Bringing in a Buyer Broker After Viewing a Property?

I'm getting busy right before Thanksgiving with buyer clients looking to pickup a deal that was trading near peak levels only 6-8 months ago. With time scarce, I just wanted to re-publish this post from April, 9th, 2008. I get approached by many buyers these days seeking services, and usually they have already seen a property or worked with a broker that they no longer want to work with; for whatever reason. Just so you know your rights, here goes. Just understand that if you have submitted a bid with a seller broker, and then try to bring in a buyer broker, it can get a bit hairy.

A: I won't go into details of my latest experience, but lets discuss a very common ethics situation that seems to pop up way too many times in the world of New York City real estate: can a buyer bring on buy-side representation AFTER they met with the seller agent? For all REBNY member firms and the exclusive listings they are marketing, the answer is 100% YES! However, the situation usually doesn't evolve as smoothly as one would think given REBNY's rules of conduct; leaving the buyer wondering if it's even worth it. Lets discuss.

You know, I must apologize on behalf of my industry to any buyer that has been put through a difficult and awkward situation because an agent at a REBNY firm won't allow you or makes it very difficult for you to change brokers and bring in buy-side representation! With that said, let me clearly point out what the REBNY rule of conduct is for member firms and their agents:

DOWNLOAD REBNY RULES OF CONDUCT HERE (.pdf file)

In the event that a customer has already visited the property the exclusive agent should advise a scheduling cooperating co-broker of that fact. This resolution is not intended to encourage buyers/tenants to willfully abandon one agent for another. Co-brokers must not attempt to persuade a customer to revisit a property with them rather than with the original showing exclusive agent or showing co-broker; a reshow with a different agent should only take place under circumstances in which a buyer/tenant has reason to feel abandoned or inadequately represented by the original showing agent.

In the event that this situation does arise, the second co-broker should obtain a letter from the buyer/tenant indicating that the buyer/tenant has viewed the property with one broker but wishes to return with (name of new broker). This letter should be directed by the second co-broker to the exclusive agent and the exclusive agent's manager. The exclusive agent, as the fiduciary of the seller/landlord, should do nothing to discourage or create awkwardness for the buyer/tenant.

The seller broker is probably going to do anything to convince you, the buyer, that you do not need buy side representation. It's true! Technically, you can buy a property without the use of a buyer broker. However, most buyers (especially first time buyers new to the buying & valuation process) seek buy side representation to get a trusted third party opinion of the property at hand, to get a unbiased property valuation given comps & current market conditions, and to have an agent working FOR THEM to advise on bidding strategy & negotiating leading up to accepting an offer. In addition, a buyer broker will guide you through the buying process up until closing.

In a perfect world, this situation would be accepted by all seller brokers as simply 'something that happens and is perfectly allowed' in the field. But in reality, seller brokers don't like the idea of having met the prospective buyer first and just handing them off to another broker who will come in and take half their commission away. Its understandable, humans work to make money, and in the Manhattan real estate world, vested interest often conflicts with ethical behavior.

For many first time buyers, buy side consulting is a service that is warranted. For others, it is sometimes deemed not necessary. Either event is fine by me, but what is NOT FINE is when a buyer requests buy side representation, and the seller broker makes it difficult or downright refuses to allow that to happen because they risk losing the full commission to a co-broker that would otherwise split the deal with them. That is where you see the seller broker's true intentions and I don't know who would want to work with a broker whose intentions are self-vested.

For any buyer that finds themself in this situation, you can ask your new broker to fill out the following
CHANGE OF BROKER REQUEST, you sign it, and then have your new broker fax it back to the seller broker. At that point, there is nothing the REBNY member agent can do to prevent you and your new broker from seeing the property and submitting a bid, just like you would if the new broker was there since the beginning!

ETHICS! It should be a good thing!

Douglas Heddings of TrueGotham.com has his Dirty Real Estate Tricks section especially for the purpose of discussing on an open forum the shady behavior of some agents that give rise to the overall negative reputation of brokers in general.

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Contract Re-Assignments: A Sign of the Times?

A: For all you guys that want front line reporting. I just went through my first contract re-assignment closing for a buyer client of mine; so basically, a buyer goes into contract for a property but for whatever reason CAN NOT close on the deal. Likely culprit is inability to get financing. Instead of going through the headache of litigation over the down payment and who can claim it, the original buyer attempts to assign the contract to a new buyer. The positives for the new buyer include getting a deal that was in a previous pricing amendment or a unit that was in a sold out line. The negative is that the terms of the deal with the sponsor are non-negotiable and will be the same as the original deal; but that doesn't mean you can't work something out with the assigner on incentives for taking on the transaction!

Lets go back 5 1/2 months when I published a post titled, "New Dev Closings: A Potential Problem?", where I stated in an unbiased discussion:

"I want to discuss something that has NOT happened, is not even in the very near term horizon, but very well may impact the Manhattan marketplace at some point in 2008; buyers with expected new development closings amidst the new credit world.

What happens to all those new development buyers that are currently in contract, waiting for building completion to close, if the jumbo credit markets continue to be in distress and there is a much different lending world than when the original contract was signed?

What if the buyer doesn't have the doc's to get the commitment, if lending/underwriting standards have tightened so much in the past 3-6 months? What if the buyer gets a much higher interest rate than was originally anticipated? What if the bonus doesn't come in as expected? What if they lose their job? What if the property becomes unaffordable?"

Anyway, back to the assignment. What I discussed back in October is now reality; albeit a rare one at this point in time. There are actually a few other assignment requests in the same building that we just completed our deal for a few days ago. This was confirmed by the attorney who has done a number of deals in this building, and by this different ad in craigslist that I found this morning (all details, building, etc. were not included for privacy):

In an environment of tighter underwriting standards & credit quality based lending rates, contract assignments become a very real option for those that can't secure financing due to the credit crunch. I would expect this trend to continue, especially for those financially borderline buyers & speculative investors who signed new development contracts of sale BEFORE the credit crisis began in July 2007. Quite simply, it was a different world back then.

Now this is very important, I do NOT view this as anything that will take down our market; and is likely to be more of a rising 'pockets of distress' trend since contract assignments occur in strong markets too. It is just another sign of the times and tells you that the world we live in today is quite different than the world that existed during the boom times. For my client, they got to purchase a desired unit that was part of a sold-out line as of many months ago in a nearly sold out desirable building; plus a minor incentive by the original buyer to take on the assignment.

Anyone else hearing about contract re-assignments in their neighborhood/building? I would be interested to see how widespread this trend is at this point in time.

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The Importance of Views

A: I want to re-iterate just how important views are when trying to get top dollar at resale. In my opinion, its #1 and ahead of location as the permanent feature worth going for when you look to buy; with the focus being on finding motivated sellers with a view apartment who doesn't have time to 'test the market' with a steep premium! Whenever I have a buy side deal that involves a property with spectacular views, I always am concerned that another bidder will come out of nowhere before we get a fully executed contract. I worry about this, because it has happened to me before.

The four permanent features that all buyers should focus on putting their money towards when deciding which product of the group to bid on continue to be:

a) views
b) location
c) natural sunlight
d) raw space

...as these property features generally do not change! The only item that can be changed is natural sunlight and views if you happen to buy a property with a view of a lot that may ultimately be developed; and therefore eliminating or altering your view and natural sunlight. Other than that one risk, your pretty safe. These are the features I focus on when I do consulting for my buyer clients.

But one feature stands above the rest in this fast changing marketplace: VIEWS, especially really good ones! I'm talking central park or river views here, as there is a larger concentration of properties that offer open city views. Having that park or river view really does put your property above the rest in terms of luxury and should allow you to price the apartment a bit higher than the group. The fact that it isn't easy to find these properties tells you something!

Now, this doesn't mean that views should demand $300/sft more than comparable listings in the building on a different line without views, it shouldn't. It does mean that a premium will be paid for the views and that marketing efforts should allow the selling broker to procure a much bigger and more serious audience; which in and of itself is something for getting more money in the end.

Your focus should be on finding these types of view properties that seem to be priced 'in-line' with other comparable line apartments in the building that do not have views! If you do find one, its a sign that the seller is probably ready to go, and advised the broker to skip the premium that is normally associated with view apartments because they want a quicker timeline to sell.

For example, lets say that the building has two main exposures:

Exposure A ---> gets park views
Exposure B ---> gets interior building / courtyard views

Now, lets say that there are similar property types (say a 1BR unit w/ same floorplan) on both sides of the building! One has Exposure A and the other has Exposure B. Now lets assume that these comparable, yet opposing units are around the same floor in height, thereby eliminating any significant premium for being on a higher floor. Pricing should be as follows:

1BR w/ Exposure A (park views) ---> aprox $900,000
1BR w/ Exposure B (interior views) ---> aprox $825,000

These numbers are for argument only to prove the point that the 1BR unit with park views should demand a premium over the similar 1BR with interior views. Your focus should be to find a property type that enjoys park views, but whose asking price is more 'in line' with the last comparable sale that did NOT have the luxury of that gorgeous view! Not an easy task, but a sign that the seller is motivated!

With that said, here are some apartments that I think exemplify what I mean by view apartments; yet don't necessarily mean they are priced to move! Having open city views are nice, but should be given a less favorable premium due to the higher concentration of apartments that enjoy this type of view. Add in more premium for river and park view properties! It's up to you to determine exactly how much premium is deserved.

635 West 42nd Street

PRICE: $1,850,000
SIZE: 1,017 sft
DAYS ON MARKET: 62 Days

45 East 89th Street

PRICE: $1,995,000
SIZE: N/A - 2BR/2BTH unit
DAYS ON MARKET: 7 Days

80 Central Park West

PRICE: $1,445,000
SIZE: 900 sft
DAYS ON MARKET: 13 Days

As always, if you want to see one of the above noted apartments, please contact the listing broker directly. Before bidding on any apartment, you should have your buyer broker do an analysis of where the building trades so that you can assign the proper premium to the property with views, in line with the most recent market values.

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The Seller's First Response: Probe Bid

A: After almost four years in real estate sales now, I have gone through my fair share of both buy & sell side negotiations. One thing that seems consistent with almost ALL the deals I do, is that the seller's first response to your initial bid is a reliable indicator as to where you might have to go to get a deal done! Lets discuss the seller's first response to your initial probe bid and whether this information gathering strategy may be right for you. Originally Posted February, 26, 2007

Its the most challenging part of my buy-side consulting for clients since I attempt to get the lowest price possible for my buyer, I have to hope the seller agrees to that price range. In the end, buyer clients must understand that it is not my decision whether or not the seller will respond to our low-ball bidding strategy. And it's not my decision how low the seller is willing to go to do a deal with you! If there is one thing I learned after 3 1/2 years it is this:

Every seller is unique and under a personal set of circumstances when selling their home. Just because a building's 1BR's are trading for $900/sft, doesn't mean the seller of the property you are interested in will sell it around that price point! If there is no time pressure to sell or the seller is just testing the market, then bidding $1,000/sft for the property still may not get the desired result.

Which brings me to this conclusion:

Assuming the seller is not testing the market and is really looking to sell, it will be the FIRST RESPONSE to your initial bid that will give you the best look at the poker hand the seller is holding

Probe Bet: A bet made primarily to gain information by gauging opponents' reactions, especially a small bet made in pot-limit or no-limit games.

In poker, I like to send out what are called 'probe bets' every once in a while to see if I can gather ANY information at all from my opponents as to the strength of their hand. Even if I am holding a weak hand and planning a bluff strategy, a probe bet can be very useful in either winning the hand right there or saving me from an eventual big loss.

In real estate, the initial bid could be considered a 'probe bid' to see where the seller stands as far as their need to sell. If you get a very quick and aggressive response, well then you know you have a seller who is looking to sell quickly and is taking your bid seriously; giving you a tactical advantage. If you get only a slight response two days after your initial bid, then you know the seller is looking for a certain price range and may not be as motivated to sell right now for a lower than expected price. If you get no response, then you know the seller is under no time pressure at all and is likely to be testing the market; or your bid was simply too far below the seller's intended 'acceptable range'.

In all situations, it was the first response to the initial bid that set the groundwork for what is to come next. Sometimes your strategy will fail, and you have to be prepared for that; especially if you are using a low-ball bidding strategy. Other times you will get a very desirable response and your only decision left is how to play the rest of the ping-pong game.

It's impossible to set up one formula or theory that applies to all situations, so I leave it up to you and your buyer broker to discover for yourself. However, if you have read all the way down to here and still don't get what I'm saying, maybe this chart can help you visualize the importance of the seller's first response.

APT X IS ASKING $500,000 (say $850/sft) AND IS PRICED RIGHT

Situation 1 - Low Ball: Your initial bid of $425,000 gets no response. Obviously the seller knows the property is priced right and has a tight range of 'acceptable price' that is needed to make a deal happen. In this case I would advise my buyer client that a bid of at least $475,000 or so is needed to get the property. Since the apartment is priced right from the get go, the seller is not interested in buyers who are playing bidding games or not-motivated to proceed to the next step.

Situation 2 - Fair Bid: Your initial bid of $450,000 (10% below ask) gets a response of $485,000. Again, the property is priced right and the seller is telling you that there isn't much more room for negotiations! While your bid of $450,000 is a bit low for a properly priced apartment, the seller acknowledges and respects your bid by providing you with a response. The response of $485,000 tells me that you will need to come up more than the seller will likely come down to get a deal done. I would probably advise my client to bid $470,000 next and expect a response of mid-way from the seller.

Situation 3 - Aggressive Bid: Your initial bid of $475,000 gets a response of $487,500 from the seller; halfway. While you may feel like you didn't leave yourself much room for negotiating and getting the lowest price possible, you did tell the seller that you are a serious buyer and that you understand the property was priced properly from the start. At this point you have 2 choices. Either you stand firm and tell the seller that your initial bid is your most aggressive bid that you are comfortable making with the hopes of them accepting it OR you move to $480,000 to get the deal done. I don't see how a seller who responds to your initial bid of $475,000 with a counter of $487,500 will say NO to your $480,000 2nd bid.

BIDDING UNDER ASK FOR NEW DEVELOPMENTS

A tough feat to accomplish, but not impossible. Most developers will not budge in their set asking prices for units, leaving the buyer with a decision to make. Either the buyer sucks it up and pays full ask + sponsor closing costs OR you try to negotiate an incentive on the passed down closing fees that the sponsor asks all buyers to pay.

This is not meant to discourage you from trying to bid below what a developer is asking for a particular property, only to tell you that in many situations you will not get the desired result. You are at a disadvantage in the sense that transparency comes in only one form; what is being told to you. The information regarding percentage sold, remaining units, future price amendments, previously negotiated deals, traffic activity of sales office, desperation of the developer, etc.. are all pieces of information that either you do not have or must trust what is told to you by sales representatives. This leaves you bidding blind, trying to get the best deal possible. I find that there is a better chance offering full ask, and working on an incentive with closing costs the better strategy. Of course, this assumes the price is OK with the buyer's comfort zone!

Like all negotiating situations, the only way you will know for sure if NO to your lower bid really means 'NO', is by backing out of the deal and leaving the seller with a few days of 'thinking about losing the deal' to see if they won't come back to you! You must be willing to play hard-ball and risk losing the deal as well, if you want to give your low bid any chance of succeeding after a 'NO' response was already given back to you. Hopefully the seller will cave first.

UrbanDigs Says: Use your initial bid as a probe bid to see what the seller's reaction will be. Many times you will be able to get a lot of good information from a solid probe bid that will give you an idea of where you might have to go to get a deal done. In the end, every deal ends up at one price that is suitable for both the buyer and seller. So the question is, are you comfortable with where the seller is looking to move the property at. Since it is no one's decision but the seller's to ultimately make that decision to move at a requested price, the buyer must do all they can to find out the range where that requested price falls into!

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Raised Limit Conforming Loan Explained

A: A great topic that is often misunderstood! With the new jumbo loan limit being raised from $417,000 to $729,750, expanding what counts as conforming and therefore a lower rate, cheers are being hollered that this will save the markets, yay! Not so fast. Now that the plan has recently took effect, some buyers who fit into the subset of this plan and can take advantage of the conforming raised loan limit, are finding that the rate is higher than normal conforming loans? What gives? The answer lies in a little 2 point fee that the GSE's are charging for this raised limit product and is being priced into the rate; therefore making the raised jumbo loan limit having a raised rate as well!

From one of my anonymous mortgage insiders that I know, trust, and works as a loan officer at a major bank:

Rates for the new limits vary depending on product. In this example, I will use a 30 Year Jumbo Mortgage vs. a 30 Year Raised Limit-Conforming Mortgage, in Manhattan with a loan amount of $700,000 - on a Purchase transaction.

30 Year Raised Limit - Conforming: 6.875% @ 0 points
30 Year Jumbo: 7.375% @ 0 points

Keep in mind that, under the new limits, CO-OP's are not allowed any financing; They have to be financed under traditional loan limits. For example, on a co-op purchase with a $417,000 loan amount, a conforming mortgage currently yields a rate of 5.875% @ 0 points.

The fee for doing a loan under the new limits is 2 points, but that fee gets built into the pricing of the rate.

No matter what the loan limits or products are, strict underwriting is a standard in the current mortgage environment. There is very little margin for error, and overall banks are taking a very conservative approach when it comes to lending money.

**Also please note that the rates quoted above are as of today, Tuesday April 8th, 2008, and are subject to change.

The new raised limit rate is better than the jumbo rate, but still misleading given the announcement of the stimulus plan back in January. This explains why the rate is higher for any buyer who tried to take advantage of the jumbo limit being raised! There is no such thing as a free lunch! Two points is in essence 2% of your loan amount that will be built into the interest rate (not sure of exactly how) over the course of the loan.

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The Importance of the Layout

A: I want to take a brief break from macro and discuss something that all buyer's should take into account as they seek to put their hard earned money to work in a new home; the layout. I've noted many times before here on UrbanDigs.com in the buyers tips section the importance of putting your money into the permanent features of the property that likely won't change until resale: location, light, views, raw space. Obviously light/views is the only thing that may change should the property be next to a future development site. After these four permanent features, apartment layout is one of a few factors that I like to focus on to get the most bang for the buck. Let me explain.

When it comes to layout, I think of two things that are very important in the buying process: time line to own and resale-ability. As most people have budgets that should definitely be adhered to, one of the goals in the buying process is to get a property that is scalable to the buyers' needs. What I mean is, does the property allow room to grow? Having a 5+ year time line to own is a must, but having a property that allows the potential for a few more years is even better. In addition, does the layout appeal to the masses for resale?

After spending more than 4 years in the field with many different buyers, I have come to understand what the masses look for and are willing to pay a little extra for come bid time. In no particular order, here are the things to look for in getting a desirable layout for most price points:

1. Scalability - In my opinion, one of the more important aspects of a layout! Does the layout afford the owner the luxury of scalability to meet the future needs of more usable space? The easiest way to explain this is a JR4 layout that is capable of being converted into a makeshift but doable 2BR; by converting the alcove dining/office area into its own bedroom. The key to scalability is having a room that offers its own window, at least 100 sft or so, room for a closet, and its own HVAC unit. Having a scalable layout does two things: allows the owner to live in the property for a few more years should they desire to do so + offer the future buyer the same luxury at resale.

2. Wasted Space - Does the layout make good use of space? I find that layouts with long hallways or very large bedrooms but small living areas are much less desirable to the masses. While this doesn't mean that you wont get a good price for this type of product at resale, it does make it harder to do so. Overall, having space wasted in long hallways or large foyers seems to have the biggest impact on buyers.

3. Formal Dining Room / Dining Area - A key element, especially at higher price points. Does the layout offer a separate dining area or formal dining room. There is a big difference between marketing a 4.5 room 2BR over a Classic 6 with its own formal dining room! In the end, if you are going to spend top dollar for a family home, be sure it has the features that will appeal to families down the road; and that means having a clear room/area for dining allowing the living room to be used on its own devices.

4. Configurable - A bit less important. Does the layout allow for changes? Can you lose a closet here so that you can expand a bathroom there? Buyers like the idea of customizing a layout to meet their own needs; so whenever possible, having a layout that is customizable may appeal to that perfect buyer at resale who has the ability to see the ultimate potential of the property.

5. Split Bedrooms - I find that most of my two bedroom buyers prefer to have split bedrooms. Leaving reasons why out of this discussion, the idea of the kids being across the apartment is more desirable! Again, this is layout feature that is less important than scalability and wasted space; but figured to mention it anyway!

Well, there it is! The importance of the layout when it comes to plunking down hundreds of thousands of dollars for your new home! Remember, permanent features of location, light, views, and raw space remain a higher priority in the buying process for future profit potential. After this, try to fine tune your vision to find a layout that will be able to meet your needs for time line
to own (can you grow into this property and stay a few more years), and appeal to the masses at resale!!

Related:

Transformation: My JR4 Into A 2BR

What To Do With Your JR4

Room Count: A Shady Science

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What Is 'ALL CASH' Worth?

A: A good topic to discuss considering the environment and the fact that one of my buyer clients unsuccessfully bid over ask in a recent highest & best situation. When you are up against 'all cash' bids, what premium should that offer have over a bid reliant upon financing? The short answer is that it all depends on the seller's risk level and situation, the more creative answer in my opinion is about 2-3% of the purchase price. There is no formula for finding out what 'all cash' is actually worth in any given deal, but it is safe to say that in tough lending environments its value surges!

What sort of discount should a buyer offering all-cash in this environment expect? On the flip side, how much should an all-cash bid be worth to the seller? Here is a recent situation where an all cash bid took complete control over a multiple bidding situation; I'll discuss the basics with changed details to get to the point of the discussion.

I'm blessed with very savvy buyer clients who are mini-experts on their price point. This buyer was no different and knew a great deal when one popped up. So, going into the first open house (which was active) we knew a strong bid was the very least needed to get this deal. Not surprisingly, multiple offers came in the very next day including ours. We did our diligence, formulated how under-valued we felt the property was priced compared to comps and property condition, spiced up the terms of our final bid, and went for it!

In the end we bid about 5% over ask and just under what we perceived as market value for the apartment. But it was the altered terms of the deal that we focused on to put us on par with an all cash competitive bid that we were told was already submitted; a very tough task to accomplish when credit crunch headlines make front page news everyday. Here is what we did and what you can do if you ever want to strengthen your bid in bidding war situations:

a) provide a pre-committment letter instead of a pre-approval
b) provide credit score; especially if its very strong
c) offer to sign a no-finance contigency contract of sale
d) raise the down payment by 5% to lower debt/income ratio and ease board review process
e) flexible closing date

the standards: point out liquid assets after closing, debt/income ratio if deal were to proceed, attorney info, lender info, salary & employment info, and a little note that we had advised the attorney to do due diligence within 2 business days of full receipt of doc's!

Did it work? Unfortunately no. We lost to an 'all-cash' bid that was also over the asking price. OK, not the end of the world but certainly frustrating. At least we knew our comfort zone and made a strong play for the property. Which brings us to why we lost!

In my opinion, I think we were the highest bid! Of course I'm not 100% sure, but its just a gut feeling after hearing back from the broker.

TO COMPETE AGAINST AN ALL CASH OFFER THAT ALSO HAPPENS TO BE ABOVE THE SELLER'S ASKING PRICE, PROVES TO BE A VERY DIFFICULT TASK IN TIMES LIKE THESE! SO, YOU MUST BID A PREMIUM TO MAKE THE SELLER EVEN CONSIDER TAKING YOUR DEAL THAT INCLUDES SOME RISK!

NORMAL LENDING / MACRO ENVIRONMENT

$895,000 Co-op Property w/ 2 bids submitted

Bid 1 --> $925,000, solid buyer putting minimum required down and financing the rest
Bid 2 --> $900,000 all cash 2.7% below highest bid

SELLER DECISION --> I would bet that the seller would go with Bid #1 and take the extra $25,000 with little risk the buyer will get a loan and pass the board. When I say solid, I mean that this buyer has the financials required by the board for approval.

TIGHT LENDING / MACRO ENVIRONMENT

$895,000 Co-op Property w/ 2 bids submitted

Bid 1 --> $925,000, solid buyer putting minimum required down and financing the rest
Bid 2 --> $900,000 all cash 2.7% below highest bid

SELLER DECISION --> In today's environment, I'm willing to bet that the all-cash $900,000 offer, even though its $25K less, is extremely appetizing to the seller; assuming of course the seller is aware of what is going on right now in the mortgage markets! It's still over the seller's asking price, who obviously priced low to get a quick sale in first place, and its a lock of a deal both for the loan commitment and the board approval! That is quite a comfort that is certainly worth something.

It's the psychology of the seller that has changed because of the deteriorating credit & mortgage markets. Cash is a very valuable tool for any offer right now, so if you have the means, do use it especially if you want that edge either in negotiating or against competing bids to get the deal done! In my opinion, as long as the mortgage and credit markets are in distress, an all cash offer should be able to win a deal at a 2-3% discount from what otherwise would be an acceptable bid or a competing higher bid!

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Transformation: My JR4 into a 2BR

Note: Was asked by a few buyer clients about this topic so I figured to re-publish what I did with my JR4 when I sold. This post was originally published in Jan, 2006 so please put yourself back into time and place. I'll do quick add on at the end.

A: As I wrote about in a previous post, What To Do With Your JR4, I just started renovations on my JR4 in which I'm changing the alcove into a true 2nd bedroom. Marketing a 2BR property in Manhattan should allow me to greatly maximize the return on this $4,500 project!

In New York City, there is quite a disparity between the selling prices of a 1 bedroom and a 2 bedroom apartment. After all, a 2 bedroom apartment gives you enough room to grow into should you decide to have a new baby or a roomate. The price difference in the Upper East Side looks something like this:

AVERAGE SELLING PRICE 1BR / 1.5BTH CONDO IN UES
$750,000

AVERAGE SELLING PRICE 2BR / 1.5BTH CONDO IN UES
$850,000

AVERAGE SELLING PRICE 2BR / 2BTH CONDO IN UES
$1.1 Million

*Note: Add on some premium for prime location, luxury buildings and those apartments that have been fully renovated or have outdoor space!

To market your property as a true 2BR apartment that won't leave buyers frustrated when they come to see it, you will need the 2nd bedroom to be at least 100 sq. ft., have its own window (a must) and HVAC, and its own electrical switches and closet. Just putting a wall up will not cut it and will leave buyers unsatisfied when they come to preview.

Most JR4's have the window and HVAC in the dining/office alcove leaving you with the job of closing off the room, adding a closet, and doing some electrical work. All in all, expect to pay about $5,000 for this work to be done. A new paint job will seal the deal and put your apartment in the 'sell-o-sphere' of a 2 bedroom! You should be able to add on around $75K to your asking price, depending on the last 2BR that sold in your building; although, you will need to price yours lower to accomodate for the lesser total space.

Here is my alcove space before the transformation:

Here is how it looks after Day 1:

Here is how it looks when completed:

The 2nd BR measures 10'4" x 10'8" and has a closet with 2 shelves and a pole for suits/shirts/pants. For Manhattan, it is suitable for most buyers who require a 2nd bedroom.

Before I start advertising, I need to do some fine tuning to the floorplan using photoshop to reflect the changed layout. I also need to do some research on what 2BR condo's are going for in my building and my neighborhood. I'll be sure to price mine below these (which is still way above the most expensive 1BR condo listings) to spur activity and get traffic into my open house!! In the end, the goal is to have the most aggressively priced 2BR condo on the market.

ADD-ON (2/21/2008) - Careful with pricing as your target buyer to make this strategy work most profitably is young/mature, looking for a starter home that could be scalable if their family grows! It is not for those who need a true 2BR, an extra 200 sft, at least 2 full baths, and a separate dining room! So, make sure you discount your converted 2BR properly or it will get little traffic.

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Who Wants A Depreciating Asset?

A: The topic of this post really does go against mainstream media, bullish brokers, and naive buyers who are always late to the party. Putting fundamentals aside for a moment and taking a peak at what our future may bring, you can't help but notice the warning signs to the broader economy. And to be blunt, I don't care how strong the currency trade is here for our market, if the US were to go into a recession (whether it be soft or outright nasty) the real estate market in Manhattan will quickly change! The Case-Shiller Index released this morning showed a broad based decline across all metro areas measured. While not shocking, we must note that as the housing market continues to decline, wall street and the securities derived from loans on these homes will cause more problems and we will move one notch closer to a recession. As far as investing is concerned, nobody wants to own a depreciating asset!

Where to begin, how about the media! I was late in reading this NY Times article titled, "New York Condos Lure Deal-Seeking Europeans" but was immediately fed up when I got to this statement added in by the author:

"While natives remain wary about real estate and worry about bonuses and the economic climate, foreign tourists are keeping brokers busy with their eagerness to buy up Manhattan apartments, which many see as investments."

What happens if the dollar rebounds? Are brokers and journalists going to switch their argument from "well, Manhattan is supported by a weak dollar and foreign demand" to "well, a strong US dollar is a sign of a strong US economy and with that comes strength in real estate"? Put me down for this quickchange in broker babble to occur at some point in the future. All BS'ing aside, I like to discuss investment strategies, real data, real macro trends, and how that all may affect asset classes. And I'll tell you one thing, NO ONE WANTS TO OWN A DEPRECIATING ASSET!!

On to the data. According to the Case-Shiller Home Price Index released this morning:

For a visual on this, please see the chart:

Housing downturn cycles tend to take a while to play out. First comes the drop in buyer demand, which leads to low sales volume and inventory building, which leads to weak data reports magnified by mainstream media, which encourages more drops in buyer demand, which causes prices to fall, which hits the investors holding securitized mortgage bonds, which infects the financial sector, which leads to higher lending rates, fewer loan options & tougher underwriting rules limiting who can even get a loan, which restricts buyer pool further, and on and on and on! Those in-the-know of macro trends tend to get cautious ahead of the curve, never timing it perfectly, but also not exposed to the pain & loss that hits home for many naive buyers and blind speculators who think the game will go on forever; (hmmm, go back to the above mention of the NY Times article and foreigners buying now even while "natives remain wary about real estate and worry about bonuses and the economic climate").

While the Case-Shiller Index is rear-view mirror and doesn't apply to the Manhattan real estate marketplace (read my post here why), it still is a dataset relied upon by the financial markets to monitor the national housing market. While not a leading indicator, it does paint a grim picture on housing and if the national market continues to tumble in 2008, then the pain will extend to wall street, the credit markets, and the financial sector and put us that much closer to a recession. No one wants a depreciating asset; not a homeowner, not the banks, not the investors holding mortgage backed securities, not the fed, and certainly not a prospective buyer about to put their money to work. This last part is not as cut and dry though as everyone needs a place to call home.

If a recession were to hit the US economy, than stocks will price that in ahead of time and continue to drop until the cloudy picture clears up. Corporations will get defensive and cut jobs, pay, and spending. The combination of a negative wealth effect and lack of security for one's job will certainly have an impact on buyer sentiment here in Manhattan. Sales volume will quickly slow, inventory will quickly build, and sellers will be faced with something that they had the luxury of not dealing with even as the national housing market crumbled; fierce seller competition. When speculators, foreign buyers, and distressed sellers join the normal every day sellers that just needs to unload a home at the same time, you will know the lagging slowdown finally hit Manhattan. We are a market so closely tied to wall street, and almost everyone on wall street knows there is danger in the air. Recessions do occur, downturns do occur, and housing is a market just like every other; it can go up & it can go down. Manhattan is no different; it is just much better positioned & protected. Think of Manhattan as the General Electric of the housing market, and to keep up with the analogy, I would call markets like Miami, Phoenix, & Las Vegas the ETOYS of housing.

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Dealing With A Bully Seller?

A: After previewing comments this morning to publish or junk away, I came across Rick's statement on my, "An Accepted Offer Does Not A Deal Make", post. Rick is dealing with a bully seller who accepted his offer but is refusing to fork over the offering plan and building financials for his attorney to review. As we all know, a buyer's real estate attorney does their diligence before advising you to sign a contract of sale. So, what to do? Fight back!

The comment:

Hi -- have you ever seen a situation where the seller withholds the condo docs, thus making it difficult -- if not impossible -- for the buyer to sign a contract? That's what I'm facing right now and don't know what recourse I have.

I have actually. Unfortunately, it probably means the seller accepted a lower than expected bid and is taking their time to get these docs to your attorney for review, in the hopes of getting a higher offer. Maybe they have a very interested buyer who is keeping them on the ropes.

SUBMIT A BID / NEGOTIATE ---> OFFER ACCEPTED ---> BUYER ATTORNEY DOES DILIGENCE ---> BUYER SIGNS CONTRACT FIRST / 10% DEPOSIT SENT ---> SELLER FULLY EXECUTES CONTRACT OF SALE

The problem is that nothing is binding until the seller countersigns the contract of sale making the deal fully executed. The only other issues that can likely affect the deal at this point are a board turndown or failure to get a loan committment; see my post titled, "No Finance Contingency Explained" for more info on this common practice in housing markets favoring sellers.

So, when you are at the stage of OFFER ACCEPTED the next move is for the your attorney to review the offering plan + 2 YRS building financials + board minutes + contract of sale. You should NEVER sign a contract of sale before your attorney does the diligence and OK's you to proceed with the transaction. But what if the seller delays getting these doc's to your attorney? Why would they do that? A few things come to mind.

WHY A SELLER WOULD DELAY GETTING DOCS TO BUYER ATTORNEY

In the real world it seems logical that a seller would delay getting a signed contract for one reason: they really aren't pressured to move quickly on the deal at the accepted purchase price. Other reasons could be:

These are some reasons that I can think of off the top of my head that would result in a seller delaying getting the doc's to the buyer attorney for review. Most of them are price/time sensitive.
So what can you do about it? Not much actually since you are helpless at this stage and can't proceed with the deal until your attorney reviews the building you are about to buy into.

UrbanDigs Says: The ONLY thing that you can do with a bully seller is to play hardball right back. Fight strength with strength. See how badly this deal actually means to them by PLACING A DEADLINE onto the seller to get the building/apt documents to your attorney. If its been more than 5 business days since an offer has been accepted and still no docs have been received by your attorney from the seller, put a deadline of 3 MORE BUSINESS DAYS onto the seller or else you will WITHDRAW YOUR OFFER! That is really the only thing you can do. If the seller doesn't want to move forward with you at the accepted purchase price, then why waste your time waiting for documents that might never come. Lay down the law and put the ball into the seller's court as clearly as possible. To me, a deadline is the most efficient way to achieve this or at the very least, find out what the deal really is sooner rather than later.

Originally Published February 6th, 2007

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An Accepted Offer Is Not A Done Deal

A: I want to re-publish this post from January 8th, 2007 after going through this experience again with one of my buyer clients. It's important to know that even when you get a verbally accepted offer, the deal is not done! Lets revisit how it works here in Manhattan so you are prepared for the process before you submit your bid. So, you've gained product knowledge by viewing more than 15 properties over the past 2 months or so, and got to the point where you know what 750 square feet should look like and whether or not a property is a good deal or not within a few minutes of entering. You did your pricing analysis with your broker, got past solds, analyzed current actives, valued in light & views & renovations & monthly expenses, and presented a bid. After a few back and forth sessions with the seller's broker, your offer was accepted! Congratulations, but don't get excited yet!

Before you submit a bid you should already have:

1. Pre-Approval Letter For Loan - you should have called at least 3 brokers, with one of them being a direct lender to get a competitive rate quote on all the loan products you are considering. Also make sure you get a rundown of closing costs and terms of the loan so that you don't have to pay any points or penalty's if you pay off or refinance your loan early.

Quick Tip: If you are pressured by time to close within 10 weeks or so of contract signing, especially if you are buying a co-op and have to go through board approval, be sure to ask the lender if they can expedite the appraisal, the appraisal's processing, & GET YOU A LOAN COMMITMENT LETTER + AZTEC RECOGNITION FORMS WITHIN 4-5 WEEKS OF CONTRACT SIGNING! These docs take the most time to get and are usually the last forms received to complete a board package, so be on top of this early on.

2. Real Estate Attorney - your attorney will be priced between $1500 - $2000 or so and will review the offering plan, contract of sale, 2 years of building financials, and board minutes. THIS IS THE MOST IMPORTANT ASPECT OF THE BUYING PROCESS BEFORE YOU SIGN A CONTACT! This is the time where you find out if the building you are thinking of buying into is financially healthy, is planning any assessments/major improvements, is operating at a gain/loss, has a healthy reserve fund, etc..Do not rush this process and be sure to ask your attorney if they notice any red flags about the diligence they did on the building!

3. Financial Snapshot - you should have a financial statement that clearly shows your assets, liabilities, and salary information for the seller to review. Presenting yourself in a clear light puts you in a good negotiating position right off the bat! Strong buyers that present little or no risk to the deal going through should gain a bit more control during negotiations; especially for a co-op that has strict financial guidelines limiting the buyer pool the property could be marketed to! Don't be upset if your representative buyer broker wants to pre-qualify you before viewing apartments or asks for this information before submitting a bid on your behalf. It's completely normal and to your advantage to provide transparency to the seller so that your bid is reviewed seriously!

So the time has come, the bid was submitted and your offer was accepted. The accepted offer that you have right now is non-binding and remains that way until you have a fully executed contract. That means the property is probably being marketed even while your attorney is reviewing the terms of the deal and building; anything can happen during this part of the transaction process! The timeline of this process will look something like this:

ACCEPTED OFFER ---> ATTORNEY REVIEWS CONTRACT OF SALE, 2 YEARS BUILDING FINANCIALS, OFFERING PLAN & BOARD MINUTES ---> BUYER SIGNS CONTRACT FIRST & SENDS IN 10% DEPOSIT ---> SELLER COUNTERSIGNS CONRACT ---> FULLY EXECUTED CONTRACT OF SALE IS REACHED AND BOARD PACKAGE + APPRAISAL CAN NOW BEGIN

Congratulations, the deal is now done and probably contingent upon receiving financing (if it isn't than that means you signed a contract without the financing contingency; read more here) and board approval! The buyer broker (or seller broker if there is none) will get to work on the board package at this time and your lender will get to work on ordering an appraisal of the property so that the loan commitment letter can be processed. Again, read my above tip if you are under any time pressure as getting these loan docs can sometimes slow things down and delay the closing.

UrbanDigs Says: Just because you have an accepted offer does not mean you have a done deal yet. The seller broker knows this and will KEEP the listing ACTIVE and continue to market the property until a contract is signed. Some things that could kill a deal before a contract is signed is inaccurate data presented by the seller broker that is disproved by the offering plan, building financials or contract of sale, a very low reserve fund in the building, or the building operating at a loss. If the seller broker advertised the property at 650 square feet and is later found to be 575 square feet, a re-negotiation of price might take place before the buyer signs the contract; so it really doesnt pay to lie about size (see my post, "Marketing Square Footage: Be Careful Not To Lie", as issues can come up at contract signing or the appraiser will appraise at a lower price when he comes to measure/evaluate causing a potential issue with lending). The two main things that can kill the deal after the contract is signed is failure to receive financing or a board rejection. Hopefully the seller broker was able to pre-qualify the buyer for both of these situations before even submitting the bid to their client for review! Good luck and remember to leave your emotions contained until that contract is fully executed!!

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3-Step Ladder To Home Ownership

A: Making the decision to buy now or wait for a serious downturn has proven time and again to be a virtually impossible feat. The problem is that you never know until well after the downturn has already reversed course where you should have bought in. Being that this realization is one of hindsight, timing the real estate market has always been a very difficult thing to do. Therefore, stick to a 3-step ladder approach in guiding your decision of whether to buy now or continue renting. Originally Published March 26, 2007

It all depends on your own unique situation.

By analyzing a couple of very important facts about your own current situation, you could be able to crunch the numbers and figure out how to make a buy versus rent decision. These include your financial situation, your planned time line to own, and your ability to find value (for resale) and happiness (for yourself).

Take it as a 3 step ladder up to the roof of home ownership. If you can make it up each step without falling, than you should probably consider buying over renting.

STEP 1: Your Financial Situation

Are you employed and can you comfortably afford to buy this home? One of the first things you should do is talk to your financial adviser or trusted real estate agent to discuss how much property you can actually afford. For the most part, what you will find is that you should put no more than 30% of your take home monthly income before taxes towards the total monthly costs of owning the property. To figure out your own situation, do it in reverse. Take the amount that you take home in salary every month, and simply multiply it by 0.30 on a calculator. If you earn $6,000 a month, than you should strive to keep your total monthly living expenses under $1,800/month (6000 x 0.3 = 1,800).

In addition, you should have saved up approximately 8-12 months of your total monthly living expenses in liquid assets AFTER you close on the property! To do this you must first tally up all your liquid (easily converted to cash) assets which include your checking/savings accounts, money market accounts, CD’s, etc.. Now that you know how much money you have, subtract the down payment that you will put towards the purchase and the closing costs estimate that your agent could provide for you. How much do you have left? How many months of living in this new home will you have leftover after you close? To do this, simply take your total liquid assets and divide by the total monthly living costs of the property. It should be between 8-12 months. For stricter co-ops and those who are self-employed, you should be closer to 12-18 months of liquid assets AFTER closing.

Finally, is your job secure? If there is a chance that you can lose this job or be transferred in the near future, than you just fell off the first step and can no longer proceed up the ladder to home ownership. Otherwise, step on.

STEP 2: Timeline To Own

This will be the easy step. Taking into account transaction costs to both buy and sell a piece of real estate, I like to advise my clients to take into consideration their minimum time line to own.

At the very minimum, you should plan to live in this home for 3 years. Ideally, I would like to see a buyer plan to own the home for a period of at least 4-5 years. That way, the home will have had time to appreciate and you will have taken good advantage of Uncle Sam’s tax benefits offered to homeowners.

Keep it simple, if you don’t see yourself owning the property in 2 years than you just fell off the second step. Lucky for you it’s just a step stool!

STEP 3: Find Value & Happiness

Your almost there. At this point you have pretty much figured out that you should be buying a home being that you are financially capable and not pressured to sell in the short term. The only thing left to do is to find a home that is a ‘best of group’ product and meets all your housing needs.

To find a best of group product you must gain knowledge of the properties in your target price group. Even if the apartment has a deal breaking flaw and you know its not the one, you should still go to see it to gain product knowledge. If anything, it will confirm a best of group product when you find it! You’ll know within the first 30 seconds of walking into a property if that is the right one for you. Keep your focus on putting your hard earned dollars towards the permanent features of the property such as location, views, sunlight, and raw space!

And finally, does the apartment have a good feel to it? You’ll know it when it happens. If it makes you happy because you know you are looking at your new home, than you just made it to the roof of home ownership!

Use this as a guide! If you meet all the criteria mentioned above with the exception that you only have 6 months of liquid assets instead of 8, than go for it as long as the building board will accept your application to purchase; especially if your time line to own is 5+ years.

SIDEBAR

While I just discussed the 3 most important factors towards making the buy versus rent decision, there are also variable factors that could come into play as well. These include factors that change with time such as interest rates, rental vacancy rates, and whether it’s a buyers’ or sellers’ market.

The very idea that these factors change with time makes it very hard to time perfectly. So, consider these only as extras in your decision.

Right now interest rates are still historically low, yet significantly higher than they were only a few years ago. Try not to let it affect you. Since interest rates are constantly moving and no one really knows where they might be heading in the future, it will only cloud your decision-making. If anything, you should research where rates are right now so that you have an accurate idea of what your monthly payments will be for the buy versus rent decisions you must make.

Rental vacancy in Manhattan has been below 1% for some time now. One of the main reasons for this is that potential buyers got priced out of the market and were forced to rent. In addition, many prospective buyers chose not to buy in the hopes that the market would retreat significantly. It didn’t. All it did is result in a very tight rental market with little to choose from and rental prices at 5-year highs. As rental prices rise, buying becomes a more viable decision.

Add it all together and you get a very healthy Manhattan real estate market, especially during the most active months of the year. I would describe the current market as a sellers market but before you go into frenzy about what I just said you must understand what a sellers market is. A sellers market is one of tight inventory and strong demand putting the control in the hands of the seller. In these types of markets bidding wars (even below ask) are very common and good deals are hard to find and don't last long. This is what is happening right now in Manhattan since early January.

UrbanDigs Says: If you climbed to the roof of home ownership and you found a great apartment that is priced right, go for it! If you made it to the top but only found a property you liked but didn’t love, than wait! When the frenzy dies down you might have more bargaining power but less options to choose from in the generally slower summer months.

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Serious Buyers Get Ready: Summer Control

A: This is a post for all you serious buyers out there that know for a fact you will be buying a Manhattan apartment in the next 4 months or so. Get ready! As we head into the summer months, you should be able to determine those that really need to sell. Here is what to look for.

Now that the frenzy months of JAN - APRIL are over and things seem to be cooling a bit, those buyers that are not just browsing for fun or looking to learn product knowledge for a purchase sometime in 2008, should wake up and get to work!

But what happens if you finally found your desired property but there have been NO price cuts in the past 3+ months on the market? Well, chances are this seller has no pressure to move the property and is waiting for their price. In the real world, their is little you can do other than to test it out by submitting a bid that you are comfortable with. Have your buyer broker educate you on what the building is trading at and place a bid based on these comps with an explanation why so that the seller sees it; explain that anything over your price is out of whack with building past solds and might result in a failure of the property to appraise by a lender. Then hope for some type of reasonable response.

However, if you do find a property that has had multiple price cuts in the past month OR one really big price cut recently, you might have a ripe situation for getting a great deal. Unfortunately in real estate, one man's misfortune is another man's reward!

In addition to the buyer broker you may be using, you should be searching sites like Streeteasy.com & PropertyShark.com to learn product knowledge and educate yourself on past solds in the building and neighborhood you might be looking into.

The goal should be to find a seller who MUST sell and decided to overprice their property and test the market heading into the summer months. These sellers will be pushed against a wall come July & August, after months on the market and a stale listing, leaving them only with a price reduction strategy to re-stimulate interest. Questions that remain are whether or not you can find these property's and if they meet your desired criteria for your new home.

Finding a distressed seller will be much easier with the help of a buyer broker. The system should be:

BOTH OF YOU SEARCH FOR PROPERTIES & THEN WHEN ONE IS OF INTEREST HAVE YOUR BUYER BROKER SEND YOU THE LISTING HISTORY & BUILDING COMPS

First Came on Market: 3/02/2007
Original Asking Price: $3,400,000
Asking Price Reduced From: $2,750,000 on May 9th, 2007
maintenance: $785
RE Taxes: $990
Size: 1,822 SFT
PPSF: $1,153
Marketed By: Elaine Claymen & Daniel Ruiz of BrownHarrisStevens

430 West 34th - Price Cut $80,000 2 Days Ago!

First Came on Market: 1/19/2007
Original Asking Price: $875,000
Asking Price Reduced From: $875,000 on May 8th, 2007
maintenance: $1,560
Size: 1,200 SFT
PPSF: $662
Marketed By: Michael Johnson & Tami Solomon of Corcoran

UrbanDigs Says - You really need to be educated and willing to risk losing the deal during negotiations to get a very attractive price on a property (when your low bid is countered to but not accepted, you might have to back off for a day or two to see if the seller comes back to you to get a deal done). First off, you need to find an apartment where the seller is still willing to come lower on price. Second, you need to know how to negotiate. Third, you need to be able to get the deal done quickly before more buyers realize the value being offered. Losing a deal because you are not ready is a horrible feeling.

As you head into summertime, be sure to have your attorney already picked out, your lender fine tuned down to the 2 most competitive offers, and your eyes open. Working WITH your broker instead of against them will only help you in getting the best deal possible. With my clients, it is not uncommon for them to spot a deal before I do and send it over to me for review. I will then send them the info they need on the building and last sales so that together we can valuate the property properly and devise a bidding strategy when necessary. Are you doing the same with your broker?

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Market Report: Transition To A Buyers Market

A: Its already starting to happen folks! Its May 1st and already I am noticing the beginning signs of a slowdown in Open House activity! After being on record since January 10th for stating that market activity has begun to surge, I am now going to go on record for stating that market activity is beginning to wane at public open houses. What we are seeing now is the transition in the Manhattan real estate marketplace from the sellers market of January - April to what will eventually be a buyers market as we get closer to the months of July & August. Sellers, its time to pass the torch back on to the buyers!

Brokers, Buyers, & Sellers - After reading this post I would love to hear your comments on what I am seeing as this is really only the 2nd week I have noticed things starting to slow a bit! Are you noticing the same thing?

Its important to note that media outlets differ from blogs because they usually lag in their reports to the readers after waiting for the event to happen and data reports to show a trend or surprising number. In the blog world such as UrbanDigs, I'm doing my best to tell you what I see right now!

And what I see right now is slowing open house activity! I went to three open houses this past Sunday and the most traffic out of any of them had only 2 other people there at the same time we were. The others we were the only ones there for the 10 minutes or so we stayed. Compare that to what I said back on January 10th:

After spending a few of the past 3 Sunday's with her going to Open Houses, I can tell you firsthand that most of them had very good traffic; by that I mean at least 4-5 different buyers were there at the same time we were. And that was ONLY 15 minutes or so of a 2 hour open house!

I've also had talks with a few other agents holding OH's and they report to me a noticeable, 3x or so, pickup in activity and this is across a range of price points across the city! This is the kind of reporting that you can take advantage of if your in the hunt to buy in the very near future! I'm not making this stuff up. If I had to estimate, I would say my own business has picked up about 4-fold in the past 3 weeks alone; most of it in the past 7-10 days!

My last open house was two Sunday's ago and we actually had a decent showing with about 12 people stopping by; not uncommon for the first open house of a new listing. I'm certainly curious to see how my first open house for my other new listing goes this coming Sunday; I'll report on that one next week although first open houses are not the best gauge to notice any new trends.

If I were to visually design for you how the NYC real estate market is seasonal, it would look something like this, for months JAN - SEPT. I left out OCT-DEC because those months seem to me to be very erratic; sometimes hot and sometimes cold. The months of JAN - SEPT have market characteristics to them that are easy to notice and eventually take advantage of:

To prove this, recall Jonathan Miller's chart breaking down the AVG Price Per Square Foot per quarter by clicking here. I wrote about his findings in my post titled, "Data Shows NYC Real Estate is Seasonal", and stated:

I talk often how buyer demand in the months of JAN - MARCH are normally much more active than any other 3-month consecutive range of the remaining calendar year. The months of MARCH - MAY are transition months where activity from buyer demand tends to move from very active --> to active --> to good ---> to slow. Once we get into the months of JUN - AUG, the market is typically significantly slower with only a few serious buyers coming to open houses and much fewer appointments during the week!

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Gift Tax Explained

A: Well I might as well pass on something that was discussed in this continuing education class that is taking all my free time. While I knew about this, some of you probably didnt. Often I find with buyer customers that the intended purchaser doesn't have sufficient liquid assets to make the home purchase and/or pass the board. The easy way out? Get a gift from a parent! Here is what you need to know.

What is a Gift Tax: The gift tax is a tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return. The tax applies whether the donor intends the transfer to be a gift or not.

The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced-interest loan, you may be making a gift.

Who Pays the Gift Tax? The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

Here are the exemptions to the Federal Gift Tax:

To relate to what I see in the real estate world, married couples can each separately give up to $12,000 to the same person each year without making a taxable gift. So, a couple can pass down $24,000 to one child per year and be exempt from any gift taxes.

You can continue to gift up to $1,000,000 during a lifetime and get the exemptions from gift tax.

You can NOT deduct the value of the gift donated unless it was made to a charitable organization.

UrbanDigs Says: A gift is usually considered if the intended purchaser (that is the buyer who expects to be on the title or the stock) does not have the required assets to make the downpayment and closing costs, and still have some monies leftover to pass a board. In the case of a co-op transaction, the gift SHOULD be completed a good 2-3 months before preparation of the board package. Quite simply, you do NOT want that deposit to show up on the hard copies of the financial statements used to backup the listed assets of the buyer. If the deposit is shown, it could raise a red flag in the eyes of the board members. In my experience, I have always advised my client to provide a gift letter only if the deposit is shown on the financial statement provided used to backup a listed asset. So far I have not had any problems. For my clients that got the gift into their accounts early, I have not had any problems.

Knock on wood!

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Should You Buy? Try This Formula...

A: For all those out there who are trying to figure out whether they are financially capable of buying, try this simple excel spreadsheet that I designed. It was specifically created for those who currently own a home, thinking of selling, and putting the profits into buying a bigger house. So, naturally, it includes formulas to quickly and easily calculate transaction costs on both sides and add it to your financial profile in making the final decision. However, it can work for those who currently rent, are considering buying, and wondering if they are financially capable.

**DOWNLOAD 'SHOULD I BUY' SPREADSHEET HERE**
*you just need to fill in the green boxes; formulas will come up automatically!

It's not the most complex of spreadsheets, but I still think many will find it useful. Off the bat, there are a few assumptions that you should be made aware of:

ASSUMES - 6% Interest Rate (or $600 per $100,000 of loan)
ASSUMES - No points on loan
ASSUMES - 1.5% of Purchase Price closing costs for Co-op Purchase
ASSUMES - 4.325% of Purchase Price closing costs for Existing Condo Purchase
ASSUMES - 5.75% of Purchase Price closing costs for New Dev Condo Purchase
ASSUMES - Doesn't Include Homeowners/PMI Insurance
ASSUMES - A new dev purchase - Simply change the CELL INFO for B27 if you are buying an existing condo (B18) or co-op (B19)!

These are fair assumptions and are necessary to make this excel spreadsheet feasible for me to develop given the time I have to put into it right now. The biggest variable is your lending rate which obviously will vary, so please keep that into account. I also didnt enter PMI or Homeowners insurance which will add bit to the overall cost of the monthly payments; so please take into account. I didn't do either of these items because I don't know how yet to do the math for them!

THIS IS A VERY CONSERVATIVE SPREADSHEET AND SHOULD ONLY BE USED AS A GUIDE TO GIVE YOU A QUICK GLANCE AT YOUR SITUATION

For the SHOULD I BUY formula, I used an IF, AND statement to tell the program to analyze the data entered and look for a debt/income ratio of at least under 33% and 12 months liquid assets in reserves AFTER closing when advising you to BUY THE HOME!

In the real world, this is not set in stone! Obviously, if you have a debt to income ratio of 25% and only 6-8 months of liquid assets after closing, you might still be fine to pass a liberal co-op board; a condo will be fine! So, again, please use this spreadsheet accordingly!

In the future I will work on making this more complex so that you can enter in whether you are buying a condo or co-op (with their restrictions), and allow you to enter in a loan rate & homeowners insurance so that it is more accurate to your unique situation. For now, use as a general guide and email me if you have a specific question on the result that comes up!

ENJOY!

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PH Dreams? Its Yours For Only $18,000,000

A: No one ever said high quality living comes cheap! Check out this new to market Penthouse unit at 135 W 70th street; a 10-ROOM, 5-BR, 5.5-BTH + 2 large terraces asking a wallet emptying $5,455/sft! So, who wants to start a fund to buy this baby?

THE PYTHIAN CONDO (135 West 70th Street)

One of the city's most fabulous buildings, the Pythian is richly decorated in brightly colored, glazed terracotta embellishments depicting figures of antiquity.

It was designed by Thomas W. Lamb, one of the country's foremost designers of movie palaces, most of which, sadly, have been destroyed. One of his other works in New York is the Audubon Theater and Ballroom building on Broadway and 165th Street.

"Hollywood may have had its Grauman's Chinese, but New York has its Pythian Temple! Hidden on an anonymous side street, this opium-smoker's dream is best seen from across the street- or better still from someone's upper floor-apartment to the south," wrote Elliot Wilensky and Norval White in the excellent book, "The A.I.A. Guide to New York City, Third Edition," (Harcourt Brace Jovanovich, 1988).

First Came on Market: 3/19/2007
Asking Price: $18,000,000
maintenance: $3,354
RE Taxes: $3,628
Size: Interior Aprx 3,300 SFT + 2 Large Terraces
PPSF: $5,455
Marketed By: Rina Schafman of BrownHarrisStevens

God I hope there is an Open House so I can check this one out!

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New Dev Sizing: Double Counting

A: Here's something most people do not know. When it comes to the quoted size of a new development condominium property, some developers include the portions of all common areas such as hallways, elevators, lobby's, roofdecks, etc. that are allocated to an individual unit; also known as 'common elements'. So, for anyone who went to new development sales office recently and was shown a floorplan that quoted a unit's size higher than it appeared to be on the layout, now you know why.Originally Published January, 19th 2007

First, a little investigating into what common elements are defined as. Its called Real Property Law 339-i and goes into detail how the condo unit-owner's common elements are calculated.

According to Habitat Magazine article titled, "Condominiums: A Primer To Ownership Interests":

An owner in a condominium has no lease. He/she actually owns a unit. That unit (usually an apartment), like a private house, is measurable. In Manhattan, such a unit is generally contained in a high-rise multiple dwelling. To get to that unit, one must walk through the lobby, ride the elevator, and walk down a hallway. These areas are used in common by other unit-owners to enter and leave their unit (apartment).

Additionally, embedded in the walls and floors of each unit (apartment) are girders, pipes and conduits, which service not only that unit, but also other units within the building. Accordingly, the legislature had to establish various forms of ownership so as to fully account for the ownership of the entire building in which an apartment exists. To solve this problem, they established "units" and "common elements." The units being the apartment in chief and the common elements being those portions of the building generally used by all other unit-owners to enter and leave each apartment, support the building, and bring all necessary services and utilities to a unit.

(a) proportion of floor area of the unit in relation to the floor area of all units

(b) fair market value of the unit in relation to the fair market value of all units

(c) equal allocation for each unit, or for each unit in a particular class

(d) floor space of the unit plus unique factors affecting relative values, such as availability of common elements for exclusive or shared use.

That last one seems relevant here. Let us review once more:

floor space of the unit PLUS unique factors affecting relative values, such as availability of common elements for exclusive or shared use

Noah asks Jonathan: Stuck here trying to write a post about how the total size of a condo unit is quoted by most brokers and new dev sales teams. Wanted to point out that this total size INCLUDES the unit's allocated percentage of the common elements, which is why the apt size itself may seem smaller than the quoted size. Can you please CONFIRM or DISPROVE what I just stated? Is my thinking here correct? I investigated Real Property Law 339-i for this post to back me up.

Jonathan responds: No thats not true. The % of common elements is based on the total square feet of the unit / total square feet of all units in the building. This percentage is then used to allocate expenses. Lately we have been reading about developers who have been taking liberties with including common area in the square feet calculation, (double counting), so it makes the square feet look larger, driving down the ppsf.

Thanks Jonathan for a detailed clarification of this new trend.

UrbanDigs Says: The total square feet quoted on some new development condominium property listings includes the total common elements allocated to the unit-owner. Be sure to ask the sales team if the new development you are thinking of buying into has included the allocated common elements into the unit you are considering. Your attorney could explain this in more detail especially when the offering plan is reviewed before you sign any contract of sale! Its all about being educated!

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Determining How Much To Put Down

A: It's a question that comes down to a few factors most important of which is your comfort zone and opportunity cost. How much money do you need in liquid assets AFTER closing to be comfortable given your current financial situation and lifestyle. Only you know how much money is coming in and being spent. But one thing I can tell you is that putting more money down at closing, if possible, is a good thing if your money is in cash earning very low interest!

While there is nothing wrong with putting down the bare minimum of 10% for a condo and 20% or so for a co-op, many buyers come to me with their full financial picture asking how much money they should put down past the minimum requirements.

First off, you need to crunch your own financial numbers and ask yourself a few questions regarding the property you are thinking of purchasing. Start with these questions:

1. How Much Will This Property Cost Monthly - A must! Do you even know what the property you are considering buying is going to cost you per month before tax benefits? Call your mortgage lender and get a rate quote based on your credit score and other factors and then go visit bankrate.com's mortgage calculator and plug in the numbers! Then add in the monthly maintenance and real estate tax payments (only maint. for co-ops as your taxes are included in this payment) to get your TOTAL COST OF OWNERSHIP!

2. How Much Are You Bringing In - Your debt/income ratio is a number that many co-ops look into to make sure that your total costs of home ownership do not exceed a certain portion of your take home income. Generally, you want to keep your total costs of living under 30% of your take home monthly income.

For example, if you take home $6,000/Month and the property you want to buy will cost you $2,000/Month, than your debt to income ratio is 33% (2000/6000 = 0.333333). This means that 1/3 of your gross monthly income is being put towards your living costs. You will also need to add in your minimum debt payments to this calculation; especially if you have high credit card debt or student loans (which is good debt and not looked upon as negatively as credit card debt in the eyes of board members).

What you are taking home in salary on a monthly basis largely determines how much of your assets you could put into your home. If you are making 10x your total cost of living payments, than obviously you could put down a lot more money at closing towards equity in the property as you would require less security in liquid assets afterwards due to your higher salary!

3. How Much Liquid Assets Do You Have - The biggie! You don't want to stretch yourself too thin but this post is for those in the opposite position and with suitable assets. To buy a new home you will have to pay transaction fees in addition to your down payment; nothing comes for free! If you are buying a condo than your closing costs will be significantly higher than if you are buying a co-op; so you must plan accordingly ahead of time.

First, determine what the TOTAL amount of liquid assets you have. This includes all asset classes that are easily convertible to cash. For sake of this discussion, lets call your assets 'A'.

TOTAL LIQUID ASSETS = A

Quick Tip: 401K other pension accounts do not count unless you have full access to this money w/out penalty. Real estate equity is also considered illiquid until you cash out, however you can pull out equity via a HELOC to cash into your checking account for another property purchase. If you are doing this be sure to take care of it before you buy the new home and already deposited the monies into your liquid accounts.

Now that you know your total assets, you must determine how much the minimum down payment + closing costs will eat up at closing; you do this so you know what you have leftover and how much of that you should put towards equity. The best thing to do is to contact your real estate attorney for a breakdown of closing costs for your specific property in question. Lets call your total closing costs estimate 'X'.

DOWN PAYMENT + CLOSING COSTS = X

4. What's Left - Do some math! Take your total liquid assets and subtract the down payment and closing costs to see what is leftover!

A - X = ?

For Co-ops: You will need to show 1-2 years of liquid assets AFTER closing to the board for review and approval. This is generally a bare minimum. Some co-ops request higher amounts. You can find out exactly what you need to pass a board by asking the listing broker of the property; specifically you should ask..."how much salary and liquid assets after closing does this board look for in prospective buyers?"

For Condos: You will need to show a few months at least of total monthly payments in liquid assets after closing for the listing broker to pre-approve you. Yes, its a condo and there is a right of first refusal process, but that does not mean you can put all your liquid assets into the down payment + closing costs! You still need to show something afterwards, although not as much as a co-op would demand.

COMFORT LEVEL & ROI

Still reading? Good!

Now that you know how much money you will have leftover after closing there are two main items you need to look into. First is your comfort level. Based on what your take home pay is, your expected total cost of living & other debts, and closing costs how much money do you need in your accounts after all is set and done to feel safe?

If your salary is just making it to cover your living costs, I would certainly want to have at least 8-10 months of living costs in liquid assets. If you have more than that, I would strongly consider putting more money down at closing so that your monthly living costs are lower, bringing your debt/income ratio down as well! This will make your daily life more comfortable knowing that your salary is more comfortably covering your living costs.

If your salary is easily covering your living costs and your debt/income ratio is below 30%, than you need to see how much your liquid assets is returning back to you via investments? If your money is in stocks or short term CD's, than you are probably used to a 5-8% return on your investment with stocks being the higher end. However, if your money is sitting in a checking account earning 1%, than you would be much better off putting MORE money down at closing and taking out a smaller loan!

The key here is understanding that you are paying interest on the loan amount you take out. So, if your investments are earning that interest or more for you, than it would be better to leave them as investments and utilize the tax benefits on the interest payments of the loan. However, if your money is earning little or no interest, than you would be better off putting more money into your down payment and taking out a smaller loan!

UrbanDigs Says:

PUTTING MORE MONEY DOWN WILL LOWER YOUR MONTHLY PAYMENTS AND AMOUNT OF TAX DEDUCTIBLE INTEREST YOU END UP PAYING. YOU CAN ALWAYS TAP INTO THIS ADDED EQUITY AT A LATER TIME BUT YOU MUST CONSIDER THE OPPORTUNITY COST OF PUTTING MORE MONEY INTO REAL ESTATE EQUITY AS OPPOSED TO WHAT IT OTHERWISE WOULD BE DOING FOR YOUR PORTFOLIO

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No Finance Contingency Comeback?

A: Say it ain't so! In a clear sign that the Manhattan real estate market is in full frenzy mode, I just experienced my first deal where the seller is requesting a removal of the 'finance contingency' that is part of the contract of sale. This type of tactic was very common in the months of JAN-APRIL of 2005 when bidding wars were everywhere and a good product was very difficult to find. While I won't go out and say that today's market is exactly like it was 2 years ago, it is active enough that one seller is risking a deal by asking for a No Finance Contingency contract.

First let me just define a few things here for you:

No Finance Contingency Contract of Sale: Every contract of sale includes a financing contingency that simply means the deal is contingent on the buyer obtaining financing at the appraised purchase price. Should the buyer not be able to obtain a loan commitment, then the deal falls apart as stated in the contract of sale and the deposit is returned to the buyer. When a seller asks for a NO FINANCE CONTINGENCY deal, in essence they are requesting to REMOVE the financing contingency from the contract of sale putting pressure on the buyer to obtain a loan to close the deal. Should the buyer in this case not be able to obtain a loan commitment, than the buyer must come up with the cash to proceed with the closing or risk losing some/all of their deposit.

I wrote about this on March 1st, 2006 in a post titled, "No Finance Contingency Explained". In the comment thread was a response by NYC real estate attorney Peter Graubard, who I recommend often to my clients. It stated:

When a buyer agrees that there will be no financing contingency, the financing contingency clause that is already in most contracts is simply omitted.

All mortgage commitments have conditions attached to them that need to be satisfied prior to closing. The conditions range from an appraisal of the apartment, to the approval by the bank of the co-op or condominium, to something that needs explanation by the borrower. Also, if a mortgage commitment letter is issued by the bank, but the borrower's financial condition takes a turn for the worse after the commitment is issued, but before closing, the bank may withdraw the commitment (i.e. if the borrower lost his/her job prior to closing). In this event, a buyer who has signed a non-contingent contract is in jeopardy of not being able to close and losing his/her contract deposit.

First off, you should ask your lender to investigate the property/building in question. According to Wells Fargo Private Mortgage Banker Michael McGivney:

"I like to remove the risk for the buyer at the very beginning by providing a loan commitment rather than a pre-approval before any contract is signed. That way the buyer knows ahead of time what their risks are and can take comfort in proceeding with a No Finance Contingency deal."

1. Land-lease Building - Building lease must be reviewed and updated by lender
2. Property Valuation - Appraisal must come in at asking price. If it comes in below, the lender will only commit to a loan at the appraised price leaving the buyer to make up the difference at closing
3. Owner/Occupancy Rate - Lenders like to see a building with an owner/occupancy rate above 70% or so. Once you get below 60%, some lenders might not be able to produce a loan commitment for the buyer as the risk of default in the building due to a larger # of investors is higher. Read my post on Owner/Occupancy Rate Explained.

Here is my advice for the prospective buyer in the deal:

Buyer is Confident in Obtaining A Loan: Getting a loan today is still very easy as tighter lending standards for the most part have not hit many of the major lending institutions. So, it really boils down to your own financial situation. Assuming you pass the credit, income, and assets part of a lenders review, ask your mortgage broker to review the building in question. If possible, try to get a commitment rather than a pre-approval letter from your lender. Being upfront with your lender is very important in this situation. Tell them everything about you, the no finance contingency deal, and the building in question.

Buyer is NOT Confident in Obtaining A Loan: If you have bad credit, a non stable or low paying job, and little assets than you should be concerned about this type of a deal. If anything, discuss the situation with your lender and reconsider the seller's request for omitting the finance contingency in the contract of sale. Everything is negotiable, especially this, and in the face of losing a deal I don't see how a seller can rationalize passing up a market valued offer simply because they want a NO FINANCE CONTINGENCY deal. Remember, it's a strategy that sellers can get away with in a sellers' market where if they pass on the deal, they will have no problem finding a similar buyer.

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Blogging For Transparency: NYC Heats Up

A: Many of my colleagues just couldn't understand my passion for blogging and taking 2 steps back in my own business to put the time into what I consider making Manhattan real estate more transparent! That is why I do it; to bring to you street level information on what is going on right now in New York City real estate. Is it a buyers market, a sellers market, who has control, etc..Hopefully, I've gained a level of trust with my readers after 20 months of doing this and the thousands of hours I put into my content to try to educate you on investing in this marketplace. But if didn't, perhaps the NY Times Page one article from 2 days ago will help.

Thanks to Jonathan Miller for pointing this one out as I actually missed the article.

HOUSING MARKET HEATS UP AGAIN IN NEW YORK CITY

Since the new year began, a burst of activity has broken out in Manhattan and several Brooklyn neighborhoods as New Yorkers frenetically hunt for co-ops, condominiums and town houses, sending prices higher despite sluggish sales in many other cities.

Preliminary indications from real estate firms showed that this increased activity, with open houses jammed and bidding wars taking place, has occurred in all price ranges -- from tiny studios in the East Village to red-brick mansions on the Upper East Side -- in counterpoint to the heavily weighted record sales of luxury properties that led the market in the late summer and fall.

For those of you who read UrbanDigs daily you would have known this street level observation since January 10th, and hopefully heeded my advice:

January 10th, 2007 - Market Report: Buyers Out in Full Force

AS A BUYER - Don't try to low-ball or wait out a housing downturn if you plan on signing a contract in the next 1-3 months! If you do, you will NOT get the response you hope for as the seller's broker most definitely is reporting the rise in activity to their client. If you choose to wait until March or so you may not find the inventory as attractive as it is today. If all this buyer activity results in what I expect it to, you will later on see sales volume come in very strong during the months of January & February, removing a lot of unsold inventory that has built up over the past few months.

AS A SELLER - No one can tell you when to sell your home. That is your call. But, if you have been planning on selling your home in the next 3-6 months, it might be worthwhile to get it ACTIVE NOW and get in on some of this action! You may even be able to price slightly higher than you were original thinking to test out the market, as it is times like these (that is, a surge in buyer demand) where sellers get their price or more a good percentage of the time. Don't overprice tremendously unless you have a huge terrace, incredible views, or an unbelievable renovation (although the first two are the best reasons for pricing higher as I'm not convinced buyers will pay top dollar for a very high end renovation job).

February 12th, 2007 - Market Update: Very Active Buyer Pool

February 16th, 2007 - NYC Housing Defies Odds

Even Peter Comitini reported on this surge in activity in early January as well!

January 9th, 2007 - Open House Attendance Soars

But the most useful report was the first one from January, 10th! It's now 6 weeks later and if you didn't take that advice, especially if you were a buyer with a time pressure, you are kicking yourself with the strong competition and lack of inventory to choose from right now. Hopefully, you aren't in that situation though.

UrbanDigs Says: I hope I don't need to prove myself anymore to my readers! I'm an honest, ethical, and passionate blogger who just gets a high out of innovative ways to make real estate more transparent and to discuss tips to best profit from it! The internet is a great thing and for those seeking to profit on New York City real estate, the blogosphere offers you real time opinions and observations about the market that you are considering investing in. Times are changing and you should change with them! In the end, a more transparent real estate market will only help you make more educated and timely decisions! Blog on!!

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NY State: A 'Buyer Beware' State

A: I decided to write this post after reading an article in January's Real Deal magazine. The article was titled, "Designated buyers' agents remain rare" (scroll down), and discussed the disconnect between buyers and agents at their first substantial meeting as to the relationship/role that the agent will ultimately play as buyer broker. While much debate has arisen as to who the buyer broker really works for, in my eyes its clear, THE BUYER!

I wrote about how I view the role of the buyer broker a while ago in the post titled, "Using A Buyer Broker". I discussed why I think every buyer of New York City real estate, especially first time buyers, should use a buyer broker as their guide. Mainly, the broker should act as a devils advocate at showings and ensure that the buyer puts their money towards the permament property features, evaluate the property compared to the target market, devise a bidding strategy, and work to get the property for the lowest price possible. Here is a clip from that post:

My Definition of a NYC Buyer Broker: A broker who represents the buyer and has a fiduciary responsibility to the buyer in finding a property that meets their needs on all levels (price, location, size, condition, style, and living quality). A buyer broker should look to find the best value for their client and negotiate on their behalf during the bidding process to get the lowest possible purchase price from the seller.

The article in The Real Deal discusses this and brings up a very good point about New York State and buying real estate here. That is:

NEW YORK STATE IS A BUYER BEWARE STATE

Of particular note is how the agent representing the seller under-reported the real estate taxes on a property by 50%, leading the buyer to legal action!

"He sued the real estate company and the agent and lost, under the rationale that this is a buyer beware state,"...

UrbanDigs Says: The seller broker was hired by the seller to market the property and get the highest and best price possible! You should understand this and act accordingly. There is nothing illegal about the seller broker representing both clients in the transaction, and in fact, is something that is hoped for by the seller agent as their commission is larger. As a buyer, I just feel you should have unbiased representation by an expert in the field of NYC real estate who knows the product, the process, and how to evaluate a property. There are no fees to use a buyer broker and therefore, no reason not to use one unless you have that independant urge to do everything yourself and learn from your own mistakes! I admire that philosophy greatly, as I would describe myself in that way, but when it comes to plunking down hundreds of thousands of dollars in a housing market that is much different than years ago, you should work with a broker you feel comfortable with to make sure your money is going to a solid, best of breed product! A good buyer broker will make sure that happens!

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Floors & EasyClosets.com

A: Do some research and ask around for a few reputable contractors to give you a quote for sanding, staining, and poly'ing the hardwood floors. It will probably be about $2.50/Sq. Ft. for a good company which will prove to be well worth it. Then, go to www.easyclosets.com and follow the on-screen Closet Design Wizard to create your new closets based on your own needs.

First lets discuss the floors. The impression a potential buyer has on a property when they FIRST open that door is critical. Based on my own experience I would tell you that within the first 30 seconds my clients know whether or not this is the apartment they will ultimately place a bid on. Having said that...

Having a good floor that shines back out at you and just looks fantastic will almost certainly gaurantee you a 'admirable' first impression as buyers come in.

Floors is another renovation that varies with each apartment but generally speaking I would look to put about $3/sq. ft. aside for floor refinishing. After a quick search on Google I found these:

SpotLessFloors
Masterpeice Floors
NY Hardwood Floors

Now on to the closets. Most apartments in NYC dont have incredible closet space and most dont have them furnished either. For a very little money and about 30 minutes of labor you can really maximize and enhance your closets with www.easyclosets.com.

Using the Closet Design Wizard on the link above you first select the shape of the closets that you will be renovating. Then enter in the actual dimensions and you will be sent on to the design wizard. Its actually pretty cool after a good 5 minutes or so of figuring the thing out. For me, I tried to keep my budget at $450 a closet so I can get both of mine done for under $1,000. Here's how 1 turned out:

One very important note I can offer you is to be sure to use the togglebolts (which are the v-shaped bolts that are pushed through your drywall to add stability to the support bar) as you follow the install instructions or else the support bar may not be able to withstand the weight of the closet, and it will fall to its impending death. FYI: Below is an image of a toggle bolt and its screw on the left and exactly how this bolt is used on the drywall to the right.

If you are a seller with limited funds or a buyer/owner looking to enhance your new property, then this broker advises you to invest in refinsihing your hardwood floors and furnishing your closets!

Originally Published 01/03/2006

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184 Thompson - Condos for NYU Kids?

Recently, I just can't seem to get enough of 184 Thompson Street, a new condo conversion on Thompson and Bleecker. There are approximately 140 apartments in the building and 15 will remain rent stabilized. The sales office opened about 7 weeks ago and sales seem to be going strong despite the media screaming about the "condo glut." The apartments are priced competitively, at around $1,000 a sq ft, so they are sure to go quickly. Because the building was once two separate buildings, there are so many different layouts that you will never feel like you have a "cookie-cutter" apartment.
184 Thompson is a unique product because it is one of the very rare places in the Village where you can buy a condo for $455K. There is simply nowhere else in the Village where you can buy a one bedroom condo with a huge terrace for $820K!

People who hate students should steer clear, however. This building is destined to be the darling of parents who want to purchase an apartment for their undergrad or graduate student kids. The Developer's Group did a perfect job sussing out the demographic for this project. They renovated the kitchens and bathrooms and that's about it. Even some closet doors have been painted when they probably should have been replaced. Although the kitchens are modern and feature stainless steel appliances and granite countertops, the Developers Group wisely skipped the Waterworks and went for Avanti. In the upstairs bedrooms of the duplexes, you'll find carpeting but no hardwood floors beneath it. Sales and Marketing perfection! After all, who would pay ultra-luxury prices to live a few doors down from Senor Swanky's?! No one.

Most of the apartments are studios (most with balconies) for $455K and up. Some apartments are studios with a mezzanine area perfect for a bed. The only problem is that anyone taller than 5'9 can't fully stand up in the loft area. There are also one bedroom duplexes with steep stairs leading to the bedroom, so grandma ain't visiting anytime soon. The one and two bedrooms with terraces are superb for people who like to entertain, especially because the 6th floor apartments clear most of the neighboring buildings and have lovely views.

184 Thompson will have a doorman and a few washer/dryers on every floor, but no storage, bike storage, or other amenities to speak of. That's ok, because it keeps the common charges low.
Although I poke fun at the building a little bit, I love it. Too many snobby co-op boards with "no students, no pied-a-terres, and no parents buying for children" policies have cropped up in this great neighborhood. 184 Thompson provides buyers an opportunity to live in an area which had almost priced out the young people who keep the neighborhood fresh and happening in the first place!

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The Art of the Offer: How To Submit A Bid

All too often I receive offers from brokers and buyers that tell me nothing more than the amount of money they are willing to pay for the apartment. This is not a problem if you are willing to pay whatever is necessary to close the deal but the reality is that money is only a portion of the negotiation, especially with coops that require board approval. After all, my job is not only to get the highest offer possible but to also get the most qualified offer possible! Presenting my seller with an unqualified/not serious bid is simply a waste of their time and energy.

My Advice: Put all your cards on the table without disclosing how high you are willing to go to get a deal done. Here are a few ideas:

1. Always put the initial offer in writing: Type it up if possible to make it appear more credible.

2. Paint a solid financial picture of yourself: List your company name, job position, time with firm, salary & bonus.

3. Include how much down you are willing to pay: Back this up with a Pre-Approval letter from your mortgage lender.

4. When can you sign a contract: Include the amount of time you will need in order to produce an executed contract and usual 10% deposit (I would suggest hours not days; i.e. 72-96 hours).

5. Include when you can close: Sellers love a quick closing date (i.e. 30-45 days from contract signing).

6. Explain your offer with facts: Recent comparable sales, renovations, views/sunlight, location, etc.. Let them know that 'you know' whats going on in the building and surrounding neighborhood!

7. Let them know you are serious: Go ahead and state that you are 'ready to go' and that a timely response would be appreciated.

If the broker or seller asks you for more information after reviewing your offer, which obviously means that they are willing to work with you, give them what they ask for and present that in the best possible light.

Stay firm; don't be afraid to be patient and best of luck!!

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A Condop? Whats that? Is it For Me?

A: A Condop is the marketing term given to a Co-op that has rules and by-laws similar to that of a Condiminium. The freedom to sublet, put only 10% down at closing, and easy board approval are characteristics of a Condo that have been adopted by a Co-op. The subsequent term to define this type of entity has been "A Condop". Closing costs will be similar to that of a Co-op (significantly lower than Condo's) and you will be buying shares in a corporation rather than real property. *Although you are technically buying a Co-op (shares of stock), I will refer to a Condop as a Condop throughout this post.

Buying a Condop definitely has its advantages if you are lucky enough to find one in the neighborhood and price range that you require.

Financial: The closing costs will be much lower than if you were buying a Condo. Transaction fees usually end up being a lot more than most think at closing, and if your buying a Condo they could be twice as much as if you bought a Co-op. Talk to your real estate attorney before signing the contract to get a estimate of your closing costs.

Freedoms: Just like a Condo, a Condop allows you to sublet your property without restrictive policies; such as, 'Must Live-in 2YRS & then can Rent out for 2YRS' which happens to be a frequently occuring policy in Co-op's. Other freedoms condop's generally offer are no pied-a-terre policy, use of co-signer or guarantor, and parents buying for their kids.

Board Approval: Condop's usually take on the NO BOARD APPROVAL or EASY BOARD APPROVAL policy of only looking into a buyer's credit and criminal history when reviewing for approval. On the other hand, a Co-op Board process is very tough with customized financial and personal policies lowering the pool of potential buyers that the property can be marketed to.

Required Down Payment: Most Condop's take on the 90% financing allowed policy that is so common in Condominium's. Allowing a buyer to finance up to 90% of the purchase price is a big selling point of Condo's and opens up a larger audience of buyers that can possibly purchase the unit. Co-ops that require more than the traditional 20% down are restricting the group of people that can potentially purchase a unit (which is usally exactly what the board wants).

Median Valuation: Condop's are normally valued in between a Co-op and a Condo. If I were to describe how the same apartment would be valued, under each of these property tyes, it would look something like this:

500K --------> 550K ---------> 600K
Co-op --------> Condop ------> Condominium

Put all these characteristics together and you get a property type that will be very attractive to a first time buyer with limited funds, who needs to finance 90% of their planned purchase. With loans going out to anyone with a credit score over 500, the fact that there is NO BOARD APPROVAL is the next vital ingredient for the potential homebuyer who normally wouldn't have enough liquid assets after closing to appease the co-op board. Add in a valuation lower than a pure Condominium but higher than a pure Co-op, and you can see why Condop's have their own niche market.

Some Condop's To Note:

520 West 23rd Street

310 East 46th Street

333 East 46th Street

240 East 76th Street

300 East 85th Street

Building Data Courtesy of Streeteasy.com.

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Market Trends: Flippers becoming Landlords

BACK IN TIME: It's springtime 2004, the anxious buyer is gleaming across the closing table at the seller with the cheekiest of grins. The seller is staring at their watch with only one concern...how fast can I get out of here and away from this self rightous a**hole. The buyer's broker is seated in the corner, anxiously awaiting the closing to end not only because he is getting paid or has somewhere else to be, but because he will leave the closing with a check in hand and a brand new exclusive listing to put back on the market. Long story short: In the 3 months between the accepted offer and the closing, this property has increased in value by nearly 40%!!

Don't hate the buyer for having foresight and certainly don't hate the broker for finding and negotiating a great deal. All is fair in love and NYC real estate!!

PRESENT DAY: It's Springtime 2006, both the buyer and seller at the closing are taking advantage of the 1031 property tax exchange. The vibe is cordial. The seller who held on to the property less than a year did not receive a great return but is very happy to have recieved a return at all. The purchaser is aware that this is a much longer term investment strategy and it could take a few years to build up enough equity to make a nice profit. Because of this he must make a downpayment of at least 50% of the purchase price (50% financing) in order to break even every month on his rental investment. The brokers in the room are quiet, perhaps a bit humbled and tired to say the least. The listing broker has spent considerable time and money marketing the property and the selling broker has spent much time and energy showing apartments and educating his buyer. The property has already been rented for a record setting rent. The new tenant will move in after the closing.

This is a glance at what is happening today in the Condo market. There is still not an abundance of resale inventory on the market but properties are sitting on the market for much longer. The savvy seller now has 2 options:

1. Keep the property on the market for sale but pay close attention to the amount of showings and buyer reaction. Demand maximum exposure and advertising from your broker and most importantly, remain patient, realistic and negotiable.
2. Rent the property. The rental market is facing a massive shortage of inventory (.067% in April) and now with the prime rental season ahead this is a landlords dream.

Refer to the May 15th article in the Daily News titled Rental Crush for a more detailed analysis of the current rental market in NYC.

At the end of the day sellers should not be discouraged. There is still not alot of good inventory available and interest rates are still historically low (if you don't believe me ask anyone the purchased a home in the 80's). For aggressively priced properties, the open houses are very busy and brokers will agree that there are still plenty of people buying NYC real estate.

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High Monthlys? Find The Discount...!

A: A MUST READ FOR ANY BUYER OF NYC REAL ESTATE! For the first 10 months of hosting UrbanDigs I have brainstormed and researched all the search logs and key phrases that users type in to end up at my blog in an effort to answer the questions that users really have. I have always did my best to think outside of the box and report what I honestly feel about the NYC housing market, even if it seemed anti-business to my colleagues. One of the items I have been stressing for some time now is to go out of your way to find the apartment with the 'low monthly expenses'. I'm beginning to think this strategy needs adjustment.

Monthly Expenses: maintenance Costs + Real Estate Property Taxes

Most buyers will learn that as they browse the available inventory of apartments that are in their price range, some have high monthlys and some have low monthlys. Generally speaking, the higher the monthly costs are for an apartment the less affordable the apartment becomes and the asking price will come down to compensate!

Some apartments w/ higher monthlys stay on the market so long that the seller must lower their price very aggressively to attract a buyer willing to bite. Perhaps this will become a more wise investment strategy? My thinking is this:

AS LENDING RATES RISE AND BORROWING BECOMES MORE EXPENSIVE, WOULDN'T IT BE CHEAPER TO CONSIDER A PROPERTY WITH HIGHER MONTHLYS WHOSE ASKING PRICE WAS DRASTICALLY REDUCED TO COMPENSATE?

So, we're looking at about a $300 increase using today's rate due to interest rate hikes from a year ago. While that probably doesn't seem like much I could have gone back to say March 2004 when 30YR fixed was at 5.2% or so and your monthly payment would be around $2,745.55/Month; some $460 lower than today's payment. Looking forward 6 months from now a buyer could easily expect to pay $3,325/month for the same loan.

Bottom Line: Money is getting more expensive to borrow!

What Do We Know? We know that the fed rate hikes take time to funnel down the economic system which would mean that lending rates probably will trickle higher over the next 6-8 months or so. We also know that the fed will probably raise rates today 1/4 point, and might even raise rates again in June by another 1/4 point. So, we can add on another few months to that trickle theory I just mentioned which would lead me to believe that lending rates will slowly creep higher over the next year or so.

Now lets take this train of thought and relate it to the real world of NYC real estate. Lets take 2 fictional identical apartments that are in neighboring buildings w/ the same level of amenities and service, whose units sell for exactly the same price per square foot. Lets also assume that every aspect of these 2 apartments are the same except for the monthly costs.

Apartment A - Low Monthlys
Size: 700 sft
Type: Condo
maintenance: $500/Month
RE Taxes: $350/Month
Total Monthlys: $850/Month
Asking Price: $625,000

Apartment B - Higher Monthlys
Size: 700 sft
Type: Condo
maintenance: $700/Month
RE Taxes: $450/Month
Total Monthlys: $1,150/Month
Asking Price: $525,000

WHICH SEEMS THE BETTER BUY? LETS DO THE ANALYSIS ASSUMING FULL ASK OFFER, 10% DOWN, AND 30YR FIXED AT 6.675%:

Apartment A - Low Monthlys
Monthly Mortgage = $3,622.23
Total Monthly's = $850
Total Monthly Payment For Buyer = $4,472.23

Apartment B - Higher Monthlys
Monthly Mortgage = $3,042.67
Total Monthly's = $1,150
Total Monthly Payment For Buyer = $4,192.67

CONCLUSION: The apartment that first appeared better because of the lower monthly expenses actually will turn out to be more expensive since you are borrowing more money to purchase that apartment at a time when money is expensive to borrow. Turns out, the apartment with the higher monthly expenses is being discounted to the point that it makes it the better value and saves you about $280/Month when all is set and done. Buyers are scared of high monthlys which causes the seller to endure longer time on market and slow open house activity; you never know how aggressive they will get with pricing to spur activity!

While this is just a simple analysis, you can do the same calculations based on properties you see. If you find a property whose monthly charges are having a negative affect on the asking price, then take some time to do the math and see whether or not the lower price turns out be a money saver for you in the end! As always, have your attorney review all building documents BEFORE you sign the contract of sale to be sure that the higher maintenance costs of the building are not a sign of worse underlying problems; i.e. low reserve, poor management, landlease, etc..

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How To Retain The Most Re-Sale Value

A: If I were to rate in order the most important features of a property that will help you retain the most money in terms of ultimate re-sale value in a slower housing market, than it would be: 1. View/Sunlight, 2. Location, 3. Size, 4. Monthly's

In a slower market there is always more competition and less buyer demand. Put those together and there are a few MUST HAVE's that buyers will always look for and pay more money for. Lets go into the minds of a couple looking to buy a 1BR apartment in Gramercy with a budget of $550K. What would you look for?

View/Sunlight: If you have great sunlight and clear city views than you are in the perfect position to ask for top dollar value when pricing your property for sale. These days, I find buyers willing to sacrifice location (at least on a small scale) and consider nearby areas to live in as well. For the homeowner that makes the permanent features of your home that much more important; in this case, the VIEW and the NATURAL SUNLIGHT.

Location: I place location a very close 2nd behind view/sun. The only reason I dont rank this as #1 is because of buyers willingness to consider other areas. Simply put, buyers are tired of getting priced out of a market that is driven by prime location. The slowdown in demand is enough to cause some type of slowdown in the high end market (read my post on High End Blues).

Size: Raw Space in a good location with sun and views that is in horrible condition! Ahhh, the dream of so many wise real estate investors! Look for the wreck! Who cares if you don't have the money now to renovate. Suffer and live in a craphole until you can muster of enough money to renovate the kitchen, and then the baths, and then the floors. Size is the standard by which we calculate the purchase price and value. Damn, that is so important Im gonna say it again.

SIZE IS THE STANDARD BY WHICH WE CALCULATE PRICE & VALUE

Your broker should always tell you what the apartment you saw is asking per square foot? $800/Sq. FT? $1,200/Sq. Ft? You must know this. You also must know what the very last comparable (same unit) that sold per square foot? This is the info the appraiser will look into when calculating whether or not the apartment is really worth what the buyer has offered to pay.

Monthly's: Your monthly's are the total charge of the monthly maintenance and the monthly real estate taxes that you pay. If your monthly's are high, than you must lower your asking price to compensate. Vice Versa, except how much higher you set your asking price due to very low monthly's is still limited. In the end, the lower the monthly's are in the building you buy matter!

When you look to buy, think about when you will look to sell. Use view/sun, location, size, and monthly's as the main selling points when making your ultimate decision. These are the deal makers and breakers! Renovations can be done after and at your financial leisure and discretion. Do NOT use renovations as a deal maker if you are looking to buy; rather, try to find the wreck that is asking for less money and then renovate it yourself!

Originally Published 1/19/2006

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Rising Interest Rates & Your Plan

A: When it comes to interest rates and the effect of rising borrowing costs on our daily lives, recent history probably carries much more weight than ancient history. In this post I will try to analyze the psychology behind a 'more expensive' world in the hopes of finding the best way to invest in it.

Ancient History will tell us that borrowing costs are still 'historically low' and that even if 30YR fixed rates climb above 7% we should be just fine. On the other hand, recent history tells us that those who locked in 30YR fixed did a very wise move!

Lets take a fictional property that sold for $520K 3 years ago compared to the same property that is asking $550K today with rates higher (the market slowdown started around June of 2005 so 3 years ago asking prices and lending rates were lower). Lets also assume the fictional buyer puts 20% down:

3 YEARS AGO $520K - $104K Down Payment (30YR Fixed @ 5.10%):

Monthly Mortgage Payment = $2,258.67

TODAY $550 - $110K Down Payment (30YR Fixed @ 6.375%):

Monthly Mortgage Payment = $2,746.47

Hmm...yea...interesting..the monthly payment for today seems kind of expensive compared to 3 years ago. It seems that RECENT HISTORY is more painful financially than something that happened 30 years ago! Heck, I'm only 30 years old why should I care if mortgage rates right now are still historically low? They certainly are a lot higher than they were a few years ago and will only continue to rise slowly over the next 12 months (since fed rate hikes take time to funnel down the economic system). By this time next year I wouldnt be surprised if 30YR fixed interest rates are around 7.25% - 7.5% or so (unless something unexpected happens that would cause the fed to lower rates).

But forget housing for now and lets consider credit card debt. Whether you know it or not all of these fed rate hikes actually do end up having a negative impact on all that debt you piled onto those Capital One cards! According to Sun-Sentinel.com:

Credit card debt is usually the most expensive kind of household debt, which is especially tough for consumers when interest rates are heading up. "Card rates are rising faster than the rise in general interest rates," said Justin McHenry, research director of the Cleveland-based survey firm.

The higher interest rates will add a few dollars to minimum monthly payments. But over time, that can add hundreds of dollars to consumers' debt loads. Interest rate hikes can actually sneak up on consumers. That's because most credit cards in use today carry variable rates, which card companies can change without notifying customers in advance.

If your housing + credit expenses have risen over the past few years than chances are you will be forced to sacrifice the luxuries in life that you may have gotton used to such as dinners out or weekend getaways.

FACT IS: Rising Interest Rates affect more than just housing! Here's how I view it:

BORROWING/LIVING COSTS GET MORE EXPENSIVE --> PEOPLE HAVE LESS MONEY TO SAVE/SPEND ---> PEOPLE TIGHTEN SPENDING ---> CONSUMER DEMAND EASES ---> INFLATION STAYS IN CHECK/CORRECTS

WHEN IT COMES TO INVESTING IN HOUSING: Use the philosophy of 'If you can afford it, than find the deal and buy it". NYC Rents are rising to levels that in my opinion makes buying much more attractive. Plus rental inventory is so tight now (NYC Vacancy Rate at 0.89%!) that people are settling, instead of getting something they truly like. If you have a secure job w/ sufficient salary (see Brady's post on What Co-op Board's Look For), good credit, sufficient liquid assets, and a 3+ YR timeline to live there than BUY NOW! It is still a buyers market and there are deals out there. If you wait to buy for another year or so you will also have to hope that asking prices across Manhattan come down to compensate for higher interest rates (cause there going up!).

REMEMBER: With real estate you are being forced to save by building equity, you are entitled to tax benefits when you file your return and on gains when you sell, and you can live in and upgrade your investment!

If you plan to sell in 2 years or less now may not be the best time to be buying. I'm still flat to down on the NYC housing market for the short term and wouldn't be surprised if it remains that way the next few years. The only reason to buy now with a 2YR timeline to sell is if you find a deal that can't be missed!

IF YOU DON'T HAVE ENOUGH MONEY NOW: Be smart. Sacrifice living style and do what you can to get the lowest rental possible so that you can put the extra money AWAY in a money market account or CD. Interest rates are getting to very attractive levels these days with most 1YR CD's at or above 5.00% (WorldBank has 5-month CD at 5.01%). As much as it pains me to say this, tighten your spending habits and get used to budgeting for the next 1-2 years so that you can instead put away an extra few hundred dollars a month or use it to pay down credit debt quicker.

What you are doing is preparing yourself financially for your future investment of buying NYC real estate. By correcting your credit you will be able to get a better rate and save thousands over the term of the loan. By cutting back spending you are hopefully saving more and building up your liquid assets (Cash, Stocks, Bonds, CD's, Money Markets, etc.). After a few years both your credit score and net worth will be higher and you will be ready to afford a down payment without crippling your cash reserves!

Good Luck!

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2BR Condo's For Under $1M

A: Finding a true 2BR/2BTH Doorman Condo in Manhattan is hard enough on your own. Here is some help. Check out these 4 sub $1M apartments that may be good for your growing family! Priced from lowest to highest.

275 West 96th St; Apt 4F

Size: 1,100 Sq. Ft.
# Beds: 2
# Baths: 2
maintenance: $912 (Below $1/Sq. Ft.!)
Asking: $899K
Price Per Sq. Ft.: $817
Originally Priced: $899K on 3/9/2006
Marketed By: Alan Nickman & Stephen O'Neil of Bellmarc

135 East 54th St; Apt 4E

Size: 1,200 Sq. Ft.
# Beds: 2
# Baths: 2
maintenance: $1,288
Asking: $965K
Price Per Sq. Ft.: $804
Originally Priced: $995K on 10/17/2005
Marketed By: Jeanie Davis of Corcoran

333 East 34th St; Apt 5L

Size: 1,185 Sq. Ft.
# Beds: 2
# Baths: 2
maintenance: $1,304
Asking: $975K
Price Per Sq. Ft.: $823
Originally Priced: $975K on 2/13/2006
Marketed By: Daniela Kunen of Douglas Elliman

236 East 47th St; Apt 26E

Size: 1,127 Sq. Ft.
# Beds: 2
# Baths: 2
maintenance: $2,073 (High Monthly's Affecting Price)
Asking: $990K
Price Per Sq. Ft.: $878
Originally Priced: $990K on 11/15/2005
Marketed By: Inge Tuncay of Halstead

As always, feel free to talk with me every MON - FRI from 10:00AM - 12:00PM right here on UrbanDigs to discuss whether these 2BR's listed might or might not meet your needs!

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Sex Really Does Sell in NYC

A: Thanks for the tip, whoever you are! Did you catch this ad in the NY Times this Sunday? We all know that SEX SELLS in this city, but I didn't think it would become part of a marketing package for an apartment. I bet it worked and probably got the broker more calls than usual.

Man, this place really is X-SEXY! For anyone out there with too much money in their bank accounts than they know what to do with, I highly recommend buying this pad!

252 Seventh Avenue

# Beds: 2
# Baths: 3
Monthly's: $2,011
Financing Allowed: 90%
Asking: I don't know. $3.2M or $2.995M?
Marketed By: Deborah Rieders & Susan Storan of Corcoran

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A Rent-Hike Induced Housing Surge?

A: Why not? A Cooling Housing Market + Rising Rents & Lower Vacancy Rates could put buying back in favor again down the road (not just yet because interest rates still have some room to rise)! Something to think about when crunching the numbers. While I still believe we have some softness in the housing sector ahead of us, I can't help but notice that if rents keep rising like they have been than the disparity between the cost of renting vs. buying will narrow!

The rental market in Manhattan is certainly favoring landlords rather than tennants right now as the vacancy rate continues to drop and rents continue to rise. Add in a 9-Month Old Housing Slowdown and all of a sudden the difference between the cost of owning (w/ tax benefits) vs. the cost of renting becomes much closer. If this trend continues could this lead to a Rent-Hike induced housing boom in New York City?

Its something that can be argued for Manhattan only, as almost all other markets do not have that rare combination of limited supply of housing plus high demand for housing at the same time. It could also be argued that there are many buyers out there who have been 'priced out' of the New York City housing market for the past 2 years, and are now facing rent hikes as they look to renew. The question now presents itself: Do Renters consider buying now that:

1. They Have Saved For A Few Years & Are In Better Financial Shape

2. Are Faced With Higher Renting Costs & Less Rentals To Choose From

3. Have Experienced A Slowing Housing Market & Gained More Control of the Bidding Process

In a recent NY Mag article the focus is on rent hikes at Peter Cooper Village & Stuyvesant Town. According to Jay Heydt of Citi-Habitats:

Driven by all the bursting-bubble talk, buyers are waiting and renting, says Jay M. Heydt, managing director of Citi Habitats' Union Square office. So "as of January 2006, there's a less than one percent vacancy rate for rentals," he says, adding that there's no tighter market than downtown; putting Peter Cooper Village at the improbable center of a boom. If Eric L. wants to stay put, he'll have to pay 25 percent more: $2,800 a month, non-negotiable. Nor is he alone. The tenants-association Website teems with postings from sticker-shocked renters. "At first [I] thought it must be a mistake!" writes one. "Bon voyage, PCV!" huffs another.

Its just such an interesting topic that I do not understand why it is not covered more in the mass media. I guess there is no personal angle on the idea; no angle, no story. Anyway, thats why we blog!

UrbanDigs Says: If NYC housing continues to soften (which I think it will, without crashing) and NYC rentals continue to get more expensive (which I'm not sure what will stop it), it's hard to ignore a situation where it just makes much more sense to BUY rather than RENT! If you have been priced out of the NYC market for the past year, KEEP YOUR EYES OPEN and continue to save your money and get your credit score as close to perfect as possible and put yourself in good financial shape so that you can take advantage of a deal when it presents itself. Trust me, it will!

~ Out with the Old, In with the Newer

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Real Estate Lingo Explained

A: Check out this great post I saw on Matrix today that explains to the general public all the real estate babble that us brokers use to describe apartments in New York City. Be sure to watch the short video clip when the reporter goes out into the streets of NYC to test out what New Yorkers really know about real estate lingo!

In A Nutshell

Some basics

1. frplc, fplc, FP = fireplace
2. gar = garage
3. HDW, HWF, Hdwd = hardwood floors
4. hi ceils = high ceilings
5. MLS = Multiple Listing Service
6. vw, vu, vws, vus = view(s)
7. FDR = formal dining room
8. HVAC = Heating, Ventilation, and Air Conditioning

Is it really worth abbreviating?

1. expansion pot'l = expansion potential
2. grmet kit = gourmet kitchen
3. assum. fin. = assumable financing
4. nr bst schls = near the best schools
5. fab pentrm = fabulous pentroom
6. q pos= quick possession

OMG

1. Wow! = better check this one out.
2. lo dues = low dues
3. FROG = finished room over garage
4. OWC = owner will compromise

Warning!

1. close to or convenient to = a lot closer than you would want
2. compact = tiny
3. mature garden = needs an industrial weeder
4. intimate = claustrophobics
5. TLC = wreck
6. interesting or unique = shag carpeting and a floor plan designed by Dr. Seuss

I can't believe the dog didnt know that WBFP means 'Wood Burning Fireplace'. I mean, if it was my chocolate lab Stella (who never barks!) she would say that this is the thing she sleeps in front of when we go to Uncle Lex's house in Vermont!

~ Real Estate Lingo, Jargon, & Acronyms Are A PITA

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What is a 421a Tax Exemption

A: The 421a Tax Exemption Certificate is a key financial resource used by developers and offered by the city to spur development and keep housing costs reasonable by offering 'temporary relief' in property taxes owed by individual condominium owners or coop shareholders. Although, most new developments in New York City today are either Condo's or Condop's, not Coops (see my post on What is A Condop?). By the way, isn't that the perfect image for this post!

According to the NYC.gov website:

The Cooperative and Condominium Abatement Program provides partial tax relief for condo owners and co-op tenant-shareholders to reduce the disparity in property tax paid between residential Class 2 properties (i.e., condominiums and cooperatives) and Class 1 properties (i.e., one-, two-, and three-family homes), which are assessed at a lower percentage of market value.

Ownership -- Condominium owners and cooperative tenant-shareholders who, as of the applicable taxable status date, may own no more than three dwelling units in any one property. Units held by sponsors or their successors in interest are not eligible.
Other Exemptions -- Properties that already receive a state or local tax exemption or abatement, such as J-51, 421a, or 421b, may not be eligible.

Its important to note that tax abatements/exemptions are applied for by the developer and granted by the city to offer incentives to developers for building and marketing a new property. Usually, a 10-Year Tax Abatement is granted meaning that the actual property taxes that were assessed to the building and its individual units will get relief for the first 10 years of occupancy. The tax relief is the greatest right when the building is ready for occupancy and then increases every 2 years (20% every 2 years) until the 10 years is up, and at which time the property taxes will have hit their maturity.

Lets take a look at a real-life building for an example of the 421a Tax Abatement and the listings for sale in pre-construction:

205 East 59th New Development

Apt. 9B

#Beds - 2
#Baths - 2
Total Size - 1,368 Sq. Ft.
Maint/CC - $1,626
*RE Taxes - $261
Asking: $2,211,000

Apt. 22A

#Beds - 1
#Baths - 1.5
Total Size - 1,122 Sq. Ft.
Maint/CC - $1,344
*RE Taxes - $216
Asking: $1,799,500

In this New Condo Development on 59th Street the 421a Tax Abatement brought the tax payments down to a very low $200+ for these 2 units. If I do the math and add 20% to this starting figure every 2 years for 10 years, I will reach a mature property tax value of about $650 for Apt. 9B and slightly less for Apt. 22A. So in this new development the 421a Tax Abatement is saving unit owners about $400/month or $5,000 a year for their first 2 years of living at 205 East 59th street.

I know its a bit confusing and that it could also be argued that with the temporary lower monthly expenses the developer is boosting the asking price, but in the end its still a luxury new condo with more amenities than most buildings offer; including:

- 24HR Doorman & Concierge
- Private 5th Floor Landscaped Gardent Terrace
- Fitness Center
- Service Pantry for Catered Events
- Outdoor Stretching Studio on Mahogany Deck For Yoga
- A Whimsical Puppy Park

UrbanDigs Says: For investors who bought early in pre-construction at a good price point, it might be wise to sell your unit halfway into the tax abatement. The logic here is that you are selling the property while there is still tax relief in effect and the monthly expenses are lower than they will be in 5 more years; this should help you get a higher asking price assuming the market hasn't experienced any turbulence. Always remember that as monthly expenses rise, the asking price must be reduced to compensate for affordability.

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No Finance Contingency Explained

A: A 'NO FINANCE CONTINGENCY' refers to when the Finance Contingency is OMMITTED from the contract of sale by the seller of an apartment to protect themselves in the event that the buyer can NOT secure a loan prior to closing. Should this occur, the buyer will have to come up with cash to buy the apartment at closing or risk losing their 10% deposit. Read The Comments For Detailed Answer By Real Estate Attorney Peter Graubard.

Its amazing that when I google 'No Finance Contingency' I see a past UrbanDigs post as #1 on the search results and then pretty much garbage thereafter to describe what this really is for homebuyers. Lets try to clear it up right here:

Definition of Contingency: An event that may occur but that is not likely or intended; a possibility. A possibility that must be prepared for; a future emergency.

When the New York City housing market was going crazy a year ago (mainly because of no inventory, tons of demand, and lower mortgage rates), it was clearly a sellers market with packed open houses and multiple bids on properties. I recall an office meeting when our sales manager told us that 7/10 deals were going OVER ASK! That is an incredible statistic. In this type of crazed sellers market, many buyers had to deal with a No-Finance Contingency clause being added to the contract of sale. There was not much you could do about it. If you didn't accept the clause and sign the contract, the seller would just move on to the next bid. Not the case in today's market.

Sellers omit the Finance Contingency from the contract of sale to protect themselves from a deal going sour. Once you have a fully executed contract of sale there is not much that a buyer can do to get out of the deal; except not be able to secure a loan! So, the No-Finance Contingency clause protects against this emergency and states that even if the buyer cannot secure a loan prior to closing, they must either come up with all cash or surrender their 10% deposit. In contracts of sale that do NOT have this clause and a buyer cannot secure a loan, the seller is usually out of luck with the buyer getting out of the deal and their deposit back since the deal was contingent on securing financing!

You can see the appeal of doing this by the seller. But in today's market where the dynamic or power has shifted closer to buyers, seller's should find it very difficult to get a contract signed with this clause in it. Talk to your real estate attorney about this and be sure to find out if your contract of sale has this clause in it before you sign; especially if you have bad credit, are self-employed, or have reported declining income on your tax returns from successive years. These are all items that a bank will look at before committing to your loan!

REMEMBER: After the contract is fully executed the bank will send an appraiser over to appraise the value of the property. Assuming the #'s come in where they need to be, the bank will then process the appraisal and work on getting the buyer a loan committment. This loan committment letter is needed to submit to the condo or co-op board (with the rest of the board package) for final approval. Once you have board approval a closing date could be set up. So, just because you have a signed contract doesn't mean the deal is done; you still have the loan and the board approval to take care of!

~ The Finance Contingency
~ Is Your Earnest Money Protected By The Finance Contingency

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Family Condo Value in UES

A: If you are looking to buy a new family home in New York City and you have the following criteria: Must Be Condo, Must Be Close To Central Park, Must Be Pre-War, Must Be At Least 2,400 Sq. Ft, Must Have At Least 3.5 Baths, Must Have Outdoor Space, Must Have 24HR Doorman; you are probably having trouble finding anything of value under 3M! Not anymore. Check out this 10-Day old listing!

Check out this snapshot of a 3BR/3.5BTH Pre-War Condo on 153 East 87th Street. It is 2,400 Sq. Ft. Duplex (Note: Duplex's always seem smaller than straight units) + 600 Sq. Ft. Private Terrace! Marketed By Katie Rosenberg of Warburg Realty.

UrbanDigs Says: Without having seen this apartment I would think the main reason this property is being discounted is because of the high monthlys. For 2,400 Sq. Ft. you are paying $3,755/Month between maintenance + Taxes. If you read my post on maintenance: The Hidden Devil you would know that the Monthlys divided by the Total Size comes out to a figure of 1.56 (fairly high). Ideally, using this formula you want to find an apartment whose #'s bring in a a figure of 1.0 or under; although that is not always the case. The higher this figure goes the more the asking price MUST be lowered to compensate for affordibility. Graph is Below! That is what this broker is doing and explains the lower asking price. For those with the luxury of a stable high paying job who are in the market for this type of apartment, definitely check this one out!

maintenance EVALUATOR

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Buyers Alert: In-Building Competition Helps

A: One side effect of a cooling housing market is that there will be competition amongst property or equity owners of the same building. Depending on the 'urgency to sell' factor there could be some good buying opportunities here as sellers lower their price to get the most activity in the building.

Its one of a seller's more painful headaches. Here is how it happens:

You spend a month planning your selling strategy and renovating your apartment. You place your ads, you take your pictures, you design your showsheets, and you start the showings. A few weeks later another 1BR in your building comes on the market asking $50K less than you. And all you can think is, "...ARGHH!! Now I have to lower my price".

Here are a few buildings that have some like units for sale at the same time, putting even more control into the hands of the buyers!

245 East 93rd - Astor Terrace Condo

Apt: 22A
# Beds: 1
# Baths: 1.5
Size: 967 Sq. Ft.
Price: $850,000
Marketed By: Rachel Melniker of Corcoran

Apt: 25J
# Beds: 1
# Baths: 1.5
Size: 960 Sq. Ft.
Price: $795,000
Marketed By: Sara Waisman of Elliman

301 East 79th - Continental Towers Condo

Apt: 7P
# Beds: 1
# Baths: 1
Size: 700 Sq. Ft.
Price: $765,000
Marketed By: Nancy Marshak of BrownHarrisStevens

Apt: 19D
# Beds: 1
# Baths: 1
Size: Aprox 700 Sq. Ft.
Price: $700,000
Marketed By: Angela Rapoport of Corcoran

Apt: 19E
# Beds: 1
# Baths: 1
Size: Aprox 700 Sq. Ft.
Price: $725,000
Marketed By: Angela Rapoport of Corcoran

Just a few to give you the idea. The next time you go out viewing apartments and find a building you really like, ask your broker if there are any like units for sale. If so, you may be able to negotiate a better price as the sellers compete with each other!

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To Rent or Not To Rent?

A: Read this post I saw on Matrix today about whether you should write your check to a mortgage lender or a landlord.

Its always a tough question and one that should be answered based upon your OWN financial situation. Lets go over the facts and then the figures of owning your own home first before trying to answer the RENT or BUY question.

FACTS IN OWNING:

1. There are Tax benefits to owning a home.
2. You are building wealth for yourself in real property value (condo) or equity value (co-op).
3. You will have something to sell in hard times.
4. Owning is NOT for you if you plan to move in the near future.

FIGURES IN OWNING:

1. Its expensive to own your own home when the housing market has boomed for the past 4 years; Monthly Payment will include MORTGAGE + maintenance + TAXES!
2. Property taxes may RISE raising your monthly payment.
3. Money is MORE expensive to borrow today than it was over the past few years.
4. There is a 'shrinking' difference between the total cost of owning and the rental price of like apartments in NYC. Owning is still more expensive than renting but when you calculate in the tax savings of owning, the gap is closing.

If stocks have a P/E ratio to evaluate value than housing should have a owning/renting ratio to evaluate owning a home vs. renting.

Lets look at a 1BR in Murray Hill that is about 750 sq. ft..

132 East 35th Street: Listed By Richard Silver of Corcoran

TO OWN: At 25% Down and a interest rate of 5.875%, this apartment will come to about $2,968/Month.

TO RENT: To rent a similar unit in Murray Hill my sources say it would cost about $2500 or so; give or take a few hundred for better location and building. Here is a Craigslist Listing.

My thoughts:

It seems to me that the combination of the slowing housing market combined with rising rents is leading to a better BUYING market when you crunch the numbers and take into account tax benefits. Therefore, the formula for whether you should BUY or RENT falls onto the answer to these 2 questions?

1. Do you have a secure job making enough money to put aside 1/3 your monthly income to housing payments?

2. Do you have enough liquid assets to cover the down payment + closing costs, and still have some money left over to cover 6-8 months of housing payments?

If you answered YES to both of these 2 questions then you should BUY now.

If you answered NO to any one of these questions, then you should RENT now.

~ Build Them & They Will Go Rental

~ $2,495 1BR in Murray Hill on Craigslist

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South Bronx? Barbara Corcoran Says Buy!

A: Real Estate mogul and "Good Morning America" contributor Barbara Corcoran listed the South Bronx as the top place to put your investment dollars in her rankings of 5 'ripe' locations for growth.

I love it! Not only do I have the utmost respect for Barbara Corcoran and what she accomplished decades ago to make her real estate company a household name in Manhattan, but I also think she has one of the best 'noses' for smelling out future growth areas.

According to an ABC News Original Report, Corcoran goes on to say:

South Bronx, N.Y. Average home: $380,000

What makes it great: The South Bronx is the last housing frontier close to New York City. It lost 57 percent of its population in the 1970s; now people are coming back. Public money is flowing in, and developers are really starting to lay their bets. Most importantly, it's attracting creative energy (artists and musicians are moving there) which can really revitalize an area.

What you can learn: Here are three tips from the South Bronx that apply to any depressed area. One, track the number of classified ads selling property each week. They should double every month. Second, assess an area at night. A night life (like clubs and cafes) is a good sign that a neighborhood is on the rise. Third, look for the price of a cup of coffee to rise. Up-and-coming neighborhoods draw expensive coffee sellers.

I especially like how she analyzes the rising price of a cup of coffee as executives at Starbucks and Dunkin Donuts do their homework to decide where to open new branches in high growth neighborhoods.

Of particular note is "...developers are really starting to lay their bets". While I haven't investigated this myself Im willing to bet that Corcoran has analyzed the public records at the attorney general's office that lists filings for building permits by developers. Usually the paperwork process that developers have to go through before being allowed to build takes years. Savvy brokers are hip to neighborhoods where developers have filed for future new buildings, both for their own real estate investing and for their clients. It seems the South Bronx has some nice action in the works that would spur development over the coming years. If you take Corcoran's advice, you'll get in early!

Personally, I think South Bronx still has some time. If you did buy now, it will probably take a good 7-10 years for you to realize appreciation gains that the 'kings of real estate' are used to when getting into a new area. Just dont expect a quick fix. If you want a neighborhood that is a bit more stable as a potential future growth area, look into Harlem.

Some of the historic districts in Harlem, such as Strivers Row and Mount Morris Park, can offer some great values if the seller gets frustrated and can't get rid of a property here. Some of these tree lined streets are beautiful and the area itself is in the midst of a radical transformation. With Columbia University's campus on 116th & Broadway and its medical center on 168th & Broadway, students and faculty are always looking for rental units closeby.

A typical townhouse in Harlem usually goes for between 1.0-1.75M, depending on the size, location and condition. This townhouse, marketed and IN CONTRACT by Douglas Elliman's 'Harlem King' Todd Stevens is a 20-footer and was priced at 1.575M:

155 West 119th Street

A typical 2BR condo in a Townhouse goes for about $600K, such as this one listed by the same broker:

132 West 123rd Street

You must analyze your strategy when deciding where to put your money. If you are sure you are buying real estate and want a medium risk/high reward property, then stick with Corcoran and look into the South Bronx. However, if you want to play it safer and want a lower risk/medium reward property, then look into Harlem!

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How Low Can You Go - High End Blues

A: High End housing in NYC is slowing down with units staying on the market much longer, and if not priced aggressively is putting sellers in the bad position of having to reduce their asking price numerous times. How low can it go? It depends on how desperate the seller is and how soon they need the money!

Its the toughest niche market to sell in when the housing market starts to slowdown as the New York City real estate market has over the past 6-8 months. Those looking to sell their properties on 5th Avenue, Madison Ave or Central Park West are finding it tough to get their original asking prices. I'm hearing that Open Houses are just that, OPEN with not many people showing up. Are buyers scared to put down their millions in NYC real estate if they think the market is slowing down? Seems to be the case. But savvy buyers will be especially vigilant during these times to try to low-ball a high end property that has already reduced their asking price 1,2 or even 3 times.

Look at 1016 Fifth Avenue, a very desireable pre-war co-op building on 5th Ave between 82nd & 83rd streets. Even with Central Park right across the street units in this building are being reduced drastically in an attempt to spur buyer demand.

There are currently 4 high end units listed for sale in this building:

Apt. 5A
On the market since 1/11/2005
Reduced from $8.3M to 7.3M

Reduced $1M

Apt. 5D
On the market since 3/17/2005
Reduced 3 times from 3.55M to 2.995M

Reduced $555K

Apt. 5B
On market since 6/7/2005
Not Reduced Yet - 5.95M

Apt. 14B
On market since 9/24/2005
Not Reduced Yet - 7.8M

Now, this is a first class pre-war building that resides in a prime location in the Upper East Side. The building is literally steps from Central Park & the Metropolitan Museum of Art while the building offers a brand new fitness center, individual basement storage, and a staffed elevator. How low will it go? No one knows for sure but I can tell you that the units that have not been reduced yet are sure to be feeling the pressure from the ones that have reduced their asking prices closer to market value already.

Those in the market to buy a high end 2-4 bedroom apartment with a high priority on proximity to Central Park should keep their eyes on these units for further price cuts. In the end, you might be able to squeeze out a substantial discount for this very high quality product.

High end buyers should use this philosophy for other luxury buildings across Manhattan where the seller is in the uncomfortable position of lowering their asking price until a buyer steps forward!

Its important to note that sellers usually rely on their hired broker to advise them on how much the price should be reduced, and that the concept of price-reducing is NOT an exact science. After months on the market, the seller broker probably just wants to do a deal and might lower the property's price too aggressively to get one done.

Will you be the lucky buyer of a property reduced too much?

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Using A Buyer Broker

A: After reading a Curbed.com reader ask the question of loyalty to her Buyer Broker, I had an urge to write this post explaining the job of a Buyer Broker and how one can help you in your real estate needs. There are NO FEES to use the services of a Buyer Broker as their commission is split with the Seller Broker at closing!

My Definition of a NYC Buyer Broker: A broker who represents the buyer and has a fiduciary responsibility to the buyer in finding a property that meets their needs on all levels (price, location, size, condition, style, and living quality). A buyer broker should look to find the best value for their client and negotiate on their behalf during the bidding process to get the lowest possible purchase price from the seller. In times of bidding wars, the buyer broker should advise their client on how high over ask the buyer should bid without overvaluing the property or putting their client in financial risk.

In addition to these services a Buyer Broker will prepare the client for the real estate transaction in a number of ways:

1. Assist the buyer in finding a Real Estate Lawyer if one is needed to review the property's offering plan, 2-Years building financials, and contract of sale.

2. Assist the buyer in finding a mortgage broker if one is needed. A good buyer broker will ask their client what their strategy is with their investment and advise their client on possible mortgage products that could be used. Ultimately, the mortgage broker is the professional you should rely on for the final product to use.

3. Preparation of the board package. If buying a Co-op, the buyer broker should be especially vigilant to providing everything that is requested by the board and preparing the package in a professional manner. If buying a Condo, this process becomes much less tedious.

4. Co-ordinate visits to the property for contractors as needed and accompany the client on the final walk-through prior to closing to fully inspect the property based on the contract of sale's terms and conditions. All electrical, plumbing, and appliances should be in working order.

Most buyer brokers, also known as Real Estate Salespersons or Agents, are in real estate as their full time profession which does not mean they know what they are doing. It is up to the buyer to determine whether or not their buyer broker is responsible, knowledgeable, and privy to the current housing market prices and developments.

I can tell you that as a broker (aka, Real Estate Salesperson) there is a ton of competition out there and very little loyalty. The more experienced brokers understand the need to 'set themselves apart' by offering their clients exceptional service in the most professional manner possible. My thinking is:

I am going to find you the highest quality apartment that meets your needs for the lowest possible price, and do it in a way that makes this transaction a positive experience for you that you will refer my services to all of your friends and family when they need to satisfy their real estate needs

As a buyer you should be especially vigilant that your buyer broker is really out there to assist you, and is not just trying to make another sale. Is your broker showing you apartments in your price range? Is your broker showing you apartments with low monthly's? Is your broker doing the necessary homework to only show you apartments with S/W exposures? Is your broker going out of their way to accomodate your schedule? Is your broker constantly showing you properties that are away from your desired neighborhood? These are the things you should ask yourself when analyzing your broker.

In the end its not about the deal, its about finding you the best apartment possible and making you happy with your new home and investment!

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