Gone to America

My parents (who were in New York this last week for my birthday) sold their house last year for an insane amount of money and decided to give both myself and my sister a generous chunk of pre-death inheritance. I decided that I would use this windfall (at least partly) as a downpayment on an apartment. I started looking.

Yes, this is a recap.

On my first day of looking I found a beautiful apartment. I describe it in more detail along with the beginning of my woes here. A detail I left out in that earlier telling: when I reported to my friend/boss/primary real estate advisor Eli that I had seen a place I liked and that I was going to put a bid in he said something interesting. The conversation went like this:

ELI: “Oh, that’s great. But, you know…”
ME: “What?’
ELI: “Oh, nothing. It doesn’t matter.”
ME: “No, what?”
ELI: “Well, it doesn’t mean anything, but in my experience nobody ever gets the first place they bid on.”
ME: “Pshaw!”

At the time I dismissed this as superstition, or at least merely anecdotal and not actually statistically signifigant. I should have recognised it for what it really was.

Foreshadowing.

In that earlier post I recounted the way they suddenly jacked the price up and I capitulated. That in itself was extraordinary – raising the asking price after a full price bid has been accepted – but it was only the beginning. A slight understanding of the difference between a co-op and a condo and what a sponsor sale is will be helpful here. Here’s a description from the website of my broker, Paul Zumoff.

Basically, a Condo is an apartment that you own. A Co-op is a corporation that you buy shares in that entitle you to a lease. A Co-op is generally cheaper but it has a board that must approve all sales. Unless it’s a sponsor sale. This means that the apartment is being sold by the financial entity that sponsored the conversion of the building from a privately owned concern into a Co-op. They put up the money to buy the apartments occupied by people who don’t wish to buy into the Co-op and will continue to rent. When these apartments are vacated the sponsor can rent them to somebody else or sell them. This is called a sponsor sale. No board approval is required, but the purchaser is responsible for the payment of the Transfer Tax, 1.4% of the purchase price and usually the responsibility of the seller.

So, I agreed to the increased price and they sent a contract to my lawyer. I gathered together all the financial information and other documents for the bank and the property manager, filling out all the forms. I went to see my attorney and we talked through the contract.

It was a little odd. There were a few clauses in it that gave cause for alarm. My attorney crossed them out. One section dealt entirely with board approval. Some mistake, right? This was a sponsor sale. So he crossed that out and added a rider explicitly stating that the board had no power to veto the sale. I made out a cheque for 10% to be put into escrow and signed both it and the contract. He sent it back.

It was expected that they would quibble about certain of his amendments. There would be a brief negotiation and we’d move on to the appraisal and the closing. But no. They got in touch, insisting that the board approval language had to stay in the contract. But why? Isn’t this a sponsor sale. Yes, but I still had to meet the board. It would be informal, just a “meet and greet”. That’s all very well, but there’s a legal document saying that they have the power to undo the sale. Was I to trust them that this was to be an informal welcome meeting?

I was happy to meet them. I had no problem going in and being nice. In fact, I welcomed it. It sounded like a good idea. But how can this be informal if I’m aware that if I make a bad impression they can stop the sale? Not that I would, of course, but still. I said that I would be happy to meet the board, but if I need their approval then it’s not a sponsor sale so why should I pay the transfer tax? Again, this was unheard of. Board approval and transfer tax? The worst of all possible worlds!

So there was much back and forth. All I really wanted was an explanation. Why did they require this? They must know it’s unusual. What’s their rationale? It became clear that no explanation would be forthcoming. Relations became strained. Eventually I realised that they were willing to allow this issue to scupper the sale, and that I wasn’t. I capitulated again. I wanted to buy it more than they wanted to sell it to me.

This had taken so long that all my other ducks were perfectly aligned. I had a mortgage approval letter ready to send to the managing company to trigger the board “meet and greet”, just contingent on a couple of extra details and the appraisal. I had another few forms to fill out and we could move ahead.

Except not. The appraisal – usually a formality – came back. The bank’s appraiser had decided that the property was worth less than the contract price and they wouldn’t give me a mortgage on it. $45,000 less. Disaster. My options at this point were:

1. Try and get it reappraised at a higher level. The listing broker got to work on this, looking for comparable apartments at a higher price to convince the bank that the appraisal was low. She didn’t manage.
2. Bridge the gap with cash. I did make some attempt at this, but the lottery tickets kept coming up bad.
3. Move on with my life and look for another apartment. If it’s really this overvalued then it’s a bad deal and I could consider it a lucky escape.
4. Hope that the seller will lower the price. This may seem unlikely on the face of it, but consider that if I couldn’t get a mortgage then neither can anybody else. The problem was not that I was an unsuitable candidate, far from it. The bank just wouldn’t accept that the property was worth lending that much against. The only person they could sell to would be somebody with a lot of cash who believed that the property was severely undervalued by the bank. Not a good position to be in.

Some people did try and convince me that I should just walk away. But even if the property was (is) overvalued I could still afford it, and the fact is that I haven’t seen anything else in my price range that came close to it in all the ways that are important to me. So it came down to option 4. Would they budge on price? We asked, and waited, and waited…

It seemed at one point that they would. Not much, certainly not by $45,000, but a little. I spoke to my mortgage advisor and she crunched some numbers. We came up with a figure whereby I could get a 100% mortgage based on the appraisal value and use the cash I had to bridge the gap. It would cost me any more in terms of payments or cash or interest, and just required that they meet me in the middle.

They refused. The early indications were wrong, and they weren’t willing to come down in price at all. They ended the contract and sent me back my deposit (well, they haven’t yet, but I’m sure it’s coming). It’s all over. I start looking again.

I don’t mind the money so much – although what with legal fees, the appraisal and the mortgage processing that’s a chunk of change – but the time. Over two months have passed when I could have been out looking but wasn’t because, despite Eli, I thought I had found my apartment and even if it was turning out to be a bumpy road I’d get it eventually. But no. Back to the drawing board.

It’s extremely irritating. I even hit a wall at one point, although not hard enough to do any damage to either of us. But it’s ok. I guess I can accept this kind of thing as the other side of the karma of working for a video game company. I mean, part of my job is to play video games. I have to expect some rain in the other areas of my life.

As I said at the beginning of the post my parents were in town. We hung out in the evenings – I ate a lot this week. On Sunday I actually took them out to my putative new neigbourhood in Brooklyn to have a look around. It’s really great out there. I still want to move there. They’re in Philadelphia at the moment attending a wedding. This time I took them into work which I hadn’t done before – security is tight. It was a flying visit, but everyone agreed that they were “sweet”. I’m not sure my Dad is pleased with this. I’m just sorry that it was so cold they couldn’t enjoy New York the best way – walking around. Next time.