A note on your offer and pre-approval: It’s important to understand that getting pre-approved and having it in writing speaks positively about you. Likewise, it helps your credibility when you submit an offer. However, this is by no means a guarantee that you’re going to get a loan on the property that you desire. The lending institutions do an extensive study of the building; they have a long list of criteria that the building will have to meet before they make any commitment to the deal. So if you need a loan to purchase the apartment, your contract of sale with the seller must have a mortgage contingency clause. This clause will protect you from being committed to purchase the apartment in the event you can not get the funds to do so; the deal is “contingent” on your loan approval. Be aware, if this were to happen, it is the seller who has accepted the risk. Your commitment to the deal would be over; but for the seller, it could be the loss of very critical time and money.

It is not uncommon in Manhattan that an apartment will be purchased with all cash (no loan necessary). This is very attractive to the seller because the sale will not hinge on a loan approval; the contract will most likely be “non-contingent” (i.e., the contingency clause will be eliminated from the contract). In this case, the buyer bears the risk of coming up with the money. If you are in the position to offer the seller a “non- contingency,” this speaks loudly and may encourage them to take your offer, even over offers that are higher.

Caution: If you are an all-cash buyer, be sure that your attorney scrutinizes the building with additional care. Since you’re not getting a loan, a lot of the checks and balances that the bank does in studying the building will not be performed. The criteria they require will not be put to the test; even a standard appraisal is often overlooked. Your attorney should identify which banks have underwritten loans on prior purchases. You may be in the position to purchase the apartment outright, however, in the event that you need to re-sell, most of your prospective buyers may not be in the same position. They might be extremely qualified and willing to pay a significant amount for your apartment, but if they cannot find a bank that will loan them the money to purchase in your particular building, you may have to compromise substantially on the selling price just to re-sell. This is serious; do not put yourself in this situation. Example: There was a buyer who purchased from the sponsor with all cash and proceeded to do some extensive renovations on the apartment. However, a job relocation required him to sell. The seller received several very acceptable offers from prospective purchasers who were unable to secure financing. The building had recently been converted to a co-op and had a percentage of owner occupancy that was too low to be acceptable by any lending institution. The sellers spent a long time trying to sell the apartment. They finally did sell, but at a loss. They were never able to recoup the costs of their renovation. If they had known ahead of time, they may never have purchased in the building in the first place. Be sure that your attorney does his due diligence thoroughly.