Manhattan Is A Buyer's Market

Manhattan is a buyer's market and with prices going down ... NOW is the time to buy!!!

If you need to move (downgrade or upgrade), if you're a first time buyer, now is a great time to buy. Mortgage rates are low and prices are negotiable.

While there are no fire sales, you can be assured that if you buy an apartment in Manhattan today, your property's value will greatly increase in years to come.

Before beginning, it is important to outline the different forms of ownership available to purchasers of Manhattan property. Those forms are Cooperative, Condominium, Cond-op, and Townhouse (both single and multi-family). Please see the notes at the end of this document for a full description of each form of ownership.

Preparation

Work with your agent to complete the following:

Speak with a Mortgage Lender/Broker and obtain written pre-approval for a loan. This helps you determine your purchasing power and enables you to act expeditiously and with confidence when you identify the property you would like to purchase. Additionally, a pre-approval assures the seller that you are qualified, providing you with an advantage when bidding on a home. This is especially helpful in a multiple interest situation.

Choose a Manhattan Attorney who specializes in residential Real Estate. As New York City has complex real estate laws, attorneys are utilized to close all real estate transactions. Time is often critical; be sure your attorney is available to move quickly. A relative or friend who is an attorney cannot handle the complicated New York City real estate intricacies unless they know New York City real estate law.
The customary deposit upon executing a contract of sale is 10% of the purchase price. Ideally, be prepared to have those funds liquid when you begin your search. The balance of the down payment will be due upon closing.

For Coop purchases, your total annual housing costs should not exceed 25-30% of your gross reported income, and your total debt should not exceed 35-40% (except in the case of substantial liquid assets). Housing costs include: mortgage interest, coop maintenance, secondary residences and any other mortgage in which your name appears.
In certain forms of ownership, offers are not only accepted based upon price, but upon the financial strength of the potential buyer. Therefore, be prepared to have your net worth statement with substantiating documentation (bank statements, brokerage statements & other financial documentation) available. In many cases sellers require you to provide this with your offer. Regardless of the outcome this information will be required for most purchases and financial institutions so having it prepared will also save you time in the future. Be assured your agent will safeguard this information in a confidential manner.

Review your credit report. Remove all disputed claims and clear up any debt if possible, especially outstanding credit card balances.

Guidelines to finding your home:

Define your search parameters. This typically includes price range, location, size, type of ownership and building amenities (if appropriate). Ultimately, flexibility will only work to your advantage.

Choose an agent to work with. Since agencies have almost all the same listings, working with one broker allows you to efficiently schedule appointments to see only those properties that meet your needs. In addition, working with more than one broker may actually prolong your search by having the same properties shown to you by multiple brokers or by having multiple brokers confuse other brokers by making appointments at different times for the same customer. Since property in Manhattan tends to sell rather quickly, prolonging the process may actually hinder you from seeing the property that best meets your needs. Lastly, by creating a good relationship with your broker, you assure that you are the first person they call when a new listing arrives on the market.

Talk to your broker. Be specific about your needs, price point, locations of interest and any other amenities you require in your new home or building. If you do not feel comfortable with your broker, do not hesitate to let them know so that they may have the opportunity to refer you to a colleague with whom you may be more compatible.

When scheduling appointments, try to be available during the week. In addition to evenings, early morning and late afternoon is a good time to schedule appointments, as more brokers are available during these times to provide access to their listings. In addition, by avoiding weekend and open house showings you allow yourself to view properties without fighting crowds of people (competition) and giving you more time to ask questions and get a "feel" for the property.
Once you identify the property - The purchase:

Submit a verbal offer through your Agent immediately who will then follow it up in writing. The offer will include such provisions as purchase price, down payment, amount of financing, included and/or excluded personal property (i.e. window treatments, lighting fixtures, etc) preferred closing date, current income (combined for couples), job description, net worth, and debt status (loans, credit, etc.). Once your offer is verbally "accepted" by the seller, your broker will notify the seller's attorney who in turn will draw up and send to your attorney the initial contract.

Keep in mind that sellers are allowed to hear ALL subsequent offers while your contract is negotiated (or finalized). In fact a seller may accept another purchaser's offer up to the point of a fully signed, executed and returned contract. This means that until your contract is signed by both you and the seller, your deal may not sustain as the primary deal. Therefore, instruct your attorney to proceed expeditiously.

Your attorney will review with you the contract, perform a "due diligence" reviewing with you the "financials" and/or "issues" of the building, and ask you to execute the contract and put forward a 10% deposit to be held in escrow until closing. Thereafter, the seller signs the contract and your attorney will deliver one original to you and one to your mortgage broker/bank.

Immediately apply for a mortgage (if applicable). Your agent will work with your mortgage broker/bank to coordinate the appraisal of the property and provide the bank with requested information on the building. The loan process typically involves several steps from application to appraisal and finally approval. This process may take up to 45 days to complete and hinges on your ability to provide all of the required financial data to your broker/banker in a timely manner.

While awaiting your mortgage commitment work with your broker to complete your board package (not applicable for townhouse purchases). Your broker will provide an application which varies from building to building which typically must be completed and returned to your broker (who will in turn deliver it to the appropriate party) within 10 days of receipt of the fully executed contract or 3 days for the date a bank commitment letter is received, whichever applies. A typical cooperative board package requires at the minimum, the following: Personal and Business Reference Letters (if necessary, we can provide you with sample reference letters to assist your friends and colleagues), Employment Verification Letters and/or Pay Stubs, Bank Verification and Brokerage Statements, Net Worth Statement (this mirrors the information requested by your bank), two-years tax returns and the mortgage loan application and commitment.

Board packages must not be taken for granted. All questions and requests for documentation must be complied with. Both the application form and the Net Worth Statement should be typed and the package should provide a clear and concise assessment of your qualifications to purchase.

Once completed, your broker will review the package in order to assure that all the required documentation has been supplied and presented in the manner requested by the board and then forward the package to the buildings managing agent or otherwise authorized personnel for processing.

Upon review of your board package, the board will typically schedule an interview to meet with you. Boards vary in the manner in which they meet with applicants so please check with your broker to find out how often the board meets or if they have a separate interview committee that meets on a case by case basis.

After the interview, typical notification of the board's decision is given to you or your Agent within 72 hours however some boards reserve the right to take longer.
Upon board approval, notify your attorney who in turn will coordinate the closing date. A typical closing can take up to 2 weeks to schedule so please keep this in mind when planning your move.

Prior to closing - The Inspection:

The day before or the morning of the closing (but usually after the seller has vacated), your Agent will accompany you on an appointment to inspect that the property is in the same condition or promised condition as stated in the contract. Be sure to check appliances and the removal of personal property, and that the premises are broom clean.

The Closing:

At any closing be sure to bring with you your driver's license or passport, your checkbook for any last minute adjustments, and all certified checks discussed with your attorney.

Cooperatives and Condops: The closing is ordinarily held at the office of the management company for the building. The closing is attended by you, your attorney, the seller, the seller's attorney, the lender's attorney, a representative from the managements transfer dept., and the Agent(s) involved in the transaction. At the closing you will first sign documents necessary to complete the loan transaction inclusive of a Security Agreement, Promissory Note, Stock Power, and an Assignment of Lease. Thereafter, you will sign all documents to convey the apartment and secure interest in the apartment such as Stock Certificate, Proprietary Lease and Consent and Checks representing the balance of the purchase price and adjustments are exchanged for the keys to the apartment.

Condominiums & Townhouses: The closing is ordinarily held at the office of the seller or lender's attorney. The closing is attended by you, your attorney, the seller, the seller's attorney, the lender's attorney, the title company closer and the Real Estate agent(s) involved in the transaction. At the closing you will first sign all documents necessary to complete the loan transaction inclusive of a mortgage and promissory note. Thereafter, you will sign all documents to convey the condo apartment to you including a Deed, Title Report, and Unit Power of Attorney. Checks representing the balance of the purchase price and adjustments are exchanged for the keys to the apartment or house.

Notes - Definitions of different forms of ownership

Cooperative

In this form of home ownership, one owns shares of stock in a corporation that owns the building. These shares are considered "personal property" similar any other shares of stock. For tax purposes, the IRS has recognized this form of ownership and under normal circumstances any mortgage interest incurred by an owner is considered tax deductible. The corporation (Coop) issues to each shareholder a "proprietary lease" which gives the shareholder the right to occupy their specific apartment. In addition, the corporation elects a board of directors who are responsible for overseeing the daily operations of the building, enforcing the by-laws, and acting of behalf of the shareholders to ensure that the building operates as an efficient entity. Owners pay to the Coop a maintenance fee, which pays for such items as; the buildings Real Estate Taxes, underlying mortgage, payroll, management fees, supplies and general maintenance. In addition, many coops accrue a contingency budget for future capital repairs. Typically, the portion of the maintenance that is attributed to the buildings Real Estate Taxes and mortgage interest are "tax deductible (td)" on your federal and state income tax returns. This "td" may change annually, as the mortgage on the building is amortized and Real Estate Tax charges change.

Lastly, but not least, as this form of ownership regards owning stock in a private corporation, approval to purchase such shares of stock must be granted by the board of directors. Thus, a purchase application must be submitted to the board requesting approval to purchase these shares. This application typically requires a minimum of the following: Net worth statement with full backup documentation (bank statements, brokerage and retirement account statements, etc.), 2 years tax returns & W-2's, verification of employment or accountants letter, 2 personal and 2 business letters of reference, landlord reference, a credit check authorization, and a completed application provided by the board. In addition, the board will require an interview in order to meet you and make any inquiries regarding the information you submitted or questions they may have. The board has the right to approve or deny any applicant without cause.

Condominium

In this form of home ownership one owns "Real Property" much like owning a house. The condominium residents elect a "board of managers" who are responsible for overseeing the operations of the building and enforcing the "house rules" of the building. The main difference between owning a "condo" and a "house" is, in addition to owning the apartment, you also own a small percentage of the "common elements" of the building such as the halls, stairwells, basement, etc. Each homeowner receives a separate property tax bill from the city for their unit. In addition, each owner pays a "common charge" to the Condominium association to pay for such items as: payroll, building maintenance and supplies, management fees, and building repairs. In addition, some condominiums maintain a "reserve fund" in order to pay for major repairs and improvements to the building. It is important to note that although the Real Estate Taxes you pay on a condominium apartment are tax deductible, the common charges are not as they are solely to pay for the building operation and are not attributed to any tax deductible expenses.

In recent years many condominiums have implemented a procedure whereby purchasers must submit an application to purchase. Unlike in a coop, the board of managers must either approve the applicant or exercise the condominiums "right of first refusal" to purchase the apartment from the owner. Although this is not a common occurrence, it is an option for the board should they choose to exercise it.

In most condominiums, the owner has the right to sublet or sell their apartment with either no board approval or with a minimum board review. In either case, the board must either approve the applicant or exercise their right of first refusal to match the purchase price. For this reason this form of ownership is very appealing to investors, foreign buyers and parents purchasing for their children

Cond-Op

By definition, a Cond-op is a residential Cooperative where the ground floor (typically commercial units) is converted into a separate "condominium" which is either owned by an outside investor or the original sponsor of the building. Thus, although the residential units are a coop, the commercial units are owned as a condominium by an entity other than the coop. Thus, the coop does not receive the benefit of the income from these units.

Many times, people will refer to Cooperatives that operate under Condominium rules as "Cond-ops". This is not accurate although you will hear this quite often. A Cooperative that operates under condominium rules is just that but may be inaccurately referred to as a "Cond-op".

Townhouse

This form of ownership provides the owner with a "fee simple" ownership of Real Property. The owner is responsible for payment of all Real Estate Taxes, maintenance and repairs of the property. The sale of the property may be conveyed to any party without prior approval by anyone other than the homeowner. There are two typical types of Townhouses; single family and multiple family. In a single family the property may only be occupied by one family although the entire house may be rented to another single (or family) user. In a multiple family residence, the owner may occupy (or lease out) one of the units while leasing out the other units as income producing entities.

For more information on purchasing an apartment in Manhattan, call Ross Ellis at 212-317-7828.