THINGS TO KNOW RELATED TO REAL ESTATE

 

Why You Need a Good Credit Score

 Before you break your piggy bank and lay out your hard-earned money, make sure your credit is in good standing.

Why is good credit important?

Late rent payments and maxed-out credit cards could derail your ability to buy your own place, or make it that much more expensive. That’s because credit history is one of the key factors your lender will use to determine whether you qualify for financing and at what interest rate you’ll qualify.

Two different terms are used when talking about credit: credit report and credit score. Read about them below.

What is a credit report?

Your credit report contains information about your credit history. This information can come from a number of sources, including lenders, utility companies and landlords, and is compiled by one of three major credit-reporting agencies: EquifaxExperian or TransUnion. Your credit report provides details about types of credit you use, how long you’ve used credit, balances and available credit on your credit cards, applications for new credit, whether you pay your bills on time, and whether any of your accounts have been sent to collection.

What is a credit score?

Your credit score is a numerical value assigned to the information in your credit report. While there are a variety of credit-scoring formulas out there, FICO is the most widely used. FICO stands for Fair Isaac Corp., a company that was the first to create a credit score in the 1980s. Your FICO score can range from 300 to 850. A credit score of 400 or less is considered low, while a score of 720 or higher is pretty healthy. In a lender’s eyes, the higher your credit score, the less likely you are to default or make late payments. Of course, your credit score is only as accurate as the information provided in your credit report – and mistakes do happen.

Where do you get your credit report?

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies to provide you with a free copy of your credit report, at your request, once every 12 months. For more information about obtaining a copy of your credit report or to request your reports, visit www.annualcreditreport.com.

Once you get a copy of your credit report, review it and focus on fixing anything that’s negatively impacting your financial outlook. If there’s an error in your credit report, contact both the credit bureau and the organization that provided the information to the bureau. In writing, tell both parties what information is inaccurate, explain why you dispute the information, and ask for a correction.

What if you have bad credit?

If your credit score is correct but abysmal, you need to take action to repair your credit history. Use these tips:

Pay your minimum balance – and do it on time. Some banks offer payment reminders through their online banking portals that can send you an email or text message reminding you when payments are due. You may also consider having payments automatically debited from your bank account.

  • Do what you can to reduce balances. Stop using your credit cards and come up with a plan that puts most of your available budget for debt payments toward the highest interest cards first, while maintaining minimum payments on other accounts. Even paying an extra $25 each month will help reduce overall debt.
  • Don’t use up your line of credit. Lenders will look at the amount of credit available to you and what percentage of that credit you have used. If you’ve used 90 percent of your available credit, creditors will not consider you an ideal risk.
  • Just say no to new credit cards. Don’t apply for new cards and lines of credit right before you go home shopping. Part of your credit score is based on your credit age. First, reviewers consider the age of your oldest account and the average age of all your accounts. Opening a new credit card will lower the average age of all your accounts. Additionally, an inquiry is placed on your credit report when you open a new credit card even if you later decide not to accept the credit card. Inquiries account for about 10 percent of your credit score.

These changes won’t result in overnight improvement in your credit score, but long-term dedication to rebuilding your credit can make a difference.

How to Get Preapproved for a Mortgage

   

Answer: Get preapproved first.

Preapproval it is a written statement from a lender stating the loan amount you would qualify for under that lender’s guidelines, based on your income and credit info. Preapproval letters are usually good for 60 to 90 days.

Why you need to be preapproved first

New York City is a very competitive and fast-moving real estate market and if you want to be taken seriously, you need to be prepared. That means being preapproved before you even start searching for a home. This does three things:

  • You know how much you can afford
  • Your agent knows you’re serious
  • The seller and seller’s agent know you’re serious

Ask any New York City broker or agent about clients who were not preapproved and you will hear about the client who fell in love with an apartment, but could not meet the asking price or could not get approved for a mortgage. Not only is this situation a real bummer for the prospective buyer, but it’s also a disappointment for the broker who has devoted time and energy showing homes to that client.

This is why brokers will ask prospective buyers for a preapproval letter very early in the home search process, because if you’re not preapproved, it’s like going to a restaurant without money or a credit card. You’ll walk away frustrated and hungry.

How do you get preapproved?

Before you approach your bank or other financial institution for preapproval, do some research. Use a mortgage calculator to estimate total monthly payments, as well as other costs such as property taxes and maintenance costs. It’s also wise to check current mortgage rates.

Once you have this basic information, you can either go to your preferred lender that you do banking with or get pre-approved online in minutes.

One important note: You are not obligated to get a mortgage loan through the lender or financial institution that preapproved you.

Next article: Should You Use a Mortgage Broker or a Bank?

 

Should You Use a Mortgage Broker or a Bank?

   

Should you use a bank or a mortgage broker to get a mortgage loan?

The answer? It depends! Here’s why.

Banks are better because…

  • The bank is lending the money, so the bank is making the decisions. Mistakes in the application process may be cleared up faster and small favors can be more easily gained by using a bank.
  • If you have an existing relationship with a bank, you could qualify much easier since the bank already has access to your financial information and has a relationship with you.
  • Likewise, longstanding relationships between real estate brokers and banks can impact the efficiency of the preapproval, mortgage application and approval process. Relationships matter and banks may offer these long-standing customers more favorable terms on a mortgage.
  • Many loan products, especially special products such as jumbo loans that exceed certain loan limits, are available only through the banks that hold these loans.

Mortgage brokers are better because…

  • They shop around to all kinds of lenders, including many banks. While the number of mortgage brokers has severely shrunk since 2008, those left standing can be knowledgeable and useful for clients who don’t have the time to look for the best rates and terms.
  • Loan products are not as plentiful as they were before 2008, however, mortgage brokers can in some situations offer more variety or options than a bank, since brokers are not tied to one specific lender or bank.
  • If you are turned down by your local bank you can contact three or four different mortgage brokers and explore all of your options.

There are advantages to both bankers and brokers. It’s wise to approach two or three different banks and mortgage brokers before you make a decision on which mortgage terms and rates you will accept.

In the rush to secure financing, it’s easy to gloss over the variety of options available for securing a mortgage, or not look at differences in fees and services associated with banks and brokers.

Find a lender online

While visiting a brick-and-mortar lending institution is the tradition, another popular option is to find a lender online. Zillow Mortgages allows borrowers to shop for mortgage rates anonymously from among a variety of residential mortgage lenders. Rates and fees are competitive. Just enter in a few simple pieces of information, and you will see mortgage rates anonymously. There is no obligation to use Zillow Mortgages.

Types of Home Loans

   

There are many variables that go into choosing a mortgage type, such as whether you’re a first-time buyer, how long you intend to stay in the house and other considerations.

Loans for first-time buyers

The State of New York Mortgage Agency (SONYMA) runs a handful of mortgage programs designed specifically to help first-time home buyers purchase homes. The programs feature competitive interest rates, low down payment requirements, flexible underwriting guidelines, no prepayment penalties and down payment assistance.

  • Homes for Veterans Program is for military veterans and active duty U.S. military personnel. This program allows qualified veteran or active duty U.S. military personnel to apply for any SONYMA program with more favorable terms.
  • Remodel New York allows first-time buyers to purchase a home and finance the cost of renovations – all with one low, fixed-rate mortgage.
  • Achieving the Dream is available to lower income first-time homebuyers.
  • Construction Incentive Program is specifically for first time-buyers who are purchasing homes under construction or rehabilitation.
  • Low Interest Rate Program is SONYMA’s standard mortgage program for first-time buyers who are purchasing newly constructed or existing homes.

Federal Housing Administration-approved lenders also provide loans aimed at first-time buyers’ special needs. Be warned, though, that “FHA-approved” buildings are few and far between in New York City.

Fixed-rate mortgages

With a fixed-rate mortgage, you are locked in to a set interest rate, resulting in monthly mortgage payments that remain the same for the entire term of the loan. The chief benefit of this type of mortgage is inflation protection; if mortgage rates rise, your rate stays the same. Conversely, the big drawback is that if mortgage rates plummet, your interest rate will not drop. But, if rates drop significantly, you may be able to refinance.

Most lenders offer 15- and 30-year fixed mortgages, and some also offer 10- and 20-year terms. The longer the term of your fixed mortgage, the lower your monthly payment will be, because you’re paying over many years. With longer term loans, however, you will end up paying more interest over time.

A 15-year fixed mortgage will have a higher monthly payment because you’re paying for fewer years. The benefit is that you’ll build equity at a faster rate and will pay less interest over the life of the loan. Shorter term loans generally have lower interest rates.

Adjustable-rate mortgages

Adjustable-rate mortgages – often referred to as ARMs – are loans with interest rates that change over the life of the loan. ARMs have adjustment periods that determine how often their interest rates can change and they have initial “fixed” periods – often 3, 5 or 7 years — during which their interest rates won’t change at all.

ARMs were widely blamed for the housing bubble burst of 2007 and, consequently, fell out of favor with consumers. But with mortgage rates rising, these once-maligned loans are experiencing a resurgence in popularity, especially among high-end NYC borrowers.

These loans often are considered riskier because the interest rate and payments can increase when the fixed period ends and the loan adjusts. However, if you’re planning to live in your home for a shorter period of time, an ARM may make sense, especially because you’re likely to obtain a lower interest rate than with a fixed mortgage.

There are many things to consider before selecting a home loan. Do your research to ensure you’re getting the best possible deal.

Next article: Why Floor Plans Are Important

 

Why Floor Plans Are Important

Being able to read a floor plan and understand a space’s flow might not be on the top of the list for everyone else pursing real estate in the country, but when it comes to New York, reading a floor plan is akin to a chef knowing whether a recipe is good, or not.

Importance of a floor plan

After viewing hundreds of images of listings online and visiting several apartments, you’ll soon realize that images can be quite misleading.

No matter the property type – whether it’s a 459-square-foot studio in Yorkville or a 13,200-square-foot townhouse in Gramercy Park – floor plans are often a better indication of an apartment’s interior than images are.

And with Manhattan’s median price per square foot running around $1,280, you’ll want make sure that your apartment is laid out effectively and efficiently so that every last inch is well used.

How to read a floor plan

A floor plan allows the renter or buyer to comprehend the entire layout and flow of the apartment in a single glance. Here are some things to keep in mind when surveying a floor plan:

  • Are bedrooms next to each other? If you have a roommate, this might reduce privacy and noise.
  • Are the bedrooms similarly sized? Again, if it’s a roommate situation, someone will sacrifice space and possibly pay less in rent.
  • How many windows are there? Lack of windows means lack of light. What direction are they facing?
  • Which way do the doors swing? Blocking whoever’s in the kitchen while hanging up your jacket might be tolerable once, but how many times after that?
  • Are there partial walls to allow for an open style of living? Partial walls into the living room and dining room opens up the space and allows more light.
  • Is it a railroad layout? Let’s face it: Unless you’re living by yourself or your significant other, railroad layouts are no fun. That’s because someone’s bedroom will essentially become a walk-through to get to the other bedroom.
  • Does the floor plan include dimensions? If dimensions are printed on the plan, it’s helpful, but do not take it as a guarantee that they are correct.

See it in the key plan

Likewise, beware of what floor plans don’t say. Sometimes buildings include a key plan, showing primary architectural elements of each building by floor level. They represent elevator shafts, storage areas, venting, plumbing, and so on.

StreetEasy has floor plans for most listings, but if you can’t find them on the site, ask the broker. Or, you can call 311 and request a copy of a building floor plan. The Tax Assessor’s office would also have data on the number of units in each building assessed and whether they are studios, 1BRs, 2BRs or 3BRs.

 

Next article: Pros and Cons Between Condo, Co-op and Condop

 

Pros and Cons Between Condo, Co-op and Condop

   

You also need to know which type of property is best for you: a condo, cooperative (co-op), or a condop. Each has pros and cons and it mainly comes down to lifestyle.

Difference between condo and co-op boards

Today, condo and co-op boards require purchasers to complete a complex financial application upon contract signing. While both require board review and approval of each potential purchaser, there is an important distinction:

  • Co-op boards have the power to deny a prospective purchaser and don’t have to give reasons. If they reject an applicant, the seller needs to go back on the market to find a new buyer.
  • Condo boards have the right of first refusal on every purchase. While condo boards use this right as an opportunity to review each’s borrower’s application, they can only exercise their right if they have a problem with the sale or the purchaser. Even though they can hold up the process, they can’t simply reject a buyer.

What is a co-op?

When you buy a co-op, you don’t actually own your specific unit. Instead, you own shares of a co-op corporation that owns the building. The larger your apartment, the more shares you own within the corporation.

Monthly maintenance fees cover building expenses such as utilities, insurance and staff salaries. Also, instead of receiving individual tax bills from the city, the entire building receives one and therefore, part of the monthly maintenance charge goes towards property taxes. 

  • Pros: The biggest pro is that co-ops are somewhat less expensive than their condo counter parts for a few reasons: They make up about 50 percent of New York’s housing inventory, they require an additional layer of approval and they’re more restrictive with who they let in. Co-ops have higher owner occupancy rates than condos because most co-op boards frown upon or flat out disallow investors. Because of this, and because co-ops boards rigorously vet potential occupants and have the right to approve or deny each purchase, many believe there is more stability in a co-op.
  • Cons: Co-op purchasers must endure a more rigorous approval process, including an in-person interview with the building’s board. And, after searching for an apartment for months and going through the approval process, a buyer can be rejected. Foreign buyers can’t purchase because they don’t have the necessary paper trail with U.S. banks, U.S. credit or both. Co-op boards generally require a minimum down payment of at least 20 percent of the purchase price. Some co-op buildings require more (50 percent), while others don’t even allow purchasers to get loans.
  • Each co-op building has its own rules, but most are quite restrictive about how you can use your unit; many limit or forbid subletting and disallow its use as a pied-à-terre. When you become a seller, the extra level of approval can get in the way of your sale. If you lose a great buyer because of a board rejection, you are forced to go back on the market. Finally, most co-ops have a flip tax, which can be up to 3 percent of the sale price, generally paid by the seller at closing. This tax is used to build up the building’s financials.

What is a condo?

Condominiums are “real” properties. Each individual unit has its own deed and its own tax bill. You own it free and clear, though like a condo anywhere, you are subject to the terms, rules and regulations of the condo board’s governing documents. Monthly common charges cover building operating costs and management fees that are shared with other condo residents. Taxes are billed separately.

  • Pros: You own the condo as opposed to owning “shares” in a corporation. This means that you are not subject to approval by the board or the restrictive rules that burden co-ops. Since you own your condo, as opposed to being a member of a corporation, the condo board cannot dictate things like down payment amount, subletting or investor rules. Owning a condo is like owning real estate elsewhere. You own it and you can generally do what you want with your property. However, it is wise for you to review the condo declarations and house rules for a condo you might buy since the fine print could reveal some interesting findings.
  • Condominiums may be purchased as investment properties and owners generally are free to sublet their units. Because they have no use restrictions, condos are often easier to sell. Most condo boards disallow any rentals of less than 30 days or less than one year. They absolutely frown upon short-term rentals. In some instances when there are too many investors vs. owner occupants, getting a loan can be more difficult. When this happens, some condo boards will disallow non-owner occupiers.
  • Cons: The flexibility allowed by condos makes them much more desirable and therefore more expensive.  What makes them even more expensive is their limited supply and insatiable demand, particularly by foreign buyers who want to own a piece of NYC real estate. Buying a condominium with a loan involves a mortgage recording tax, which is not required when you buy a co-op. Because there are fewer condos available in the New York City real estate market, your options may be limited.

What are condops?

While condos and co-ops make up the vast majority of New York City’s multi-family market, it’s possible you’ll encounter something a little different during your home search: a condop.

A condop is a co-op that was formed inside of a condo building. At the bottom of the building is often a single condo unit that houses commercial and retail space, which is run under condo rules. Above, all the residential space is one giant condo unit in which a co-op is formed so that the apartments can be divided via shares among owners. The co-op residents operate primarily under co-op rules, but the co-op must abide by the condo rules and hence both rules are in effect for condop owners.

For the most part, condops function more like co-ops when it comes to the application and approval process. Condop owners own shares in the building — just like co-op owners — and also pay maintenance fees that include taxes.

According to the NYC Buildings Department, as of early 2014, condops comprised less than 5 percent of the city’s common-interest real estate entities.

Next article: Types of Apartments in NYC

 

Types of Apartments in NYC

   

Before you start your search for a place to rent or buy, you’d be wise to decode some of the most common terms used to describe New York apartments and buildings.

Classic six

These much sought-after units typically include a formal dining room, a living room, a kitchen, two bedrooms and a maid’s suite, which many families use as a home office or as a child’s room. Most classic six layouts also include at least two bathrooms and a foyer. The classic seven apartment has a similar floor plan, but includes an additional bedroom.

 

Classic Six layout

Condo

Each condominium unit comes with its own deed and its own tax bill. Owners share ownership of common spaces such as hallways and lobbies. Rental applications are typically submitted to the respective unit’s owner and reviewed by the condo board.

Co-op

When you buy a co-op, you don’t actually own your specific unit. Instead, you own shares of a co-op corporation that owns the building. The larger your unit, the more shares you own within the corporation. Monthly fees cover building expenses including property taxes, utilities, insurance and staff salaries. Co-op purchasers must endure a rigorous approval process, including an interview with the building’s board.

Duplex apartment

These units include space on two separate, but adjoining floors connected by a private, interior staircase. These units most often are found in reconfigured townhouses, prewar buildings when two units are combined in newer luxury developments.

duplex

Floor-through

This term describes a unit that takes up the entire floor of a building or, at the very least, runs from the front of the building all the way to the back.

floor through

Garden apartment

Typically the bottom floor of a townhouse or brownstone. While layouts vary greatly, this type of unit often has its own entrance, usually below the stoop that leads up to the main entrance of the townhouse. In the rear of the apartment, there’s usually a garden area which may be shared with other tenants or it may be accessible only by those in garden-level units.

garden

Junior one

This is a large studio or one-bedroom that has a small room or alcove that may or may not have a door separating it from the rest of the unit. The room may be used as a sleeping space, but if it doesn’t have a window, it would not be considered an official bedroom.

junior one

Junior four

This is a one-bedroom unit with four separate rooms – bedroom, kitchen, living room and another small room that could be used as an office or sleeping area, but doesn’t have a window or door to be considered a true second bedroom.

junior four

Loft

Lofts are large, open living spaces with high ceilings and often have exposed pipes and beams. These spaces were first located in older industrial buildings, but they’ve become so popular that many new condos and co-ops are constructed with loft-style floor plans.

loft

Micro apartments

Under current zoning laws, all New York City apartments must be at least 400 square feet. In 2013, then-mayor Michael Bloomberg created an exception to that rule for “micro apartments.” The first of these units were unveiled in spring 2015, all ranging from 260- to 360-square-feet with big windows, ample storage, kitchenettes and Juliet balconies.

micro

One-bedroom

A one bedroom is an apartment with one “true” bedroom, which means the bedroom has a window, closet and a door and enough room for a bed and dresser.

1br

Penthouse

penthouse unit is located near the top floor of a building – typically in luxury apartments in high-rise buildings. In the early part of the 20th century, penthouses were actually structures located on the roof of a building. These days, the definition has been broadened a bit. Some buildings now boast multiple penthouses spanning their top two to three floors – all still legal penthouses because of setbacks in the roof design, allowing for terrace space.

penthouse

Prewar

prewar apartment is one built before World War II. These units often have thick walls, crown moldings and other architectural details that can command a higher rent or purchase price. Prewar apartments tend to be large, elevator buildings and are often found on the Upper West and Upper East Sides.

Railroad apartment

This style of apartment derives its name from its straight floor plan, with one room leading directly into another. There are generally no hallways or foyers, which means you may have to walk through a bedroom to get to the kitchen, or through the kitchen to get to the bathroom.

 

Railroad layout2

Studio

A studio is generally a one-room space with a full bathroom, although sometimes the kitchen is separate from the general living space as well.

studio

Two-bedroom

This is an apartment with two bedrooms, each separated by a door from other living space. Bedrooms must have windows that open to the street or the garden or courtyard. If it doesn’t have a window, it isn’t a legal bedroom.

2br

Walk-up

It may seem obvious, but this is a unit in a building with no elevator, which means you’ll be walking up – and down – stairs to get there. These units are typically located in buildings with less than six floors. Buildings with more than six floors must have an elevator.

 

Next article: Why Floor Plans Are Important

 

Why Floor Plans Are Important

   

Being able to read a floor plan and understand a space’s flow might not be on the top of the list for everyone else pursuing real estate in the country, but when it comes to New York, reading a floor plan is akin to a chef knowing whether a recipe is good, or not.

Importance of a floor plan

After viewing hundreds of images of listings online and visiting several apartments, you’ll soon realize that images can be quite misleading.

No matter the property type – whether it’s a 459-square-foot studio in Yorkville or a 13,200-square-foot townhouse in Gramercy Park – floor plans are often a better indication of an apartment’s interior than what images sometimes offer.

And with Manhattan’s steep median price per square foot, you’ll want make sure that your apartment is laid out effectively and efficiently so that every last inch is well used.

How to read a floor plan

A floor plan allows the renter or buyer to comprehend the entire layout and flow of the apartment in a single glance. Here are some things to keep in mind when surveying a floor plan:

  • Are bedrooms next to each other? If you have a roommate, this might reduce privacy and noise.
  • Are the bedrooms similarly sized? Again, if it’s a roommate situation, someone will sacrifice space and possibly pay more or less in rent.
  • How many windows are there? Lack of windows means lack of light. What direction are they facing?
  • Which way do the doors swing? Blocking whoever’s in the kitchen while hanging up your jacket might be tolerable once, but how many times after that?
  • Are there partial walls to allow for an open style of living? Partial walls into the living room and dining room opens up the space and allows more light.
  • Is it a railroad layout? Let’s face it: Unless you’re living by yourself or your significant other, railroad layouts are no fun. That’s because someone’s bedroom will essentially become a walk-through to get to the other bedroom.
  • Does the floor plan include dimensions? If dimensions are printed on the plan, it’s helpful, but do not take it as a guarantee that they are correct.

See it in the key plan

Likewise, beware of what floor plans don’t say. Sometimes buildings include a key plan, showing primary architectural elements of each building by floor level. They represent elevator shafts, storage areas, venting, plumbing, and so on.

StreetEasy has floor plans for most listings, but if you can’t find them on the site, ask the broker. Or, you can call 311 and request a copy of a building floor plan. The Tax Assessor’s office would also have data on the number of units in each building assessed and whether they are studios, 1BRs, 2BRs or 3BRs.

 

Next article: Do You Need a Doorman in NYC?

 

Do You Need a Doorman in NYC?

   

Depending on your lifestyle and attitude, a doorman could be a very important value-add to living in your apartment, or not.

Doorman or no doorman?

Here are some of the pros and cons of having a doorman:

Pros:

Signs for packages: Do you have lots of packages and deliveries you expect during the day? Having a doorman to sign for your Amazon or FedEx packages provides a nice side benefit as opposed to wondering if the shoes you ordered from Zappos will get stolen before you can even try them on.

Security: Yes, it’s nice to have someone open the door for you, but it’s also reassuring knowing there is a watchman at the entrance to vet for strangers, solicitors and other unwanted visitors.

Cons:

Tipping: Let’s face it, tipping is a way of life in New York City and doormen rely heavily on tips. In April 2014, the union representing NYC’s doorman won a new contract agreement with the Realty Advisory Board, which means the average salary for doormen will go from its current rate of about $44,300 to about $49,400 by 2018. Clearly these are not the salaries of the Wolves of Wall Street or the other 1-percenters. Doormen rely on your tips: move-in tips and holiday/end-of-year tips.

Invasion of privacy: If you’re a private person and don’t like making small talk, having a doorman could be irritating. And there’s the potential gossiping factor as well as the requisite end-of-year tipping, which can add up.

Summary

So, doorman or no doorman? Having a doorman is a matter of personal taste, habit and sense of security. Plenty of people live in New York and manage their lives just fine despite having to open their own front door, or arrange for package delivery. Plenty of people prefer not having to make small talk or pay the big holiday tip.

And many feel a live-in super is just as good, if not better than a doorman.

Next article: What Are Maintenance Fees?

 

What Are Maintenance Fees?

   

If you are buying a NYC co-op, not only are you on the hook for a mortgage payment — if you financed — but you are also responsible for the monthly maintenance fee.

What does the maintenance fee include?

For co-ops, the maintenance fee covers the operating expenses for the building and usually includes:

  • Property taxes
  • Any underlying mortgage (and interest) on the building
  • Building insurance
  • Management fees and salaries (i.e., doorman, maintenance)
  • Common area upkeep, etc.

It can also include:

  • Heat and hot water
  • Electric
  • Gas
  • Decorations
  • Plants and flowers in common areas
  • Bike room or storage room use
  • Pest control
  • Plumbing
  • Parking spots
  • Trash and snow removal

If electric is included, usually the maintenance fee is a bit higher in the summer due to air conditioning use. The specifics vary from one co-op building to another.

How big of a maintenance fee you pay is based on a number of things, including:

  • Size of the apartment (square footage, # of bedrooms and # of rooms)
  • Floor level (the higher, the more costly)
  • Potential views

It’s wise to ask your broker what exactly is included in the maintenance fee for a co-op building you are considering purchasing before you sign a contract.

Note: In condos, this fee is known as the “common charge.”

How much will the fee go up?

Maintenance fees can be a major source of sticker shock for prospective buyers in the NYC market. Keep in mind that the maintenance fee quoted to you prior to closing on a co-op may change and fluctuate over the course of your co-op ownership (See differences between condos, co-ops and condops).

Co-op boards can require shareholders to pay extra cash to boost the reserve fund or for a specific project or repair. Broken elevators, paint jobs and restoration of the building’s facade are some examples of special, sometimes unexpected, but common circumstances that force co-op shareholders to fork out extra dough over a period of several months toward higher maintenance fees.

Not only should you pay attention to the current maintenance fee figure, but you should look into the trends in the maintenance fee for a building. Typically, due to higher fuel costs, you can expect the fee to rise anywhere between 2 and 8 percent a year.

It’s wise to ask the seller or seller’s broker for reasons for increases and decreases in the maintenance fee for a unit. It’s also wise to seek information on how the co-op board tends to spend the corporation’s money and what activities or projects it is or may consider implementing in the near future.

Next article: What are Common Charges?

 

What are Common Charges?

   

The common charges, or “CC,” is a monthly expense that can add hundreds or thousands of dollars to your monthly condo payments.

What does the common charge include?

Common charges cover “common services and amenities” shared by other condo residents, including the management fees and operating expenses for a condominium building.  Property taxes are billed separately to condo owners.

(Note: In co-ops, this fee is known as the maintenance fee and covers property taxes, building insurance, amenities, operating costs and building mortgage payments. See differences between condos, co-ops and condops.)

Other items sometimes included in common charges are:

  • Heat and hot water
  • Gas
  • Electric for common areas
  • Decorations
  • Plants and flowers in common areas
  • Bike room or storage room
  • Gym
  • Pest control
  • Plumbing
  • Parking spots
  • Trash
  • Snow removal

Before you start feeling comfortable about the monthly mortgage payment, make sure to ask how much common charges are and ask what is fully included in the common charges for a condo unit you want to buy. These items vary greatly and can have a real impact on affordability as well as value. This is important not just for you now, but for resale value, too.

How are common charges set?

Here is what makes up common charges:

  • Common charges are calculated by taking each condo unit’s “percentage of common interests” and multiplying this number by the total operating costs of the building.
  • Percentage of common interests is mostly dependent on the square footage of the condo unit and the unit’s location within the building.
  • While you may pay more proportional commons fees for a bigger or more desirable condo unit, you will not necessarily gain any significant benefit other than added votes on matters with the condo board.
  • Just like with co-ops, common charges in condos usually increase in relation to how many amenities and services the condo building offers.
  • And just like co-op boards, condo boards also implement assessments or higher common charges when needed, so expect fluctuations for things such as roof repairs or wage increases for doormen or other capital expenses.

Beware of future increases in common charges

Not only should you pay attention to the current common charges figure, but you should look into the trends in charges for a building. It’s wise to ask the seller or seller’s broker about reasons for increases and decreases in the charges for a unit.

It’s also wise to seek information on how the condo board tends to spend and what activities or projects it may consider implementing in the near future. For instance, has the condo board moved to reduce utility or electric costs by improving building systems, like LED lights or solar panels?

The more information you get about the habits of the condo board’s activities for common fees, the better informed you will be about whether this building is right for you. You may love the unit under consideration, but there is a bigger picture and common fees are an important part of that.

Next article: What is a 421a Tax Abatement?

 

What is a 421a Tax Abatement?

   

Under this umbrella term are different types of tax programs, such as the “421-a tax abatement,” the “J-51 tax abatement” and simply, “tax exemption.”

Types of abatements and exemptions

Here’s a rundown of the basic terms.

  • A tax abatement for a condo or co-op is the reduction in the property taxes for the home for a set period of time by way of a credit being applied to the amount of taxes owed.
  • A tax exemption lowers the amount of tax you owe by reducing your condo or co-op’s assessed value.
  • Tax abatements and exemptions have been granted to developers by the city to promote real estate, community and industrial development.
  • Property taxes for units in a tax-abated building are minimal for a couple of years of the abatement. The taxes inch up each year afterward, and by the end of the abatement’s period, owners find themselves paying the same property taxes as everyone else.

421a

The 421a tax abatement is the tax term you are most likely to come across during your NYC home search.

The 421a tax exemption program was started in 1971 and encourages the development of underutilized or unused land by drastically reducing property taxes for a set amount of time. Thousands of Manhattan condos were built under this program prior to the 2008 housing crash.

The exemption usually lasts for 10 years but can be for 15 or 25 years in some boroughs and upper Manhattan, areas still in development. The exemption gives unit owners a 100 percent exemption from any increases in their property taxes for the first two years and then taxes are increased by 20 percent of the normal tax rate every two years for the remaining eight years.

For example, if you bought an apartment in a tax abatement building in the first year and sold it in the seventh year, the buyer would have the remaining three years of reduced taxes since the abatement stays with the property, not with the owner.

J-51

The J-51 property tax exemption is granted to residential buildings — usually rent regulated — for renovations that are planned. Essentially, the J-51 property tax exemption “… effectively freezes a building’s assessed value for tax purposes, so the owner does not have to pay property tax on the increase in value resulting from the rehabilitation work.”

The Cooperative and Condominium Tax Abatement Program is another tax relief program your condo or co-op may qualify for, but only if it is your primary residence. There are several other requirements your home would have to meet in order to be eligible for this program, and the recent changes to it are being debated.

What to consider despite the tax relief

Sure you want lower taxes, but here are factors to consider before you decide to buy a condo or co-op just because the tax relief seems to sweeten the deal.

  • First, what are the scenarios under which those tax exemptions can fall off or change? Do your research and ask questions of your broker about what new laws or regulation changes could impact dwellings covered by 421a, J-51 and the Coop/Condo Tax Abatement. Think long term, or at least 3 to 5 years out.
  • Does the cost of the pricey new condo merit the tax exemption? You may want to consider whether or not the tax abatement is worth it if you are actually paying a premium for the unit, especially in new construction, which can be carry the highest price-per-square-foot charges in the city.
  • What will your real costs be when the abatement drops off? The property tax may be dramatically higher than the time of purchase. Many owners who have enjoyed the benefits of a tax relief for a few years may feel rather surprised (not pleasantly) when they pay their tax bills in the later years of the abatement and afterward.
  • The land under your building is not part of the deal. Is that something to consider? Yes. For example, while the building may be exempt from the normal tax rate under the 421a program, the land is not. Thus, the city can raise the assessment on the land in order to acquire tax revenue.
  • Are your tax-abatement savings offset by higher common charges or maintenance fees? Check to see how often and how much these fees have been raised or decreased over the last several years. You can then get a fuller picture of whether or not the property tax abatement will truly offset other costs and save you dollars in the medium to long term.

Next article: Should You Buy in a New Development?

 

Should You Buy in a New Development?

   

If you’re the kind of buyer who wants to be the first occupant and wants the hassle-free ownership that comes with buying a new place, new construction may be for you.

Are you a new development type?

Prewar construction suits lots of people. They adore the charm and the architecture in high ceilings, plaster ornamentation and handrails rubbed smooth by thousands of hands. Though these may be “used” goods, they simply don’t build them like that today, making prewar unique and harder to come by.

“In Manhattan more than anywhere in the world, people buy what reflects them,” Darren Sukenik, managing director of luxury sales at Prudential Douglas Elliman, told The New York Times. “You really have to wear it like a loose garment and it has to suit you.”

But, unless they’ve already been renovated, those older apartments can be a project. If tearing down walls, restoring wood floors and updating electrical panels is not on your to-do list – or in your budget – new construction may be a better fit.

Should you buy early or wait?

  • Pros of buying early: Being among the first to invest in a new building will give you the most choices in terms of floor plans, views and exposures. Your willingness to invest in a new project may also provide the opportunity to buy at a lower price because developers like to get a few contracts signed and under their belt early on.  Why? Because they may have lenders who need to see progress and they want to be able to go to the market announcing that they have some sales.  Finally, it’s not uncommon for developers to release units in batches.  And, depending on how the first round or two goes, they will likely raise the prices.
  • Cons of buying early: Being an early buyer may mean a good price, but it does come with risks. The project may not do as well or the market could slow down, leaving you with a signed contract.  If you are getting a loan, mortgages can be difficult to get in new construction, until a certain percentage of the project is sold. For this reason, many developers arrange for a “preferred lender” to provide financing. But the pricing may not be preferred.

The other downside to buying early on?  You may be making a decision off a floor plan. That simply won’t fly for some buyers who want to touch and feel. If the building is under construction, you may be allowed a hard-hat tour, but likely only after you’ve signed a contract.

The upside to waiting?  If you wait until the project is farther along, you can get a better sense of how the project is received by the market.  You will likely get a chance to walk the unit and see a variety of apartments in the flesh. The downside to all of this is that you will likely pay more than the early buyers.

Know the contract deposit amount and the timeframe

Typically, you’ll be required to make a minimum 10 percent down payment when you go into contract, but oftentimes it’s upwards of 20 percent. Once you sign the contract, that’s a non-refundable deposit and the money is tied up until the closing.

Closing dates are always approximate and it’s not uncommon for the developer to push it out a few weeks or even a few months.  Construction projects generally take longer than expected.  If you are buying new construction, be flexible on your timing and be prepared to put the deposit out months or years before you close.

Calculate closing costs

In addition to typical buyer’s closing costs, buyers in new developments pay fees that sellers generally pay in re-sales: transfer tax and sellers’ attorney fees.  In total, these could be a few percentage points of your sale price. Also be aware that you may be required to pay into a working capital fund (generally equal to several months’ common charges). This fund covers startup costs for the building’s operations.

You’ll get the opportunity to do a punch list

Prior to closing, the buyer, their broker and a representative for the developer will walk through the apartment and compile a list of things that need to be completed.  This list could involve small construction issues or larger mistakes.  This is the buyer’s opportunity to make sure the apartment is delivered to them as it should be.

Punch list items may include painting mistakes, scratches on the floors, missing hardware, appliances that are installed incorrectly, faucets that aren’t working right.  Mistakes happen in new construction.  Many times they are small but sometimes they can be large enough to hold up the closing.

The walk-through is also the time to make sure that any finishes or fixtures that you selected were correct.  With a punch list, you get one shot to go back to the developer with a list of repairs prior to the closing. Once it closes, unless there are major defects, it’s unlikely that you will get the attention of the developer for small items.

Research the developer

In the case of new development, you are buying from someone who is in the business of building and selling real estate.  That presents the unique opportunity to do a little investigation.  What projects have they recently completed?  What is their reputation as a developer? Do they do quality work?

By checking public records you can see if they have ever been sued, whether the suit is something to worry about or if there is a history of building defects. Your home is one of the largest investments you’ll ever make, so it’s important to dig around and find out as much as possible.

Search online for news articles, blogs, reviews and testimonials. Have the developer’s past projects been completed on time? Are reviews of those projects largely positive or negative?

There is a lot of new development in New York City and with a little bit of research, you can find something based on location, size and price.

 

Next article: Buying a Co-op? Ins and Outs of Board Approval

 

Buying a Co-op? Ins and Outs of Board Approval

   

Actors Antonio Banderas and Melanie Griffith, designer Calvin Klein, talk show host Rush Limbaugh and music legend Barbra Streisand have all received co-op board turndowns.

Difference between condo and co-op boards

Yes, condos and co-ops have similar application processes, but the big difference is that a condo board doesn’t have the ability to reject a buyer, only the right of first refusal to purchase.

Though this is an option that is rarely exercised, the condo board can still rigorously review an applicant, ask for more information and hold up the process prior to giving up their right.

Conversely, in a co-op, each candidate needs to be approved by the board and part of the approval process is an in-person interview with the members of the board.

An experienced broker will know the criteria and preferences of the co-op boards before their client even makes an offer to purchase an apartment.  Once an offer is accepted, the broker should be able to help create a board package that’s designed to impress and get their client approved.

Submitting an application

Once you find the perfect co-op and have your offer preliminarily accepted, the seller’s broker will send you a copy of the board’s purchase application asking to document detailed information about your employment history, personal background and finances.  After signing the purchase agreement, you’ll be expected to compile and submit (with the help of your broker) a full board package.  This includes, but may not be limited to, a completed credit release form, contract of sale, recent tax returns, and landlord and bank references.

You’ll also need to collect a combination of personal and business reference letters in which your friends and associates will describe your relationship and explain why they think you’d make a great neighbor. Who should you ask to be a reference? Ideally, someone with whom you have a long and documented history.  Some boards require multiple personal and business references.

Include a cover letter, if allowed

When your broker submits the board package to the managing agent on your behalf, you may want to include a cover letter. Check with both your broker and the listing broker to see if a cover letter is appropriate. Some boards prohibit anything except the application itself.  If you have the opportunity to write a cover letter, you should share personal details about yourself and why you’d like to live in the building. Think of the letter as a way to humanize your pile of forms and legal documents.

Prepare for the interview

Frankly, if you made it far enough to have an interview with the co-op board, you can be almost certain that they have reviewed and approved your board package, mainly your finances, which is the hardest part. Now it’s just a formality.

Plan on meeting in person with three to five members of the board. These interviews typically do not include the real estate broker, real estate attorney or managing agent — it is just the purchaser(s) and the co-op board. If you are presenting in front of the board, think of it like a job interview.

The interview is not only designed to determine if the applicant will be a good fit in the building, but to provide an opportunity for the board members to ask questions or get clarity about anything they saw in your application. If the board has a “no pied-a-terre” policy and your board package shows that you own real estate within 100 miles of New York City, they may use the interview to ask you about that property to determine your true intentions with the apartment.

Prior to your interview, review your board application and try to anticipate any financial questions that may arise and be prepared with an answer. Be cordial and honest in your responses. As for what to wear? Business attire is a safe bet – you don’t want to be too casual or risqué.

What not to do

Don’t show up late for your interview.  Don’t ask questions that you should already know the answer to.  Don’t talk about your desire to do renovations or make changes to the apartment. Don’t offer suggestions or comment on the way the building is currently managed or any of the staff with whom you’ve come into contact.  These could be interpreted as an insult or criticism of their management. Less is more in a board interview. Don’t offer any additional information unless asked.

Answer all questions succinctly and politely. Even if you’re offended by a question, don’t show your frustration.

While in other forums it is often useful to have questions at the ready as a demonstration of your interest, you really shouldn’t raise them during a co-op interview. If the board asks if you have any questions, have some generic ones lined up about the neighborhood.  Ask if they have a favorite restaurant or why they chose the building when they purchased. 

Being approved by a co-op board is never a sure thing, but your odds will increase if you do your research, take the process seriously, and get help from a real estate professional who has experience in that building.

Next article: How to Select Good Real Estate Comps

 

How to Select Good Real Estate Comps

   

Whether you’re in New York City or anywhere else, getting good “comps” will go a long way in helping to determine value in a property.

What does comp mean?

Whether you’re a buyer, seller or broker, one term you’ll definitely come across is “comp,” which is short for comparable. A comp is a property that is used to compare the property value to the property which is being purchased or sold, depending which side of the transaction you’re sitting on.

Also,  a comp is a property that has already sold, and not one that is currently on the market. While the term specifically applies to the property valuation process by appraisers, in which they analyze comps to justify a property’s value, it is also often used by brokers as a method of evaluation to set prices on a listing or to submit a bid when representing buyers. Without good comps, it will be hard to get financing on a property, and it also helps ensure you are buying or selling at a price that’s in line with reality.

So what truly makes a good comp? Let’s find out.

Property size and layout

Square footage is one of the primary factors used to help identify good comps. Good comps should have similar square footage as the subject property (the one being bought or sold). But, finding exact square footage won’t always be easy, unless the property is within a large condo or co-op building that has similar apartments and layouts. When exact layouts are not available to act as comps, then simply looking at similarly sized properties will be the next best thing. By looking at property size, appraisers are able to compare the price per square foot, which is an essential measure that is used across the NYC real estate market by everyone involved in the transaction.

 

Also, property configuration and layout are essential as part of this size analysis. For instance, if the subject property is a 2 bedroom / 2 bath, then a good comp will also have the similar configuration. Even if a property has the same square footage but doesn’t have the same utility, it becomes more difficult to use as a comp. For instance, in the example above, if there is a property with the same amount of space but is a large loft with 1 bathroom, as opposed the 2 bedroom / 2 bath layout, then it will likely not be considered as a comp.

Building type

The type of building is also important when identifying good comps. The subject property may be a townhouse, a condo or co-op. If it’s a townhouse, comps must also be townhouses. Are they single-family or multi-family properties? Ideally everything should match. Also a condo or co-op may be located within a boutique, older, amenity-poor building or they may be located within new full-service buildings with all the bells and whistles. Making sure the building types line up will also be essential in helping identify a good comp. For example, a prewar co-op without a doorman cannot be compared to a luxury condo that was just recently constructed.

Neighborhood

For a comp to be considered relevant it must also be located in the same neighborhood. It’s not good enough to simply be in the same borough. Comps should be pulled from specific neighborhoods such as Tribeca or Bushwick. But there are also neighborhoods where properties might cross official neighborhood lines. For example, a neighborhood like Tribeca may command significantly more than the neighborhood it borders, such as the Financial District. However, Brooklyn neighborhoods like Bushwick and Bed-Stuy, which share a border and have similar pricing, may be intertwined when it comes to selecting comps, assuming the subject property is somewhere close to the border.

Finishes

 A property’s interior finishes will also be important when seeking out appropriate comps and it is essential to compare like with like. For instance, if a subject property is in need of a gut renovation, its value cannot be compared against a property that has either recently been renovated or is a new development. This is where the details truly account.

Everything from flooring, to cabinets, appliances, fixtures and everything in between will be of consideration. Also does the apartment have a washer and dryer within the property or is there a laundry room within the building? All these details will be considered for a good comp. Again, it’s not about finding an exact match, but the closer the finishes, the easier it will be to be considered a comp.

Common charges, maintenance and taxes

The monthly cost of upkeep, inclusive of common chargesmaintenance and/or taxes are the last primary factors we are considering when it comes to finding a good comp. Property valuations often fluctuate based on the monthlies that an owner has to pay.

Low monthlies positively impact a property valuation, while high monthlies do the opposite. It’s the same reason why a property with a tax abatement will cost more than a property with high taxes. Therefore these monthly costs will be paramount in understanding which comps should be worthy of considering.

Summary

It becomes evident that there are numerous factors that must be considered when seeking out good comps. Remember, there are the comps that your real estate broker may use for directional guidance, and then there are the comps the appraiser will use for valuations related to financing. If you are on the sell side, you want to make sure that the comps are strong because you want to make sure that there are no hang ups when it comes to your buyer financing the property. If you are the buyer, you want to see strong comps to help you get the financing and also make you feel confident that the price you are paying is in line with what else has recently sold. Obviously, as property valuations continue to creep up over time, it’s natural to keep seeing prices getting pushed up slowly but surely across comps as well. While comparing like with like is key, it’s not about finding exact replicas, but rather identifying properties that are directionally similar across all of these factors we evaluated.

Next article: How Much Should You Bid on an Apartment?

 

How Much Should You Bid on an Apartment?

   

If you bid too little, you could lose out on a great place. If your bid is too high, you’ll always wonder if you could have gotten a better deal.

Tricks of bidding

Time is of the essence. Once you find a unit you love, your broker will quickly gather comps and try to get a sense of how intense competition for the apartment may be. Don’t be surprised if you’re competing against several other buyers.

Bidding 10 percent under asking price might work in Florida or Texas, but in New York City’s red-hot market, it’s not uncommon for sellers to receive more than a dozen – or even two dozen – offers on a property.

Do not blindly wander into the bidding process. These tips won’t ensure your victory, but they may improve your odds in NYC’s housing wars.

Do your own research

Even before you allow yourself to fall in love with an apartment, do some research on the building and neighborhood. StreetEasy provides easy access to information about recent sales, sales-to-price ratios in certain neighborhoods and even former deals for individual apartments. When you attend open houses, take a look around. If you’re one of 150 people waiting for an open house to begin, chances are there’s a lot of interest in the property and that could easily translate into multiple bids.

Get preapproved

Smart home hunters start talking to lenders as soon as they start thinking about buying a place. Your goal is to find a lender who, based upon your income, debt and credit information, will provide a preapproval letter stating their preliminary determination that you will qualify for a specific loan amount under that lender’s guidelines. The preapproval will say how long it is valid and may contain some other conditions for you to get the loan.

Preapproval assures a seller that your offer is legitimate and that you can actually get the financing necessary to make the purchase.

Sweeten the pot

If a condo requires a 10 percent down payment, you may be able to win the bidding war by offering just 2 percent to 5 percent more.

You may also consider waiving contingencies. A mortgage contingency, for example, gives a buyer the option of backing out if they can’t get financing within a specified time period. If they back out, they can take their down payment with them. In a competitive market, a seller may ask potential buyers to waive this contingency. It can be a risky move for a buyer; delayed or denied financing means you’ll likely lose your down payment.

Write a letter

In a crowded marketplace, it’s important to do whatever it takes to stand out from the crowd. Writing a heartfelt letter to the seller may be that extra something that gets your bid noticed.

Sincerely tell the seller how much you love the unit and how you envision you will be living there. Be honest, but humble. If your offer is identical to another, your thoughtful words could be enough for the seller to lean your way.

Know your limits

Especially if you’ve already lost out in a couple of bidding wars, it’s important not to let your frustration get the best of you – or your budget.

What’s the most you can afford to spend on your new home? Keep that dollar figure in mind and don’t allow yourself to exceed it or you could end up buying a home you really can’t afford. Make bids with your head, not your heart.

 

Next article: Should You Get a Home Inspection?

 

Should You Get a Home Inspection?

   

Now that you’ve found a property that ticks those boxes, it’s time to ask: “Do I need a home inspection?”

Don’t bury your head in the sand

A home inspection could uncover problems inside the walls and under the floors, whether the plumbing and electrical systems are up to code, whether the appliance has been properly installed and much more.

However, many NYC buyers choose to ignore these types of potential physical deficiencies because:

  1. They’re so exhausted by the property search that they believe nothing – not even faulty wiring or a leaky roof – could convince them to get out of sale.
  2. They don’t understand or are intimated by talk of mechanical systems.
  3. They assume their building or association is responsible for most problems.
  4. They’re tapped out financially and can’t fathom spending more money on an inspection.
  5. All of the above.

The truth is, hoping for the best will only take you so far. If you really want to protect yourself from an unpleasant surprise related to the physical conditions of a major investment, you should enlist the services of a professional home inspector.

“Anything that can go wrong in a house, can go wrong in a condo or co-op,” says Matthew Wynne, president of the New York State Association of Home Inspectors and owner of Long Island-based Aberdeen Building Consulting.

“I’ve done apartment inspections where I’ve found water leaks from neighboring apartments, gas leaks from the laundry or stove. Even if the building association is responsible for fixing the building’s plumbing, that doesn’t mean they’re going to pay to repair your big-screen TV that got damaged by that leaky pipe.”

Problems can arise in new buildings, too

No property is risk-free. Problems can turn up in new buildings as well as old, and in $300,000 studios as well as in penthouses with eight-figure price tags. Still, says Wynne, there are certain situations that definitely warrant a professional home inspection.

“An inspection is especially important if you’re buying in a smaller building,” he says, explaining that examination of the apartment reaches far beyond the unit’s walls. “I always try to look at the common elements like the roof, boiler and basement. If it’s a five- or 10-unit building and it needs a new roof or a new elevator, the co-op owners are going to be assessed for that. Divide a $100,000 repair bill among 10 units and you’re talking about serious cash.”

Thinking of purchasing a place in a new development? It’s another time when you’d be smart to spend a little extra for an inspection, says Wynne.

“Just because the plumbing is new doesn’t mean it’s done right,” he says. “I see water leakage in new buildings all the time – sometimes windows don’t get installed right or roofs don’t get sealed up tight. The worst wiring I’ve ever seen in an electrical panel – I mean it was absolutely melted in there – was in a new building. Especially if you’re dealing with a first-time developer, you ought to have the place inspected.”

Who pays a home inspector?

The buyer bears the cost of a home inspection, with fees beginning at around $500 for a one-bedroom apartment. If you choose to have one, the inspection must be completed before a contract is signed.

You can find an inspector by visiting the websites of the American Society of Home Inspectors or the New York State Association of Home Inspectors, or asking for referrals from friends. Be sure than any inspector you work with is registered with the New York Department of State Division of Licensing Services.

“An inspection is a pretty small investment when you think of all the costs associated with your home purchase,” says Wynne. “You may decide to go through with your purchase even after your inspector tells you about problems with your new apartment, but at least you can enter into the sale knowing what it’s going to cost to make repairs. It’s all about peace of mind.”

Next article: Why You Need a Real Estate Attorney to Close a Deal in NYC

 

Why You Need a Real Estate Attorney to Close a Deal in NYC

   

Wait a minute. You can buy property without a lawyer? Yes, that’s within your legal rights. But, it’s risky and unusual for a NYC real estate deal to go down without the involvement of a buyer’s attorney.

Why you need an attorney

Ninety-nine percent of the time, attorneys are present on both sides of a real estate transaction in New York state: the seller’s side and the buyer’s side. That’s because in NYS, all real estate contracts of sale need to drawn up by the principle or their attorney.

If you don’t have the ability to draw up the contract and you don’t hire an attorney, you can probably have the seller’s attorney draw up the contract, but that is exposing you to a document that could favor the seller — without your knowledge!

Another reason you need an attorney is that if you’re getting a mortgage, a bank probably won’t lend you the money if you do not have legal representation.

What your lawyer reviews

Before you sign a contract for that new apartment, your attorney should review several years’ worth of board meeting minutes. These minutes may provide clues to ongoing (and potentially) expensive problems in the building. If, for example, the building has an elevator that needs to be replaced or a bed bug infestation, or a roof that’s perpetually leaking, you may be faced with both inconvenience and a bill for your portion of the project.

Your lawyer will also review financial statements, as well as your offering plan, which includes details like bylaws and special risks of the project. Even in an older building, these documents can reveal information a potential buyer should be aware of.

“It’s not just about having legal representation at the closing,” said Craig Delsack, a Manhattan attorney specializing in real estate law. “A smart buyer will hire an experienced lawyer who does due diligence, negotiates the deal and then represents him at the closing.”

Delsack recalled a client whose offering plan included a clause that allowed for construction on an adjacent building that could result in the loss of courtyard windows – essentially turning legal two-bedrooms into one-bedroom units. Thanks to an attorney’s sharp eye, the client learned about the risk and was able to back out of the deal before it was too late.

“When it boils down to it, the buyer wants to buy a unit and the seller wants his money, so it’s the responsibility of the attorneys representing those parties to make it happen,” says Delsack.

What kind of attorney?

Attorneys who are experienced with real estate transactions are generally most pragmatic and Delsack cautions against “flat fee” attorneys who often make their real money off hefty title insurance commissions. It is unethical for a New York attorney to sell title insurance for a deal he’s negotiated.

To find a good real estate attorney, ask friends and colleagues for references. You may also want to visit the New York State Courts website to ensure any lawyers you’re considering hiring haven’t been subject to disciplinary action.

“Someone who’s very experienced with New York City real estate, maybe an apartment flipper, may decide to waive his right to legal representation. But for most people, I wouldn’t advise it,” said Delsack.

“This is the biggest purchase of your life. You’re going to be too far into it before you realize this was really something you shouldn’t have done on your own.”

Next article: All About Closing and Closing Costs

 

All About Closing and Closing Costs

   

A closing is a meeting at which a buyer gives a seller money in exchange for the deed (for condos) or the proprietary lease (for co-ops). Most closings occur 60 to 90 days after the contract is signed.

Where will the closing be?

Your closing may be held at your broker’s office, an attorney’s office, an escrow company’s office, your lender’s office or another agreed upon location. Details regarding the date, time and location of the closing are generally coordinated by the agents or brokers involved in the sales transaction.

Who will be at the closing?

Generally, the buyer, seller and their attorneys attend the closing; real estate agents or brokers are frequent attendees and it’s not uncommon for a representative of the title company to show up.

If you’re the seller, you may opt to pre-sign documents and have your attorney attend the closing on your behalf. The buyer has to sign all of the bank documents at the closing and usually has to do this in person.

What happens at closing?

The closing is a time for the buyer to review and sign loan documents – lots of them. This is when buyers must make sure they understand the terms to which they are agreeing. If terms differ from what you originally agreed to, you’ll need to resolve the issue before signing. Your attorney should review each document and give clearance for signing.

What should you bring to closing?

Your attorney, mortgage loan officer and title company representative will tell you precisely what you need to bring. The requirements will differ slightly based on your loan type and whether you’re the buyer or seller. In general, buyers and sellers should bring along a government-issued ID card, such as a driver’s license or passport.

If you’re the buyer, you will also need to bring along a certified check or arrange for a wire transfer for the down payment and closing costs made out to the title or closing company.

If you’re the seller, you’ll likely be asked to bring copies of all keys or codes for keyless entry, and a certified or cashier’s check made payable to the title or closing company, if these costs are not being deducted from the sales price.

What will your closing costs be?

In general, if you’re buying either a condo or co-op, you’ll need to pay attorney fees ($1,800+), mortgage fees ($500-$1,000), mortgage bank attorney costs ($400+), short-term interest (depends on loan amount) and a move-in deposit ($250-$1,000). (See a hypothetical list of costs for a condo vs. co-op). But, good news: You will no longer be asked to “tip the title closer.”

Additionally, if you’re buying a condo, you can expect to pay tax escrow (two to six months), recording fees ($200-$300), mortgage tax (depends on loan amount), fee title insurance (approximately $450 per $100,000), mortgage title insurance (about $200 per $100,000), municipal search ($300+), managing agent fee ($250 – $500), real estate tax adjustment (one to six months), and common charge adjustment (pro-rated for month of closing).

If you’re purchasing a co-op, your closing fees will instead include a UCC-1 filing charge ($50), recognition agreement fee ($200), and a maintenance fee (pro-rated for month of closing).

If you’re paying more than $1 million for your condo or co-op, you’ll also be assessed a mansion tax (1 percent of purchase price). If you’re buying in a new development or directly from sponsor, you may also need to pay New York state and city tax on the transfer of property.

Lenders must give borrowers an estimate of their closing costs within three business days after receiving a loan application. That document, called the Good Faith Estimate, lists various mortgage fees and third-party expenses. Banks are liable for the difference if they grossly underestimate the costs that consumers can expect to pay.

How long will closing take?

This isn’t something you can do over your lunch break. Most closings take two to three hours. Yours could be shorter – or it could last even longer. Once everything has been signed, all the necessary documents will be filed, and the deed and mortgage will be recorded.

To ensure your closing goes smoothly, talk to your agent or broker ahead of time so you know who will be at your closing and what’s going to happen there.

Next article: Getting Your Apartment Appraised

 

Getting Your Apartment Appraised

   

That’s because your lender needs an objective assessment of the property’s value before they’ll agree to give you a loan.

Who does the appraiser work for?

The appraisal process isn’t simple and it becomes even more complex in New York City. That’s because there are so many variables.

Two similar apartments located in buildings just a block apart can have very different values, depending upon the floor they’re located on, the views they offer, the physical condition of the unit, the financial condition of the building, the building’s maintenance fees, even the lighting in the unit.

Jonathan Miller, president and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm based in New York, says the most important thing for buyers to know about the process is this:

The appraiser works for the bank, not for you.

“Lenders, especially these days, are looking for reasons not to lend,” said Miller. “Appraisers are the eyes and ears of the transaction. When you think about it, the appraiser is the only one who doesn’t get paid based on whether or not the loan closes. The appraiser is there to provide an unbiased opinion about whether the property is worth what the buyer has offered to pay.”

What if you get a ‘bad’ appraisal?

Miller said buyers sometimes find themselves in the frustrating position of having an appraisal performed by someone who’s unfamiliar with the neighborhood.

“If you believe the data provided by the appraiser, who drove into the city from three hours away, is off the mark, there is virtually nothing you can do to have that appraisal removed,” he said. “You may convince the bank to order a second appraisal, but they will not ignore the first number – not ever. They may average the two appraisals but they will never disregard the first appraisal altogether.”

His advice? Don’t waste your time fighting an unwinnable battle.

“Go to another bank, no matter where you are in the process, and try your luck there,” Miller said. “It’s unfortunate, but it’s really the buyer’s best option.”

Next article: What If You Have Buyer's Remorse?

 

What If You Have Buyer's Remorse?

   

Returning an apartment? Not so simple and generally not without some cost, but – until you close – you can change your mind about purchasing a home that suddenly seems too small or too large or too expensive.

Consequences of walking away

Depending upon the terms of your contract, walking away from a deal could cost you some or all of the deposit you paid when you submitted your offer. If you’re close to your closing date, you may also have to forfeit your earnest money. Some contracts also have provisions that mean you could be held responsible for expenses incurred by the seller as a result of the on-again-off-again sale.

There are a few reasons a buyer can get out of a home deal without costly consequences. Your purchase contract will include several clauses – known as contingencies – relating to the sale. These contingencies are legal loopholes that allow you back out of the contract under certain circumstances. If, for instance, you’ve made a good-faith effort but can’t secure financing, your contract’s mortgage contingency may allow for the full refund of your deposit.

Options after closing

If your case of buyer’s remorse doesn’t set in until after closing, you’re probably out of luck. But, if you believe the seller was deceitful in his representation of the property, you might be able to take him to court but that, too, will come with costs.

It’s not uncommon for a buyer to wonder if he paid too much or bought in a neighborhood that was not nearly as up-and-coming as he’d hoped. You can minimize your housing doubts by heading into the buying process with a clear list of wants and needs. When you think you’ve found your dream home, go over your list of wishes and see how it matches up. Don’t think you can live with the compromises this apartment represents? Don’t sign the contract.

The process of finding a home that’s just-right can be arduous, but it’s time and energy well spent if it results in long-term housing happiness.

Next article: Refinancing Your Mortgage

 

Refinancing Your Mortgage

   

Other reasons to refi are to get a lower mortgage rate, shorten the term of the loan, or to change from an adjustable rate mortgage to a fixed mortgage.

What’s old is new again

When you decide to refinance, you’re actually applying for a new loan. Whether you’re working with your original lender or a new lender, you’ll need to provide documentation and verification of your income, assets, debt-to-income ratio, credit profile and job history. You must qualify for the loan, plus your property must appraise for enough value to support the loan.

Refinancing has its costs

You’re likely refinancing to save money, but you can’t lose track of the fact that you’ll need to pay loan closing costs of 2 percent to 4 percent. That figures out to $6,000 to $12,000 on a $300,000 loan or $10,000 to $20,000 on a $500,000 loan.

Be sure to do some simple math to determine how long it will take you to recoup the closing costs on your new loan. If, for example, your refi closing costs are $5,000 and you’re saving $250 on your monthly mortgage bill, it will take you 20 months before you recover your closing costs and truly begin to save money.

Also, be wary if your lender advertises “no-cost” refinancing. You’ll end up paying through a higher interest rate, a larger loan balance or the payment of discount points.

Co-ops are a special beast

Refinancing a co-op is not quite as simple as refinancing a single-family home. For starters, your co-op board must approve your refi. Getting that approval is more likely if your new loan is at a lower interest rate than your old one and you won’t be increasing your total debt load. Co-op experts say most boards won’t even consider your application if you owe the building any money, so make sure your maintenance fees, fines and other fees are paid up long before inquiring.

Condos are yet another beast

Remember when you got your original loan? You had to qualify and your condo association had to qualify. There are special condo refinancing regulations regarding the number of owner-occupied units in the building, the value of the unit and the ratio of commercial space to total square footage in a building.

To find out if you and your condo qualify for refinancing, check with local lenders, then shop around for lenders who are willing to work with you. Many banks are refusing to refinance condos, even when they underwrote the original mortgage.

Added bonus: Lower title insurance rates

As if low mortgage rates weren’t temptation enough, NYC has made the lure of refinancing even sweeter with news that it’s decreasing title insurance rates.

The New York Department of Financial Services announced that it’s slashing title insurance rates for consumers who refinance their mortgages. The amount by which your title insurance costs drop varies according to how long you’ve had your loan and if you’re refinancing with your original lender.

A mortgage that’s 10 years old or older and refinanced with the original lender, for instance, could lower your title insurance rate by 65 percent. Title insurance for a refinanced loan less than 10 years old will be 30 percent cheaper if you use the same lender or 15 percent lower if you use a new lender.

Next article: Homeowners Insurance for a Condo or Co-op

 

Homeowners Insurance for a Condo or Co-op

   

In fact, most co-ops, condos and mortgage lenders require proof of insurance before they’ll sign off on your purchase.

Two separate policies

You’ll want to ensure you’re getting the best coverage at the best price, but you must also determine what’s covered by your building’s policy and what’s not. The Insurance Information Institute advises that condo and co-op owners need two separate policies to protect their investment:

  • Your own insurance policy. This provides coverage for your personal possessions, structural improvements to your apartment and additional living expenses if you are the victim of fire, theft or other disaster listed in your policy. Most insurers refer to this coverage as a “condo unit owner’s policy.”
  • The “master policy” provided by the condo or co-op board. This covers the common areas you share with others in your building like the roof, basement, elevator, boiler and walkways for both liability and physical damage.

“As a new property owner, it can all be a little confusing,” said State Farm agent Glisel Jimenez based in Summit, N.J. “We encourage brand-new property owners to get a copy of their building bylaws and bring them in so we can help them determine what their building’s policy covers and what sort of coverage it requires unit owners to have.”

Some building bylaws, for instance, make co-op and condo owners responsible for everything from the “studs in” while others include builder’s upgrades.

Check to see if you need liability insurance

In addition to determining your property insurance needs, the bylaws will tell you whether your building requires a minimum level of liability insurance. Liability insurance provides coverage for damage caused by you to another unit (perhaps your overflowing bathtub leaked into the apartment below you) and for injuries sustained inside your apartment (a delivery person trips over a bag on your hallway floor and breaks his leg.)

Even if it’s not required, Jimenez said it’s a good idea for condo and co-op owners to have some.

“When you’re living in such close proximity to other people, it’s more likely your action could adversely affect them,” she said. “Having liability coverage is great protection that doesn’t cost a lot.”

Consider loss assessment insurance

Loss assessment coverage is another low-cost insurance add-on that Jimenez recommends for condo and co-op owners. It’s protection you can use on claims involving the building or its common areas. Most buildings have insurance that covers incidents outside of your personal unit, however these claims can easily exceed the master policy limits.

If, for example, a storm causes $600,000 damage to the exterior of the building and the master policy has a $500,000 property damage limit, unit owners likely will be assessed for the remaining $100,000. If you’re in a 25-unit building, that’s $4,000 you need to come up with. In most cases, loss assessment coverage will cover that cost for you.

“Insurance can be complicated and new property owners are often rushed and stressed, trying to figure out what they need to get to be able to close the deal,” said Jimenez. “I tell people, get the policy you need to meet the building’s or bank’s requirements and then come back in a month, when you’re moved in and the boxes are unpacked, and we’ll figure out if you’ve really got the coverage you need.”

Flood insurance

If you live in a flood-prone area of New York City, you should seriously consider getting flood insurance. That’s because your regular homeowners insurance will not cover you in the event of a flood, or damage rendered such as in a catastrophe like Hurricane Sandy. NYC’s Flood Help NY website offers a flood map to show if you are in a flood zone, it can offer a flood insurance estimate,  and even provide you with a free audit of your home’s flood resiliency.

 

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