Archive for Process

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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Oct
20

What’s the Best Day to List Your Home?

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According 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.

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Source: “Best Day to List Real Estate for Sale: Friday,” Inman News (Oct. 18, 2011)

Categories : Selling, The Process
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Sep
01

Qualifying for a Mortgage as a Freelancer

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At one point during the credit crunch, getting a loan as a freelancer was nearly impossible.  While it still remains difficult, the loan approval process is one of the biggest challenges.  Be prepared to submit additional paperwork to prove consistent income.

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.

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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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Recently with the devaluation of the dollar and the uncertainty of investments elsewhere around the world, many more foreign nationals have been interested in purchasing Manhattan residential real estate as an investment.

It is no more difficult for a foreign national to obtain a mortgage than for an American citizens buying in New York City if the residence is to be a primary residence (or at least a pied-à-terre). However,  an investor who is not prepared to pay in cash and wants to obtain a mortgage for a property that will be used as an investment (i.e. with rental income), will find it difficult or impossible to find a mortgage with low rates.

The foreign national buyer, in addition to putting together a search team including a real estate broker and a mortgage lender (if necessary), should search out a New York City attorney who may be able to help save thousands of dollars in taxes or at least alert you to the tax consequences of the purchase.

For just such an investor, I recently had the pleasure of working with Michael C. Xylas of Abrams Garfinkel Margolis Bergson, LLP. One of the partners, Neil Garfinkel, recently published an extremely informative discussion, very helpful to foreign buyers, summarized below and found in its entirety here.

Foreign investors are lured to US real estate by the stability and security of the US Real Estate market.  Generally they can enjoy a steady appreciation of US real property and without the volatility of financial markets, making the prospect of economic gain through rental income and capital growth the strongest attraction.  With relative political and economic stability in the US, there are fewer barriers to foreign purchase of US real property.  The weaker dollar and lower property prices make these investments even more attractive for foreign investors.

While easy to purchase as a foreigner, real property comes with reporting and tax consequences that must be considered.

“For the purpose of US Income Tax, a Foreigner or non resident alien (NRA) is an individual who is neither a US Citizen, a green card holder nor US Tax resident.  The test to determine if an NRA qualifies for the same status as a US citizen or resident individual is based on ‘substantial presence’.  This is defined by the number of days that one must reside in the US to achieve such status.   For the purpose of US Estate and Gift Tax, the test is more subjective, based on one’s intent of permanency in a particular country.  Importantly NRA’s are nevertheless subject to estate and gift taxes on any asset that are actually situated in the US.”

It is extremely important for foreign investors to work with a qualified team of legal, accounting and brokerage/valuation advisors who understand the rules in the foreigner’s home country as they correlate with the laws of the United States; if handled correctly, the transaction will be most suitably structured with consideration for investment, accounting and tax purposes.

Consider the Structure used to purchase the asset while planning your purchase:

  • Individual owner (Direct Ownership) and Single Member LLC
    • Real property used as a residence for personal use
    • Least complex
    • Required to file US Income Tax return
    • Estate Tax issues, Federal and possibly State
  • Shareholder in a domestic or foreign corporation
    • Domestic Corporation
      • Provides a liability shield
      • The Corporation is the taxpayer, eliminating the need for individual annual tax returns
      • Does not avoid US Federal estate tax liability
      • Two levels of tax imposed on corporation income:
        • Corporate level tax imposed
        • 30% withholding tax on dividends paid to individual owner/imposed (this could be lower based on a favorable tax treaty between the foreign investor’s country of residence and the US)
    • Foreign Corporation
      • Limits tax liability, mostly used to avoid US income tax as well as US estate tax.
      • Pass on US real property to estate beneficiaries without paying US  taxes
      • No individual US Tax return, however
        • 30% branch profits tax against the foreign corporation ‘dividend equivalent amount’ (regardless of any current distributions to the shareholders, the tax is imposed on corporation’s taxable income that is effectively connected to a US trade or business.
    • Foreign corporation which owns a US corporation
      • More complex structure, both foreign corporation and domestic US corporation are formed
      • Foreign Corporation owns the Domestic US corporation which owns the real estate asset.
      • more costly and complicated
        • Investor is provided a limited liability shield and does not file any US tax return
        • Federal estate and gift tax are not applicable
        • Branch Profits tax not applicable
        • Ultimate investor would be transparent
        • Income tax would be taxed at a less favorable rate compared to individual ownership

The IRS earlier this month released the new form that eligible homebuyers need to claim the first-time homebuyer credit this tax season and announced processing of those tax returns will begin in mid-February. The IRS also announced new documentation requirements to deter fraud related to the first-time homebuyer credit.

The new form and instructions follow major changes in November to the homebuyer credit by the Worker, Homeownership, and Business Assistance Act of 2009. The new law extended the credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit.

With the release of Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and the related instructions, eligible homebuyers can now start to file their 2009 tax returns. Taxpayers claiming the homebuyer credit must file a paper tax return because of the added documentation requirements.

The IRS expects to start processing 2009 tax returns claiming the homebuyer credit in mid-February after it completes the updating and testing of systems to meet the law’s new requirements. The updates allow the IRS to put in place critical systemic checks to deter fraud related to the homebuyer credit.

Some of these early taxpayers claiming the homebuyer credit may see tax refunds take an additional two to three weeks.

In addition to filling out a Form 5405, all eligible homebuyers must include with their 2009 tax returns one of the following documents in order to receive the credit:

  • A copy of the settlement statement showing all parties’ names and signatures, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
  • For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

In addition, the new law allows a long-time resident of the same main home to claim the homebuyer credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. The IRS has stepped up compliance checks involving the homebuyer credit, and it encouraged homebuyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five-consecutive-year period:

  • Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
  • Property tax records or
  • Homeowner’s insurance records.

The IRS also reminded homebuyers that the new documentation requirements mean that taxpayers claiming the credit cannot file electronically and must file paper returns. Taxpayers can still use IRS Free File to prepare their returns, but the returns must be printed out and sent to the IRS, along with all required documentation.

Normally, it takes about four to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached. For those homebuyers filing early, the IRS expects the first refunds based on the homebuyer credit will be issued toward the end of March.

The IRS encourages taxpayers to use direct deposit to speed their refund. In addition, taxpayers can use Where’s My Refund? on IRS.gov to track the status of their refund.

http://www.youtube.com/watch?v=GkzB03uuGlg

More details on claiming the credit can be found in the instructions to Form 5405, as well as on the First-Time Homebuyer Credit page on IRS.gov.

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.

Buyers who can pay in full in cash for their co-op or condo apartments are in the driver’s seat.  Right now, being able to offer a seller a sure thing – with no surprises on the way to closing – will go a long way to assuring you of negotiating the best possible deal.

Pair some flexibility with cash, and you’ve got the magic ingredients of what I call FLASH.  Being flexible means being open to the seller’s needs in terms of setting the closing date – being ready to close immediately or allowing ample time for the seller to find a new home rather than demanding a quick move – offering to take care of needed repairs or accommodate the start of a school year.   With FLASH, you’ll find that the door to your new home is open, ready and waiting.

If you’re like most people – who can’t afford a full-cash sale – you can still find yourself in the “most attractive buyer” finals.  If you have great credit and can put down at least 20% on a jumbo conforming mortgage (up to $729,750 in New York), or at least 30% for higher mortgages, you’ll still set setting hearts aflutter.  Pre-qualifying for an adequate mortgage is a fabulous move to round out your VIP buyer profile

Oct
18

Manhattan Co-op Board to Madonna: Be Quiet Or Get Out!

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AP photo madonna_150 from MSN articleMadonna’s Upper West Side co-op board  is threatening to evict the Material Girl.  According to a lawsuit filed by her upstairs neighbor Karen George, Madonna is using her Central Park West pied a terre ” as a rehearsal studio, forcing neighbors to endure “blaring music, stomping and shaking walls,” for up to three hours each day.

When a colleague sent me this link reporting the story, I remembered a similar problem that my wife and I  had with an upstairs neighbor (not music- but walking both human and canine). Fortunately, carpeting resolved the problem and our “quiet enjoyment” was restored. If you live in New York City you should expect noise from police cars to fire engine sirens, horns and car alarms, garbage trucks and yes from your neighbors as well.

If you are moving from a quiet suburban neighborhood or if you are particularly sensitive to noise here are some suggestions to test your decibel tolerance before you buy an apartment in Manhattan.

  • If the apartment is located near an elevator, public laundry room or trash room make sure mechanical noises can’t be  heard.
  • Check to see if the windows have been upgraded to reduce street noises  as well as  energy costs.
  • Depending on the floor of the apartment, you may want to listen carefully- especially in rear courtyard facing rooms-for fans and other mechanical noise creating devices on adjacent rooftops.
  • Ask the seller’s/showing broker to turn off or lower any music playing in the apartment.
  • Before signing the contract, visit the apartment at different times of the day. A morning visit will expose the going to work noises,  an afternoon visit will let you concentrate on street and traffic sounds and the evening visit may give you some insight into the level of noise you can expect from prospective neighbors  are reading or blaring their music or TVs?
  • As part of your due diligence, you and/or your attorney should read the  co-op or condo meeting minutes and see if there are any noise issues discussed.

Generally speaking, a co-op board will have more jurisdiction and clout over noise matters. Based on their bylaws a co-op board may be able to levy fines until the offending shareholder complies or, as with Madonna,  threaten and ultimately have the shareholder evicted. Condos generally do not have this power and,  it may be completely up to you to bring any legal pressure on your fellow condo neighbor.



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If you are planning to buy or thinking about buying an apartment in New York City, it’s smart to get expert help from the beginning. Touring apartments is just the beginning; buying one is more complicated.

If you tour open houses, you’ll meet real estate agents, virtually always the seller’s agents.  There are several different kinds of agents and it’s important to know the how they work.

Listing Agents

Listing (or seller’s) agents are the ones with whom the seller has listed his or her property. A seller’s agent promises to take reasonable care, provide undivided loyalty, confidentiality, full disclosure, obedience and duty to the seller. That means their top priority is to show the property in its most favorable light and negotiate the highest price and terms for the seller. In other words, the listing agent owes complete fiduciary responsibility to the seller.

Buyer’s Agent

Conversely, the buyer’s agent is engaged by the buyer to represent his or her interests.  The buyer’s agent is completely motivated to make sure that you get the best possible deal.  He or she negotiates the purchase of the home you want at a price and on terms most favorable to you.  A buyer’s agent promises to take reasonable care, provide undivided loyalty, confidentiality, full disclosure, obedience and duty to the buyer.  In other words, he owes complete fiduciary responsibility to the buyer.

Dual Agent

A real estate broker may represent both the buyer and seller if both buyer and seller give their informed consent in writing.  For example, if you visit an open house, you might meet the seller’s agent as you tour the home.  Should you decide to buy – or make an offer on – the property, you might ask that agent to represent you.  In that case, the agent will not be able to provide the full range of fiduciary duties to both buyer and seller.  The agent must explain the possible effects of dual representation, including that by consenting to the dual agency relationship the buyer and seller are both giving up their right to undivided loyalty.  A buyer should carefully consider the possible consequences of a dual agency relationship before agreeing.

Dual Agent with Designated Sales Agents

If the buyer and seller provide informed consent in writing, the real estate brokerage firm may designate a sales agent to represent the buyer and another sales agent to represent the seller to negotiate the purchase and sale of the property.  A designated sales agent cannot provide the full range of fiduciary duties to the buyer or seller.  The designated agent must explain that like the dual agent under whose supervision they function, they cannot provide undivided loyalty.

So if you are a buyer, a listing or seller’s agent can not advocate for the best deal you can get.  If the seller has an agent totally dedicated to their interest, buyers should strongly consider working with agents who are totally dedicated to ensuring that they get the best possible deal.

New York State law is crystal clear and requires disclosure regarding real estate agency relationships and the rights and obligations it creates.

As always, if you need legal, tax or other advice you should always consult with a professional in that field.

Flags of the worldThere is a common misconception that it is more difficult for foreign nationals than for American citizens to get a mortgage in NYC.  In fact, there are some restrictions, but it is perfectly possible for foreigners to get mortgages for New York City home purchases.

Foreign nationals obtain a mortgage like anyone else

Foreign nationals can approach local NYC banks, national lenders, credit unions and mortgage brokers to apply for a mortgage. Not all lenders offer foreign national programs, but they are readily available.

As a foreign national, one must be prepared to put a down payment as high as 40% of the purchase price—required by the lender because it typically will only loan 60-80% of the purchase price. Interest rates are reasonably priced and there are no forbidden property types so you can finance a condo and a co-op just as easily as a single-family home. Some lenders will require you to prove your Visa status or type of Visa you possess that gives you permission to be in the United States, be it for a business or a pleasure trip or to come to the U.S. to work, study, conduct business or immigrate.

Foreign nationals who hope to purchase co-ops will need to go before the co-op board, just as citizens do.  The co-op board may impose its own requirements such as requiring a green card, U.S. tax returns and other conditions. Co-op restrictions may make it more convenient for foreign nationals to purchase condos because the bylaws and rules of condo associations are typically less restrictive than those of co-ops.

If the purchase is strictly for investment purposes I would recommend the purchase of a condo. That said, in New York City, there are “condops” (a cross between a coop and a condo) which may allow you the flexibility as an investor but at a lower cost.

The bottom line is that a foreign national can obtain mortgage financing just like a The bottom line is that a foreign national can obtain mortgage financing just like a U.S. citizen would in order to establish a NYC mortgage. Find a lender that offers foreign national loans and apply for the mortgage. Then sit back and wait for information to be processed—just like a U.S. citizen would have to do.