Archive for Coop

May
16

Purchaser’s and Sellers Closing Costs Guide

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Closing Costs Guide-Created by Jerry Feeny

Real estate closing costs can be confusing. These PDFs created by Jerry Feeny,  a well known and respected New York Metro real estate attorney, cover closing costs (coops, condos, townhouses-and other real property)  for buyers and sellers in New York City , The Hamptons and Westchester & Rockland Counties.

We hope you find this guide helpful in ‘demystifying’ the age-old question of buyers, ‘what are my closing costs?’ And from sellers, ‘what costs do I have to pay at closing and what is left over from the sale price?

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Feb
07

What Co-op Boards look for in your Financials

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Many 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

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Nov
20

Co-op Maintenance Fees Are On The Rise

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Making up 75% of all housing stock in New York, Co-ops are the most common type of housing excluding rentals.  The average co-op maintenance fee in New York City climbed 19% from 2009 to 2010 to $1.76 per square foot per month, according to Miller Samuel, a Manhattan-based appraisal company that tracks maintenance costs.

Maintenance fees  usually cover debt service for the underlying mortgage, property taxes, maintenance, personnel and other items.  These fees are usually apportioned per share of stock in the corporation, and are in addition to the owner’s individual mortage (if any).  A review of a co-op’s financial documents will give you the breakdown on the expenses.

What’s behind this increase?

  • Property Taxes:  New York City Property Tax revenue increased 9.68% in 2009 according to the NYC Department of Finance.
  • Utility costs:  Natural Gas and heating oil costs continue to increase. Water costs are up slightly.
  • Building Staff. Salary and benefits, usually renegotiated under union contracts every two to 3 years. 
  • Insurance Costs:  Varies by building and location, usually covering liability and disaster damages
  • Building upkeep, including major repairs to plumbing, electrical, heating and the roof.

What can the Board do?

  • Cancel or delay discretionary projects
  • Request several estimates for upcoming projects.
  • Refinance underlying mortgages.
  • Impliment a flip tax.

When faced with rising costs, there is little a co-op board can do but pass the costs throught to the shareholders as either increased maintenance fees or temporary (or permenant) assessments.  The decision to raise maintenance fees ultimately rests with the co-op boards.

Inspired by Smart Money article by Annamaria Androitis.

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Nov
08

Congress Restores FHA Loan Limits to previous levels

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As we reported in May,  the Federal Government backed new mortgage lending limits program expired in September, 2011.  This week, the U.S. House and Senate voted to restore the FHA loan limits to the previous maximum $729,750.  According to the National Association of Realtors, this will help provide stability to communities as credit restrictions continue to prevent some qualified buyers from becoming home owners.

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

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Our Q3 Manhattan Market Overview which was released Tuesday and summarized below was prepared by Miller Samuel for Prudential Douglas Elliman.

  • Housing prices in Manhattan continue to remain stable. The median sales price of a Manhattan apartment was $911,333 in the third quarter, essentially unchanged from $914,000 in the prior year quarter and up 7.2% from $850,000 in the prior quarter.
  • Although year-over-year co-op sales activity was unchanged, the increase in condo activity resulted in a 16.7% year-over-year increase in overall sales activity. An increase in demand from foreign buyers due to the weak US dollar is likely a key factor for the gain.
  • There were 7,726 active listings at the end of the third quarter, 4.9% fewer than 8,123 listings in the same period last year and 4.3% less than 8,070 listings in the prior quarter.
  • Consistent with the decline in inventory, the time to sell an apartment and the discount from list price have also declined. Days on market fell to 119 days from 125 days and the discount from the list price at time of sale slipped to 4.4% from 5.8%, both from the same period last year.

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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

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In Part 1, we discussed the General Principles of a Coop Corproation and the Telltale signs of a GOOD Building.  This post will discuss what to look for in Coop Financials.

Basic Items to Focus on in a Cooperative Financial Statement
  • Liquid Assets.
  • Underlying Mortgage(s).
  • Total Income
    • Maintenance Income
    • Miscellaneous (Other) Income
  • Total Expenses.
  • Income from Operation before Depreciation.
  • Income from Operation after Depreciation.
  • Notes to the Financial Statement.
Liquid Assets
  • Cash and cash equivalents. These constitute money that can be spent irrespective of prepaid items and mandated escrow funds. Cash typically exists in a in an operating account, savings account or is designated as a reserve fund.
  •  A building’s cash accounts should equal at least 2-3 months’ maintenance charges.
Underlying Mortgage(s) 
  • The overwhelming majority of coop corporations have an underlying mortgage as well as a subordinate mortgage. The latter generally appears in the form of a credit line that can be drawn upon as need presents itself.
  • Underlying mortgages are generally 7-15 years in length with the final payment in the form of a balloon payment. These mortgages are considered commercial mortgages and are subject to higher interest rates than found in a conventional mortgage and are subject to pre-payment penalties. Additionally, mortgages of this type are commonly interest-only mortgages and seldom self-amortizing mortgages.
  • When the purchaser of a coop applies for a mortgage, the lender needs to ascertain to what extent the purchase price of the unit relates to its pro rata share of the underlying mortgage. Most often the pro-rata share of the underlying mortgage is usually less than 20% of the purchase price, and in such case, there is no resistance from a lender to lend.

To determine the pro rata share of the underlying mortgage: divide the amount of the underlying mortgage by the total number of shares issued which equals the amount of mortgage per share and multiply that number by the number of shares allocated to the unit in question.

For example:

$8,000,000 (underlying mortgage) / 22,000 (total shares) = $363.63 per share x

147 (unit’s shares) = $53,454 (pro rata share of the underlying mortgage)

$53,454 / $650,000 (purchase price) = 8.22%

Total Income
  • Maintenance income is sometimes referred to as rental income. It represents the sum of money paid to the corporation by the shareholders. Maintenance can be stable, it can increase from year to year, and in some instances, it can go down.
  • A maintenance increase of up to 5% over the previous year would be considered normal whereas an increase in the vicinity of 10% would be considered high; however, every maintenance increase must be looked at within the context of the overall financial condition of the building.
  • Miscellaneous income is income received from non-maintenance sources such as assessments, tax refunds, interest, dividends, flip taxes, proceeds of un-sold shares, commercial income, and laundry income. In most instances, income from non-maintenance sources should not exceed 20% of a building’s total income otherwise it will be a breach of the 80/20 rule and create a tax consequence for the building. In some instances where a building is receiving too much miscellaneous income, it has become necessary for the building to increase their maintenance to comply with this rule.
    • In the past year or two, the 80/20 rule has been made more flexible to allow exceptions to the rule if certain conditions exist. One such condition would be when no more than 20% of the building is allocated to non-residential occupancy, the building may receive more than 20% of its income from miscellaneous sources.
Total Expenses
  • This is the sum of money the coop spent for such items as debt service, utilities, repairs, insurance, service contracts, real estate taxes, management fees, legal fees, and salaries etc.
Income from Operations before Depreciation
  • This is the difference between total income and total expenditures. Ideally,the total income should be equal to or slightly more than the expenditures. Realistically, the income flow might be slightly more or less than the expenditures.
  • The significance of a negative cash flow before depreciation must be assessed in relationship to the existing maintenance level, the level of cash assets and the anticipated need for additional income. A negative cash flow of 5% or more would cause concern if it were the result of normal expenditures and not an extraordinary event. At times a coop may purposely budget a negative cash flow in order to absorb substantial cash reserves, and in doing so, would eliminate the need for a maintenance increase which might have a negative impact on values.
Income from Operations after Depreciation
  • Income after depreciation is a “phantom number” and has no significance as long as it remains a negative. Should it be a positive number, the coop will be liable for federal income taxes.
Notes to the Financial Statement
  • Pay notice to any items that might impact the coop’s need for additional cash flow or asset accumulation such as:
    • Terms of the underlying mortgage(s).
    • Land lease escalations.
    • Rental income variances.
    • Tax liabilities.
    • Late shareholder payments.
    • Assessments.
    • Capital improvements.
    • Impending lawsuits.
Miscellaneous Items
 Sponsor Ownership
  • Ideally, a low percentage of sponsor ownership is preferable to a high percentage of sponsor ownership. The latter places the possibility of a material default in the hands of a single shareholder and restricts or even inhibits a bank’s willingness to lend in the building.
  • In cases where a sponsor or investor entity owns 10% or more of the shares, New York City mandates that such entity provide an annual affidavit that illustrates the differential between the rental income received (if any) and the maintenance due on the units in question.
  • Other issues aside, the essential concern of shareholders is “Does the sponsor pay his maintenance in a timely manner?” The answer to this question is yes in 99% of the situations.
Future Repairs
  • 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.
Ground Rent
  • Ideally, it is better for a coop to own its land rather than to have to lease it. Leasing land is never a positive situation but not necessarily the reason to forgo purchasing in such a building. When evaluating a land lease building; notice the remaining term of the land lease, rent escalations, and renewal options. Pay particular note to when the property is going to be re-appraised for purposes of determining future ground rent.
  • Land lease buildings do not necessarily have high maintenance charges, although they usually do.
  • Land rent does not contribute to the tax deductibility of the maintenance.
  • A “too short” land lease term (15 years or less) with no renewal option would severely impact the values of units in the building. In such an instance, a unit’s value could be defined as the difference between the fair market rental value, less the maintenance charge, multiplied by the number of years remaining on the land lease.
  • It is always advisable for a purchaser to have an attorney review the land lease prior to signing the contract of sale.
Obtaining Updated Information from the Managing Agent
  • Most financial statements reflect the state of affairs on December 31st of the preceding year. Such statements are usually issued between March and May of the following year.
  • It is advisable to obtain updated information with regards to maintenance increases, assessments, and capital improvements when the purchase is to be made between June and December, otherwise, the buyer would be relying on information that is 6-12 months old.
High Maintenance / Low Maintenance
  • Too often, buyers and brokers are apt to state an industry standard for the cost of maintenance in terms of $X.00 per square foot. This way of thinking is erroneous because there are many variable items that comprise maintenance and the amount of people that share in these expenses varies from building to building. For example: a building with 250 shareholders has the same expense for a 24-hour doorman as a building with 25 shareholders.
  • Other variables include:
    •  Terms of the underlying mortgage: amount, interest rate, interest only payments vs. amortized payments, amortization term.
    • Improved building systems versus the status quo.
    • High service versus low service: concierge, elevator operator, lobby attendants, handymen, porters, resident manager.
    • On-site amenities versus no amenities.
Reserve Fund

The lack of a reserve fund, or cash cushion, is not necessarily a negative condition. Having money in reserve is relative to the need of having money in reserve. If there is high need, then a reserve fund is important. If there is low need, then a reserve fund is not as important.

Additionally, money can only be accrued if the coop takes measures to create such a fund from the following sources:

  • Positive cash flow (income over expenses prior to depreciation).
  • Assessments
  • Cash-out refinance of their underlying mortgage,
  • Secondary financing or credit line.
  • Flip taxes.
  • Sale of un-sold shares (if any).
Assessments
  • Assessments are a viable means to create needed cash to pay for improvements or supplement cash flow in lieu of increasing maintenance or borrowing money. Assessments tend to be considered single events (sometimes ongoing) in which case they are less likely to inhibit values as does “too high” maintenance frequently does.
  • Unlike a maintenance increase, an assessment accrues towards the building’s cost basis and in doing so adds favorably to the building’s ability to depreciate against income.
  • Many coops choose not to accrue such funds until the actual need for such funds arises. Coop documents typically do not impose mandates on the accrual of such funds.

In Part 3 we’ll discuss Assessing a Coop’s Financial Condition.

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When you buy a house or a condominium, you are getting real property. When you buy a co-op you are not actually purchasing the physical apartment. You’re buying shares in the cooperative corporation which owns the building in which the apartment is located.  Here’s  more information on coop buying and mortgage process.

Like investing in shares of any corporation you should consider the financial viability of that corporation.  As always, I suggest that before buying any real estate you create your team of trusted advisors which should include a broker, attorney/financial advisor and mortgage banker or broker.

General Principles of a Coop Corporation

  • A coop is a “not for profit” corporation.
  • The coop’s board of directors has a fiduciary responsibility to operate the building in a responsible manner.
  • The coop board of directors generally appoints a managing agent to attend to the day to day operation of the building.
  • Coop corporations, regardless of size, are mandated to publish an annual financial statement that details the nature of their financial affairs. Included in these statements are the following: assets, liabilities, income, expenses

Telltale Signs of a GOOD Building

  • A building that is in obvious good repair and in immaculate condition.
  • A condition where maintenance is commensurate with services and sustains a cash reserve commensurate with the impending need of such a fund.
  • Tax deductibility of maintenance that is under 58%.
  • Cash flow variance within 5% above or below expenses.
  • Assessments dedicated to ongoing capital improvements.
  • A reserve fund equal to two to three months’ maintenance charges.
  • Low or no instance of shareholder or sponsor default.
  • A building that owns their land.
  • A defined land lease escalation as opposed to one based upon an appraisal.
  • An actual income / expense statement that reflects the budget projection.
  • Stable or reduced fixed costs.
  • Exhibits a net loss after calculating depreciation.

Next time we’ll discuss what to look at in a Coop’s Financial Statements.

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May
17

All Real Estate is Local. Very, Very Local!

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Truth, lies and statistics!

Earlier this month,  Zillow released its Q1 Real Estate Report.  Many in the press joined in and cried gloom and doom.

The hysteria was best summarized by a Curbed article that listed the 10 Most Depressing Things Mentioned in The Zillow Report.  Perhaps real estate prices continue to decrease in Phoenix, Los Vegas, Tampa, etc., but in New York City, especially Manhatan,  it’s just not the case.

You would be misled if you simply looked at the Zillow Home Value Index for New York Metro data and assumed it had anything to do with Manhattan Residential real estate sales.

  MoM QoQ YoY
New York Metro -.5% -1.6% -5.3%

But if you focus on coops and condo sales which account for over 99% of residential properties sold in Manhattan vs single family homes , you’ll see that in New York City there have been significant price increases

  MoM QoQ YoY
New York Coop+Condo +2.3% +7.5% +19.2%

As previously discussed with regard to the Case Shiller report discussed here, the Case Shiller report excludes new developments, condos and coops.  At least the Zillow report has that data available (perhaps not new development) but you have to dig for it.

All real estate is local.  So local, in fact that certain neighborhoods, blocks, buildings and even specific apartments have their own hyper-local real estate data.

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Our Q4 Survey of Manhattan co-op and condo sales which was released today and summarized below was prepared by Miller Samuel for Prudential Douglas Elliman

 

 

 

  

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Jan
12

Q4 2009 Manhattan Residential Sales Market Report

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Q4 Market Report Chart and Graph Recently the industry has reported Q4 sales for the Manhattan residential market. The Manhattan Market Overview reported here and summarized below was prepared by Miller Samuel for Prudential Douglas Elliman.

  • Q4 continues the surge of activity seen in Q3 with 2473  sales up 10.9% from 2230 last quarter and up 8.4% from 2282 prior year quarter.
  • By far, the most activity and shortest Days On Market were seen in the under $1 million category
  • Inventroy Down 18.3% from last quarter and down 24.6% from prior year quarter
  • Average sales price per square foot up 5.5% over last quarter ($1051/sf) but down 11.2% over the prior year quarter ($1183/sf)
  • Median sales price $810 down 4.7% over last quarter and down 10% from  $900 in the prior year quarter.
  • Days on Market up 28.3% from last year quarter
  • Inventory down 24.6% form last year quarter

Reporting and analysis of  the Q4Market Survey were consolidated on the Miller Samuel website and shown below.

01/07/2010  -NuWire Investor- Manhattan Property Prices Plummet In Fourth Quarter

01/07/2010  -Before it’s News- Manhattan Residential Market Slowly Clambering Out of Hole

01/07/2010 -Epoch Times- Manhattan Residential Market Slowly Clambering Out of Hole

01/06/2010 -PropertyWire- Reports reveal the devastating effect of the Wall Street decline on apartment prices in Manhattan

01/05/2010 -Earth Times- 4th Quarter 2009 Manhattan Residential Market Report – Prepared by Miller Samuel

01/05/2010 -PR Newswire- 4th Quarter 2009 Manhattan Residential Market Report – Prepared by Miller Samuel

01/05/2010 – Reuters- Plunging home prices pull Manhattan buyers back in

01/05/2010  -ABCNews.com- Manhattan Home Sales Rise in 4Q, but Prices Vary

01/05/2010 -Bloomberg.com- Manhattan Apartment Prices Fall as New York Loses Finance Jobs

01/05/2010 -TheStreet.com- 4th Quarter 2009 Manhattan Residential Market Report – Prepared By Miller Samuel

01/05/2010 -The Real Deal- Manhattan home sales market on the mend, but is a double-dip ahead?

01/05/2010 -Fox Business- 4th Quarter 2009 Manhattan Residential Market Report – Prepared by Miller Samuel

01/05/2010 -Crain’s New York Business- Manhattan residential market ends year on up note 01/05/2010- New York Magazine- Manhattan Real Estate: Sales Recovering and Inventory Shrinking

01/05/2010 –Business Week-  Manhattan Apartment Prices Fall as New York Loses Finance Jobs

01/05/2010 -1010Wins.com-  Manhattan Home Sales Rise in 4Q, but Prices Vary Website

01/05/2010 -CNNMoney.com- Will bonuses save the day for Manhattan real estate?

01/05/2010 -The New York Times-  Manhattan Home Sales Rise in 4Q, but Prices Vary 01/05/2010 -New York Post- Manhattan housing slide slows

01/05/2010 -Air America Beta-  Manhattan home sales rise in 4Q, but prices vary

01/05/2010 -Inman News-  Manhattan closings up, prices down

01/05/2010 Top News Fall in Prices Recorded by Manhattan Residential Real Estate

01/05/2010 -The Money Times- Manhattan records slide in home prices Website

01/05/2010 -WNYC.com- 2009: A Buyer’s Market For Manhattan Real Estate Website

01/05/2010 -Curbed.com-  State o’ the Market Reports: The Manhattan Bleeding Slows!

01/05/2010 -Daily News- Housing on rebound: Manhattan condo, co-op sales climb at end of last year

01/05/2010  -Scottrade- 4th Quarter 2009 Manhattan Residential Market Report – Prepared by Miller Samuel

01/04/2010  -The New York Times Sales Spur Optimism in Manhattan Real Estate

01/04/2010 The Seattle Times Manhattan home sales rise in 4Q, but prices vary

In addition to the Prudential Douglas Elliman report, some of the articles above mention these other 4Q market reports:

Corcoran, Brown Harris Stevens and Halstead Property

Categories : Market Reports
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Dec
09

Kids + Cribs = Motivated Apartment Sellers

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Let’s face it, this is probably the worst time to sell an apartment in Manhattan. This is very good news if you are a buyer.

Virtually all apartments currently on the market-especially during the holiday season- are placed there by motivated sellers rather than sellers just testing the waters. One of the most powerful motivators for sellers is their kids. Kids here or on the way.  I call it the crib effect.

As a buyer, keep your eyes open for bedrooms, alcoves or even closets with kids’ paraphernalia. Especially cribs. Quietly make note and negotiate accordingly.

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Steps To Buying a Manhattan Coop or CondoAssuming that you’ve found the property on which you wish to place an offer you’ll find the steps to purchasing a co-op or a condominium in Manhattan are very similar.

By now, to put yourself  in the strongest possible negotiating position, you’ve put together your buying team,  spoken to a bank or mortgage broker (if financing) and have been prequalified for a mortgage.

  1. Offers are made in writing and/or orally in New York City. When you have found the right property, a bid or offer will be placed through your buyer’s agent. He/she will convey your offer to either the seller’s agent or to the seller directly. The seller may “counter” your offer. This will begin a negotiation process that will eventually lead to a “meeting of the minds,” at which point price, terms, and closing date have been agreed upon.
  2. A real estate attorney is required in all property transactions in New York City. Contact an attorney familiar with real estate in Manhattan to represent you. The seller’s attorney will begin preparation of a contract of sale, and during that time your attorney will begin to examine the financial condition of the building in which you wish to purchase. Your real estate agent can assist you in finding experienced attorneys.
  3. After your lawyer concludes that the financial condition is satisfactory, that the by-laws of the building are acceptable to you, and that the contract of sale is also acceptable, your attorney will allow you to sign the contract. At that time you will usually be required to present a deposit of 10% of the purchase price. The contract plus the deposit will then be forwarded to the seller for signature . This money will be held in the seller’s attorney’s escrow account until closing. It is important to note that until all parties have signed the contract, and it has been delivered, the seller can still entertain and accept other offers.
  4. If financing, you should move forward with your loan application.  If you’ve already been prequalified, this process will be greatly simplified.
  5. You will, by now, have received from your real estate agent the board requirements and application materials. The application materials can be similar for a cooperative and condominium. However, the actual process is quite different. You will need to complete all of the required materials which typically include: an application, a financial statement signed by a CPA, all requisite support for your financial statement, three years of tax returns, bank statements, letters of personal and financial reference, letters of professional reference, the contract of sale, bank documents (if financing) indicating that your loan is in place, etc.
  6. When your “package” is finished, it will be reviewed and then, assuming it is complete, it will be forwarded to the seller’s agent or directly to the building’s managing agent for review. Upon determination that it is in order and that credit checks were acceptable, it will be forwarded to the Board of Directors. No applications will be accepted by a Managing Agent unless they are complete.
  7. In the case of a cooperative, if your application meets initial approval, you will be invited to be interviewed by the Board or by an interviewing committee. This is a serious matter and not to be taken lightly. It should be treated as a business meeting.
  8. After approval by the Board, you are ready to begin planning for a closing!

The steps to purchasing a co-op or a condominium in Manhattan are very similar. Let’s assume that you have found the property on which you wish to place an offer. By now, to put yourself in the strongest possible negotiating position, you’ve put together your buying team, http://realestategeezer.com/category/buying-guide/build-your-team/ spoken to a bank or mortgage broker (if financing) and have been prequalified for a mortgage.

In the case of a condominium, there is generally no formal interview. Your application will be reviewed, and if all required materials are included and in order, an approval is typically granted. The entire process can move quickly in a condominium, and assuming a loan can be secured in a timely manner.

Dec
04

What’s The Difference Between a Co-op and a Condo?

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Coops Condos in Manhattan NYCCaught in the maze of buying an apartment in New York City? The rules are different in New York City than in other parts of the country! For the inexperienced some of the differences may be perplexing, however, we can guarantee that if you do your homework and keep this guide handy, the process will flow much more smoothly.

New York is a city comprised mainly of cooperative and condominium apartments with a smaller selection of private homes, which we call townhouses or brownstones. Most important is understanding the differences between the types of apartments you will find in Manhattan.

Co-operative Buildings

Cooperatives are not a new concept, although they seem to be a type of ownership that is more common in New York City than elsewhere in the United States. In New York City, approximately 80% of our apartments available for purchase are in cooperative buildings, while 20% are in condominiums. This means two very simple things to potential buyers in New York City:

  1. There is more inventory to choose from if the buyer includes co-ops into the mix of properties, and
  2. Prices are, in general, more attractive for cooperatives – simple supply and demand.

Cooperatives are owned by an apartment corporation. Individual tenants do not actually “own” their apartments as they would in the case of “real” property. Owners, (shareholders) of co-op apartments, actually 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 (importantly, a cooperative may have an underlying mortgage on the entire building, whereas a condominium building must be owned outright), real estate taxes, employee salaries, and other expenses for the upkeep of the building. The tenant-owner, in turn, pays a portion of these expenses as determined by the number of shares the tenant owns in the corporation. Share amounts are dictated by apartment size and floor level.

The considerations when buying a cooperative are:

  1. The Board of Directors has the right to “approve” or “reject” any potential owner. The board, elected by all of the tenant-owners of the co-op, interviews all prospective owners. It has the responsibility of protecting the interests of all tenant-owners by selecting well-qualified candidates.
  2. The quality of services and the security of the building are kept at high standards.
  3. Portions of the monthly maintenance are tax deductible. Each building has its own tax structure, but all co-ops offer a tax advantage. Shareholders can deduct their portion of the building’s real estate taxes, as well as their proportionate share of the interest on the building’s mortgage.
  4. The amount of money that may be financed is determined by each cooperative. Some buildings require substantial down payments. Generally speaking, in Manhattan prospective purchasers should be prepared to “put down” at least 20 to50% of the purchase price (depending on the building) when purchasing a cooperative apartment.
  5. Subleasing a co-op must be approved by the Board of Directors of the cooperative. Each corporation has its own rules, and they should be examined if a potential owner intends to sublet.

With this in mind, it is important to remember that co-ops are the norm here in Manhattan, not the exception. However, before beginning a search for a cooperative apartment, think about the financing limitations and the application and interview process.

Condominium Buildings

While condominiums are quite common throughout the country, they are a rather new concept for New York City. A condominium apartment in Manhattan is real property. The buyer gets a deed just as if he were buying a house. Since this is real property, there is a separate tax lot for each apartment. Hence, this means the buyer pays his own real estate taxes for the property. An owner will also pay common charges on a monthly basis. Common charges are similar to maintenance in a cooperative. However, they will not include real estate taxes since these are paid separately, nor will they include the building’s mortgage and interest given that a condominium, by law, cannot have an underlying mortgage. Condominiums are attractive for a variety of reasons:

  1. Financing the purchase of a condominium apartment is governed by the financial markets not a board of directors and thereby much more flexible than in a cooperative. In the past, a buyer could finance up to 90% or more of the purchase price. However, with the current  conservative credit practices, you should be prepared to “put down” about 20% or more even for a condo.
  2. An approval process is usually required, and most condo boards are requiring application packages with financial disclosure. Generally, however, the requirements are not as rigorous as the co-op boards. A board meeting may or may not be required. The length of time for approval varies from building to building, but it is usually not as long as a co-op approval process.
  3. There is greater flexibility in sub-leasing your apartment. This makes condominiums the better choice for investment property.
  4. They are the ideal choice for non-U.S. citizens or for those with their assets held outside of the United States given that co-ops are unlikely to approve a buyer whose funds are not in the U.S.

Given that there are fewer condominiums than cooperatives and that they are “easier” to purchase, they are generally more expensive than co-ops. Additionally, monthly combined common charges and real estate taxes in a condo are typically less than a co-op’s monthly maintenance charges, again resulting in higher purchase prices.

Excerpted and modified from Prudential Douglas Elliman.

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Mortgage rates include co-ops

There was an article in the  NY Times on Saturday (excerpted below) regarding new legislation to be signed into law which would  help  New Yorkers who were about to default on their mortgages. What is particularly interesting is that for the first time co-ops owners would be  assisted as well.

I was curious to see the extent of pending foreclosures in Manhattan and searched Property Shark for the number of Manhattan apartment lis pendens for October and November 2009. There were 60 and 72 lis pendens respectively for condo apartments in Manhattan and none for co-ops in October and November.

The following was excerpted from the 11/27/2009 New York Times article written by Bob Tedeschi

Last year, a new law was put into place in New York to help protect subprime  mortgage borrowers from foreclosure. Now the state is on the verge of extending similar protections to prime borrowers, too.

A bill passed by the State Legislature this month would require, among other things, that lenders give all borrowers 90 days’ warning before starting foreclosure proceedings and that they take part in settlement conferences with borrowers before proceeding with a foreclosure action. The bill also covers co-op owners.

  • Of the nearly 20 measures in the legislation, mandatory mediation could provide the most relief for struggling borrowers, some of whom have been unable to get their lenders to consider loan modifications. The foreclosure mediation, free for homeowners, would require lenders to provide a representative at a certain date and place. Lenders may be subject to sanctions if they fail to come with financial documents and other information required by mediators.
  • Under the new legislation, when lenders notify the state of an impending foreclosure action, the state must send the borrower’s name to housing counseling agencies, which can then inform the borrower about foreclosure avoidance strategies like the mediation program.
  • The legislation also includes protections for tenants of multifamily housing units that go into foreclosure.

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