Buyers need to be concerned about the fee as a direct impact on the property value, not just because of the cash going out every month.  The maintenance fee covers operating costs:  Staff Salaries, management fees, heat, water and sewer and other items.  In co-ops, the real estate tax bill and underlying mortgages on the entire building is part of the maintenance fee, and is proportional to the number of shares you own in the co-op corporation.

Condos are different. The common charges still cover the operating costs the same as co-ops, but the property tax bill goes directly to the owner because of the different ownership type.  Condos may have more amenities but lower common charges due to this distinction.

According to the Council of New York Tax Cooperatives and Condominiums, the fees have skyrocketed over the last decade.  For example, the median maintenance fee for co-ops on the West Side of Manhattan rose by 59% between 2000 and 2009, while condo common charges increased by 38% city-wide for the same period.

Increasing Real Estate Taxes are the main reason for the rise in co-op fees.  Both the tax rate and the assessment of property values have increased in recent years.  On the West Side, co-op median real estate taxes increased by 116% between 2000 and 2009.   On the East Side in 2000, 23% of the maintenance paid was attributed to taxes; by 2009, that figure had risen to 33.3%, indicating that taxes were a larger portion of the maintenance fees.

Land Leases are another issue for increased maintenance fees for some co-ops.  As a number of co-ops do not own the land their building sits upon, rather rents the land.  Some of those leases are coming up for renewal soon, and the experts predict there will be a huge jump in cost.

Finding savings to offset the increases is difficult.  Most costs are fixed, including salaries, taxes, insurance, upkeep and utilities.  Several co-ops have hired consultants to check for water leaks, while others are switching to natural gas from oil heat.  Still others are metering each apartment’s utilities separately.

Many co-ops are refinancing their underlying mortgages to take advantage of low interest rates.  Others are generating income by imposing or increasing fees for using the bike room, moving in or out or renting a unit.

Reviewing a building’s financials will give a buyer an understanding of how a building spends its money.  If you disagree with how a building spends the fees, there’s little point in moving there.   See our Series on reviewing building financials starting with  ‘Tis the Season: Many Manhattan Coop Financial Statements Are Released In May.

Inspired by New York Times Article on Jan 15, 2012 by Jim Rendon.

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.

Source:  Los Angeles Times story

New condos have a few drawbacks, however: often higher selling prices and closing costs as well as difficulties in obtaining loans.  New buildings must have offering plans approved by the state attorney general’s office, detailing important points about the building.  This complex document can be intimidating to the lay person. 

Bringing in a good attorney familiar with new construction to review the offering plan early in the process can save a client thousands of dollars by identifying taxes and fees that can be negotiated.

Tax abatement is another point that bears close scrutiny.    While it is a great selling point because it keeps monthly costs lower for a while, an attorney can help determine the time span of the abatement and what the tax bill could be when the abatement expires.

Closing costs are much higher on new construction.  Expect to pay the transfer tax and the seller’s attorney fees in addition to the customary closing costs for established apartments.

Be sure the building has a temporary certificate of occupancy, required before you can close on an apartment in a new building.  Check the Building Department Website

Financing a new condo can be difficult.  Buyers may be approved for a loan, but it is entirely possible the building will not qualify.   Certain FHA and Fannie Mae requirements may preclude the building, such as flood zone or percentage of sold apartments.  Individual banks may have their own additional requirements.  Many new buildings have preferred lenders and mortgage brokers to overcome this hurdle.

Appraisals must match the purchase price.  It is not unusual to have difficulties finding nearby comparables to the new apartment you wish to buy, causing appraisals to come in lower than expected. 

Inspections are recommended for new construction.  Cost cutting measures like lower-quality windows and problem with floors or exterior stucco may affect the quality of your life.  Significant problems can be addressed in the contract.  Smaller issues like paint drips or broken screens should be addressed on a ‘punch list’.

Doing your homework now can save you a lot of aggravation down the road.

 Inspired by New York Times Article by Jim Rendon, published October 30, 2011

The restoration of the limits only apples to FHA mortgages, not Fannie Mae and Freddie Mac, which also expired at the end of September.  The conforming loan limit for these two secondary mortgage market companies will remain at a maximum of $625,500.

While this may be good news for many markets, in Manhattan, where over 70% of the apartments for sale are Co-ops, it probably won’t make much difference.  Most co-op boards require 20-50% down payments and higher income to debt rations (25-30% maximum debt to income).   Lenders for most condos are asking for at least 20% down payment to qualify for a loan.

Excerpts from Daily Real Estate News, November 18, 2011

• 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)

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.

Adapted from InvestoPedia article by Brian O’Connell 

Tips for home-buying freelancers:

• Pay off other debts, including credit cards, and build a cash reserve.
• Identify the source of the down payment, whether a gift or loan from your 401(k), and be prepared to show statements.
• Prepare for a closer examination.  Review at least 3 years tax returns.  If your income increased substantially from one year to the next, be prepared to explain why and whether you expect it to continue.  If your income declined last year, be prepared to explain that.
• Check with local banks and credit unions which may be more inclined to spend the time necessary to qualify you for a mortgage.

It is always wise to address any credit problems before beginning the house hunt.  With a little preparation and answers to some tough questions, you may be able to get into the home of your dreams.

Inspired by New York Times article by Vickie Elmer, August 26, 2011.

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

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.

ARM (Adjustable Rate Mortgage) were very popular during the boom years, but fell out of favor because the rates were very close to those of fixed-rate mortgages.  Recently, because of historically low interest rates for fixed rate mortgages, the difference between fixed and adjustable-rate loans is targeted to bet widest in eight years, according to HSH Associates, which tracks mortgage rates.

 Do they make sense?

 Ask yourself:

• Are you going to stay in the property 5 years or less?
• Are you going to be able to refinance within 5 years?
• If the rate adjusts upward in 5 years, are you going to be able to make increased payments?
• Will you be able to sell for more than the loan balance when you want?

If you are a gambler, betting that interest rates won’t rise or you can sell before they do, maybe.  If you will only stay for 5 years or less, an ARM possibly makes sense.

Let’s look at some numbers.  One popular ARM loan is a 5/1 ARM.  It has a fixed rate for the first 5 years, then adjusts every year thereafter.  A recent ARM 5/1 was quoted at 3.4%.  The average 30 year fixed rate mortgage is 4.72%.  The difference between the two is called the ‘spread’.  In this example, the spread is 1.32%, big enough to save thousands of dollars during the first five years of a mortgage.

Although there are naysayers, ARMs are becoming more attractive, and may be an option for some borrowers. Weigh the pros and cons, speak to your financial advisor and make sure the ARM is right for you.

Based in part on an article from the Wall Street Journal by AnnaMaria Androitis