Archive for The Process
Real Estate Hurdles Leading to Contract Cancellations
Posted by: | CommentsWith the economy showing signs of recovery in many parts of the country, one would think that Real Estate deals would be smooth sailing. Unfortunately that isn’t the case. In a new national survey Almost one-third of real estate agents reported experiencing deals falling through.
According to the survey by the National Association of Realtors, the reported cancellation rate doesn’t mean that one of every three transactions are falling through, rather more than triple the number of agents are facing deal-jeopardizing problems in 2011.
Some of the issues reported:
- Appraisals below contract price. Appraisers hired by the mortgage company may have a different opinion of the value of the property, sometimes significantly below the price agreed in the contract. Foreclosures being used as ‘comparables’ to value non-distressed properties are part of the problem here. Inexperienced appraisers who are unfamiliar with local trends also contribute to this trend.
- Stringent underwriting and documentation requirements. Restrictive underwriting rules at the Federal Housing Administration, Fannie Mae and Freddie Mac can derail signed contracts or delay them for months.
- Poor service by lender staff. Agents report “lack of customer service” and “generally bad attitudes” as contributing factors to delays and some contract failures. However, agents also need to be on the lookout when loan processing deadlines start to lag or communication breaks down, and facilitate the progress of getting it moving again.
The key to closing on a home is to make sure you choose the right agent, lender and other team members who will help you understand the rules and requirements before hand, and stay on top of the professionals involved in your transaction.
Based on Los Angeles Times article.
In the News
Posted by: | Comments4/25/12 ‘Sex and the City’ Townhouse sold for $9.85 million: The home at 64 Perry Street, listed for $9.65 million in early March with sold for $9.85 million, according to city records. Read the full article at The New York Observer
4/26/12 Useful Vocabulary for Building Watchers: Here are a few architectural definitions that anyone who wants fluency in New York architecture will find useful. Read the full story in the New York Times
4/26/12 Prudential Douglas Elliman releases “The Elliman Report: Long Island Sales 1Q 2012”: Mild winter weather brought consumers into the market earlier than usual, causing the number of signed contracts in the Long Island housing market to jump from year ago levels. Housing prices were mixed, as buyers of lower priced properties took advantage of record low mortgage rates. Although properties took slightly longer to sell, listing inventory fell to its lowest first quarter total in six years. Despite the slow improvement in the national economy, we are encouraged by the state of the market in 2012. See the full report
4/26/12: Prudential Douglas Elliman releases “The Elliman Report: Hamptons & North Fork Sales 1Q 2012”: The Hamptons and North Fork housing markets showed stability in both price and sales activity. Just as we have seen in prior quarters, the high end of the market continued to show strength. While it took somewhat longer to sell a typical property this quarter, listing inventory continued to decline. Considering the slow pace of our national economic recovery and tight credit, the East End housing market has continued to hold its own. See the full report
4/27/12: Space Shuttle Enterprise’s Historic Flyover Wow’s New Yorkers: Did you see it? Hundreds of space shuttle shuttle fans braved the chilly temperatures and biting wind Friday Morning along the Hudson River here to catch a glimpse of NASA’s prototype orbiter as it flew past the Intrepid Sea, Air and Space Museum it will soon call home. See the full article on Yahoo! News
4/27/12: Threats, stormy Exits and…: The setting for the closing on an apartment in the East 50s was a lawyer’s office. Things seemed to be going well between the sellers until the wife found out the price her husband had received for the apartment. This is New York City, where real estate transactions can literally take on the trappings of a blood sport. Unlike most other parts of the country, it is a place where lawyers are invariably involved in the transaction; at the very least, this increases the number of people around the table. Read the full article in the New York Times
4/27/12 Brokers See Bright Future for 2012’s Residential Real Estate Market: The Real Estate Board of New York (REBNY) has released the results of its Residential Brokers Survey for the first quarter of 2012. With the unseasonably warm weather and favorable market conditions, brokers saw an uptick in activity this quarter and are optimistic about next quarter. Of the brokers surveyed, 69 percent reported that they thought the first quarter of 2012 was better than the previous quarter. Additionally, 76 percent of brokers reported that they expect the second quarter of 2012 to be better than the first, a 16 percent increase from last quarter.
Their optimism was based on the improving activity in the market. The survey found that 70 percent of brokers reported completing executed contracts of sale this quarter, a nine percent increase from last quarter. Another highlight from the first quarter of 2012 was that 74 percent of brokers reported closing rental transactions at or above asking prices, which is a 13 percent increase from this time last year. In addition, 26 percent of the brokers reported closing sales at or above asking price, a nine percent increase from the fourth quarter of 2011 and a 4 percent increase from the first quarter 2011.
“Brokers feel changes in the market first and we count on them to help us gauge where the market is headed,” said REBNY President Steven Spinola. “Based on the survey results, it’s clear that broker’s optimism is coming from an improving market and that their view that 2012 will be a strong year for New York City real estate is justified.”
The survey also found a near perfect record of 99 percent of brokers reporting that they received a coop board approval in less than 90 days from the time a completed coop board application was submitted.
Similar to last quarter’s findings the top features/amenities this quarter were: 1) doorman building, 2) laundry in unit, 3) private storage space, and 4) on-site fitness center.
The survey was sent to REBNY’s Residential Broker Members. 404 brokers took the survey this quarter. See the REBNY Q1 2012 Residential Broker’s Survey Results
What Co-op Boards look for in your Financials
Posted by: | CommentsMany co-op boards do a cursory examination of your application: review financials, check references, interview and make a decision. But what does it mean ‘review financials’? In the old days, if the bank gave the ok for financing, that was ‘good enough’; but not anymore.
So what do they look at?
- Debt-to-income ratio
- Mortgage lenders generally want no more than 28% of a buyer’s gross monthly income to the mortgage payment (Principal, Interest, Taxes and Insurance), or a maximum of 36% for PITI and recurring debt (loans, credit card payments, child support, etc)
- Co-op Boards usually want to see something closer to 25-30% debt-to-income
- Income – liquid income
- Generally the last 3 years of tax returns are reviewed for gross income and adjusted gross income
- Earning Potential – if your earnings are less than board guidelines, or assets are too weak, but you can show potential for increased income, the board may approve with conditions such as a year’s maintenance held in escrow.
- Debts
- Boards also consider other debts, student loans, car loans, other mortgages.
- Other Factors
- Location – locations such as Brooklyn or Queens may be less likely to look for large assets and permit more financing than a building on Park Avenue in Manhattan
- Building size – larger buildings could be easier to buy into than smaller buildings because one or two arrears owners have less impact in a 200 unit building than a 20 unit building.
Boards want to protect their co-op, choosing people who are the right fit. They also need to stay within the boundaries of discrimination laws. Reviewing the financials allows the board to decide whether to move forward or not without violating the discrimination laws.
Excerpted from Habitat article
Enticing Foreign Investors – Buy a home get a Visa?
Posted by: | CommentsRecnetly, U.S. Senators Charles Schumer (D-NY) and Mike Lee (R-UT) introduced a bill that would allow foreigners who spend at least $500,000 on residential property to obtain visas allowing them to live in the United States. The “Visa Improvements to Stimulate International Tourism to the United States of America Act”, or VISIT-USA Act is similar to an existing program that puts foreigners on a fast track to a green card if they invest at least $500,000 in an American business that creates at least 10 jobs.
The legislation would create a new homeowner visa that would be renewable every three years, but would not be a path to citizenship. There are a number of stipulations and restrictions, however:
- To be eligible, a person would have to buy a primary residence of at least $250,000 and spend a total of $500,000 on residential real estate. Other properties could be rented.
- The purchase would have to be in cash, no mortgage or home equity loan allowed.
- The property would have to be bought for more than its most recent appraised value
- Buyer would have to live in home for at least 180 days each year, requiring paying US Income taxes on any foreign earnings.
- Visa eligibility would be revoked if property was sold.
- Work visas still must be obtained to hold a job.
- Neither buyer nor dependents would be eligible to receive Medicaid, Medicare or Social Security benefits.
Some brokers say that a visa incentive to foreign buyers could potentially even triple sales in their markets.
“California, Florida, New York, Colorado, Hawaii, and Texas — those states will see a huge increase in demand,” Sandra Miller, a broker at Engel & Volkers in Santa Monica, told the Los Angeles Times.
What’s the Best Day to List Your Home?
Posted by: | CommentsAccording to a Redfin study which analyzed 1.2 million listings in 16 markets over 21 months, Friday is the best day of the week to list a home for sale.
- Homes listed on Friday were 12% more likely to sell within 90 days.
- Homes listed on Thursday or Friday sold for slightly closer to list price – 94.4% compared with 93.9% for homes listed on a Sunday or Monday.
- Homes listed on Friday were viewed 19% more by buyers than homes listed on any other day of the week.
“Our theory is that since home buyers tend to tour homes on the weekends (Saturday and Sunday have 2.5 times more tours per day than weekdays), homes listed on Fridays are the freshest in buyers’ minds when they’re making their weekend plans,” the brokerage said in a blog post about the findings. “It also seems likely that many home buyers sort their weekend ‘must see’ lists by date listed, going to see the freshest homes first so they have the best chance of getting in on a potential good deal before other buyers. These factors put homes listed on Friday in front of more touring buyers on the weekend. More tours lead to more offers, and more offers leads to a better price and a better chance of selling.”
Listing in Manhattan? Since we don’t have an MLS here, make sure you take into consideration the 24 hours it takes to submit the listing to the various web sites that will be used by consumers. I suggest, posting Wednesday to ensure total distribution by Friday.
rwb
Source: “Best Day to List Real Estate for Sale: Friday,” Inman News (Oct. 18, 2011)
What’s The Difference Between Being Pre-Qualified and Pre-Approved For A Mortgage?
Posted by: | CommentsPeople often confuse the first two stages of the mortgage process. Often they get pre-qualified and mistakenly believe they are pre-approved. So what’s the difference?
Pre-Qualified: This is the first step in the mortgage process. You talk to a lender and give them overall numbers regarding income, debt and assets. The lender will evaluate the information and give you an idea of how much and what type of mortgage you qualify for. This is sometimes done over the phone and is not a sure thing, only a ball-park of the amount you might expect to be approved
Pre-Approved: Is much more involved. Requires an official application and even sometimes a fee; documentation and extensive check on everything you’ve put on the application as well as your current credit rating. At this point, if approved, you’ll receive an official commitment in writing for an exact loan amount, with conditions.
Generally, getting pre-qualified before you start looking gives you a starting price you can afford so you’re looking at only properties at or below that price. Getting pre-approved puts you in a stronger position in offers and negotiations and saves some time.
The loan commitment is the final step in the process. This approves you the buyer to a specific property. Your income and credit profile will be checked again to ensure nothing has changed since the initial approval. It is only issued when the bank is certain it will lend you the money.
360 East 72nd Street: Working Together For The Benefit All Residents
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Recently I wrote a 3 part series on Coop financial statements. In Part 1, we discussed the General Principles of a Coop Corporation and the Telltale signs of a GOOD Building. Part 2 discussed what to look for in Coop Financials. In Part 3 we look at assessing a Coop’s financial condition.
As I pointed out, Coops seldom conduct a study to determine the remaining useful lives of the building’s systems and major components. Additionally, coops are seldom required (if ever) by their governing documents to accumulate funds in advance of the need of such repairs.
Depending on the size of the building, emergency and unplanned repairs can result in a serious increase in maintenance or special assessments. High maintenance and assessments drive down apartment selling prices.
The board did all of this work without raising maintenance or passing a special assessment.
With an Engineering Systems Report, a 5 year Capital Budget Plan and a culture of working together for the benefit of all residents, 360 East 72nd Street was a rare example of a Coop, thanks to its Board, that took a building with serious problems and rebuilt most of the infrastructure….The board did all of this work without raising maintenance or passing a special assessment.
The Costs:
Brick replacements/balconies $8.5 million
A/C chiller $995,000
Oil tank $213,000
35th floor roof $510,000
Elevators (machinery) $510,000
Elevators (cabs) $170,000
18th Floor roof $249,000
Total $11,600,500
The Mortgage Maze – A Road map to approval
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In years past, nearly anyone who could fog a mirror could qualify for a mortgage. Not anymore. Those days are long gone. From stricter underwriting to more documentation, face it, getting a mortgage isn’t as easy as it once was.
Be prepared is the name of the game.
- As part of your real estate team, in addition to an attorney, financial advisor/accountant and real estate broker, seek out a mortgage professional you can trust. They will be privy to all aspects of your financial life.
- Check your credit score and review credit reports
- Gather your Documents
- Two years of complete Federal Tax Returns including W-2s
- Two recent and consecutive period’s paystubs
- two complete and consecutive months bank statements
- two complete and consecutive months brokerage account statements
- one recent quarterly retirement account statements for each retirement account
- photo ID
- Mortgage professional will review and point out any potential red flags
- Complete mortgage application and submit to lender.
- Get a pre-approval letter.
With the approval letter in hand, your real estate broker will have a better understanding of the price range you qualify and can show you properties that fit your needs and budget. Your broker will be able to negotiate from a stronger position. Before you know it, you’ll be moving into your new apartment.
Adapted from an article written by Richard Martin/SVP/DE Capital Mortgage an affiliate of Prudential Douglas Elliman.
New York Mansion Tax? I don’t live in a mansion!
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According to New York State, if the purchase price of an apartment is $1 million or more, you are buying a mansion! Therefore your purchase would be subject to a 1% Mansion Tax, calculated on the entire purchase price, not just the part that exceeds $1 million. Buy at $999,999.99 no tax; buy at $1,000,000.00 or more, and you’ll owe $10,000+ tax.
If you’re thinking you’re safe if the purchase price is less than $1 Million, but are paying fees or taxes that would have otherwise been paid by the seller, think again. Those fees become part of the consideration for the property and could lead to being responsible for the Mansion Tax.
According to Joel E. Miller, a Queens tax lawyer, although the mansion tax is not deductible, however it does increase the property’s tax basis so it will ultimately reduce the tax paid on a gain on the sale of the property.
Tis the Season: Coop Financials Released in May – Part 3 of 3
Posted by: | CommentsThis is the third in a 3 part series. In Part 1, we discussed the General Principles of a Coop Corproation and the Telltale signs of a GOOD Building. Part 2 discussed what to look for in Coop Financials. Finally, we’ll look at:
Assessing a Coop’s Financial Condition
It has been my experience that very few buildings are in such a state of financial disrepair as to warrant a decision on the part of the buyer not to purchase in a particular building.
This was not always the case especially in the 1980’s and early 1990’s, a time that saw a tremendous amount of new conversions and with that, the problems that arise in such situations. Currently, the overwhelming majority of coops have been established for over fifteen years (a very conservative estimate) and has in many ways gotten the kinks out of their financials. They tend to enjoy low or no sponsor ownership, attractive financing and low instances of shareholder default.
In spite of the likelihood that the majority of buildings are solvent, buyers are concerned about the potential for increased maintenance and assessments, these concerns are the main motivation behind their question; “Is this a good building?”
Before forming an opinion, it is essential to understand the following points:
- Buildings, regardless of their location, age and prominence, need on-going repair and the replacement of parts, systems, and structure.
- Operational costs are subject to inflationary pressure and therefore are likely to rise.
- Salaries are subject to union mandates.
- Taxes are subject to the municipality.
- The only manner in which a building can raise money is by employing one or more of the following sources:
- Refinance their underlying mortgage.
- Exercise their ability to draw upon a line of credit.
- Raise maintenance.
- Institute an assessment.
- Institute a flip tax on resales.
Based on the aforementioned, it is logical to conclude that ownership costs are going to rise in 99% of the cases.
The job at hand is to assess that a building is being run conscientiously (an imperative) and predict to what extent future costs are likely to rise.
Finally, I recommend a NY Times article which describes some Red Flags in a co op’s statement.
