Re-trading: Why some buyers renegotiate an agreed upon sales price and how sellers can cope
- The request is a bitter pill for sellers but can help salvage a deal when buyers run into unexpected costs
- It can be triggered by an inspection that turns up defects or due diligence that uncovers financial problems
Some NYC brokers told Brick they’re seeing more re-trading in the current buyer’s market.
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When the New York City real estate market favors buyers, a seller may get an unwelcome surprise just before a buyer signs the contract: A request for a discount on an agreed upon price, a practice known in the industry as re-trading.
A re-trade generally nets a buyer a small markdown of 1 to 5 percent and it can happen when a buyer discovers a previously undisclosed defect in the property or an upcoming assessment, brokers told Brick. Or maybe a buyer got spooked by a stock market correction.
Some brokers told Brick they’re seeing more re-trading in the current buyer’s market. However, others say they’re not witnessing it more than usual (and a few said they not seeing it at all).
It may not be a widespread phenomenon, but it is a strategy that buyers need to know about and sellers need to be prepared for.
Re-trade or back out
While it may feel like an aggressive move to a seller, for the buyer it can be an attempt to make a deal go forward after hitting a snag.
It’s triggered “usually by something that comes up in the due diligence and it’s a question of is it a deal breaker or is there a price that mitigates the risk,” said Nicole Beauchamp, broker at Sotheby’s International Realty.
One broker is seeing more re-trading than usual for a buyer’s market.
“With pretty much every deal I’m doing right now, I’m either re-trading for a buyer or mentally preparing a seller to accept the deal,” said Kirsten Jordan, a broker at Douglas Elliman.
“Buyers are concerned about getting a good deal and getting the right price,” Jordan said, a tricker feat considering today’s “layer cake of costs.”
“During due diligence buyers realize their costs will be higher than they expected. They don’t know until they start digging in and talking to insurance brokers, looking into the building, and pricing the cost renovation,” she said. “Everything is just more expensive, not just mortgage payments.”
So instead of getting cold feet and walking away, buyers ask for a small discount that can get them another 1 percent—usually after they have achieved a 10 to 15 price cut in the current market, Jordan said.
‘Skin in the game’
Jordan said that when re-trading, she has contributed funds to help get the deal over the finish line.
“At some point, you have to show the owner you have skin in the game. The reality is that in most re-trading situations, a portion comes out of your fee,” she said. Her contribution is equivalent of a half point on the commission.
If there are multiple offers
Nicholas Ritacco, portfolio manager and director of finance at real estate firm IB Global, said re-trades are “definitely a sign of the market we are in with inventory continuing to increase and days on market increasing as well.”
These factors embolden buyers to ask for concessions up to contract signing, unless it is a multiple offer scenario with limited days on market, Ritacco pointed out.
But if a buyer is not facing competition, it is fair to make a request tied to an inspection report surprise or higher-than-expected closing costs due to insurance or assessments, he said. Plus, there’s the volatility of mortgage rates, he said.
That was a factor in a recent deal he completed in Harlem for a two bedroom, two bath with a $1 million sales price. “The discount was about 5 percent mainly to help offset higher interest rates,” he said.
Re-trade as a closing credit
Sometimes a re-trade takes the form of a closing credit—a giveback at the closing table that offsets the sales price but doesn’t get officially recorded. This practice is somewhat controversial because it results in inaccurate comps that mislead other buyers.
Mark D. Friedman, an agent at Brown Harris Stevens, said he sees deals re-traded at NYC co-op buildings when the board wants to keep the average sales price high.
“We had a deal in Greenwich Village, a two-bedroom estate, where we were instructed by the co-op to keep the number high or it wouldn’t get approved, so we had to structure the deal so there would be a ‘renovation credit’ of over $300,000 so the building average wouldn’t suffer,” Friedmans said. “The sales price was close to $3 million but the actual price was much less.”
When to ask for a re-trade
Maria Belen Avellaneda at a broker at Keller Williams NYC, said she’s seeing a minimal number of re-trades in the current market, which she attributed to working with “extremely serious buyers and sellers.”
She said there are very few acceptable reasons for a re-trade, but one scenario would be if the buyer is getting a mortgage and has a financing contingency. "If there is a significant difference between appraised value and the negotiated price, then the buyer may try to renegotiate the price,” she said.
Other scenarios would involve incorrect information about common charges or a failure to disclose the building is in poor financial shape.
How buyers should approach a re-trade
Brian K. Lewis, a broker at Compass, is at the far end of the spectrum: He hasn’t seen any re-trades since the start of the pandemic.
“A re-trade is not very common,” Lewis said. “At the start of Covid, when there was so much uncertainty in the world, I did see some modest re-trade requests from buyers. Sometimes sellers went along with them just to get the deal closed and behind them.”
He cautioned buyers about expecting too much of a discount. “A $750,000 one-bedroom home would likely have a very small discount, while a $12 million property might see a more sizable re-trade,” he said.
Buyers need to “tread carefully” with their requests. “Sometimes a seller will fully upend a deal and close the door on a buyer whose demands are too aggressive,” he said.
Ari Harkov, a broker at Brown Harris Stevens, said he’s not seeing more re-trades than usual, and buyers considering asking for one need to weigh the upside and the downside.
“Make sure you are willing to risk alienating the seller and losing the apartment, especially if they have other interest or offers,” Harkov said. "On the one hand, you could get a $10,000 credit, and on the other, you could lose the apartment entirely. You have to be comfortable with that risk."
You also need to support your request.
“If you do feel a re-trade is warranted, make it very specific and document it and make sure to show a seller why this is new information,” he said.
For example, if there is an assessment of $20,000 coming due, you want to show documentation from the managing agent and make it clear that it wasn't disclosed prior to having your offer accepted.
“Remove emotion as much as you can and make it specific and economic-driven,” Harkov advised.
How sellers can avoid re-trade requests
Sellers can head off re-trade requests by being as transparent as possible, brokers said.
Belen Avellaneda advised sellers to “disclose any potential issue beforehand to avoid the request in the first place.
“If you have an accepted offer, you provided all the information, and there is no substantial new information that should change the accepted price,” she said, adding that the next move is for “the seller is to stay firm.”
But: “If request is reasonable and valid I would suggest being flexible and try to find a midpoint,” she said.
Adding ‘insult to injury’
Even if a buyer is making the request to move a deal forward, it is not likely to be welcomed by the seller.
“Sellers are already feeling squeezed,” said Jordan of Douglas Elliman. This move adds “insult to injury.”
“What’s important is explaining to sellers why taking a bigger hit is necessary,” she said. For example, for investment owners, the longer a unit is on the market the more wear and tear it suffers. But if you’re getting out you can bank the liquidity, she said.
Still, for many sellers, “re-trading goes over like a lead balloon,” said Vickey Barron, a broker at Compass.
“It is a hard pill for any seller to accept. I did have this happen last month after several surprises should have been disclosed by the seller or their agent. A flip tax for one, and an assessment for two, there was a third but honestly it was so painful I forgot.
“We did get a re-trade, but that should only happen, in my opinion, when it is warranted. If a buyer pushes the envelope to squeeze a few dollars at the last minute when it’s not justified, that typically does not end well."
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