Hopeful New York City buyers are landing in stiff competition as prices roar back from pandemic lows and bidding wars become harder to avoid.
But just because an offer comes in first, or highest, doesn’t mean it will be the one to ultimately go to contract. Brokers say that sellers, despite often receiving a multitude of offers on a home, often end up turning to their second, third and even fifth choice buyers to get a deal done.
“I don’t think I’ve dealt with this before,” said William Krooss-Tadas of the Edry Team at Keller Williams.
Brokers told The Real Deal that New York City’s hyper-competitive market has created a vicious cycle: buyers, fearful of being outbid, put offers on multiple homes at the same time. Sellers, anxious to cash in before their prospective buyers move on, respond by dramatically shortening the due diligence process, often giving buyers five business days to go into contract.
The result: a seller’s first choice backs out after their offer is accepted. Then, the race is on to find the next highest bidder.
How often deals fall through is unclear. UrbanDigs data suggest the rate of broken contracts in Manhattan hovered between 5 and 7 percent over the past year after a massive peak following the onset of the pandemic. Since the wave set off by buyers backing out of deals they signed before the lockdown, contracts have been breaking at a higher rate each month this year than those in January 2020.
Being second in line can be advantageous for some buyers, providing they have their paperwork in order.
“The second buyer, who might have had the fourth-highest offer, they get all the due diligence sent over on day one, which makes it much more realistic they’ll get it done,” Krooss-Tadas said.
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Buyers can sometimes secure a victory at a discount after the first deal falls through. Oliver Peterson, an agent at Living New York, submitted a bid for his client on a condo in Fort Greene under the $900,000 ask, which the other agent told him was “a backup.”
“I know they had two offers ahead of ours after the first one fell through,” Peterson said. “I just kept following up: did it fall through? And then, very luckily, it did.”
Peterson’s client ended up going into contract on the condo for $899,000.
The current landscape, awash with bidding wars, can lead sellers on a roller coaster to closing.
A home in Greenpoint recently hit the market, asking just under $1.4 million. David Kazemi of Bond New York represented the listing, which got five offers, some over $1.5 million. But just as his client started seeing dollar signs, things went south.
Each of the first four buyers pulled out, one after the other, before the seller accepted a bid just over asking from the buyer in fifth place.
“Just as quickly as it went up it went back to zero,” Kazemi said. “I don’t think I’ve ever had that happen before.”
Kazemi said the pattern of deals falling through could be spurred by uncertainty and volatility amid the historic rise in interest rates, and a sign the market has started to peak.
“People get caught up in the frenzy,” he said. “People weren’t as concerned when you’re locking in a 30 year mortgage rate under 3 percent. Now we’re at 5 percent, it’s starting to give people a little bit of a pause and they’re taking a breath.”