As lawyers who counsel buyers and sellers of multi-family buildings from Hawaii to Massachusetts, we are very sensitive to whatever captures our clients’ attention most urgently. While there’s a lot of talk in the market right now about interest rates, we are seeing more focus on a more basic component of cost—simply, the current pricing of these units.
With the economy now into its 11th consecutive year (since June 2009) of overall growth, building prices are high, and seem to be rising all the time. But our clients on the “buy side” know what everyone who can read two sentences of a history book knows—nothing lasts forever. If prices begin to slip, which generally happens when interest rates rise, for example, it will present a golden opportunity for prospective buyers who have been sitting on their cash and other resources to unleash it on the market and get the good deal they’ve been waiting for.
In the meantime, because demand is currently so high, sellers have an advantage, and can arrange terms more to their liking than the usual ones. For example: Typically, in an average market, a buyer might have 30 to 45 days to perform due diligence on a property and its financials, to decide whether to proceed or not. Sellers have been able to insist on shortening that period to as few as 15 days, so that sellers can proceed more quickly. That’s a lot of documents to read and financials to consider in a very short period.
Another example: There is, of course, always a non-refundable part of the deposit that sets a prospective deal in motion. Sellers are able to ask for more money in the non-refundable category than in a looser market, and buyers are agreeing. One percent to two percent of purchase price is typical for this type of deposit; but sellers are successfully pushing for the higher end of the range in this environment. Again, a significant variable for the seller, felt strongly by the prospective buyer when a deal doesn’t go through.
At some point, when the market turns or even pulls back slightly, buyers will find prices and conditions more to their liking, and we think this will lead to an increased volume of sales, as buyers unleash the reserves on which they have been sitting during the last period. For the time being, though, the seller continues to rule the roost.
Contact us if you are looking for assistance in buying or selling multi-family property.