BUYER'S GUIDE
The following information is intended to provide you with an introduction to the home purchasing process in Manhattan. It is recommended that you choose a professional real estate agent you feel comfortable working with and rely on their experience and knowledge in guiding you through the process of purchasing your home.
The Forms of Ownership
It is important to understand the four different forms of ownership in Manhattan: Cooperative, Condominium, Cond-Op and Townhouse.
Cooperative (Coop):
In this form of home ownership, one owns shares of stock in a corporation that owns the building. These shares are considered "personal property" similar to any other shares of stock. The corporation issues each shareholder a "proprietary lease" which gives the shareholder the right to occupy his specific apartment. In addition, the corporation elects a board of directors who are responsible for overseeing the daily operations of the building, enforcing the by-laws and acting on behalf of the shareholders to ensure that the building operates as an efficient entity. Owners pay to the cooperative a maintenance fee, which pays for items such as: the building’s real estate taxes, underlying mortgage, payroll, management fees, supplies and general maintenance. In addition, many cooperatives accrue a contingency budget for future capital repairs.
Since this form of ownership involves owning stock in a private corporation, the board of directors must approve the purchase of the shares of stock. Thus, a purchase application must be submitted to the board requesting approval to purchase these shares. In addition, the board will require an interview in order to meet you and make any inquiries regarding the information you submitted or questions they may have. A cooperative board has the right to approve or deny any applicant with or without cause.
Condominium (Condo):
In this form of home ownership, one owns real property much like owning a house. The condominium residents elect a board of managers who are responsible for overseeing the operations of the building and enforcing the "house rules" of the building. The main difference between owning a condominium and a house is, in addition to owning the unit, you also own a small percentage of the "common elements" of the building such as the halls, stairwells, basement, etc. Each owner pays a common charge to the condominium association to pay for such items as: payroll, building maintenance and supplies, management fees and building repairs. In addition, some condominiums maintain a reserve fund in order to pay for major repairs and improvements to the building.
Cond-Op:
By definition, a cond-op is a residential cooperative where the ground floor (typically commercial units) is converted into a separate condominium which is either owned by an outside investor or the original sponsor of the building. Although the residential units are a cooperative, the commercial units are owned as a condominium by an entity other than the cooperative. Thus, the cooperative does not receive the benefit of the income from these units. Many times, people will refer to cooperatives that operate under condominium rules as "cond-ops". This is not accurate although you will hear this quite often. A cooperative that operates under condominium rules is just that.
Townhouse:
This form of ownership provides the owner with a fee simple ownership of real property. The owner is responsible for payment of all real estate taxes, maintenance and repairs of the property. The sale of the property may be conveyed to any party without prior approval by anyone other than the homeowner. Townhouses may be single family or multiple family based on zoning.
The Terminology
The popular terminology for New York City apartments can be confusing since much of it is unique to New York City.
Rooms:
When counting rooms it is important to keep in mind that in Manhattan a room must be at least 65 square feet with a window to qualify as a room, except for a kitchen. Baths are not counted as rooms. Therefore, for example, a four room apartment would have a living room, a kitchen and two bedrooms, or one bedroom and a formal dining room.
Classic six, seven or eight:
The word "classic" is usually followed by a number indicating the number of rooms in an apartment. It is generally associated with pre-war apartments that meet a criteria of room numbers and design for buildings of that period. As an example, a classic six is comprised of a living room, dining room, kitchen, two bedrooms, and a maid's room. A classic seven or eight usually describes a pre-war apartment with a living room, dining room, kitchen, three bedrooms and one or two maid's rooms.
Junior or convertible:
An apartment with an alcove off of the living room which can be converted into a bedroom or used for dining. A Junior 4, for instance, would be a three room apartment (living room, kitchen and bedroom) which has the potential to be four rooms by using the alcove space to create an additional room.
Studio:
An apartment with one or two rooms with a combined living and sleeping area plus kitchen.
Lofted area:
Additional space created in apartments with very high ceilings. Usually it is accessed by stairs or a ladder and will over look a main room like a bed room or living room.
Duplex apartment:
An apartment with two floors or two levels.
Styles of Buildings:
Loft Buildings:
These buildings are usually found in former commercial areas that have been converted for residential use. Lofts feature large open spaces and high ceilings. Some lofts can be zoned for both residential as well as commercial use.
Pre-war Buildings:
These buildings were built prior to Word War II. Characteristically they have larger and wider rooms, fireplaces in some instances, hardwood floors and higher ceilings with moldings. Most, but not all, have doormen. In New York a pre-war building may be associated with the architect who designed and built it during that era. There are many well known pre-war buildings that are now land-marked buildings.
Post-war Buildings:
These buildings were built following World War II through the present and are often referred to as “luxury doorman buildings”. They are generally high-rise buildings, often with narrower rooms (compared to a pre-war building) and, in certain cases, with alcoves off of the living rooms. Most feature through wall or central air conditioning and other more recent technological amenities.
Brownstones (Townhouses):
Single family houses were built in the late nineteenth and early twentieth centuries. Many offer gardens, fireplaces, beautiful floors and ornamental interior details and charm. In many cases, the brownstones have been converted from private family homes and divided into multi-unit apartment buildings.
Walk-Up Buildings:
Buildings that are usually five stories without an elevator or doorman. They are among the more affordable housing in Manhattan and can also offer a lot of charming details and, in some instances, a lot of details like exposed brick and high ceilings.
The Preparation
Review your credit report:
Remove all disputed claims and clear up any debt if possible, especially outstanding credit card balances.
Prepare financial documentation:
A detailed financial statement of net worth with supporting documentation, employment verification, credit history, and tax returns, among other items, will be required by most financial institutions as well as the board of directors for a cooperative. Having these documents prepared will save you time during the purchase process.
Get a mortgage pre-approval:
Speak with a mortgage lender or broker and obtain a written pre-approval for your mortgage, which will help you determine your purchasing power. This knowledge will enable you to act expeditiously and with confidence when you identify the property you would like to purchase. Additionally, a pre-approval assures the seller that you are qualified, providing you with an advantage during the bidding process. During your conversations with a mortgage lender or broker, an important issue to discuss is your debt-to-income ratio. As a general rule of thumb, your total annual housing costs should not exceed 25-30% of your gross reported income, and your total debt should not exceed 35-40%. Another important consideration is deciding what percentage you will finance and what the down payment will be. Condominiums will typically require a minimum of 10% down and allow for 90% financing whereas cooperatives vary building to building with a minimum of 20% up to 50% down or in some cases all cash with no financing allowed.
Choose a Manhattan-based real estate attorney:
As New York City has complex real estate laws, attorneys are utilized to close all real estate transactions. Time is often critical; be sure your attorney is available to move quickly.
The Search
Choose an agent:
Since most agencies have access to Manhattan’s multiple listing services, they share the same listings. Therefore, working with one agent allows you to efficiently schedule appointments to see only those properties that meet your needs. In addition, working with more than one agent may actually prolong your search by having the same properties shown to you by multiple agents. By establishing a relationship with a single agent, you assure that you are the first person they call when a new listing arrives on the market that meets your search criteria.
Define your search parameters:
Be as specific as possible about your needs when communicating with your agent. Include price point, locations of interest and any other amenities you require in your new home or building.
Schedule appointments:
When scheduling appointments, try to be available during the week. Weekday mornings, late afternoons and evenings are all good times to schedule appointments. By avoiding weekends and open house showings, you steer clear of crowds of people (competition) which gives you more time to ask questions and get a "feel" for the property.
The Purchase Process
Submit a written offer:
Once you have found the home you wish to purchase, submit a written offer through your agent. The offer will include such provisions as purchase price, down payment, amount of financing, included and/or excluded personal property (i.e. window treatments, lighting fixtures, etc.), preferred closing date, current income (combined for couples), job description, net worth and debt status (loans, credit, etc.). Once your offer is accepted by the seller, your agent will notify the seller's attorney who in turn will draw up and send to your attorney the initial contract.
Keep in mind that sellers are allowed to hear all subsequent offers while your contract is negotiated and/or finalized. In fact, a seller may accept another purchaser's offer up to the point of a fully signed, executed and returned contract. This means that until your contract is signed by both you and the seller, your deal may not be upheld as the primary deal. Therefore, instruct your attorney to proceed expeditiously.
Review the contract with your attorney:
Upon completion of the contract, your attorney will review its contents with you, perform a due diligence review of financials and/or issues pertaining to the building, ask you to execute the contract and put forward a 10% deposit to be held in escrow until closing. Thereafter, the seller signs the contract and your attorney will deliver one original to you and one to your mortgage lender/broker.
Apply for a mortgage (if applicable):
Your agent will work with your mortgage lender to coordinate the appraisal of the property and provide the lender with requested information on the building. The loan process typically involves several steps from application to appraisal and finally approval. This process may take up to forty-five days to complete and hinges on your ability to provide all of the required financial data to your lender in a timely manner.
Complete board package (if applicable):
While awaiting your mortgage commitment, work with your agent to complete your cooperative board package. Your agent will provide an application that varies from building to building. Typically the application must be completed and returned to your agent (who will in turn deliver it to the appropriate party) within ten days of receipt of the fully executed contract or three days from the date a bank commitment letter is received, whichever applies. A typical cooperative board package requires at the minimum the following: personal and business reference letters, employment verification letters and/or pay stubs, bank verification and brokerage statements, net worth statement (this mirrors the information requested by your bank), two-years of tax returns and the mortgage loan application and commitment. Once completed, your agent will review the package in order to assure that all the required documentation has been supplied and presented in the manner requested by the board and then forward the package to the buildings managing agent or authorized personnel for processing.
Upon review of your board package, the board will typically schedule an interview to meet with you. After the interview, notification of the board's decision is given to you or your agent within seventy-two hours. However, some boards reserve the right to take longer.
Upon board approval, notify your attorney who in turn will coordinate the closing date. A typical closing can take up to two weeks to schedule, so keep this in mind when planning your move.
Inspect the property:
The day before or the morning of the closing (usually after the seller has vacated), your agent will accompany you on an appointment to inspect the property. The purpose of this inspection is to make sure the property is in the condition as stated in the contract.
Attend the closing:
When attending the closing be sure to bring your driver's license or passport, your checkbook for any last minute adjustments, and any certified checks that may be required.
The closing for a cooperative is ordinarily held at the office of the management company for the building. The closing is attended by you, your attorney, the seller, the seller's attorney, the lender's attorney, a representative from the management’s transfer department and the agent(s) involved in the transaction. At the closing you will first sign documents necessary to complete the loan transaction inclusive of a Security Agreement, Promissory Note, Stock Power, and an Assignment of Lease. Thereafter, you will sign all documents to convey the apartment and secure interest in the apartment such as Stock Certificate, Proprietary Lease and Consent. Checks representing the balance of the purchase price and adjustments are exchanged for the keys to the apartment.
The closing for a condominium or townhouses is ordinarily held at the office of the seller’s or lender's attorney. The closing is attended by you, your attorney, the seller, the seller's attorney, the lender's attorney, the title company closer and the agent(s) involved in the transaction. At the closing you will first sign all documents necessary to complete the loan transaction inclusive of a Mortgage and Promissory Note. Thereafter, you will sign all documents to convey the condominium apartment to you including a Deed, Title Report, and Unit Power of Attorney. Checks representing the balance of the purchase price and adjustments are exchanged for the keys to the apartment or house.
As part of the closing you will be given a Closing Statement. It is important to understand the costs that will be detailed on the Closing Statement. Here is a guide designed to give you the general costs associated with the purchase or sale of a cooperative, condominium or townhouse property. Please note that these are estimates and that potential buyers and sellers should consult their real estate attorney or financial advisor for specifics.
Closing Cost: Condominiums / Townhouse
For The Sellers
Seller's Attorney $1,700 and up
NY City Real Property Transfer tax 1% of purchase price if $500,000 or less
1.425% of purchase price if over $500,000
NY State Transfer Tax $4 per $1,000 of purchase price
Payoff Fees (if applicable) $450
Managing Agent Fee (Condominium) $250 - $750
Move-Out Deposit (Condominium) $500 - $1,000 (usually refundable if no damage)
Broker Commission Typically 6% of purchase price
Miscellaneous Condominium Charges Vary by building
For The Purchaser
Purchaser’s Attorney $1,700 and up
Credit Report Fee $50 - $100 per applicant
Lead Based Paint Disclosure Fee $0 - $50
Mansion Tax 1% of entire purchase where price is $1,000,000 or more
Managing Agent Fee (Condominium) $250 - $500
Move-in Deposit (Condominium) $500 - $1,000 (usually refundable if no damage)
Mortgage Associated Fees:
Origination Costs – points 0 - 3% value of loan
Application, Credit Check, etc. $500 and up
Appraisal $275 and up
Bank Attorney $750 - $850
UCC-1 Filing $100
Mortgage Recording Tax Up to $500,000 is 1.8% of mortgage; over $500,000 is 1.925% of mortgage
Title Insurance, Title Search & Recording Fees Approximately 0.5% of purchase price
Building Searches $200 - $400
Recording Charge $17 per document plus $5 per page
Real Estate Tax Escrow 2 - 6 months
If Purchased Directly from Sponsor: (New Construction)
NYC Real Property Transfer Tax 1% of purchase price if $500,000 or less
1.425% of purchase price if over $500,000
NYS Transfer Tax $4 per $1,000 of purchase price
Sponsor’s Attorney Fee $1,500
Closing Cost: Cooperative
For The Sellers
Seller's Attorney $1,700 and up
Stock Transfer Fee $.05 per share
Cooperative Attorney $450 and up
NYC Real Property Transfer Tax 1% of purchase price if $500,000 or less
1.425% of purchase price if over $500,000
NYS Transfer Tax $4 per $1,000 of purchase price
Flip Tax (if applicable) Typically 1% - 3% of purchase price
Payoff Fees (if applicable) $450 and up
Managing Agent Fee $500 - $750
Move-Out Deposit $500 - $1000 (usually refundable if no damage)
Broker Commission Typically 6% of purchase price
UCC-3 Filing Fee $100
Estate Fees Cooperative may impose additional fees for estate sales
Lost Stock and Lease Fees $250 - $750
Miscellaneous Cooperative Charges Vary by building
For The Purchaser
Purchaser’s Attorney $1,700 and up
Managing Agent Application Fee $750
Credit Report Fee $50 - $100 per applicant
Lead Based Paint Disclosure Fee $0 - $50
Mansion Tax 1% of entire purchase where price is $1,000,000 or more
Move-in Deposit $500 - $1,000 (usually refundable if no damage)
Mortgage Associated Fees:
Origination Costs – points 0 - 3% value of loan
Application, Credit Check, etc. $500 and up
Appraisal $275 and up
Bank Attorney $750 - $850
UCC-1 Filing $100
Recognition Agreement Fee $200 and up
Lien Search $350
Maintenance Adjustment
Prorated for month of closing