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:

• SALT Cap - Before, homeowners could write-off 100% of their property taxes, but there is a now a $10,000 cap on SALT (State and Local Tax) deductions. That means that individuals living in high-taxed states like New York will likely have no allotment left for property tax deductions after deducting their state and local taxes. For illustrative purposes, assumimg real estate taxes of $1,000/month on a $1,250,000 condo, that homebuyer would lose $12,000 in real estate tax deductions per year. At a 35% effective tax rate, that’s $4,200 in lost benefit.
• Mortgage Interest Cap – Homeowners used to be able to deduct the interest on their mortgage up to $1,000,000, but the tax reform bill decreased that threshold to $750,000. For a $1,000,000 loan ($1,250,000 purchase price with 20% down) at 4.5%, that means over $11,000 less in mortgage interest deductions per year (another $4,000 in lost benefit).

2. Higher Mortgage Interest Rates – while rates are still at historic lows, we’ve seen them rise nearly 1% since last year. On that same $1,000,000 loan used in the example above, that results in ~$800/month in additional payments, or $10,000/year! When compounded with fewer write-offs due to tax reform, this sample homebuyer would be spending about $1,200/month more after taxes – or $14,000 per year!
 
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!

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:

• The expiration date of the abatement
• How far into the abatement period it is
• The phase out schedule of the abatement

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!

We 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

1. Get pre-approved Every househunter needs a pre-approval, which is a document from a bank saying that they've reviewed your credit and key documents and that they'd be comfortable lending you a set dollar amount based on what they've seen. This not only helps you and your broker understand the price range of properties you can realistically afford, but it is a required submission with every offer. Without a pre-approval, you will not (generally) be able to submit an offer for a home. And while a pre-approval can be done in a day or so, that lag is sometimes all it takes to lose out. I have a list of mortgage brokers I can recommend to you who are lauded for their responsiveness and helpfulness and who have been essential in getting my buyers' offers accepted. 
2. Prepare Your Financial Statement I provide all my buyer clients with a REBNY (Real Estate Board of New York) Financial Statement to fill out before we start our search. This is a complete snapshot of all your assets and liabilities, and it is also a required submission with every offer. In addition, it will help your broker understand your debt-to-income ratio and your post-closing liquidity (refer to my co-op blog post to understand the importance of these two), which are essential to understand when coming up with and presenting an offer.
3. More Documents Whether you're looking for a co-op, condo, or otherwise, you will need to have a handful of documents ready (if not for the board, at least for the bank):

• ​Employement letter - length of employment, title, salary
• Tax returns - usually the last 2 years
• Credit Score - know it! Marks on your credit? Talk to your mortgage broker about what can be done.
• Pay stubs - usually the last 2 consecutive
• Bank Statements - prepare to show 2-3 months' worth
• Anything else to support every number in your REBNY Financial Form
• Reference Letters - these may be part of your board package, which will come later. So no need to have these ready right away. But if required, you'll generally need both business and personal reference, so start thinking about who you will have write your letters.

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?

• Income Requirements – Most rentals require that you make 40x’s the monthly rent. e.g. A $2,000/month would require a minimum annual salary of $80,000.
  • Not quite there? Some buildings allow guarantors, who will also be included on the lease and be liable for any defaults. A guarantor generally must make 80x’s the monthly rent, so on that same $2,000/month apartment, they’d need to show income of $160,000/year.
  • Your broker should help you identify what the restrictions are for guarantors in any building you may be looking at: some require NY state residents; others any US resident; and anything in between.
• Credit Score –Every landlord will run a credit check, so make sure you know your credit score. If there are any marks on your record, or your score isn’t very strong, be sure to talk to your broker about why so he/she can explain it when you put in your application. Don’t try to hide anything and wait for it to come out in the credit check.

 
Have These Documents Ready

• Bank statements – Bring your most recent bank statement(s) with you, and make sure there’s enough in there to cover the building’s requirements at signing: generally, 1st month, 1 month security, and a 15% broker’s fee.
• Tax Returns – Last two years (1st & 2nd pages only)
• Letter of Employment – on company letterhead, with your title, length of employment & salary
  • If self-employed, you’ll need a letter from your tax accountant
• Paystubs – two most recent (consecutive) paystubs
• Landlord Reference Letter - stating address, monthly rent, length of tenancy, and landlord’s contact information.
• Application / Credit Check Fee – be prepared to pay an application and credit check fee, usually per tenant.

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
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