demsker realty

buyers

Co-op Basics (Lofts & Apartments)

Of the vast majority of apartments for purchase in New York City, at least 80% are in cooperative buildings. Other areas like Queens, Brooklyn and Long Island also have cooperative apartments for purchase. One advantage of purchasing a cooperative unit versus a condominium unit is that the majority of the time, you’ll be able get more square-footage space for the price paid. After the purchase of a cooperative apartment or residential unit, you own shares within a Cooperative Housing Corporation and receive a proprietary lease, which gives you the right to lease space in the building.

Cooperative shareholders pay a monthly or quarterly maintenance fee, to cover the building expenses. The maintenance fee covers such items as:

a) mortgage and property taxes,
b) utilities,
c) master insurance policy – this may just cover damage to the building not what’s inside each residential unit (confirm with the association bylaws) and
d) staff salaries such as security.

Note: Portions of these maintenance fees are deductible due to the buildings underlying mortgage interest and the owner’s proportionate share of the buildings property taxes. Consult your C.P.A. to learn more about Federal tax deductions.

As a general rule, your total annual housing costs (mortgage interest, cooperative maintenance fees, secondary residences and any other mortgages which your name appears) shouldn't exceed 25-30% of your gross reported income. Your total debt shouldn't exceed 35-40%.
Prospective or potential purchasers/buyers need to prepare a detailed "Board Package" containing:

a) thorough application,
b) specific financial information with statements as back-up's,
c) personal and professional letters of recommendation,
d) a letter of employment stating job function/title, salary and length of employment and
e) mortgage information – if financing is involved. Note: Applicable processing fees need to be rendered before the Board of Directors will review the "Board Package"

After review (generally up to 30 days), the Board of Directors will determine if an applicant qualifies for an interview. All prospective purchases must interview with the Board of Directors and be approved before any sale can be completed.
Notes: A cooperative Board of Directors chooses prospective purchasers based on financial resources and background. They also have the power to determine the rules of the building and admission standards. Standards such as:

a) the amount of financing allowed,
b) pied a terre policy - part time or temporary residential use,
c) guarantors,
d) co-purchasing and
e) parents purchasing for their children, etc.

All standards should be verified with the building management company.
Subleasing a cooperative depends on each individual building sublet policy - generally this is restricted or limited. As with standards, the policy should be verified with the building management company.

The co-op board can reject an applicant without a specific reason.

Luxury Lofts and Apartments - Condominium Basics

Popular alternatives to cooperatives are condominiums since they have much less restrictions of ownership. In contrast to a cooperative, a condominium is considered "real" property. A purchaser receives/owns a deed – fee simple ownership, just as though he or she were purchasing a house. The purchaser then owns an undivided share (an interest) of common areas used by residents such as recreation areas and parking lots. Each individual apartment within a condominium is considered as separate entities and each individual owner is taxed separately – which is 100& tax deductible. Also a monthly or quarterly common charge fee is accessed for the building's operation – which are not tax deductible.
There are certain benefits or advantages in purchasing a condominium such as:

a) more flexibility to sublet,
b) less restricted building rules,
c) generally, they don't require a board review,
d) use of the space for business purposes,
e) less of a down payment – traditionally 10% and
f) your finances are less likely to be investigated or scrutinized.

A disadvantage in purchasing a condominium is that a residential unit usually costs more to purchase than cooperatives due to the fact of the limited number of residential units and purchase flexibility. Generally, the closing costs are also higher for condominium purchases but you have the ability to close the deal faster.

Luxury Lofts and Apartments - Cond-op Basics

Cond-op refers to a residential cooperative where the ground floor is generally used as commercial space – which is a condominium unit. Just this space is considered a condominium unit while rest of the building is a cooperative. Note: The cooperative cannot receive over a certain percentage of income benefit from this condominium unit space. (Please check into the 80/20 rule for Co-ops.)

Most cond-ops operate with less restrictive building rules similar to a condominium building – usually they don't require a board of directors review. As taxes are concerned, cond-ops are classified as cooperatives in that you receive and monthly or quarterly maintenance bill in which only portions are tax deductible.

Luxury Townhouse Basics

Similar to condominiums, you own real estate or "real property". The purchaser receives/owns a deed or title - fee simple ownership. The owner will receive an individual tax bill and is solely responsible for all costs of the upkeep of the home and land. (i.e. painting, roof repair, shoveling walks, trimming shrubs, etc.)

The Purchase

Step 1 

Before any search is started, you should get pre-approved for a mortgage loan and research real estate attorney's. (Preferably one that has experience in your area and what type of property you're looking to purchase.) Also, you should start listing and writing down what you're looking for in a residence.

Step 2

Once you're truly interested in a property for purchase, an offer should be placed in writing on a Real Estate Board of New York (REBNY) Offer Form and a Real Estate Board of New York (REBNY) Financial Statement sheet. These two things will put your offer in prospective and will convey your offer in the most simplified way to the seller. REBNY Offer Form lists: the buyers and attorneys contact information, the buyers work history, salary and net worth, offer amount, closing date, financing details and who the buyer has pre-qualified a mortgage with.

REBNY Financial Statement sheet lists: the buyer's total net worth by itemizing in detail all assets and liabilities and the buyer's total income.

Accepted offer to Contract Signing (1 - 2 weeks)

Once the seller accepts the buyer's offer, the seller's attorney proceeds in preparing a contract of sale. At that point, the buyer's attorney will begin to examine the buildings financials, the offering plan, the meeting minutes and "contract of sale". A "Due diligence" investigation is conducted.

Note: For houses and townhouses, the buyer should schedule a thorough inspection of the physical condition of the property- from roof to foundation. (Use a professional like Accurate Building Inspectors.)

Once the buyer's attorney concludes his or her "Due diligence", the buyer signs the "contract of sale". The buyer is then obligated upon signature, to pay a 10% contract deposit of the purchase price - this deposit can be as low as 5% in some instances. The contract and deposit is then forwarded to the seller to be counter signed. The deposit is to be held in the seller's attorneys escrow account until the official closing of the sale.

Note: Until both respective parties sign the "contract of sale", there's no official deal and the seller can still accept other prospective buyer's offers. Speed is of the essence.

Mortgage Financing (3 - 4 weeks from contract signing)

Before financing is involved, the buyer needs to make an important decision by either choosing to locate a financial institution on his or her own or to research and hire a mortgage broker. Mortgage brokers are independent of financial institutions and typically will take the buyers credit report and loan application and shop it around to multiple financial institutions to find the buyer the best loan based on his or her needs.

Note: If the buyer chooses to locate a financial institution on his or her own, each financial institution requires its own loan application and processing fees.

The buyer should be aware that the loan application approval or refusal is generally the slowest part of the deal. Most financial institutions require several documents regarding loan applications such as tax returns, pay stubs, bank statements and other documents that show your income history and your ability to pay your bills. While reviewing the buyer's credentials, the financial institution will schedule an appraisal for the property. This appraisal will show their opinion of the market value of the property in which the prospective buyer wants to purchase. The seller must provide the appraiser the property floor plan, comparables of like property sold and a copy of the first two (2) pages of the "contract of sale"

Note: Before agreeing on a specific loan, the buyer should ask the financial institution to put forth in writing a cost estimate of fees in order to close on his or her loan.

Tip: To avoid the potential heartache in having your mortgage loan application denied after several weeks, buyers should get pre-approved for a mortgage before looking for a house or apartment.

Complete a Board Package (Co-op/Condo) Application (2 - 3  weeks from fully executed contract)

The seller will provide the purchaser/buyer the cooperative or condominium "Board Package" paperwork and discuss the property requirements and regulations.

Note: Cooperatives and condominiums differ in their approval process - reference section, cooperative and condominiums basics. (see Co-op/Condo info)

Potential purchasers/buyers need to prepare and complete a detailed "Board Package" containing: 

a) thorough application, b) specific financial information with statements as back-up's (i.e. bank statements, tax returns, W-2's),
c) personal and professional letters of recommendation,
d) a letter of employment stating job function/title, salary and length of employment and
e) mortgage information (i.e. loan application, commitment letter and *Aztec Recognition Agreement*) - if financing is involv

Note: An *Aztec Recognition Agreement* is only required in cooperative closings. The cooperative acknowledges the financial institution's interest by allowing the financial institution to be first in line if the buyer fails to uphold their agreement by defaulting on payments.

Submitting the Package (Co-op/Condo) (2 - 4 weeks from  fully executed contract)

Once the purchaser/buyer fully completes the Board Package application it should be forwarded to the Managing Agent of the respective property. The Managing Agent then reviews the Board Package application to make sure all information is complete and all relative documents are submitted. The Managing Agent will also perform all necessary background credit checks. The Board Package application should be very easy to read by providing a table of contents and section dividers.

Note: If all the relative documents and statements aren't provided, the Board Package application will be sent back to the purchaser/buyer delaying its approval.

Cooperatives: After the purchaser's/buyer's Board Package application is approved by the Managing Agent, the buyer then needs to be interviewed by the Board of Directors. If the buyer is approved, he or she is then allowed to set up a closing date with the respective seller. The closing usually takes place at the Managing Agent's office. As a reference, the minimum time to close with financing can take up to 90 or more days.

Condominiums: After the purchaser's/buyer's Board Package application is reviewed by the managing agent, it will be forwarded to the condominium board for approval. Generally, there's no formal interview - few minor exceptions. If the buyer is approved, he or she is then allowed to set up a closing date with the respective seller. The closing usually takes place at the seller's attorney's office. As a reference, the minimum time to close with financing can take up to 60 or more days.

Note: The condominium board has the first right of refusal on the sale, where they would purchase the respective residential unit in question - this rarely happens.

Closing

Before the closing you will perform a walk through of the apartment or home to ensure that everything is pursuant to the deal.

All parties will agree to meet

a) for a co-op at the management agent's office

b) condo or house at the seller's attorney's office.

At the closing the seller's attorney, the buyer's attorney, payoff bank for the seller's mortgage, mortgage bank for the buyer and in the case of a co-op there will also be a closing agent from the management company.

Buyers will bring certified checks for the payoffs that their attorney will provide to them in order to close the deal. Also a buyer will need to bring their check book and photo id.

Mortgage Information (co-ops & Condos)

Fixed Rate Loan - This is the most desirable product with a fixed interest rate for the entire life of the loan, generally for 30 years duration. Each monthly payment consists of repayment of principal plus interest. Consult your mortgage broker or bank for today's rates as they vary.

Adjustable Rate Loan (ARM) - This product generally has a fixed part where the interest rate stays the same and then after that period expires, the interest rate becomes variable and adjusts annually. Common ARM time periods are 3,5,7 year ARMS, where the numbers denote how long the ARM's interest rate is fixed. Generally ARM's offer lower introductory interest rates during the fixed portion and then usually go higher during the variable portion. For protection most ARMs have a rate cap which denotes how much the interest rate can rise in a year.

Interest Only Loan (ARM) - Similar to a traditional ARM, in this case you are only paying the interest on the loan and no principal for a set period of time. This will allow you to pay less money per month for the period of paying just the interest and then as the period of interest only expires, the payments will increase. You need to make sure that if you wanted to that you can also pay off some principal during the interest only period.

Negative Amortization Loan - Potentially dangerous product as you are paying less than the interest due on the loan per month. As this happens the loan amount keeps growing which can leave you in a precarious position.

Home Equity Line of Credit (HELOC) - Mostly utilized as a 2nd loan on a purchase to cover an additional amount. For example, you can get a loan based on 80% of the loan to value ratio, so for the additional 10% of financing you might get a HELOC and be able to finance 90% of the purchase price. Generally HELOCs are tied to the Prime Rate.

Rate Lock - When you and the lender agree to a specific rate for a loan, you'll get a rate lock for a specific time where in order to receive this rate you'll need to close the transaction within that timeframe. If that timeframe expires you will have to purchase an extension and it is possible that the rate can change. Generally they are provided in 30 or 60- day locks with the longer time period providing higher rates. You need to be careful as there are many unforeseen delays in New York real estate so choose your time wisely to lock a rate

Conforming Loan - This is a loan under a certain amount, generally approx.

  • One-family loans: $417,000 *Currently this number is higher, check with a mortgage professional.*
  • Two-family loans: $533,850
  • Three-family loans: $645,300
  • Four-family loans: $801,950

That is traded by Freddie Mac and Fanny Mae in the secondary mortgage market (they are government agencies and offer stability to these loan rates). For 2008 only the amount has been increase $729,750 due to economic conditions.

Jumbo Loan - A loan above the conforming amounts is a Jumbo loan. They are bought and sold in the secondary market by private investors and generally will have higher interest rate.

Loan To Value Ratio - The money borrowed relative to the price of the property. LTV of 80% means you are getting a loan for 80% of the purchase price.

Points - Something you can buy from your lender to reduce the interest rate of your loan.

Closing Costs for Buyers

This is a general guideline to closing costs. Consult your attorney for complete break out of the costs.

Condominiums & Townhouses

For the Purchaser

Buyer's Attorney: 2000 and up (Flat fee or hourly Fee)
Application Fees: $150 - $1000
Credit Report Fee: $75 & up
Mansion Tax: 1% of entire purchase $1,000,000 or more

Mortgage Fees (consult your mortgage representative)

Application, Credit, etc: $400 & up
Appraisal Fee: $500 & up (depending on sales price)
Bank Attorney: $450 & up
Tax Escrow: 2 to 6 months
UCC-1 Filing: $50 & up
Recording Fees: $250-$750
Fee Title Insurance: Approx. $450 per $100,000 of sales price under 1M - +15% on $1M or more
Mortgage Title Insurance: Approx. $130 per $100,000 of mortgage amount
Municipal Search: $350-$500
NYC Mortgage Tax:
a. Mortgage less than $500,000 = 1.80%
b. Mortgage $500,000+ on 1-3 family residential dwelling = 1.925%
Nassau and Suffolk Counties Mortgage Tax:
a. 1-3 family residential dwelling = 0.80% on entire mortgage amount
b. 3 or more family residential dwelling, commercial or vacant land = 1.05% on entire mortgage amount

For New Development buyer pays NYS and NYC transfer tax for the seller - 1.825% combined

Co-ops

For the Purchaser

Buyer's Attorney: 2000 and up (Flat fee or hourly Fee)

Application Fees: $150 - $1000 Credit

Report Fee: $75 & up

Mansion Tax: 1% of entire purchase $1,000,000 or more.

Mortgage Fees (consult your mortgage representative)

Application, Credit, etc: $400 & up
Appraisal Fee: $500 & up (depending on sales price)
Bank Attorney: $450 & up
Lien Search: 300 & up
UCC-1 Filing: $50 & up

Tips for Buyers of Luxury Lofts & Apartments

Property Listings

When looking at properties online:

You should look over the photos and description to ensure there is cohesion in the two. If there isn?t cohesion, you have a clear idea that this space could be something that you might want to avoid. Good units have a cohesion of the two (pictures and text) as they are not trying to hide anything or make anything sound better than its current state. Also be wary of pictures with the shades down (view issues), missing pictures (needs work), photos of corners of rooms (small/cramped) or just photos of the surrounding area/outside of the home or building with nothing interior (needs major work). Most people post photos to entice people in looking at their unit and if they can?t deliver, they will try to manipulate the photos in a way to make it look better or de-emphasize their problem area. For example the living room window(s) looks at a wall so they use photos of the living room with all the shades down so that you can?t see the wall. They figure that if they can get you there at the home/apartment that maybe they can make you over-look that element.

When viewing units in person:

When you arrive at the home or apartment, there are so much visual stimuli, it can be overwhelming and frequently you can miss things important to you. Before you arrive, and even before you begin looking, you should have your prioritized list of what is important in your next home and what you may be willing to sacrifice. You should bring a notepad and take notes about each place you see as they tend to blend into one another after you have seen 3 or more places in a day. Also you should develop a system of how you will look at places for better results and consistency. ie. 1st you look at kitchens, then bathrooms and so on. A uniform approach will ensure the most though comparisons and accuracy.

You want to look at the overall quality of the building or home and especially the condition of the basement. People rarely go down there so that is a great indication at how the rest of the building or home will be taken care of and cleaned. Also any extra amenities should also be quickly examined to see how they are maintained. Once inside the apartment or home you should follow your progression plan (as noted above) and take notes about all the areas, type of fixtures and what you would want to change about the space. A lot of real estate is sold based on the feel of the space so pay close attention to this feeling element within yourself and list in your notes. Some items to look at (but not limited to): flooring, bathroom condition and fixtures, windows (type, condition and thickness), kitchen appliances (make, condition and age), cabinets, closet space, size of rooms, garage space, type of heating and cooling system, noise, ventilation, refuse removal and anything else that you can identify that impacts your living environment.

Square Footage

For apartments this is an interesting area. Co-ops don?t record the square footage in the offering plan (the plan for the conversion on file with and approved by the Attorney General) and are generally passed from one owner to the next. This can generally be somewhat unreliable and contradict itself from one unit in the same apartment line to another unit in an apartment line. For example 4A was sold in 2007 and listed at 800sf and the same apartment on a lower floor 3A (same floor plans and measurements as 4A) was listed at 700sf in 2001 when it was sold. Price per square foot should not be your sole comparison, utilize the comps for the best price analysis. Condos list their square footage in the offering plan but it also gets muddied. In the 80?s and other times condo square footage was listed as ?Net? square footage (meaning usable space) while in today?s buildings it is listed in terms of ?Gross? square footage. What this can do, is be misleading in terms of making something that is smaller (listing gross SF) look like a better deal based on the price per square foot comparison. Once again you need to go by like kind comps for the best analysis. The offering plan tells of how the unit?s dimensions are listed. Generally in gross square footage they are measured from the outside wall and sometimes include common elements within the apartment.

Making an Offer

When making an offer you want to utilize a REBNY offer form as this will convey your offer in the best light. You want to use comps and take into account renovations or lack there of, year to year appreciation, current inventory levels/demand and how the home meets your needs. Generally speaking, unless someone is desperate, offers of 10% or more off asking will be viewed as low ball offers (they might not be countered) and offers of approx 5% will be met with better responses. Of course you should base your offer on the comparable sales, appreciation levels, and upgrades/condition of the home. Sometimes if the home is over-priced you are best served not making an offer right away and waiting for their price to come down.

The beginning of any apartment/home on the market, the price will generally be firmer unless the seller has an over-riding need to move ASAP.

Selecting a Lawyer

Real Estate attorneys differ in how they charge. Either a flat fee for the entire deal or by the hour. You need to decide which type of arrangement will work best for your budget. Your attorney should be working in the place you are buying as they will have inside knowledge of how the process of that area works.

Someone communicative and proactive is necessary. Time is a killer of deals?the longer it takes to seal a deal (sign a contract) generally the chance of losing the deal rises.

Mortgage Broker or Bank

Generally a mortgage broker will take an application and credit fee and then shop your application around to multiple banks, while going direct to the bank you?ll have apply at each one individually.

Someone communicative and proactive is necessary.

Also note that rates will vary over time until you lock in a rate for 30 or 60 days.

**please get pre-approved before the process begins as this will help you gauge how much you can spend on your purchase.

Aztec Agreement ? Co-ops

This is an agreement that basically states that if you default on your obligations that the bank is first in line to be re-paid.

Right of 1st Refusal ? Condo

This allows the condo to purchase the unit for sale at the contract price agreed to by the buyer and seller. This rarely happens. In order to close a condo you?ll need to get from the condo management company the right of first refusal, common charge letter and insurance.

Contingent vs. Non Contingent

A contingent contract is one that if the buyer can?t obtain a mortgage commitment within 30 or 45 days then the contract is void and the buyer will get his earnest money deposit (Check you give upon signing the contract - generally 10%).

Non Contingent is not based upon the buyer getting a mortgage. If the buyer fails to get the mortgage, they will lose the earnest money deposit (generally 10%) that you put down with the contract signing.

When do you have a Deal?

Only when both parties sign the contract do you have a deal in New York. Until the contract is signed by both parties anything can happen.

Signing a Contract

When you sign a contract you will need to provide a 10% (generally) earnest money deposit with the contract to be held by the seller?s lawyer in their escrow account. Personal check is ok.

Acceptance of an Offer

When your offer is accepted, the space is still wide open especially in NYC, until the contract is fully signed by both the buyer and then the seller. An offer is non binding until you sign a contract and the seller counter signs the contract.

Board packages Co-ops and Condos

Putting together a board package you should utilize several items and follow the cover sheet which lists the directions. Although you should also read each page carefully as sometimes they have information on these pages not listed on the cover page.

In your package the buyer will need:

  1. A table of contents - that they make up and that follows exactly the table of contents of the board package, has everyone?s contact information and is addressed to the board of directors.
  2. For each item listed on the table of contents they should have inserts with the name of the section clearly denoted. If they have two people applying they should separate their documents within the each section by adding an extra insert with their corresponding names on each. The idea is to make the board package so simple a 5 year old can read it and understand everything. Also you want to answer all questions without having the board ask you, delaying the process.
  3. Their financial statement should reflect the balances of their most recent statements to the penny and the statements must be complete with their name on them. If there is a situation where something can?t be provided such as internet only statements ? you should stick in a note addressed to the board and typed denoting this is the case. Also if you are transferring stock or mutual funds for the rest of your down-payment or anything that is not specifically listed in the package or could cause confusion, you should put notes in front of the area explaining exactly the situation.
  4. All letters should have all of the writers contact information and be addressed to the board of directors. The letter should specifically focus on the person who is being recommended and why they are being recommended. For business letters, they must be on letterhead and signed. Employment letters should contain information concerning your length of employment, present salary, bonus, prospect for future employment and contact information for the writer.
  5. The application and any forms in the package should be typed or imported into adobe so you can type directly on the application.
  6. Taxes should be signed and you should give complete taxes (state and federal) unless it specifically says federal taxes only.