Buy an Apartment in NYC?
Certain sectors of the New York City market are offering buying opportunities at up to a 40% discount on prices realized at the peak of the market, only a few years ago. A recent upsurge in short sale activity in Manhattan has created unique buying opportunities not seen in years. Our team of Buyer Brokers are adept at scouting out the best deals available for our investor clients and will help you to buy an apartment in NYC.
If you’ve been waiting to buy an apartment in NYC, now is the perfect time. Look at the facts.
Fact: The 15 year New York Real Estate market has outpaced the stock market. Buy an apartment in NYC
Fact: Manhattan is an island that has always maintained its national and international appeal and ranks as one of the top places for investment real estate.
Fact: New York City offers the real estate investor an opportunity to diversify or add to an existing investment portfolio.
Fact: New York City is America’s most resilient city according to the New York Times.
Fact: The mortgage and lending rates are the lowest in over 40 years. Now is a great time to buy an apartment in NYC
Metropolis Real Estate of Manhattan has been a leader in apartment rentals in Manhattan for over 18 years and can offer full service to investors for managing and leasing their properties. Our investment specialists are waiting to assist you to buy an apartment in NYC as well as in property management of your new acquisition.
HOW TO BUY AN APARTMENT IN NYC
NYC Co-op/Condo Buyer’s Guide
When you buy an apartment in NYC it can be one of the most important financial decisions you will ever make. The process of buying a cooperative apartment (“co-op”) or condominium (“condo”) in New York City can be confusing and nerve-wracking. This guide is designed to help you to better understand the process when you buy an apartment in NYC. While reading, keep in mind that this guide is designed to give the buyer an overview of the steps involved in purchasing a new home. It is not intended to take the place of professional advice by an attorney, real estate broker or financial consultant. When you are ready to buy an apartment in NYC you will want to seek professional advice.
Co-op or Condo?
Ch. 1 – Co-op or Condo – Which is better?
What are the differences between owning a co-op or condo? In a co-op, you are a shareholder, along with all your neighbors, in a corporation which owns the building and (almost always) the land it sits on. The number of shares you have in the corporation depends on the size of your apartment and which floor it’s on. You lease your apartment from the corporation under the terms of the Proprietary Lease and your maintenance, or monthly rental cost is determined by the number of shares you own. Each owner’s maintenance costs represent their proportionate share of three corporation expenses:
1. real estate taxes on the property
2. monthly mortgage costs for the building
3. staff salaries, general upkeep and management fees.
At the end of each calendar year the corporation will determine how much of the yearly maintenance qualifies for a tax deduction and each owner will receive a statement or letter informing him or her how to calculate their deduction for income tax purposes.
When you purchase a condo, you are considered to have purchased real estate. You will own your apartment plus a percentage of the common areas of the building. A deed will be recorded in the county register’s office and you will have block and lot numbers assigned to your unit for real estate taxes. Because this is real estate, you can rent out your apartment to a tenant without being limited by strict co-op rules.
Asking prices for condos tend to be higher than prices for co-ops because of their flexibility in terms of sales and subleasing as well as lower monthly costs. However initial closing costs for condos can be quite high since buyers must get title insurance and pay a mortgage recording tax. When you purchase a condo directly from the sponsor, you are also asked to pay the sponsor’s transfer taxes and legal fees which add to the cost.
Ch. 2 – They’re accepted my offer. Now what?
Once there’s an accepted offer, the whole closing process is set in motion. The real estate broker will prepare a deal sheet which lists the buyer, the seller, the attorneys and all the important factors of the transaction. The attorney for the seller prepares the contract of sale and the buyer’s attorney will begin his or her due diligence which involves reviewing the building’s financial condition as well as reading the recorded minutes the recent co-op board meetings.
There may be some fine tuning of the contract by both attorneys until everyone is satisfied that each party has terms that are accurate and fair. A target closing date is chosen and the buyer will sign the contracts first (usually there will be 4 identical originals) and return their signed copies with the contract deposit check for 10% of the purchase price. The seller will then countersign, the seller’s attorney will sign as the escrow agent for the deposit money and two fully signed contracts will be delivered to the attorney for the buyer. Once the fully signed contracts have been delivered to the buyer’s attorney, the deal is binding and the contract deposit will be put in a special escrow account to be held by seller’s attorney until the closing.
Ch. 3. What if I change my mind? How do I cancel?
It’s important to note that once there is a fully signed contract, there are certain conditions under which you may call off the deal and get your deposit back but simply changing your mind is not one of them. How do you get your money back if the deal doesn’t close? If you are rejected by the co-op board (and have acted in good faith) the contract is cancelled. Also, if your contract is contingent upon your ability to get a mortgage at a set amount and you are rejected for a mortgage, the deal is cancelled. You would have to show proof that you made a good faith effort and were rejected for reasons beyond your control. However, if you are offered a mortgage for the set amount at a prevailing rate of interest, even if you don’t like the terms, you can not get out of the deal.
There are certain situations where having good legal counsel is very important and wanting to cancel a signed contract is definitely one of these situations. No one wants to face the prospect of having to choose between buying an apartment they’ve lost interest in or walking away from tens of thousands of dollars. A good attorney may well be able to work something out that ends up as a fair solution for all sides.
Ch. 4. Do I have to fill out a lot of paperwork to buy an apartment in NYC?
Short answer: Yes. Co-ops require a pretty extensive application package and first time buyers are often surprised at how much personal information is requested. You also have to sit down and calculate your net worth and submit tax returns and bank statements as well as personal references. Each co-op has their own specific application, which, like a college application, covers similar general areas from co-op to co-op but in slightly different formats. Your broker will help you pull it all together and will submit the completed package (and all the copies) to the board. Your application package when you buy an apartment in NYC will be reviewed and then an interview will be scheduled with members of the board. You will learn shortly after the interview whether or not the co-op board has approved your application to purchase the apartment.
A condo application package is, when you buy an apartment in NYC, in general, shorter and easier to complete. There is no interview or board approval involved in the purchase however you do need to receive something called “The Waiver of Right Refusal” which means that the condominium has agreed to allow the sale to go through. It should take no longer than thirty days to receive this once you’ve applied and often the waiver is issued much sooner.
Getting a Mortgage
Ch. 5 – What is the process for getting a mortgage?
Chris Tortorello of American Success Mortgage, has the following advice for buyers who are in the market for a mortgage when they buy an apartment in NYC : “I strongly suggest that you get a thoughtful recommendation for a mortgage broker whom you can trust. Your mortgage broker will be privy to some of your most private information pertaining to credit history, income, and net worth. Under certain circumstances they may also need information regarding alimony, child support and other critical underwriting criteria.”
Why use a mortgage broker when you buy an apartment in NYC as opposed to a banker or your personal banker or Credit Union? Our experience shows that an experienced and honorable mortgage broker typically has access to the best rates and products as well as the most lending flexibility. In certain cases, to assure a competitive interest rate and a smooth closing, the broker will have you apply to several lenders at once, all with only one mortgage application and one application fee. When factoring in interest rate and transaction costs in your decision, using a mortgage broker should either be more cost effective or fee neutral.
Your broker will help you complete the mortgage application. You should gather together: tax returns, W2s, paystubs, bank, brokerage and retirement account statements in order to complete a through application. Today’s lending decisions are initially evaluated by an automated computer model. Based upon that feedback, the lender may require more or sometimes less documentation. You should anticipate a 3 to 4 week turnaround period.
After you’ve identified a home and usually after you’re in contract the broker or lender has an appraisal report done in order to determine the established market value of the property when you buy an apartment in NYC. This is a sober evaluation predominantly based upon the sale prices of very similar homes in the same or competing neighborhoods. If your contract of sale has a generously written mortgage contingency clause the appraisal can help protect you, not to mention the bank, from over paying when you buy an apartment in NYC .
Underwriting is a technical term for making a risk evaluation. The Underwriter will review the application you’ve completed, your supporting documentation and the appraisal report and, most likely, will commit to lending you the mortgage money you’ve requested. This is also referred to as loan approval and/or loan commitment.
Upon receipt of the Commitment Letter your mortgage broker will help you to meet any outstanding lender’s requirements called conditions and plan for your closing. The broker’s responsibilities include predetermining your closing costs, monitoring interest rates and helping to determine when to lock-in your rate.
The difference between a smooth successful closing and the real possibility of problems and stress can be the open and professional communication between your attorney and mortgage broker. The right team will keep you well informed in advance of important transactional milestones, avoid common pitfalls and successfully handle any obstacles which may arise.
Ch. 6 – What is title insurance and why do I need it?
Title insurance is a contract to protect a homeowner and a lender against losses arising through defects in the title to real estate when you buy an apartment in NYC. Some examples of the defects covered are fraud, deeds by minors or incompetents, liens for unpaid real estate taxes, judgments, or mechanic’s liens. By law, all title companies must charge the same premiums for property located in New York State. Banks will not close on any mortgage unless their attorneys have received and reviewed a copy of the title report and the borrower has agreed to purchase title insurance.
Usually the purchaser of a condominium from a sponsor is entitled to a 30% discount known as the bulk rate when they buy an apartment in NYC. To qualify there must be at least ten units in the condominium. Any title company insuring a unit in such a building can, and must give this discounted rate. It is a myth that it is only available from the title company used by the sponsor.
Additional costs on the title bill include searches for building and fire violations. An investigation as to the legal occupancy of the building is also done at a cost to the purchaser. These charges are not regulated, and can vary greatly from one title company to another. By far the highest dollar items on a title bill are city and state transfer taxes and mortgage tax.
A mortgage recording tax is a fee imposed by the state on the borrower for the privilege of recording a mortgage. In addition to the state, cities, towns, and counties may add on fees to the basic state tax.
Ch. 7 – What can I expect my lawyer to do for me?
Your real estate attorney should be responsive to your phone calls or emails. For example, the rule in my office is that all messages are returned as quickly as possible; either the same day or within 24 hours at the latest. After the contract is signed, your attorney will work with your mortgage broker or lender to make sure you get a written loan commitment and will assist you in clearing up any conditions or requirements of the loan.
If you’re purchasing a house or condo, your attorney will order and review the title report. If you’re purchasing a co-op, your attorney will order and review the lien search to make sure that you are purchasing the unit free and clear of any liens or judgments.
Once you’ve been cleared to close by your mortgage bank, your attorney will schedule the closing with you, the seller, the managing agent, the lender’s attorneys and the title company. You will be informed of your closing costs, what checks you will need to bring and where the closing will be held. At this point, you should arrange to see the apartment one last time to make sure that the apartment is in the same condition that it was at the time the contract was signed. Your broker can help you confirm that the appliances work, the plumbing and electrical systems are adequate and that everything that should be in the apartment is there (e.g. light fixtures, air conditioners, window treatments, etc.) If there is an issue, contact your attorney so that it can be addressed prior to the closing. At the closing your attorney will review and explain the closing and loan documents that you will be signing. You will also receive a closing statement that details your expenses to the penny.
Ch. 8 – In conclusion?
To buy an apartment in NYC, a co-op, condo or private home can be a confusing, time consuming process. Using local professionals who can guide and help you through the various steps will go a long way toward reducing stress and disappointment.
By: Cathy S. Chester, Esq.