Why Is The Board Taking So Long?

A: Its been a while since I discussed a topic like this. Seems more old school urbandigs from 2006 or so. But as an active member of the Manhattan real estate blogosphere, naturally I find myself on the streeteasy forums in between work projects. So when I see an in-contract buyer seeking advice regarding why a board is taking so long to review a purchase application, I relate. I relate too well. Make no mistake about it, the co-op board purchase application process is a tedious and emotional headache. This is one aspect of the Manhattan transaction process that I would love to see enhanced. I understand the right to properly review a prospective resident, but lets at least respect the other side of the transaction in the meantime! In the end, the board has the right to review, request more information, deliberate, and reject. Just do it within the allotted time that is documented on the package itself - usually within 30 days of receipt of the package - and when possible, earlier.

From Streeteasy's Forum: Board Approval or Rejection

Prospective Buyer:

I am in contract for coop apartment . After every thing is complete from my side I am waiting 6 weeks to hear back from the board. Is this to long ?
Not sure what to do...

Co-op Vice President response:

At best, it takes three full business days from the time you submit your application until board members actually get it in their hands. Generally, I open these packages the very day I receive them. I give the other board members two full business days before emailing about when/where we should discuss this applicant.

If we're less than two weeks away from our monthly board meeting, that's when we'll discuss the application. Otherwise, it's very difficult to coordinate the schedules of seven busy professionals. Sometimes we'll get lucky and be able to have a majority meet informally later that same week. More often than not, however, it's at least another two weeks before we meet in person to discuss your application.

That's providing, of course, your application is complete, and we have no questions. Again, more often than not, the application is poorly-assembled, the numbers don't add up, and we have to go through the channels for clarification: our managing agent, to the broker, back to you. Or the questions might not get back to you -- we may be busy calling your references. Or your employer. Or your bank. Sometimes it takes days or even weeks (especially during summer vacation season) for these people to get back to us.

Trust me, no news is good news. These things take time.

If you are a buyer seriously looking at co-ops to purchase, know in advance that a board package process lies ahead of you. More often than not, the board will be nitpicky and look into everything to make sure information lines up and you meet their guidelines for purchase.

When you submit a bid, it should be in writing and should present yourself in the best light possible. I always advise my clients to make transparent the following information (offer letter + REBNY financial statement) when submitting a written bid:

a) employment situation
b) total combined salary that can be backed up by employment letters / tax returns / pay stubs
c) total liquid assets that can be backed up by hard copy financial statements
d) timeline to close
e) attorney information
f) lender information and mortgage information

Some buyers like to maintain their privacy and not disclose any of this information. Well if that is how you feel about it, maybe a co-op is not right for you because the board package process will certainly request documents to support all of the above mentioned items.

Common mistakes I find buyers often make are:

a) confusing liquid assets and retirement assets
b) overstating liquid & illiquid assets
c) understating existing debts
d) overstating salary and then not being able to back it up with tax returns or employment letter
e) overstating bonus and then not being able to get documentation to support

This becomes a nightmare for the agents involved when a buyer discloses incorrect information with a written bid and then can't back it up later on. At this point the contract is signed, the pre-qualification was done, and everybody expects a smooth transaction. I mean, what are we as brokers supposed to do - ask the buyer for tax returns and bank statements when they submit a bid? That won't happen and a standard REBNY financial statement signed by the buyer is the most common practice. We just assume the information provided is accurate.

Its always very obtrusive when a broker asks you about your financial situation, especially if they just met you. But the reason is they have been down this road before, been burned before, and now are trying to pre-qualify you so as not to waste their time or a listing brokers time if the co-op happens to be on the stricter side. Its a part of this business in this market where 70% of the housing stock is co-op.

Generally speaking co-ops look for 1-2 years of liquid assets AFTER closing and a salary that can support a debt/income ratio of below 25% taking into account all carrying charges of the property and minimum payments on existing debts. This is the least strict of the guidelines and only gets stricter from here. It usually takes 2-5 weeks to get a package completed after contract signing with the loan commitment taking the longest to finish it off. Then you send to management for processing where that can take a few weeks. Once processed, the board receives the package and can take another few weeks. It seems the buyer above included mgmt processing time in the 6-week wait period. Maybe mgmt took 3 weeks and the board only had it for 3 weeks. Add in seasonality and that delay can get worse. The board can either call for a meeting upon receipt of the package OR have the buyer wait for the regularly scheduled meeting whenever that may be. For long delays, the buyer should be very mindful of the expiration date on the loan commitment letter and raise concern with the contact at the management office should you be approaching 14 days to expiry.

My opinion is that the board should be respectful of the existing shareholder that likely wants a timely review of their transaction - this then becomes respectful to the prospective purchaser and agents/attorneys/lenders involved in the deal. But that is not always the case and the fact is the board can take their time (usually up to 30 days of receipt of the package) and either deliberate or request more information before making their final decision. All you can do is provide the best package, the best deal price for the shareholders/future loans/future refinancings with everything requested and then pray to the co-op gods that an approval will be granted. If a rejection is passed down no reason has to be provided - a power the co-ops enjoy greatly. Ultimately, the above buyer got turned down. Unfortunately I know the feeling and just had my 2nd board turndown in as many months - trust me, its emotionally draining!

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So Your Dog Wants to Live in a Co-Op?

(Christine Toes here)

About 15% of Manhattan co-ops don't allow pets. I think by now everyone knows that if you have one dog, two dogs, or (god forbid) three dogs, your chances of finding a Manhattan apartment decreases dramatically. Finding a co-op building that will accept your dog is charted below in order of difficulty:

1. Dobermans, Rottweilers, Pit Bulls, or any other "aggressive breed" dogs - you're pretty much screwed. Maybe 10% of Manhattan co-ops will take you. Tip: Focus on new condo buildings that haven't already established their pet rules yet. Try to get grandfathered in somewhere! If your budget/tastes are more "co-op" in nature, take your dog(s) to the best trainers in Manhattan and make sure they have a very nicely written reference letter from obedience school.

2. More than one "large" dog. Generally this is defined by "over 40 pounds." Tip: look at condos or try to buy when your dog is a puppy. The vast majority of co-op applications ask for the breed and weight of your dog. Hope that no one notices that you listed in the co-op application that it was a 40 lb golden retriever, in which case the board is likely to suspect that your dog is going to one day exceed 40 lbs. I would wager that about 40% of co-ops will not take two or more dogs over 40 lbs. (Some buildings will take one dog over 40 lbs but not two).

3. More than two pets. Some buildings restrict owners to having only one or two pets per apartment. This is one of those situations where having a real estate broker who will call every single listing agent for you to confirm that having more than two pets is ok will save you a LOT of time.

4. Some co-ops don't provide a weight restriction but you have to be able to carry your dogs through the lobby. There are other buildings that only take dogs under 25-35 lbs. Some buildings don't take dogs at all. Some buildings will make you take the service elevator with your dog. Some buildings will want to interview your dog. More on that to follow.

Tip: Do not trust statements like "pet friendly!" in listing descriptions. Sometimes "pet friendly" means the building allows CATS (birds, etc), allows ONE pet, allows SMALL dogs, etc. Your real estate agent will likely need to confirm with every listing that your situation is ok.

The next step once you find an apartment that you love in a building that will take your dog(s) is to find out if the building interviews pets. This is becoming more and more common. All it takes is one yappy dog that won't stop barking when the owner leaves, a dog that "goes" in the hallways, elevator, lobby, Rhodedenrum just outside of the building, or dogs that growl at other dogs, people, or kids, and the board has to start interviewing everyone's dogs.

Interviews, really?
What happens at a doggie interview? I asked other brokers and buyers to share their stories and here is what I found... Someone on the board may bring their own dog to the interview to see how your dog interacts with their dog. A board member may go in and out of the apartment door to see if your dog barks when someone gets off of the elevator or passes by the apartment. They may speak in a really loud tone and clap their hands to see how your dog reacts. One board-member swears that a buyer must have sedated their dog for an interview! The dog was really sweet and quiet at the interview but was a non-stop barker from day one.

What if I'm buying a pied a terre? Do I really have to fly my dogs up for an interview?
Sometimes, yes. It depends on the board. If they waive the interview for you, are they going to have to make exceptions for everyone else? Sometimes these issues are more about whether you are going to be a team player and respect the board's rules. However, if the dogs really aren't going to be there for more than a few weeks a year and they meet the board requirements, some brokers say to not mention them. You can always say you've inherited them or adopted them at a later date. As long as dogs are allowed, your dogs are "regulation" size and breed, and they're well-trained, chances are that no one will care. It's usually only when someone's pets are a problem that it matters.

Getting Your Pooches Approved:
It never hurts to put a reference letter for your dog into the co-op package. Include reference letters from a trainer, dog walker, boarder or neighbor regarding how well behaved Rover is (doesn't bark, is potty trained, loves kids, plays well with others, etc). Have your dog groomed, make sure he or she is well rested, has been fed, and has gone to the potty before the interview and you'll be just fine!

Out of Town Buyers & Getting Dogs to the Interview
Dogs under 20 lbs can usually go on an airplane with their owners. Over that, they have to fly as cargo and dog lovers really don't trust their dogs to the airlines. If they can't always get your luggage where it needs to go safely... Are your dogs going to be safe? If there are dog owners on the co-op board, they should hopefully understand that you don't want to drive your dogs from California or wherever just for a co-op interview. Add a cover letter to the package explaining the situation. Or video tape the dogs interacting with kids and other dogs and include a dvd in the board package. IF the board has no sympathetic dog owners, you might have to get the dogs there for the interview. Perhaps try a service like http://petairways.com/

Best of luck, happy hunting, and woof, woof!

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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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Getting a Divorce? Don't Buy A Co-Op!

I seem to be living in co-op HELL these days. See my post on the nightmare of the proprietary lease renewal here.

My latest adventure was working with a customer who was going through a divorce. I didn't think it was a big deal that he didn't list alimony or child support payments on his financial statement because none had been determined yet. Word to the wise: Going through a divorce? Don't buy a co-op.

Co-ops are generally looking for:

- 20 - 25% down payment (sometimes more, rarely less)
- 18 months at a minimum and most likely 2 years of mortgage and maintenance payments left over in reserve in liquid assets (401Ks and IRAs do not count!) after the down payment (Sutton Place and Park/5th Ave buildings frequently look for much higher reserves - this at least gives you a ballpark requirement for most co-op buildings)
- A 25 - 28% debt to income ratio (if your payments are $3,000/month, you need to gross about $12,000/month)

So if you are going through a divorce where you may be required to pay alimony or child support in the future, a board is going to be very concerned about your future debt to income ratio, even if your current numbers are great.

In this case, my customer had 2 years of payments in reserve, he was putting more than 20% down on the apartment, he had a great job history, a credit score of 770 and had a 26% debt to income ratio.

After submitting the board package, the board's managing agent asked for my customers divorce settlement paperwork. I explained that the divorce wasn't final and no paperwork had been drawn up yet. We ended up having to get a letter from the wife stating that her husband wasn't going to have to pay alimony or child support. I felt terrible for my customer and can not imagine how awkward it must have been for him to ask his wife to do this for him.

But even the letter from the wife wasn't enough for this building. The board then asked my buyer to put a year's worth of maintenance payments ($11,000) into an escrow account for an indefinite period of time. Although the broker rumor mill is that other people in the building have asked for and received their escrow $ back after one year, there is really no absolute guarantee that the building will give it back until my buyer sells his apartment. Different buildings work their escrow agreements differently.

Toes says:

If you are going through a divorce, buy a condo!

If you can't buy a condo, be prepared to furnish any paperwork that has been drawn up, or be prepared to have an attorney or your soon to be ex draft a letter to the board about estimated (or better yet, maximum) alimony or child support payments.

If you are going through a divorce be prepared to offer a year or two of maintenance to be kept in an escrow account to make a co-op board feel comfortable with your future debt to income ratio and reserves.

If you buy a co-op when you are going through a divorce, you'd better be be overly qualified to buy the apartment! Don't submit joint bank statements because naturally the board will assume that only half of the funds in that account will end up being yours. As my mother always said, "a woman should always have her OWN MONEY!"

When buying a co-op, plan to bear your heart and soul to the co-op board. Nothing is sacred! NOTHING.

Photo: Source

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Another Co-op Board Nightmare: Lease Expiration

Please note that this is me, Christine Toes, writing this post, and not Noah:)

I am representing a seller in a building with a difficult managing agent or a difficult co-op board (it is hard to say which & it could be a combination of the two. Perhaps they aren't being difficult, it might be that they just don't care?). The buyer was approved by the board to purchase the apartment on Thursday, December 20th. Normally, we'd schedule a closing date and be done in about two weeks, perhaps a little bit more due to the holiday season. So we should have closed before January 4th.

The co-ops proprietary lease expires in about 30 years, and her lender (Wells Fargo) will not give her a 30 year loan until the Managing Agent (MA) sends them a letter saying that the board intends to renew the proprietary lease. It is my understanding that every lender is going to require that a co-op's proprietary lease be valid for more than 30 years or they are not going to issue a 30 year mortgage. So this isn't a problem with Wells, it is something any lender would require.

Of course the board is going to renew the proprietary lease! This should be a routine procedure. But the MA says we must wait for the next board meeting in order to address this issue, citing that she doesn't have the authority to write the letter.

Originally the meeting was supposed to be the first week in January, so we figured this issue would just set us back 2 weeks. Then the board cancelled their January meeting and decided to wait until February 6th to meet!

Despite repeated calls to the Managing Agent by the seller, and both the buyer's and seller's attorneys the M.A. says her hands are tied and we have to sit tight until February. The seller also called his neighbor who is on the building's Board of Directors, but hasn't received a response. Meanwhile, the seller is paying for a vacant apartment and the buyer's mortgage rate lock has probably expired. Luckily for her rates have probably gone down since she locked in a rate, but she may face penalties or incur additional fees for extending her rate. And she'd obviously like to move into her apartment!

I am tempted to write a letter to the entire building letting them know what is going on. I don't know if the Board of Directors (except the seller's neighbor) is even aware that this is happening. And I suspect shareholders in the building would not be happy to learn that the MA / Board are unnecessarily holding up a sale for SIX WEEKS!

My seller's attorney (who has done thousands of co-op transactions in Manhattan) tells me that this is preposterous and that he has never seen it happen before.

Toes says:
1. If you are on your building's Board of Directors, find out when your proprietary lease expires and make sure that the Board votes to renew it when it gets down to 30 years prior to its expiration.

2. If you are on your building's Board of Directors, give your Managing Agent a directive to contact you if a problem is holding up a sale in the building.

3. If you are selling your property, talk to your managing agent and ensure that the proprietary lease is not expiring close to 30 years from when you anticipate a closing.

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Co-Op Board Turn Down: Sales Price Too Low?

Before I start, know that is me, Christine Toes that is writing this, not Noah!

I recently encountered a situation where a buyer whom I thought was qualified, my sales manager thought was qualified, and the seller thought was qualified was turned down by a co-op board.

A board turn down is frustrating for everyone involved. Buyers may have already given notice to their landlord that they are moving & may suddenly find themselves scrambling to find another apartment. Sellers may have moved out in anticipation of the sale and now have their apartment sitting vacant. Mortgage and maintenance payments may be flying out of the seller's pockets while they start the lengthy co-op process (a three month minimum "to do" unless the buyer pays all cash) over again. The brokers who negotiated the deal and put together the lengthy co-op board package start all over again. The mortgage brokers/bankers get nothing, the attorneys get only a portion of their fee. Basically everyone loses.

With this particular board rejection, there were a few issues at hand:

1. A New Management Company: The building had recently hired a new management company & they were unable to give insight about what this particular board was looking for as far as financial requirements. My buyer had the qualifications co-op boards generally look for: 20% down, 2 years of mortgage + maintenance payments in reserve in liquid assets, a 25% debt to income ratio (although a large part of her income was bonus, which I will get to in a minute), and a 770 credit score. Often, we can feel out the managing agent for what the board has/has not approved in the past, but since this was the first board package this M.A. had submitted to this board, the M.A. didn't know what to expect. We were going in blind, which is a real estate agent's nightmare.

2. My Buyer Was In Finance / Nervous About Future Bonuses: Although my buyer was at one of the very few companies not hit by the credit crisis, I think the board may have been nervous about bonuses. I suspect that they were probably harder on my buyer because of what is happening on Wall Street now. Even though my buyer was in a "Future Leaders" program at the company, perhaps they also feared the projected layoffs. In short, if it had been last year, my buyer might have soared through with flying colors.

3. Sale Prices Too Low: After the board turn-down, I brought a new buyer for the apartment. This time, the managing agent was willing to run the new buyer's profile by the board (this rarely happens). The response we received regarding the new buyer was that the "board liked the new buyer's financial profile better than the previous buyer's profile...And they liked the sale price better as well."

Then it dawned on me.

The first transaction happened when I brought the buyer for an apt that was For Sale By Owner. Since the owner was selling it, the apt was really not getting the exposure it would have gotten on the open market. My buyer and I knew we were getting a great price on the apartment.

After the co-op board turned my customer down, luckily for me, the seller still really liked me and she gave me the exclusive on the property. Within a week of the apt being officially on the market, I sold the apartment for over $35K more than what the first deal was for in a bidding war. (Even after adding in the additional commission she ended up paying me, the seller made $20K more using a broker).

I don't want to give exact numbers, but basically it was a difference in the sale price of about 770K and 810K. Although I never really thought about it before, I think there is another issue to consider when looking at why co-ops turn buyers down: the board wasn't happy with the sale price. Particularly in a smaller building, every sale counts because every sale is going to be scrutinized as a comparable when current owners sell their apartments in the future. Makes you wonder.

Toes Says:

1. Steer buyers with low income and high bonuses towards condos whenever possible even if you (and they!) think it is crystal clear that they can afford the apartment. You never know when a co-op board is just not going to be comfortable with people who make so much of their income in bonus.

2. If you are getting a fabulous price on an apartment, don't rule out the possibility that the board might turn down the buyer, not because they aren't qualified to buy the apartment, but because they are afraid that a sale at a low price will hurt future sale prices in their building.

3. Never rule out the possibility that just because a buyer of a certain financial profile passed a board last year, that a similar buyer might not pass this year because of what is going on in the economy and/or news media.

4. The strict financial requirements of co-op buildings in Manhattan have helped keep NYC's housing market healthy and prices stable despite the loose lending standards of the past few years. We are certainly being saved from the high foreclosure rate affecting other cities. However, in some cases, I think boards have become too strict. I highly recommend that if you have an opportunity, get on your co-op board so that you can make sure your building is not keeping perfectly qualified buyers out. When you go to sell, you'll be very happy that your board doesn't have a reputation for being the most difficult board in the neighborhood!

Links: Co-op Board Ratings via WallFly.com!
The Attorney General speaks out on problems with co-op boards

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80/20 Rule Expanded: Co-ops Should Thank Bush

A: Did you know that the recent Mortgage Forgiveness Debt Relief Act of 2007, recently signed into law on December 20th by President Bush, contained an amendment that should make co-op owners rejoice! The 80/20 rule now includes more options for co-ops to qualify and receive market rate commercial rents that otherwise wouldn't have been realized due to tax laws.

80/20 Rule - A federal tax rule that requires residential co-ops to get at least 80 percent of their gross income from their tenant-shareholders and no more than 20 percent from other sources like commercial rents.

According to a release by attorney Aaron Shmulewitz of Belkin, Burden, Wenig, & Goldman, LLP:

On December 20, 2007 President Bush signed into law the Mortgage Forgiveness Debt Relief Act of 2007. The law contained an amendment to §216 of the Internal Revenue Code (the “Code”) that is of immense importance to many co-ops.

In order for a co-op to qualify as a "housing cooperative" (and, thus, enable its shareholders to enjoy the same tax benefits available to home owners (i.e., the $250,000 per person exemption on the gain on sale of a residence, as well as the tax deductibility of interest paid on the shareholder’s apartment loan, interest paid on the co-op’s underlying mortgage, and real estate taxes paid by the co-op), a co-op must satisfy various requirements stated in Code §216.

The most difficult requirement to satisfy has usually been that at least 80% of the co-o’s income for the year must come from its shareholders, and no more than 20% could come from non-shareholder sources. As a result, co-ops whose buildings contained large stores or other commercial spaces were often forced to keep the rent payable by such commercial tenants artificially below-market, or keep the maintenance payable by the co-op’s shareholders artificially high, or impose assessments on the shareholders, so as to preserve the 80/20 income ratio. Some co-ops resorted to even more complicated efforts.

However, the new law radically changes that by adopting two additional alternatives that would also satisfy the “80/20” requirement. Now, a co-op can also qualify if, for the tax year in question:

(i) at least 80% of the total square footage of the co-op’s property is used or available for use by shareholders for residential or residentially-ancillary purposes, or

(ii) at least 90% of the co-op’s expenses are for the acquisition, construction, management, maintenance or care of the co-op’s property for the benefit of its shareholders.

The change became effective immediately, and will benefit co-ops whose tax years end on and after December 31, 2007.

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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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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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Co-op Board Package Red Flags

A: When preparing a Co-op board package, either on your own or having the broker do it, there are a few things that you should know that are considered 'red flags' in the eyes of most Co-op boards.

NOTE: Every Co-op board sets unique policy's for their building's stance on board approval, subletting, pied-a-terre's, pets, renovations, and re-selling. Before a buyer's offer is accepted, either the seller or the seller's broker should pre-qualify the buyer based on information that is gathered from the building's Managing Agent regarding what the board looks for in accepting the prospective purchaser.

There are certain items that are cause for concern as they could possibly raise a red flag when the board meets to review the prospective purchaser. Here is a discussion on each of them.

1. Debt/Income Ratio Over 30%: Your debt to income ratio (DTI) is a key indicator of your true financial picture. It is definitely the lending industry's measure of fiscal health. Your debt to income ratio is calculated by dividing monthly minimum debt payments (excluding utilities, food, entertainment) by monthly gross income. The higher this ratio, the more burden there is on the individual to make payments on his or her debts. If the ratio is too high, the individual will have a hard time accessing other forms of financing. A Debt/Income Ratio above 30% starts to raise a red flag in the eyes of board members because it increases the risk that the buyer will default on payments (especially maintenance payments) in the future.

2. Declining Income Reported on Tax Returns: Most board packages will request the past 2 years of Tax Returns be submitted by the prospective buyer. It's always good to have successively increasing reported income on these tax returns as it shows that you have a stable job with a rising salary. Basically it tells the board that you are in good financial shape. However, if you had a SHARP decline in reported income over the past 2 years (i.e. Reported Income of $75,000 in 2004 but $50,000 in 2005) it will raise a red flag to board members reviewing your application. Declining income tells a story of a worsening financial situation and may cause the board to ask more questions or dig deeper into your financial history before considering accepting your application.

3. Hard Copies Do NOT Match Financial Anaylsis Form: When submitting the board package ALL #'s provided in the financial analysis form should MATCH UP PERFECTLY with the hard copies that are usually requested to be submitted. For example, if you state that you have $123,456.14 in your checking account and $23,498.46 in stocks than you better have the hard copies to back that up TO THE PENNY! As the board reviews your financial analysis form they will look to the hard copies provided as proof that you really have what you state you have in liquid assets. UrbanDigs Tip - Do it in reverse! Collect your hard copies first that you intend to submit with the board package and then take the statement balance and copy that into the appropriate section on the financial analysis form (this way you know for sure that all data you enter about your liquid assets has the exact amount on the hard copies to back it up).

4. Incomplete/Missing/Poorly Written Reference Letters: You may think that the personal and professional letters of reference are the easy part of the board package, so be careful NOT to discount the importance of these letters (Read my post on Reference Letters Layout). If the board asks for 5 Personal Letters & 3 Professional Letters of reference than make sure you hand in ALL OF THEM! Not only that, but make sure you tell your friends and work associates to type up the letter and include a good 3-4 paragraphs of information describing their relationship with you, why you would be perfect for this building, and contact information so that the board may follow up if needed. Don't skimp on the reference letters as I know for a fact that some boards weigh this aspect of the board package very heavily!

If you are selling a Co-op apartment be sure to know every detail of what the board will look for BEFORE accepting anyone's offer. Now that you know what the board wants and some of the RED FLAGS that boards look out for, you should be able to assess whether a particular buyer is in good shape to be accepted. Although a Co-op board may reject a buyer for any reason they wish, this is a good set of guidelines to follow to put the prospective buyer in the best possible light for passing the board! Good Luck!

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A Caution Against Buying Too Soon

I have an amazing exclusive at 7 W 96th Street, a 600 sq ft one bedroom for less than $417K. The apt is crying out for a buyer to give it just a little TLC. I like to say that each apartment has a story, and this apartment's history is long and a little bit sad.

In 2005, the sellers were working with a broker who put a student with parents paying cash for the apartment up for board approval. They went to contract at $520K when NYC was at the absolute height of the market. The sellers, thinking they were going to net over $460K from their sale, bought a new apartment.

The building does not allow parents buying for students, so naturally, the buyer was turned down. The sellers put the apartment back on the market, this time with the building's management company as the listing firm.

A Toes Tip: In general, I caution against using a small management company to market your apartment. Typically they have few sales agents and no one has ever heard of them so no one is visiting their website to check out their new listings. So unless a management company sales agent is very aggressive with NY Times and Craigslist ads and open houses, and keeps the listing very current in the Real Estate Board of New York's (REBNY's) database so other brokerage firms know about it, the apartment is not going to get very much exposure. The less exposure your property gets, the lower the price it is going garner.

The apartment sat on the market for months, beginning a steady price decline as the media touted the "Bubble," which scared buyers out of the market. Finally, the price landed at $425K, and remained there for several months.

After an apartment is on the market for about 8 weeks, buyers and brokers start thinking that something is wrong with it, and they stop showing it unless there are significant price drops. A full year and a half after the apartment went on the market, my manager brought me in to take on the listing because I have had success in reviving stale listings. I took on the listing at the same price as the last broker, $425K, and began my usual marketing blitz. Here is the listing today:

Asking Price: $417,000
maintenance: $784
Doorman: Yes
Size: Aprox 600 sft from floorplan
PPSF: $695
Flip Tax: None
Pre-War: Yes

**OPEN HOUSE** Sunday Feb 11th, 2:00 - 3:00PM

I had a professional photographer take photos and do a virtual tour, sent a mailing to the three closest buildings, put it on our website and in the NY Times print and online editions, advertised frequently on Craigslist, and featured the apt prominently in my e-newsletter, which goes to 2,350 friends, clients, and other contacts.

The result was quite incredible:

1st Open House: Over 30 people

2nd Open House: Aprox 20 people

3rd Open House: Aprox 20 people again

Only 3 buyers had seen the apartment in its past life on the market, which had been just 2 weeks before.

The rule of thumb in the industry is that if 30 buyers see an apt and/or 30 days go buy, and you don't receive offers near the asking price, you are overpriced. Offers came in below $400K, but the sellers, having taken a bridge loan to buy their other property, simply can't take anything that low. I requested that the sellers drop the price to $417K, which was the lowest they were willing to go. Essentially, unless they get a certain price for the apartment, they are going to be in debt.

For every open house, I wash the windows, I put out flowers, I light scented candles. The apartment is as "staged" and as "renovated" as the seller's are willing / able to do, and really, it looks quite lovely. I've communicated the number of showings, feedback from brokers and buyers, sent them comparable listings, and educated them on the current market conditions.

Buyers are VERY savvy these days and they simply will not buy an apartment for more than what they think it is worth. So at this point, I am at a loss of what else I can do and I'm open to your suggestions!

TOES says: Make sure you and your broker know what will and will not fly with your building's board. If a candidate is borderline, run the info by the management company and see if they will give you a preliminary yea or nay.

TOES says: Don't buy something new before you know that your buyer has passed the co-op board. You can always try to negotiate terms in the contract allowing you to "rent back" from the buyers for a certain period of time so that you can close on a new home.

TOES says: If you must buy something new before knowing whether your buyer has passed the co-op board, be extremely conservative with what you think you are going to net on your sale. Have a contingency plan in case your buyer doesn't pass the board and you have to sell the apt at 20% below what it is in contract for. Investigate taking out a home equity line of credit on the apt and renting it out.

TOES says: Sellers: If 30 people have seen your apartment in 30 days on the market and you are not getting offers near the asking price - your apartment is overpriced for the current market conditions.

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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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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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Co-op Board Package

A: Here is the top page of a board package for a co-op in the UES where a list of items to be included are shown. Most of the questions Im hearing lately are about co-op board packages and if they could pass them. The problem is that every co-op board is different just like every private corporation is different; so you MUST contact the managing agent of the building you are buying into (seller broker normally does this prior to showing the property and meeting buyers) and find out exactly 'what they are looking for' to pass the board.

QUICK TIPS

1. Keep your debt/income ratio under 30%; with a grace range of 3-5% above that before raising a red flag. If yours is above 35% then be sure to ask the managing agent if the board will be OK with it.

2. Make sure you have at least 1 years maintenance + mortgage expense in liquid assets AFTER closing costs. Closing costs will include your down payment + transaction fees. Co-op boards that require more than 25% down probably will require more liquid assets AFTER CLOSING too!

3. Start collecting the most recent hard copies for ALL assets that you will be declaring. When you fill out the financial analysis form in the board package, use the EXACT #'s that each hard copy shows and then hand in that copy with the package (you want ALL assets listed to have the exact hard copy backing it up to show the board; mistakes raise red flags!).

4. Focus on Reference Letters. Get at least 4 paragraphs from your friends and be sure all contact information is given (you dont want to hand in a reference letter that no one can call to check up on).

5. Get a Gift Letter from your accountant if you received a large deposit from a family member to 'beef up' your financials for the board. If the hard copy shows the deposit, then you better supply the gift letter to back it up; it only helps.

NOTE: This co-op board doesn't ask for PAY STUBS which is usually common for a co-op board package to ask for. So, be sure to save yours just in case you'll need them.

SAMPLE CO-OP BOARD PACKAGE

*If you have any more specific questions about passing a co-op board, talk to me while I'm online for the LIVE CHAT.

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NYC's Strangest Studio Floorplan

A: Talk about weird layouts! Take a look at this studio apartment in the Upper West Side in which the broker even declares, "Cookie Cutter -- NOT", on the webpage.

Tough to make a call on this property's asking price when the total size is not listed, but assuming it is 475 square feet, than this studio is asking $800/Sq. Ft.. A bit pricey for a first floor unit in a co-op requiring a 25% down payment, as it seems the low monthly's are allowing this seller to test out a higher price. In any event, here are the details for those interested!

210 Riverside Drive; Apt. 1D

Size: 475 Sq. Ft. (HARD TO TELL!)
# Beds: 0
# Baths: 1
maintenance: $448
Asking: $380,000
Price Per Sq. Ft.: $800 (Again, need actual size for this)
Marketed By: Frank Russo of Halstead



**OPEN HOUSE SUNDAY 12:00-2:00PM & TUESDAY 5:30-7:30PM**

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What is a Co-op & Is It Right For Me?

A: If you are looking for more space for your dollar, if you are a first time homebuyer who barely has enough to cover down payment + closing costs, and if you want to put your money into renovations and not closing costs, then YES, buying a co-op is right for you.

A lot of people will tell you, "...never buy a co-op", simply because of the restrictions that the co-op board may place on its shareholders. "A Headache" is another common term that people use to describe some boards of co-ops.

However, in my humble opinion, this is a statement usually made by someone who has significant assets to his/her name, thereby affording them the luxury of buying a higher priced condominum.

There are pros and cons to buying a co-op when compared to buying a condo in NYC. They are:

PROS
Lower Closing Costs Than Condos
More Affordable Than Condos
More Space For Your Dollar

CONS
Tedious Board Approval Process
Tougher Restrictions on Subletting
Tougher Restrictions on Pied-e-Terres
Tougher Restrictions on Co-Purchasing & Parents Buying For Children
Tougher Renovations Restrictions
Tougher Pet Restrictions

While I understand why Condo owners prefer to stick with a condiminium as their next purchase, lets take into account the first time homebuyer and the overall NYC housing market.

For the first time homebuyer, buying a co-op is going to be less expensive with much lower transaction costs at closing. A good example would be to compare closing costs of a $500K Co-op vs. Condo:

500K Co-op Closing Costs
Aprox. $7,000-$12,000

500K Condo Closing Costs
Aprox. $22,000-$25,000

Now, as far as the state of the current housing market and its future, it can be debated that co-ops are more protected in a down market than condos because of the lack of speculation in the co-op market. Co-ops have a very tedious board approvals process, with many boards being extra strict on who they let into their building. As a private company, they can reject whom they please within the law. Condos, on the other hand, have a RIGHT TO FIRST REFUSAL system for passing the board. Quite simply, once your past criminal record is reported as clean, you are approved to purchase the apartment; if rejected, the Condo must buy the apartment from its reserve fund.

So, the fact that co-ops are more cautious to who buys in their building, and speculators generally only buy the condo marke, co-op homeowners are less likely to be forced to sell in a down market.

If you are looking to buy real estate in NYC for the first time, and you just barely have enough to afford a down payment + closing costs, then a co-op is for you! Dont listen to the bad press co-ops may get, or to your friends who tell you only to buy a condo. Rather, focus on location, raw space, low monthlys and STAYING WITHIN IN YOUR BUDGET as the main factors. After all, the building you buy in may have a very easy board that allows subletting and parents buying for children. If this is the case, than it will be that much easier for you to sell, when the time is right!

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Open House Log: 308 W 103rd

A: I saw this New York Metro Article by S. Jhoanna Robledo which chronicles a broker who asked those who visited the Open House to describe what they really thought of the place; perhaps for future marketing strategy? Not a bad idea for sellers to know what buyers actually think of their place and then use that info to stress the strongpoints in the next NY Times ad!

308 West 103rd Street; Apt. 5E

Size: 998 SFT
# Beds: 2
# Baths: 1
maintenance: $950 (Below $1/Square foot)
Asking: $759,000
Price Per Sq. Ft.: $760
Marketed By: Amy LaPeters & Petra Scholder of Halstead

WHAT BUYERS SAID

* It's on track with what we want. The closets are good -- there are three [just] in the foyer . . . The bedrooms were a bit small.

* I just didn't feel it. It's not a knockout.

* It's okay, but we want a closed kitchen -- we cook a lot and don't like the smell. Ideally, if it's L-shaped, we could create a third bedroom -- I'm pregnant, and we don't want to have to move again if we have more.

* The [rooms] are long, but they're too narrow. They need to empty the rooms out and paint them Navajo white . . . Our ideal [has a] garden to barbecue.

~ The Open-House Log

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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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East Village Oasis Back on Market

A: I was doing my weekly checks on price changes in the NYC market when this listing caught my attention. It's a walkup on 533 E 13th Street and is being marketed by Heloisa Gilbert of Corcoran. I'm passing it along to you because of the recent price change and unique features of this property; as long as you can stand the 4th floor walkup! After being taken off the market due to inactivity last year, hopefully the price change will spur some buyers back to this one.

This 4th floor walkup apartment is obviously not for everyone but is unique enough to pass along to you guys. With 1,500 sq. ft. floor through interior and private 1,500 sq. ft. private roof deck, this 3BR/2BTH co-op with reasonable monthlys is now asking $883/sq.ft.. The price has been reduced $270,000 from its original asking price of $1.595M and probably has some more room for negotiating. Details:

533 East 13th Street; Apt. 4A

Size: 1,500 sft Interior + 1,500 sft private roof terrace
# Beds: 3
# Baths: 2
maintenance: $1,788 (Aprox. $1.19/sft)
Asking: $1,325,000 (Reduced from $1.595M LAST YEAR!)
Price Per Sq. Ft.: $883
Marketed By: Heloisa Gilbert of Corcoran

Apartment Features:

- Exclusive Roof Rights
- Established Perennial Roof Garden
- 2 Skylights
- Exposed Brick
- Sun Drenched North & South Exposures
- W/D
- 9 Year-old Japanese Red Maple (the deal maker)

**Open House is Wednesday 6-7PM & Sunday 1-4PM**

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UrbanDigs in Manhattan Living Magazine

A: I recalled doing the interview about a month ago but completely forgot about it and which publication it was going to be used for. Funniest part is my wife is reading the magazine when she stumbles upon an article titled, "Beating The Board", which discusses a bill before city council that would require a co-op board to disclose why it turned down a prospective buyer. As she gets my attention to read me the article out loud she quotes something that sounds very familiar to me! It didnt take long before she mentions the source of the tips: Yours Truly!

Passing it on to you guys. Here are the tips as mentioned in the article to help AVOID REJECTION from a co-op board:

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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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House-Hunting in NYC w/ $150K

A: Check out what $150,000 buys you in Manhattan: 229 West 144th Street in West Harlem where the description is long enough to describe a 3,000 sq. ft. penthouse asking $5M!

Brand New to the market with the first showing at Saturday's Open House, this certainly is priced low enough to gather a significant crowd! This is 1 of 2 apartments that this Corcoran team are selling in the same building; Apt. 46 is asking $175K and has a slightly bigger floorplan.

According to the listing:

Nestled between two of Harlem's most prestigious neighborhoods...Sugar Hill and Historic Hamilton Heights you will simply not find more value for your dollar anywhere on the Island of Manhattan. Minutes away from many area attractions including Bradhurst Park where you can cool off in the outdoor pool open from July 4-Labor Day, St. Nicholas Park, Aaron Davis Hall at City College, The Alvin Ailey Dance Academy, and so much more! Supermarket shopping will be a breeze at the all new Pathmark Supermarket located at 145th Street and 8th Avenue.

229 West 144th Street; Apt. 41

Size: 426 Sq. Ft.
# Beds: 1
# Baths: 1
maintenance: $293 (LOW - includes taxes as well!)
Asking: $150,000
Price Per Sq. Ft.: $352 (See the value!)
Marketed By: Anthony Morris & Michelle Joyce of Corcoran


1 BR Floorplan

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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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NYC Co-ops More Protected Than Condos?

A: What a great topic to discuss as the housing market continues to remain flat-to-down across most parts of the country. In New York City there are basically 2 property choices for most buyers: Co-op or Condo. Should the housing market take a short term temporary hit down the road, what apartment type do you think will be more protected? I'm going with liberal Co-ops.

Here are some reasons why I think sellers of condominiums might have to stretch lower than sellers of Co-ops should the housing market hit a rough patch down the road.

1. Speculators/Foreign Investors Buy Condo's NOT Co-ops: For those speculative investors in New York City, buying a condo is a must due to the liberal transaction process associated with the legal structure of condominiums. Most condos allow the buyer to put ONLY 10% DOWN, SUBLET THE PROPERTY, experience NO BOARD INTERVIEW, and a RIGHT OF FIRST REFUSAL APPROVAL PROCESS (rather than passing the co-op board members) all of which allows the seller to market the property to a much larger buyer pool.

According to NY-Condos.com:

Prospective buyers lacking U.S. citizenship will find that New York condos give them the chance to own a U.S. apartment without having to suffer from a weak dollar, along with potential for short and long-term appreciation.

2. Financially Weak Homeowners Buy Condos: Lets face it, if you know you are going to buy rather than rent in NYC but don't have enough assets to put 20% down and still have enough to show a co-op board, than you will learn quickly that you will have to sacrifice space or location and buy a condo; your only other choice is to find a condop or a sponsor sale. However if you have a secure job with rising salary, sufficient liquid assets, and low debt than you are in good position to pass most co-op boards and less likely to be forced to sell in hard times.

Using this logic you could predict a situation in a rising interest rate environtment where more condo owners will be forced to sell their apartments. Any homeowner who has to sell for financial reasons usually has to sell quickly; to sell quickly you MUST price below market value!

3. Most New Developments Are Condo: Think about all the new development that has taken place in New York City over the past few years. Now think about all the development that is almost finished and about to start! As the market cools, are these guys going to be able sell their units for $1,300+ a square foot when premium exisiting products go for much lower? Percentage wise, new developments will have to lower prices more aggresively than existing co-op owners who are already offering discounts simply because they are co-op. Some developers refuse to lower their pre-construction pricing which will result in unsold units all the way to the occupancy date; where does that leave the speculative investor who paid $1,300/Sq. Ft. in the first round of pricing a year earlier?

Considering these 3 concepts I would think that liberal co-op buildings (those co-ops that allow 80%+ Financing, subletting, pied-a-terres, parents buying for children, and guarantors) to be well protected as owners will be LESS LIKELY to be forced to sell once the actual decision to sell is made. Any homeowner that has more time to sell can afford to keep their property on the market long enough to 'get their price'. Maintaining building pricing is very important as future sales are largely priced based on the most recent closed deals in the building.

If condo owners are forced to sell at way below market value simply because they need the money or want to cash out, it will hurt the building as a whole and particularly hurt those who are looking to sell soonafter as appraisers will wonder why some units sold for much less!

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The Cheapest Full Service 1BR in NYC

A: Excluding Harlem & FSBO's, I did a search to find the cheapest 1BR apartment on the market right now that has a Full-Time Doorman, at least 500 square feet in total size, and monthly expenses under $650. NOTE: This only includes those properties being marketed by the brokerage community as I used Corcoran's system to do this search. Usually there is a 1-2 week lag for new listings to appear in the system.

AND THE WINNER IS....drumroll please...

1 Gracie Terrace (East 82nd St): Apt. 4J

Size: 500 Sq. Ft.
# Beds: 1
# Baths: 1
maintenance: $617
Asking: $315,000
Price Per Sq. Ft.: $630
Marketed By: Hilary Rovins of BrownHarrisStevens

Building Details: 24HR Doorman & Concierge, Gym on 1st Floor, Central Laundry Room, Bike Room, Reserve Fund of $2M+, Underlying Mortgage of $4.4M (your attorney will review this info and advise you accordingly)

This apartment is 7 weeks on the market and has a 70% financing restriction that may be causing this listing to not sell as quickly as it should. Nevertheless, I can't find any more listings that meet these criteria other than alcove studios that are around 350 - 400 square feet. Be sure to check this one out if you have the liquid assets to put 30% down!

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Greenwich Village Price Drop

A: For a buyer with a 800K budget looking for a large and sunny 1BR in a full service building in Greenwich Village that is at least 850+ Sq. Ft. with monthlys under $1,000 could be tough. Lucky for you a recent price drop at The Lawrence House on 79 West 12th Street brought a sunny 1BR down to $799K.

The seller of this property looks 'ready to go' after almost 5 months on the market as a price reduction 3 days ago brought this property down to $799K. Some of the reasons I bring this to your attention is that it is in a great location where values are hard to find, is a large 1BR that can be converted to 2BR, in a full service building with landscaped roofdeck, and has monthly's under $1,000. Put it all together and a aggressive bid might get someone a great deal! Here are the details:

79 West 12th Street; Apt. 5F

Size: 888 Sq. Ft.
# Beds: 1
# Baths: 1
maintenance: $967 (Reasonable for apt. size)
Asking: $799,000
Price Per Sq. Ft.: $900
Originally Priced: $859,000 on 11/10/2005
Marketed By: Guy Abernathey of Corcoran


5F Floorplan

Here is another attractive listing in Greenwich Village which offers a set back terrace; you know how big I am on outdoor space in NYC as a selling point. Slightly more expensive and smaller than the above referenced apartment:

101 W 12th Street: Apt 16G Marketed By Rochelle Bass of Bellmarc Realty

Good Luck & Always Remember The 5 Ingredients For Real Estate Success:

1. LOCATION
2. RAW SPACE
3. NATURAL SUNLIGHT
4. REASONABLE MONTHLY EXPENSES
5. BUILDING AMENITIES & OUTDOOR SPACE

...now if you can just get all of this at a good price point!

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ATTN Investors: 328 West 86th Fire Sale

A: Check out this listing that is less than 3 weeks on the market in a Pre-war UWS Co-op at 328 West 86th street. With a rent stabilized tenant in place paying a low $745/Month, this seller is chopping the asking price down to under $400K while another 1BR in the same building and line is asking $750K!

I told you deals will popup every once in a while! This deal has a catch though. The catch is you can't live in the apartment because of a rent stabilized tenant that is living there. What I do not know is how long of a lease the tenant has and if the tenant has an option or right to extend the lease. Still, here is your chance to own a 1BR Co-op in the Upper West Side with NO BOARD APPROVAL at way below market value. Here are the details:

328 West 86th Street: Apt 14B

Size: 750 Sq. Ft.
# Beds: 1
# Baths: 1
maintenance: $696 (LOW - includes taxes as well!)
Asking: $399,000
Price Per Sq. Ft.: $532 (Holy Snikees!)
Marketed By: Ray Kiswani of Bellmarc Realty


Apt. 14B Floorplan

FYI: Apt. 10B in this building is currently being offered for sale at $750K, with maintenance slightly lower at $584/Mth because of the lower floor. Assuming the same total size, this apartment is asking $1,000/Sq. Ft. which shows the value for the above referenced apartment.

Good Luck!

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4BR Value in Gramercy

A: Check out this 6-Day old listing marketed by Richard Healy of Halstead which to me represents a fantastic value for a 4BR Condop in Gramercy. For those in the market for a 4BR family home in these neck of the woods, be sure to check this one out ASAP! While the high end is a bit sluggish right now, props to this broker for pricing it correctly.

Its hard enough to find a 4BR family home in Gramercy for under 3M, let alone one that is 3,600 Sq. Ft. in size. While this pre-war building doesn't have a doorman, it does have a wrought iron gated entrance w/ stone floor, a computerized key entry security system, a keyed passenger elevator, and investor friendly board policies. Priced at only $815 a square foot, somebody will get a lot of bang for their buck with this one in a great location with 4 exposures! Some more details:

118 East 25th Street; 3rd Floor

Size: 3,600 Sq. Ft.
# Beds: 4
# Baths: 3
maintenance: $2,464 (LOW - includes taxes as well!)
Asking: $2,975,000
Price Per Sq. Ft.: $815 (See the value!)
Marketed By: Richard Healy of Halstead


4BR Floorplan

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Priced To Sell: 200 East 36th Street

A: I found this listing today that was originally priced at $525K back in December and reduced twice to $450K today. With 2 reductions in 3 months on the market you know this seller is ready to go! Whoever is in the market for a 1BR in Murray Hill with at least 725 Sq. Ft., 24HR Doorman, Renovated Common Areas, Gym, Courtyard Garden, Storage Room, and low monthly's which includes basic cable should definitely check this one out.

A clip from the central listing system:

Drastic Price Improvement!!! Will not last!!! This beautiful large one bedroom apartment has a great layout and high ceilings. The apartment is very sunny with western exposure & Empire State building view. Apt has parquet floors and five closets and is quiet. This full service building boasts a 24 hour doorman, brand new lobby and hallways, courtyard garden, roofdeck, live-in suoper, laundry room, private storage room, bike room and luggage room. Brand new gym just opened! The low maintenance includes basic cable. Pets Welcome! Great building in fabulous neighborhood that offers it all-- restaurants, entertainment, transportation.

Unfortunately this Co-op board discourages parents buying for children or the use of guarantors.

200 East 36th Street; Apt 2C

Size: 725 Sq. Ft.
# Beds: 1
# Baths: 1
maintenance: $720 (Below $1/Sq. Ft.!)
Asking: $450K
Price Per Sq. Ft.: $621
Originally Priced: $525K on 12/9/2005
Marketed By: Caitlin Hughes of Corcoran

OPEN HOUSE SUNDAY FROM 4:00 - 5:30PM

Good Luck!

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Co-op Board Reference Letters

A: When preparing a package for a Co-op board you want to be as professional as possible and present yourself in the best possible light. The most important aspects of the board package include your financial history, current job and liquid assets, and personal & professional letters of reference. For this post I will go over how your letters of reference should look before submitting the package to the board.

Below are 2 reference letters (1 personal & 1 professional) that were used in a past deal that the Co-op board ultimately accepted. To protect the privacy of the buyer, all names, numbers, and author of the letters are blacked out.

PERSONAL LETTER OF REFERENCE EXAMPLE

PROFESSIONAL LETTER OF REFERENCE EXAMPLE

Although I had to black out the names and numbers listed in the letter you should still be able to get a good idea of how the reference letter should be made. Keep it 3-4 paragraphs in length and have it typed up on a corporate letterhead with the author's signature at the bottom along with contact info. Good Luck!

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What is a Sponsor Unit?

Sponsor units have NO BOARD APPROVAL! When an individual or company converts a rental building to a co-op or condo, the first transfer of an apartment, or "sponsor unit" does not require board approval.

According to Wallfly.com's Glossary: Sponsor Unit: Apartments that are held as an investment by the sponsor - the original develeper who built the building or converted the the building to a co-op. Sponsor apartments are usually exempt from board approval.

But there are some other important things to note!

Sponsor units command a premium because people who might not pass a board can buy them. For example, a sponsor unit would be a good choice for parents who want to buy an apartment for a child who is a student. A sponsor unit may be the best apartment for someone who is not working, or only has a short job history. Basically, if you aren't a candidate for a co-op building and can't quite afford a condo, keep an eye out for a sponsor unit!

Buyers of a sponsor unit should take note that they will need to pay NY State and NY City transfer taxes, and often the seller's attorney fees. You still have to submit a board package (Homeland Security! The management company needs to know who is moving into their building) and you almost always have to abide by the building's house rules as far as sublet requirements and pets. Although it varies from sponsor to sponsor, you may be able to put down less than the minimum financing normally required by the building.

Check out these sponsor units under $550K:

$539K - One Bedroom - Central Park West and 101st St

$499K - Convertible two bedroom - 25th St. and 2nd Avenue

$289K - Studio - 311 East 25th Street

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Rate Your Co-op Board

A: Although I registered the domain www.passthecoopboard.com months ago it looks like I was beaten to the punch by this well thought out website called Wallfly.com. Wallfly is a site dedicated to building a database of rating Co-op boards; a problem that I was dying to solve. A difficult (data and user reviews will take time) yet rewarding model that lets residents lookup and rate their own building's board policy on toughness, restrictions, what its like to live there, what it takes to get in, and who deson't stand a chance!

NOTE FROM SITE: To review you must register. A member may only write one review per building. If you wish add to a posted review, however, you may edit your review at anytime.

Moving on, the main page has a RAVE REVIEWS section that points out the best reviews for buildings that were left by residents.

In addition the site has added some fun stuff such as a TOP 10 list of most infamous board turndowns; with Madonna & Howard Stern being the current leaders. Add in Recent Reviews, a Watchlist, Co-op Buzz section, Glossary of terms, and Real Estate Links (no UrbanDigs though..whats up with that?) and this site is on the right path to building what will eventually be a very useful resource!

If you are looking to buy a Co-op then you should know that the board approval process can be tedious, frustrating, and painful at times. A site like Wallfly.com will be very handy once their database gets filled with user reviews. Currently the site is lacking in content but that should be expected from a 7 month old startup! Good Luck Wallfly guys! Now lets try to help them out by submitting a review of your Co-op!

~ WallFly.com - Rate & Review Co-op Boards

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Coco Selling Studio's in Upper East?

A: Check out this $210K studio apartment that Citi-Habitats own Coco Mindreau is selling at 531 East 87th Street.

Only 1 flight up and getting southern light, this seems like a nice deal for anyone looking for a cheap home in the Upper East Side. When calculating the monthly expenses for a buyer who puts down 20% with a mortgage rate of 6.25%, the total comes out to $1,477/Month BEFORE TAX DEDUCTIONS!

If you are renting a studio apartment right now paying close to $1,300 a month, and you have the means to buy, I would strongly consider viewing this 7-day old listing. It will go fast!

531 East 87th Street; Apt. 2B

# Beds: 0
# Baths: 1
maintenance: $443
Financing Allowed: 80%
Asking: $210K
Marketed By: Coco Mindreau of Citi-Habitats

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Upper West Side Value

A: If you are looking for a 1BR in a prime location of the Upper West Side near Central Park and with the luxury of a 24HR Doorman and planted roofdeck, check out this 6-day old listing at 200 West 79th Street.

The Gloucester building is located on 79th street between Broadway & Amsterdam Avenue and is a full-time doorman building with a live-in super and porter available 24 hours. The lobby and hallways were just renovated meaning future assesments for this type of work shouldn't be a concern for you.

It's always best to ignore renovations and focus on the 4 things that can NOT be changed about a property: LOCATION, SIZE, VIEWS, & LIGHT. With regard to this property the location is great, the size is fine, the views I'm not sure about, and the light seems great. Not a bad start.

*Note: Your real estate attorney will review all building financials, offering plan, board minutes, and contract of sale before advising you to sign the contract. You should be notified if any major renovations are planned which might lead to future maintenance assesments!

200 West 79th Street; Apt 9B

Size: Aprox 650 Sq. Ft.
# Beds: 1
# Baths: 1
maintenance: $859 (a bit high for apartment size)
Asking: $495K
Price Per Sq. Ft.: $762
Marketed By: Doron Zwickel of Douglas Elliman

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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 Will The Co-op Board Ask For?

A: A lot. If you are a first time buyer of a Co-op, then read this post so that you know exactly what YOU are getting into, and what the potential buyer when YOU SELL will have to provide to get a board approval.

A Co-op board will most likely look deepest into your financial history, current salary, and references when evaluating your board package. So for sake of ease I will break down by category what you will be required to provide for most Co-op boards.

Financial History
Last 2 Years Tax Returns w/ W2's
Financial Net Worth Form (All Assets & Liabilities)
Bank Account Hard Copies (Last Month)
Hard Copies backing up Assets

Current Salary
Last 2 Pay Checks or Deposit Transfers

References
Up to 5 Personal References
Up to 3 Business References
Letter from Employer stating position, salary, & length at firm
Letter from Bank confirming accounts and balances
Letter from present Landlord

In addition to all of this you will need to gather these loan documents from your lending institution (usually takes the longest to receive):

Copies of Aztec Recognition Agreement (3)
Copy of Loan Commitment Letter

Things The Board Looks For:
1. No more than 1/3 monthly salary to be used for housing costs
2. At least 1 Years worth of Mortgage + maintenance in liquid assets AFTER closing costs
3. Increase in salary from previous year

Other items the board may ask for can be copies of personal ID's, certificate of foreign status, hard copies of individual item's net worth, or the contract of sale if you are selling a property.

NOTE: The seller broker has a responsibility to their client to pre-qualify you (the buyer) for purchase of the property. The seller broker should be well aware of what the board will look for in terms of financial and situational (such as no parents buying for kids) and should NOT allow their client to accept the offer of an UNQUALIFIED buyer.

If you plan to buy a Co-op be prepared to present original copies of everything noted above, and possibly even more, for the board to review. Also keep in mind that you will be in a position later on when you sell where you will have to pre-qualify the potential buyer; no one wants a board turndown!

Originally Published 01/07/2006

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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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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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Greenwich Village Doorman Studio's Under 350K

A: So you want to live in Greenwich Village and you require a Doorman with a budget of 350K. Thought it wasn't possible? Think again!

I found 2 Studio apartments in Greenwich Village that are in doorman buildings and still under 350K! For those of you in the market for this location and price range, be sure to check these out!

175 West 13th Street

# Beds: 0
# Baths: 1
Size: N/A
Maint: $668
Asking: $338K
Marketed By: Michael Johnson & Tami Solomon of Corcoran

101 West 12th Street

# Beds: 0
# Baths: 1
Size: 400 Sq. Ft.
Maint: $590
Asking: $340K
Marketed By: Linda Partland of Corcoran

Both of these units have been on the market since September of 2005 and both were originally priced at $359K and lowered to what you see now. So, there may still be some negotiating room available (something to keep in mind should you go for it). Good Luck!

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High End Blues: 111 East 85th Street

A: The latest in the high end blues saga brings me to 111 East 85th Street Cooperative where a sprawling 2,600 square foot 3 Bedroom / 4 Bathroom property is now asking $3.05M.

There are many growing families out there living in Manhattan that absolutely must be close to central park and be in a good school district (PS 6 in this case) at the same time. Buying a 3+ Bedroom Condo that is at least 2,600 square feet with these requirements could put you back a good $4-5M or so; check out this 3BR/4BTH Condo on 1049 Fifth Avenue asking $5.395M and almost 3x the monthly's. So, when a 3BR/4BTH Co-op between Park Avenue & Lexington Avenue on 85th Street gets a price chop of almost $500K, buyers in this market should know about it and take a trip over to check it out!

111 East 85th Street; Apt. 16DE

Size: 2,600 square feet
Maint/CC: $2,484
Price Per Sq. Ft.: $1,173
Originally Priced at $3.5M, Reduced to $3.05M on 2/14/2006

Price Reduced: $445K
Marketed By: Robin Foxx of Halstead

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Bidding War? In Today's Market?

A: What happens when you have a 235K exclusive for sale in the Upper West Side? A bidding war thats what!

YOU BETTER GET YOUR BUTT IN GEAR AND SEE THIS STUDIO AS BEST & FINAL DEADLINE IS TODAY AT 5PM!!!

Marketed By: Joshua Nathanson with Corcoran

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BuyMyApt.com? This FSBO takes charge!

A: I saw this comment on Curbed.com today by Julie. Julie is selling her apartment on her own and reserved the domain www.buymyapt.com to help market her property! After a quick call to the owner for the OK to help in her marketing efforts, here it is. Good Luck!

301 East 22nd Street: OH Sunday 12:00 - 3:00PM

ASKING: $699,000
SIZE: 725 Sq. Ft.
MAINT: $933/Month (Low?)

After some quick investigating I found this one in same building whose seller is using the services of a broker, yet is listed 80K cheaper? Taking into account renovations expenses, I'm wondering what is wrong or different with this unit than the above FSBO?

301 East 22nd Street; Asking 619K; 1BR/1BTH; Marketed w/ Bellmarc

I guess we can throw that 'brokers don't bring anything to the table, they just add on 3-6% to the asking price as their fee' talk now!

More ACTIVE comps for this Gramercy neighborhood:

1. 235 East 22nd; Asking 645K; Elliman

2. 305 East 24th; Asking 600K; Halstead

~ One Main DUMBO: Buy From Owners, Save 50K (comments)

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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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One Carnegie Hill: New Condop Update

A: With One Carnegie Hill, 215 East 96th Street, almost finished I see 14 listings currently for sale by those who purchased units last year during pre-contruction. As we get closer to occupancy, planned for Winter 2006, expect more units to be up for sale setting the stage for in-building competition amongst investors. However, this building is NOT entirely made up of sales units, as Related Companies will hold on to a portion of units for rental use.

The Related Companies new condop (A Co-op with Condo Rules/By-Laws) is part residential sales, part rentals with tons of amenities. While the location is right on the cusp of the "Do Not Cross 96th Street" mantra of Upper East Siders, and it is right next to a Mosque (a pretty nice one too), sellers are valuing units for sale here at aproximately $912-$1350/Per Square Foot.

Occupancy for this new building is expected during the Winter of 2006. Based on the description on file:

Over 16,000 Square Feet of ammenities including a private Swim and Health Club, Pet Spa, Aerobic and Yoga studio, Childrens Play Room, His & Her Locker Rooms with saunas and showers, Massage Room, Business center, and outdoor Garden Patio with private Barbecue Areas. Additionally, the roof top sun deck boasts Panoramic views and has an indoor Party Lounge. Kitchens feature luce de Luna granite, porcelain tile floors, stainless appliances and Waterworks fixtures. Bathrooms feature Botticino Marble tub surround, a honed Imperadore Floor, high gloss ebonized cabinet and kohler fixtures. The warm enveloping lobby is designed by Rockwell Group and the entrance is on 96th Street. It features Spanish ambarino pavers, Santos Rosewood Panelled Walls, and a copper leaf vaulted ceiling.

Of the more expensive units listed for sale are:

Apt. 33B
Asking: $1.95M
Size: 1,653 Sq. Ft.
Price Per Sq. Ft: $1,180
Marketed By: Carol Kelly of Corcoran

Apt. 37B
Asking: $1.9M
Size: 1,513 Sq. Ft.
Price Per Sq. Ft: $1,256
Marketed By: Carol Kelly of Corcoran

Apt. 31D
Asking: $900K
Size: 679 Sq. Ft.
Price Per Sq. Ft: $1,325
Marketed By: Carol Kelly of Corcoran

And finally, the 1 Unit in the building priced UNDER $1,000 per square foot:

Apt. 31A
Asking: $805K
Size: 883 Sq. Ft.
Price Per Sq. Ft: $912
Marketed By: Carol Kelly of Corcoran

Related is certainly one of the most popular developers in NYC and you can be assured that their buildings will be very luxurious with great amenities. However, with a cooling market and location that is suspect I'm not sure that these units are going to sell as fast or as high as investors' hoped. They should still make money on the deal, just not as much as they previously thought. Let's see what happens when deals are closed and the first units are flipped.

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When a Co-op is not cooperative?

A: If your co-op board has rejected your buyer, there is unfortunately not a lot you can do about it. I have seen on occasion buyers resubmitting information to the coop boards through their attorney, but it is rare that a board will reconsider their decisions. The best thing that you can do is pre-qualify your buyers. Don't be willing to accept an offer from a buyer based on the monetary offer alone.

Here are a few general tips to use when prequalifying buyers.

1. Debt/Income Ratio: Monthly mortgage and maint. payments should not exceed 25% their income. For stricter co-op boards I would also consider: mort. + maint. + current debts to not exceed 25% of monthly income.
2. Mortgage Pre-Approval Letter: Be sure to get the loan pre-approval from the applicant's mortgage broker and review loan conditions required for approval. Also, just because it's a cash deal doesn't necessarily mean it's a done deal.
3. Tax Returns: Review their past 2 years tax returns and measure their income according to the Adjusted Gross.
4. Employment History/Salary: Look for solid work history and consistency of income. Also pay attention to the type of job and consider that their income may fluctuate with the industry in which they work.
5. Liquid Assets After Closing: As a general rule I would look for 2 years worth of monthly mortgage and maintenance payments LIQUID AFTER CLOSING. This may vary from building to building; some will allow less and others may require substantially more assets to be available after closing.
6. Gifting Money: Are the applicants being gifted money? If so, be sure to include the proper tax documents (Gift Letter) that were used for by your accountant.
7. Gaurantor Needed: Does the applicant need a guarantor? Be sure to check with the managing agent first to make sure the board will allow it.
8. Pied-a-terres/Pets: Pied-a-terres and pets (be sure to ask how many, breed and the weight) also must be permitted by building rules.
9. Credit Score: Review the applicant's credit report for major red flags. You can obtain a copy of the credit score/report from the buyer's Real Estate Broker or the buyer's Mortgage Professional.

The requirements of a co-op board for transactions amongst shareholders varies from building to building. As the seller, you better be sure to fully understand what your board requires for approval BEFORE you accept any offer. Its not just the highest offer, it's also the best qualified offer! No one wants a board turndown.

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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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