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Properties are taking longer to sell and fewer deals are being inked.
The first quarter of 2018 saw the largest year-over-year decline in total sales since the second quarter of 2009, during the heart of the financial crisis. Across coops, condos, and townhouses, New York City saw a 25% decline in sales volume vs. the same period last year, and the slowdown was seen across all product types, from studios to luxury penthouses. Over the past year, the market has begun to shift from a hot seller’s market, where bidding wars and selling prices over ask were the norm, to more of a buyer’s market. As prices are beginning to stabilize, buyers are becoming pickier and are willing to wait for the right deal. And as website after website offer tips on presenting low-ball offers, buyers are becoming more savvy. So what’s driving the slowdown? And why should you consider buying now? 1. Tax Reform. With the adoption of the tax reform bill in 2017, the cost of home ownership will go up for many:
For a walkthrough of these calculations, please reach out to me directly and I’ll be happy to explain the changes. If you know me, you know that I LOVE walking through numerical examples! 3. Less Accessibility – since the financial crisis in 2008/2009, prices in New York have skyrocketed, mainly driven by historically low interest rates and more accessible prices. However, StreetEasy recently released an interesting opinion piece arguing that the slowdown we’re currently seeing isn’t so much caused by tax reform or increasing interest rates, but rather that prices have gotten so high that accessibility is now the true culprit. In short, there weren’t as many deals inked in Q1 2018 because there are simply fewer buyers who can afford what’s on the market. So Why Consider Buying Now? As interest rates continue to rise, so too does the cost of homeownership. Now is a great time to still take advantage of rates under 5%. Also, while not all sellers aren't willing to accept the changing market conditions, many are starting to recognize that prices are stabilizing and that their property will likely sit if they don't open themselves up to negotiating. So for many buyers, now is a great time to find a deal - if you're patient. If you're ready to start looking for one of those great deals, give me a call. I'd love to get you into your dream home!
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You've been searching for your dream home for months, and with your savvy agent's help, you know the market inside and out. But suddenly a listing comes on the market that doesn't make sense: the taxes are way too low for the price and neighborhood. What's going on??
Enter the concept of the tax abatement. A tax abatement is a government-backed relief on property taxes in an effort to promote real estate or commercial development in a given area. There are various types of tax abatements, and understanding them is key to asking the right questions when putting in an offer for a property that benefits from one. 421a Started in 1971, this is the most common tax abatement that you will encounter. While its initial intent was to promote co-op and condo development on underutilized or undeveloped land, it was overhauled in 2008 to include, among other things, a requirement that qualifying buildings set aside 20% of their units for affordable housing. The exemption usually lasts for 10 years, but may go as high as 25 years. For simplicity, let's focus on the 10-year situation: in this case, owners are guaranteed a 100% exemption from tax increases for the first 2 years, and the exemption is then phased out by 20% every 2 years. So in years 3 & 4, you'll have an 80% exemption; years 5 & 6, a 60% exemption; etc. By year 11, you'll have no benefit left, and you'll be paying your full property taxes. J-51 This incentive will really only impact you if you own a rent controlled building. It was enacted in the 1950s to encourage owners of such buildings, who couldn't otherwise afford renovations based on their actual rent rolls, to upgrade their buildings. Owners can recoup approximately 75% of their renovation costs under J-51, but they are not allowed to decontrol rent in tandem. Coop and Cooperative Tax Abatement This program gives a tax abatement to any qualified co-op or condominium that applies (there are a few exceptions, which are too minor to call out here). In most buildings, this abatement will not be pushed back to the individual shareholders and owners; instead, boards will usually pass a "special assessment" in the same amount as the abatement, which offsets any benefit the shareholders would've seen. The upside here is that the board can use that special assessment money to pay for capital improvements or to cushion their reserve funds, all without raising maintenance on the owners/shareholders - it's a win-win! So How's This Impact Me As a consumer, it's all about education: the more you know, the better prepared you are to tackle the process of buying and selling real estate. When looking at properties, it's important to understand whether they benefit from any of the tax abatements listed above. If so, be sure to know:
With this information, you'll be much more equipped to understand your potential property tax exposure over time. I stress the word potential, as even with all the property tax history in hand, it is impossible to know what will happen next year or 5 years from now. Properties are reassessed every year, and that assessed value directly impacts your property tax exposure. And (very briefly, as this topic could, and eventually will, be a whole separate blog post), coops and condos are assessed based on the revenue they would bring in if they were rental buildings. So if home prices are falling, but rental prices are going up, your assessed value may actually go up - but more on that later! If you ever have any questions on tax abatements, or if you're ready to start your search for your perfect next home, I'm always here to help. Send me a message or give me a call! FAILURE TO PREPARE = PREPARATION TO FAILWe all know about the fun part of buying or renting: getting to look at the properties. There's an offer involved, usually some negotiations, and we know that you have to shell over a ton of money at closing. But what most people don't realize is how important preparing for your search will ultimately impact your success in locking down your dream home.
In New York City, real estate moves fast. I've said it before in my posts, and it's worth repeating: the good ones don't last long, and really neither do the just OK ones. This is a city of 8.5 million people, and we are constantly moving: marriages, divorces, new jobs, lost jobs, retirements, graduations; it all happens in a New York minute here. So how do you compete in such a fast-paced real estate environment? PREPARATION IS KEY! One of my favorite messages from my real estate training was the headline I chose for this blog: "Failure to Prepare is Preparation to Fail." And it couldn't be more true in NYC, where you can lose out on your dream home in the blink of an eye if you don't have your ducks in a row. I will keep this blog short and sweet to get right to the point. Before you ever step foot into your first open house, here's what you should have prepared: BUYING A HOME
RENTING A HOME I'm lifting this list from my Demystifying the Rental Market post, and the timing couldn't be more appropriate. My boyfriend and I are currently looking for a rental, and despite my own advice to all my clients and readers, we didn't have these documents ready when we found our dream place...and I'm convinced that the lag in putting them together gave the owner just enough time to reconsider our offer. Will You Qualify?
Have These Documents Ready
Have all your ducks in a row and ready to start your search? Give me a call! Matt Martin Licensed Real Estate Salesperson 831 Broadway, New York, NY 10003 O: 212.521.5704 | C: 323.790.6288 Website | Facebook | Twitter | Instagram | LinkedIn [email protected] | Halstead Property, LLC Last month, we explored the intricacies of the co-op. This month, let's jump into its less-common counterpart, the CONDO. Condo ownership is much more traditional, as is the process to buy one, so this blog will be much shorter than last month's.
What Is a Condo? Unlike a co-op, a condo is real property, and it comes with a corresponding deed. And instead of the proprietary lease you receive with a co-op, for a condo you are issued a traditional mortgage. Once you've bought a condo, you'll have to pay monthly maintenance fees. These fees only include standard building upkeep and maintenance (staff salaries, utilities, etc.), none of which are tax-deductible. As a real property owner, you will receive a separate real estate tax bill for your specific unit, which you'll be required to pay quarterly. Like with any other property, these real estate taxes are tax deductible. What's the Application Process Like? Like a co-op, you will still need to fill out a purchase application, but -- depending on the building -- the requirements will generally be MUCH fewer. Some condos will require a full financial disclosure, others little to none; some will require letters of recommendation, others none. But the one big perk of a condo: no board interview! So What Does the Condo Board Do? While there isn't a board interview with a condo application, the board will still review your application. And while they're looking to make sure you're a financially feasible candidate, the real purpose of the review is for the board to determine if it wants to exercise its Right of First Refusal. Right of First Refusal What happens when someone lists their apartment for way below market value in an effort to sell the place quickly? It may drive down the neighborhood comparables and threaten the appraisal value of your own property. In an effort to avoid this from happening, a condo board has the Right of First Refusal, which means it can match any offer - term-for-term. If a board exercises its right of first refusal, it purchases (or rents, if the apartment is up for rent) the condo and can then resell it themselves. After you submit your purchase application, you cannot move forward with the purchase until you receive a waiver from the board that they will not exercise their right of first refusal. Why Would I Buy into a Condo? Your Place - Your Rules (Mostly) When you buy a condo, you're buying real property, and the rules tend to reflect that fact. You want to rent it out? Go for it! (Condos will still have rules, including the tenant-to-be sometimes needing to submit a complete board package, but they will generally be much less restrictive than in a co-op). You want to use it as an investment? Sure! More Financing Options While most co-ops require at least 20% down, many condos will allow lower down payment requirements (10%). Well Now This Sounds Pretty Great! What Are the Downsides? Higher Closing Costs Because a condo is real property for which you receive a mortgage, you have to pay the upwards of 2% mortgage recording tax. On a $500,000 apartment example, that's $10,000 in additional closing costs that you wouldn't incur with a similarly-priced co-op. Higher Purchase Price Because of the flexibility in rules and financing, condos typically command 10%-20% more than co-ops. Less Inventory While condo inventory has grown over the years, they still only make up about 1/4 of New York City's real estate inventory. So if you're dead set on a condo, brace yourself for a potentially longer hunt for that perfect home to come to the market. If you're ready to make the jump into home ownership, I'm always available to help with your search. Please reach out any time! Last month, I published a blog post about StreetEasy's deceptive new Premier Agent feature. This month, I got to see the confusion play out in front of me:
Last weekend, I was holding an open house for an awesome 2-bed in Greenwich Village. An agent had reached out for a showing for his clients, and when he arrived to the property before them, I greeted him in the lobby. When his clients showed up, the agent introduced himself to them; clearly, this was their first encounter. He never identified himself as their agent; he just gave his name. I showed them the apartment, during which we started talking about how they lived in the neighborhood and would love to get an idea of what her place might be worth. She lives in a very coveted Greenwich Village building, so when they invited both me and the other agent over to assess her home, we of course went. Fast forward to an hour later, the 4 of us together in her apartment talking about every topic under the sun, having a really great conversation. I was talking to the female client and the other agent was talking to the boyfriend, when things got a little murky:
When she confirmed that yes, she had in fact reached out to make an appointment via StreetEasy, I told her to pull out her computer and walked her through what had happened. I explained to her StreetEasy's tricky new feature that was confusing buyers into thinking they were contacting the listing agent directly, when in fact they were being put in touch with an agent who had paid for access to listings within that zip code. Well, the plan had worked: the client thought she was getting in touch with the listing agent directly. She only wanted to see the apartment and report back to her agent; she had no interest in contracting a new agent to represent her! To make matters worse, she then went on to tell us how she’d tried to reach out the weekend before to get access to the open house, and she was routed to another agent at {insert big brokerage name here}. That agent had promised he would reach out to the listing agent to get her access, but he completely dropped the ball and never got back to the client. Now that she realized what had happened, she said "No wonder it was so hard to get into this listing. I tried and tried, and I just thought the listing agent wasn't being responsive." So not only was the client completely confused and coupled with an agent when she already had one, but StreetEasy's deception also made the listing agent look really bad since the client thought the listing agent was the one who wasn’t being responsive to requests. How Do You Avoid This Happening to You? While I agree that every buyer should have an agent representing them, I do think that that person should be someone the buyer knows and trusts. I also strong disagree with StreetEasy's practice of routing inquiries to agents who have paid to play, as it only serves to line StreetEasy's pockets with money from agents participating while leaving the consumer completely confused. If you already have your own agent: They should be making contact with the listing agent for you. Have them make the appointments and do the legwork. If you don't have your own agent: Follow my step-by-step instructions on how to contact the listing agent directly, so you at least know you're dealing with someone who's knowledgable about the property. If you like the place, you can decide to work with them in a dual agency role (read more about the risks of dual agency here), or go out and find an agent you know and trust to represent you in the transaction. Last month's feature dove into the intricate New York City rental market, and this month, we explore homebuying. As expected, New York City defies tradition and has a vocabulary all its own when it comes to buying your dream home.
In New York City, the typical homebuyer will be faced with 3 property types:
This month, we'll explore Co-ops, as they are the most misunderstood -- yet pervasive (75% of NYC properties!) -- of the three. What Is a Co-Op? Unlike traditional real estate, where each house or parcel of land or apartment is an independent piece of real property with a corresponding deed, a co-op is a collection of shareholders who each owns a portion of the corporation that owns the apartment building. When you buy into a co-op, you are not buying real property or the apartment itself; instead, you are buying stock in that corporation. You don't receive a mortgage; you receive a loan to purchase the shares (though for tax purposes, this loan is treated the same as a mortgage, and the interest can still be deducted). You don't receive a deed; you receive a stock certificate for the number of shares allocated to your apartment based on its size, location, and other factors. And you receive a proprietary lease, which entitles you to occupy your apartment. Once you've bought into a co-op, you'll have to pay monthly maintenance fees. These fees include:
As a shareholder, you own your proportionate share of the building's assets and liabilities, and you are part of the community that is responsible for the building's mortgage, utilities, and real estate taxes ultimately being paid. If another shareholder defaults on his payments, the rest of the shareholders may have to cover the shortfall. This is one of the reason's a co-op is so selective about who can buy into the community, and where the Board of Directors comes in. A co-op's Board of Directors is (generally) a group of elected shareholders responsible for the oversight of the building's finances, house rules, maintenance, and selection of potential new shareholders. What Are They Looking For? Given that a co-op is a community of shareholders, Boards are generally looking for financially sound prospects who will add to (or at least not detract from) that community. While every Board is different, here's what they will want to see to assess your candidacy:
Once all this information has been submitted to the Board, they will make a determination as to whether they want to bring you in for an interview. Take this interview very seriously. Your broker will work with you to prepare you for the interview, and always show up dressed as you would for any job interview. This is where the board can ask you about anything and assess who you are as a person. Remember, you are buying into a community, and the Board wants to ensure you will be an upstanding addition. They may ask how you'll be using the apartment (e.g. will you be practicing cello at 5am?). They may ask you to clarify information on your financials. Be sure to prep with your broker beforehand so you know what to expect. If you are rejected by a Board, they do not need to share the reason (though they cannot violate Fair Housing Laws and reject prospects based on protected classes). This All Sounds So Complicated. Why Would I Ever Buy into a Co-Op? While the process of applying to and ultimately purchasing a co-op in onerous, there are some very rewarding benefits. Tax Benefits When you own a co-op, you get to write-off not only the interest on your own loan, but also your prorata share of the building's property taxes and of the interest on its underlying mortgage. Know Your Neighbors The same process that makes buying into a co-op such a pain also is what makes ultimately living in one so great. Because the Board can be so selective, co-ops tends to feel more community oriented, and because sublet policies tend to be pretty strict (see the Cons section below), co-ops tend to be more owner-occupied than other types of buildings, meaning less transience. With more owners actually living in the building, there also tends to be more commitment to maintaining the building and more investment by residents in its goings-on. Refinancing and Maintenance Savings Unlike in a condo, most co-ops have an underlying mortgage on the building. This not only provides a tax benefits to shareholders (as discussed above), but it can also help mitigate maintenance increases. For example, when it comes time for capital improvements in the building, or the reserve fund is not enough to cover necessary expenses, the underlying mortgage can be refinanced, and any savings realized can be used to offset maintenace cost increases that would otherwise need to be enacted. Lower Closing Costs Because a co-op is not real property, and you don't actually receive a mortgage, you avoid paying the upwards of 2% mortgage tax that condo buyers incur. On a $500,000 apartment example, that's $10,000 in savings! Lower Purchase Price On average, co-ops command 10%-20% less than condos. Well Now This Sounds Pretty Great! What Are the Downsides? More Restrictive As we've discussed, a co-op is meant to be a housing community, and thus Boards tend to create rules -- a lot of them -- to dictate how shareholders can use their space. These rules can include how to document guests, what financing is allowed, how big your pets can be, and whether or not you can sublet your space. Many co-ops restrict subletting (if they allow it at all), sometimes imposing steep fees and requiring that a shareholder live in the unit for a specified period of time before being allowed to sublet. Also, subletters are required to go through the same application and interview process as the shareholder himself! No Investment Properties Because of the limitations on subletting, a co-op generally cannot be purchased as an investment property. Higher Downpayment Requirements (sometimes) Flip Taxes Some co-ops impose a flip tax, which is a fee that (usually) the seller pays upon sale. It can be a fixed dollar amount, per share cost, or percentage of the sales price. This can make co-ops harder to sell, and it restricts a shareholder's ultimate profits. Next month, we'll dive into Condos. If you're ready to make the jump into home ownership, I'm always available to help with your search. Please reach out any time! Matt Martin Licensed Real Estate Salesperson 831 Broadway, New York, NY 10003 O: 212.521.5704 | C: 323.790.6288 Website | Facebook | Twitter | Instagram | LinkedIn [email protected] | Halstead Property, LLC If you're looking for an apartment in New York, your likely first stop is StreetEasy. And while there, you've undoubtedly used the "Contact Agent" button to reach out to the listing agent for more information on your dream property. But be careful! On March 1, StreetEasy introduced a new program called "premier agent" that allows agents to pay for buyer inquiries to be directed to them instead of the listing agent. So when you hit that "Send Message" button, thinking you're corresponding with the agent responsible for the listing -- who knows the property inside and out -- you're actually sending the message to a randomly assigned agent who has paid to receive your inquiry. He may know nothing about the property! So How Do I Reach The Listing Agent? Lucky for you, I've laid it all out in step-by-step pictures:
While I encourage every buyer to be represented in a transaction (and I am happy to represent you of course!), this feature is NOT in your best interest. Make no mistake, this is all about the $$: this feature already brings in $600M annually to StreetEasy's parent company, Zillow. You should be able to pick your agent, someone with whom you have a personal connection and trust, instead of having a random agent assigned to you who has "paid to play." BROKERS' FEES! NO FEES! LOW FEES! |
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