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.

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

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

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.