BUYING 101
New York is a city comprised mainly of cooperative and condominium apartments with a smaller selection of private homes called townhouses or brownstones. It is important to understand the differences in property types and the nuances of the purchase process.
COOPERATIVES
Cooperatives (Co-ops) are not a new concept for New Yorkers, but many out-of-towners are unfamiliar with this type of ownership. In NYC about 75-80% of apartments available for purchase are in cooperative buildings, while 20-25% are in condominiums or townhouses. This means that there is more inventory to choose from if a buyer includes co-ops in the mix of properties; typically, prices are more favorable for cooperatives because of supply and demand.
Cooperative buildings are owned by an apartment corporation. Individual tenants do not actually “own” their apartments as they would in the case of “real” property. Tenants own “shares” in the corporation which entitles them to a long-term “proprietary lease.” The corporation pays the total amount of the building’s mortgage (a co-op may have an underlying mortgage for their specific apartment on the entire building, whereas a condo must be owned outright), real estate taxes, employee salaries, and other expenses for the upkeep of the building. The tenant-owner, or “shareholder,” pays a share of these expenses as determined by the number of shares the tenant owns in the corporation. Share amounts are usually dictated by apartment size and floor level – space on a higher floor will have more shares associated with it than its counterpart on a lower floor.
Important considerations when buying a co-op:
• The quality of services and the security of the building are kept at high standards. • Each building has its own tax structure, but all co-ops offer tax advantages. Shareholders can deduct their portion of the building’s real estate taxes, portions of their monthly maintenance expense and the interest on the building’s underlying mortgage.
• Each cooperative determines the amount of money that may be used to finance a purchase. Some buildings require substantial down payments. Generally speaking, in Manhattan, buyers should be prepared to “put down” 20-50% of the purchase price.
• Subleasing a co-op must be approved by the Board of Directors of the co-op. Each corporation has its own rules, and they should be examined if a potential owner intends to sublet.
• Most cooperatives only accept buyers who intend to use the apartment as their primary residence. Co-ops are not for investors.
Don’t be frightened. Co-ops are the norm in New York City, not the exception.
CONDOMINIUMS
Condominiums (Condos) are quite popular and common throughout the rest of the U.S.; however they are a rather new concept in the Big Apple. A condo apartment is real property – buyers get a deed just as though they were buying a house. Since this is real property, there is a separate tax lot for each apartment.
This means that condo owners pay their own real estate taxes for their property. An owner also pays common charges on a monthly basis. Common charges are similar to maintenance in a co-op; however, common charges include neither real estate taxes nor the building’s mortgage and interest because, by law, a condo cannot have an underlying mortgage.
Condominiums are attractive for the following reasons:
• Financing the purchase of a condominium apartment is much more flexible than a cooperative apartment. In the past, buyers could finance up to 90% of the purchase price. Since the credit crisis, banks’ lending practices have become more stringent. Buyers should consult a mortgage professional for current financing options.
• While there is an application process, it is not as formal as in a cooperative. The likelihood of rejection is significantly less.
• There is greater flexibility in sub-leasing your apartment. This makes condos a better investment choice than co-ops.
• Condominiums are the ideal choice for non-U.S. citizens or for those with assets held outside of the United States because co-ops are unlikely to approve these types of buyers.
Condos are generally more expensive than co-ops for a number of reasons. There are fewer condominiums than cooperatives in New York City, the buying process is easier, and combined monthly common charges and real estate taxes in a condo are typically lower than a co-op’s monthly maintenance charges.
STEPS TO FINDING THE PERFECT HOME
1. Seek pre-approval for a mortgage: Typical time frame: same day to two days. You must know how much you can spend before you can spend it. Sellers and their brokers will want to know you are qualified to purchase their apartment before they will begin negotiations.
2. Find an apartment and place an offer: Typical time frame: varies. Some buyers need to see many possible choices before making a decision, while others need only to see a few. When you have found the right property, your agent will convey your offer to either the seller’s agent or to the seller directly. Offers are made verbally in New York City. The seller may “counter” your offer thereby beginning the negotiation process in which both parties agree upon price, terms, and closing date.
3. Negotiate the apartment: Typical time frame: one day to two weeks. This depends on the buyer and seller. Some transactions move quickly and some don’t. It’s always a good idea, however, to keep momentum going. Remember that there is more to negotiate than price alone. What will the closing date be? Would a longer closing be more attractive or does the seller have the desire to close quickly? What personal items will remain with the apartment? In New York, for instance, all appliances typically remain, but do the window air conditioners? What about the curtains? Ask about everything and remember it is all part of the negotiation.
4. Sign the contract: Typical time frame: two days to three weeks. All property transactions in New York City require a real estate attorney. Your real estate agent can assist you in finding experienced attorneys.
5. Apply for a mortgage: Typical time frame: three to nine weeks. You have already pre-qualified, identified the property and signed a contract. Now is the time to apply for a mortgage. Receiving a Commitment Letter from the lender can take anywhere from three to nine weeks. It is important to use a reputable mortgage broker or banker and, once again, manage the process.
6. The Appraisal: If financing, the bank will send an appraiser who will then submit an appraisal report.
7. Complete the board package: Typical time frame: three to nine weeks. Your agent will supply you with the board requirements and application materials. Board packages typically contain: an application, financial statements signed by a CPA and all back-up materials, tax returns, bank statements, letters from bankers, accountants and employers verifying all claims, letters of personal and business reference, the contract of sale, and a bank commitment letter (if you are financing).
8. The board interview: Typical time frame: 30 minutes to an hour. The board interview is a business meeting and should be treated as such. Each cooperative has its own way of handling new applicants: some co-ops meet on a monthly basis and you must wait until their scheduled meeting; some meet on an as-needed basis; some don’t meet at all in August or December because of holidays and vacations; etc. Do everything possible to make yourself available. It will seem to you that all of this is on “their” terms, but, for better or worse, this is how the process works. Try to keep emotions out of the process.
9. Approval from the Board: Typical time frame: one to two days. If you are approved, you should hear within one to two days after your interview. Occasionally it can take longer.
10. Schedule the closing: Typical time frame: one to two weeks. Be flexible! There are many moving pieces to this process and many aspects that are simply beyond your control. Assuming all parties are “ready to go,” however, the closing can generally be scheduled for one to two weeks after board approval.
11. Close the deal: Typical time frame: varies. Attend the closing and pick up the keys.