Is It My Imagination or Are Deals Taking Longer To Close?
I've noticed a trend recently: transactions are taking longer to close. Much longer. This shift has implications for buyers, sellers, and real estate professionals alike. In this blog post, I will discuss my observations, explore the reasons behind this trend and offer some tips for navigating the extended timelines.
The Current State of the Manhattan Real Estate Market
Our market has always been unique, characterized by its high prices, competitive environment, complex regulatory landscape and local nuances. Post-pandemic, we've adjusted to new ways of doing business, i.e. - remote closings, remote due diligence, remote Board interviews. Supply and demand have ebbed and flowed with the fluctuations in interest rates and stock prices. Over the past year, there have been low levels of energy in all segments of the market.
Factors Contributing to Longer Closing Times
Increased Regulatory Scrutiny
New York City has some of the most stringent regulations in the country. Recent changes and increased enforcement of these regulations have led to longer approval times.
Co-op boards, which have always been known for their rigorous process, have become even more meticulous, requiring more documentation and taking more time for review. It is not unusual for a board to request that a buyer clarify items in an application and submit additional back up materials. We have seen a Board request clarification multiple times in the same deal. (Better than an outright rejection, right?)
Pandemic-Related Delays
The COVID-19 pandemic has had a lasting impact on our real estate market. Many administrative offices, including those handling title searches, taxes, and filings, are still experiencing long backlogs. Management companies, which process the paperwork and maintain building records, are understaffed and overworked and routinely take longer to respond to inquiries, thereby lengthening the due process period. Remote working arrangements have contributed to slower processing times.
Mortgage Processing Delays
With fluctuating interest rates, fewer transactions and many fewer refinances, one would think that the mortgage process would proceed quickly. Not the case. There seem to be fewer processors handling mortgage applications. And stricter lending criteria mean that underwriters are taking extra precautions and more time before issuing commitments, thereby elongating the timeline.
Appraisal Bottlenecks
A shortage of qualified appraisers has contributed to delays. As the demand for these services has increased, the need to appraise accurately has intensified, it has become more challenging to schedule and obtain timely appraisals, a crucial step in the closing process.
Negotiation Complexities
The nature of NYC’s real estate market often leads to extended negotiation periods with numerous offers and counteroffers going back and forth. Buyers and sellers are taking more time to agree on final terms, especially with fluctuating market conditions and pricing uncertainties. With fewer multiple bid situations, there is less incentive to quickly move a deal from an accepted offer into contract.
Tips for Navigating Longer Closing Times
Start Early and Be Prepared
Understanding that the process may take longer, it’s wise to start early and be as prepared as possible. Gather all necessary documentation in advance and ensure that your financials are in order.
Hire Experienced Professionals
Working with experienced real estate agents, attorneys, and mortgage brokers who are familiar with the local market can help streamline the process. Their expertise can mitigate some of the delays by anticipating potential issues and addressing them proactively.
Stay Flexible
Flexibility is critical. Be prepared for possible delays and have contingency plans in place. Whether it’s extending your current lease or arranging temporary housing, having a backup plan can reduce stress.
Maintain Open Communication
Regular communication with all parties involved—agents, lawyers, mortgage lenders, and co-op boards—can help keep the process on track. Prompt responses and proactive follow-ups can prevent minor issues from becoming significant delays.
Consider All-Cash Offers
If financially feasible, making or accepting an all-cash offer can significantly reduce closing times. Without the need for a mortgage approval, the transaction can proceed more swiftly.
Conclusion
I don't have data to support my theory about longer transaction times. But I have plenty of anecdotal evidence, including my own deals and those of my colleagues. Our Team has one deal that went into contract more than 15 months ago, and a closing has still not been scheduled.
Extended closing times reflect a combination of regulatory, economic, and logistical factors. While these delays can be frustrating, understanding the reasons behind them and preparing accordingly can help buyers, sellers and their advisors navigate the process more smoothly. As the market continues to evolve, staying informed and adaptable will be key to successful real estate transactions.
And beware: the upcoming changes to buyer broker representation procedures will likely cause additional delays as parties navigate the industry's new requirements and grow accustomed to yet another new normal.
