With little to no Spring real estate selling season in New York City due to coronavirus, many experts believe that the Phase 2 economy, coming soon, will open the floodgates to an insatiable demand from homebuyers and investors!
But at the same time the potential for a repricing of NYC real estate, due to a damaged economy and the very density that made New York the epicenter for coronavirus, is also a very real possibility.
Buyers of residential real estate in New York City need to know certain basics about the real estate market and purchasing process before they begin shopping, so that they are ready to pounce if the iron gets hot! (Note: If financing will be necessary, they should also get pre-approved for a mortgage. Recommendations available upon request.)
Who better to provide this information to the readers of the Hallmark Abstract Service newsletter than Andrew Luftig, a Partner at the law firm Chaves Perlowitz Luftig.
The following Purchaser’s Guide appears in the Real Estate section of the CPL Law website.
Mike Haltman, CEO Hallmark Abstract Service firstname.lastname@example.org
Buying a home in NYC, whether as a primary residence or as an investment, is a life-changing decision, and therefore, it is imperative to complete a due diligence review prior to signing a contract of sale. Below are some key points a purchaser should be aware of when considering investing in a residential property in NYC:
Understand the different types of homes available:
• Cooperatives: Apartments in a coop building are owned by a single corporation. A purchaser of an apartment in a coop building will be purchasing “shares” of the corporation and will receive a proprietary lease. As such, the purchaser will receive a stock certificate in lieu of a deed, allocating a number of shares to its unit. Coop buildings are generally older than condos, and coop boards wield a significant amount of power as it relates to your tenancy in the apartment. Nearly all coops typically require a purchaser to submit a minimum down payment of 20-25% of the purchaser price, while also maintaining maximum debt-to-income ratio of about 25%. Coops also are far more prevalent than condos as they represent 70%-80% of the total stock of apartments available for sale in Manhattan. Additionally, the real estate tax obligation is baked into a shareholder’s maintenance amount. Lastly, a purchaser can be denied for any reason or no reason at all.
• Condominium: Unlike coops, condo owners purchase the unit outright and receive a deed to the apartment; similar to purchasing a single-family house. In addition to paying monthly common charges, condo owners are also responsible to pay for their own real estate taxes on the property. Condo boards are far less demanding than those of coops, and therefore, provide more flexibility for investors who may look to sublease the condo. The Board of Managers has the right to purchase the condominium unit for the exact same business terms. Typically, a board waives its right.
• Considering the differences outlined above, it is important to identify what type of purchaser you plan on being (i.e. primary residence vs investor) before deciding on whether you would rather purchase a condo or coop.
• House: townhouses, single family homes, or multi-family homes require an inspection.
• Once the parties have agreed to a sale price, the parties enter into a contract which governs the terms and obligations of both parties.
• Purchasers typically request a financing contingency which protects the purchaser in the event they cannot obtain a loan to complete the purchase. Boilerplate Condominium and Cooperative Contracts are also contingent on Board approval or a waiver of right of first refusal.
• The purchaser will be required to put down a deposit of 10% of the purchase price once both parties have finalized the contract terms.
• It is very important to retain an experienced real estate attorney to help guide you through the purchase process and work through the terms of the contract. A good attorney will help navigate through the process and ensure you understand details and terms you would have otherwise missed. The attorney will also assist in reviewing the building’s by-laws prior to executing the contract.
• Purchasers may want to set up an LLC to purchase the property In order to shield against personal liability as well as maintain a level of privacy. LLC structure is important depending on whether or not you are the end user.
• After the contract has been executed by both parties, and all contract conditions are met, a closing date is scheduled. This typically takes place 60-90 days after the contract signing.
• Contracts typically provide the purchaser with the opportunity to conduct a walkthough of the unit 24-48 hours prior to the closing to ensure the condition meets Contract standards.
• The contract will also usually stipulate that the closing date is “on or about” a certain date in order to maintain a level of flexibility should you need to reschedule.
• Closing costs will vary based on the down payment you’ve put down and your mortgage rate, but at a minimum, you will have to pay attorney fees, mortgage fees, and a move-in costs at the closing. Closing costs also vary depending on whether you are purchasing a condominium or cooperative.