could an incompetent or simply too busy buyer’s agent delay communication between you and the seller, they could even potentially miss emails altogether! What assurances will you have that they didn’t forget or were simply too busy to see an important email for your purchase?
Reveal your personal finances to one less person. Too much information is shared online these days by individuals. From rampant social media accounts to carelessly having personal emails and other information indexed by Google, the last thing your average person needs is to have one more person unnecessarily know the intimate details of your personal finances.
Remember that both the listing agent and buyer’s agent will typically know much more about your personal finances in a co-op transaction versus a condo transaction. That’s because a co-op board will be much more strict in who they approve to become a shareholder. Their just concern is that the shareholder will be financially sound and able to make maintenance payments going forward. As a result, you can expect the co-op board, and brokers and lawyers on both sides to have access to your co-op purchase application. This application will be very detailed and contain pay stubs, tax returns, reference letters and other intimate details of your financial history.
What are next steps for buying a coop without a broker?
Step 1: Search online
You’ll miss out on the luxury of having a buyer’s agent spoon feed you listings to check out while you sit back and relax. However, if you have the time and focus for it, you can be extremely comprehensive in your search since you’ll know which listings you’ve already seen. You will never face the situation of a buyer’s broker sending you listings which you’ve already passed on.
The best bet is to use a local real estate search website like StreetEasy to begin searching for listings in the neighborhoods you’re interested in. Be sure to exclude contracts which are already “in-contract” which means there is a mutually executed purchase contract and the unit is no longer available.
“In-contract” is the only status update available on public websites such as StreetEasy. You won’t be able to easily discern whether a listing already has an accepted offer or whether it has a contract out unlike a buyer’s agent who has access to this data in RLS (REBNY Listing Service).
As a result, you’ll need to inquire with the listing agent of each property to ask them whether the property is still available before getting too ahead of yourself.
Another annoying thing you’ll encounter when buying a coop without a broker is that every listing agent will want to speak with you over the phone to try to poach you as a potential buy side client should you not end up buying their listing. This will be especially prevalent for a listing that is no longer showing but not in contract yet (i.e. contract out or accepted offer).
Step 2: Attend open houses and private showings
As a direct buyer, it’ll be most convenient for you to attend open houses on the weekends. Why? Because you won’t have the same legitimacy for private showing requests as a seasoned real estate agent inquiring on behalf of a pre-vetted client.
A seasoned real estate agent or senior broker will typically ask a listing agent something like this:
Hi Debra, may we show this to our pre-approved buyer Robert Elksworth who will be in town this weekend on Sunday at 3:30 or 4pm? We’re seeing other properties in the area in the afternoon. Thank you very much.
Hi Debra, may we show this to our all cash buyer Tom Jordan next Tuesday or Wednesday evening? He is available generally between 5-7pm. He’s ready to make a move and we’ve been searching for quite a while already. Thank you.
An email like this from a seasoned real estate professional will show the listing agent that he’s dealing with a pre-vetted buyer who won’t be a waste of time to show. In real estate, brokers are obsessed about their reputation and no one wants to be known as a time-waster. As a result, the buyers led around by buyer’s agents are generally pretty well qualified. After all, a buyer agent logically shouldn’t be doing work for an unqualified buyer because who wants to work for free?
Step 3: Get pre-approved for a bank loan
Having a loan pre-approval letter from a reputable bank will show listing agents that you are serious and not merely window shopping. Furthermore, you will need a pre-approval letter when you submit your offer if you intend to finance your purchase.
Pro Tip: A pre-approval letter is much more legitimate than a pre-qualification letter. The former means the bank has received and verified documentation from you and the underwriting process is approximately 80% complete. A pre-qualification letter can be received after a 15 minute phone call with a mortgage banker and no verification or submission of any documentation.
Step 4: Submit an offer
So you’ve fallen in love with a co-op apartment you saw over the weekend and you’ve confirmed with the listing agent that the property is still available. What’s next?
Make sure you have everything in order to be able to submit a comprehensive offer by email. You will need the following in your official offer submission email:
Full legal name of the buyer(s)
Offer level and form of consideration (i.e. all cash, mortgage and down-payment amount)
Timing for the buyer on closing date
Any contingencies to close (i.e. mortgage contingency which means the buyer will need a mortgage to close)
Short biography of the home buyer(s)
Pre-approval letter if the buyer will be financing with a mortgage
Proof of funds if the buyer will be purchasing all cash