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How to Buy a NYC Apartment

Table of Contents

Co-op or Condo?

NYC apartments come in two varietals: Co-op (short for “cooperative”) and condominium. 

Older buildings (pre-1980s) tend to be co-ops, while pretty much everything from the 1980s onward is condo. Beyond that distinction, your personal or financial circumstances, along with your lifestyle preferences and past experience, might guide you toward one or another. Or, like many people, you may simply decide to look for the best apartment you can afford in a financially sound building, be it co-op or condo.

Here are some differences to be aware of:

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1. Ownership structure:

Co-op:  While co-ops are common in NYC, most people in other parts of the country are unfamiliar with their unique ownership structure. In a co-op, the entire building is owned by a single corporation. Instead of a deed, buyers get shares (stock certificates) in the corporation, and a proprietary lease that allows buyers to occupy a specific unit and lays down the rules and rights much like a lease in a rental building.  (In fact, technically speaking, buyers of co-op apartments are referred to as “tenants” or “shareholders,” not “owners.” )    

Condo: Buying a condo is very much like buying a single-family house.  You get a deed to the apartment that gives you ownership of the interior of your unit and the surface of its walls, as well as an undivided interest in the building’s common elements. This is the type of ownership almost everyone has in mind when they think about buying a home, and almost all newer buildings are condos.

After you buy your apartment, you will mostly find that the legal ownership structure has little impact on your use of it. However there are a number of quirks related to each that will be discussed further below.

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2. Co-op and condo boards

Co-op:  Shareholders elect a volunteer co-op board that (except in some very small buildings that choose to save money by self-managing) works with a property management company to oversee the care and maintenance of the building. The board also creates and enforces rules about everything from renovation inside units, to what’s allowed to transpire on the roof deck, to whether you can speak on your cell phone in the lobby, or whether dogs will be allowed in the building.  The board can levy fines against rule-breakers and, unlike condo boards, can even evict an extremely disruptive shareholder and force them to sell their apartment. 

Overreaching, power-hungry co-op boards are the stuff of legend here, and many of the stories are true. However, at least as many co-op boards are made up of volunteers with full-time jobs and families who try to make the best of what is a demanding and time-consuming role if done right.

Condo: Condo owners also elect a board of directors that perform many of the same functions as in a co-op.  Generally speaking, though, most condo boards tend to be more hands-off when it comes to rulemaking.  That’s partly out of philosophical underpinnings (more on that below) and partly because condo boards have less enforcement muscle: They can fine owners only for the expense related to any rule infraction (or get an injunction to stop it from happening again). And because a condo owner actually owns his or her unit, a condo board can’t evict an owner from an apartment (in contrast to a co-op shareholder, who is legally a tenant).

Note: In both co-op and condos, your voting power increases with the size of your apartment.

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3. Monthly charges and assessments

Co-op: Co-op shareholders pay a monthly maintenance fee. Part of the fee goes toward the expense of operating the building. The other part is the amount of property taxes apportioned to each shareholder based on the number of shares assigned to each apartment.  Particularly these days, when property taxes and fuel costs are rising sharply, maintenance fees are frequently adjusted upward each year (3%-7% annual increases are quite common).

In addition, co-op boards can require shareholders to pony up extra cash from time to time to boost the reserve fund or pay for a specific project.  In a 40-unit building, for example, an assessment to replace an elevator might run $8k-$15k per unit, depending on how many shares you own.  Typically, shareholders can spread their payments out over a period of time such as 6-18 months.

Condo:  The monthly charges in a condo building are referred to as common charges. Property taxes are not included; individual owners are billed directly by the government. This is an importance nuance to keep in mind when comparing carrying costs of co-ops to condos, because at first glance, condos may look cheaper on a monthly basis.

Like co-op boards, condos also levy assessments when necessary.

Monthly charges in both co-ops and condo tend to increase with the expansiveness of amenities and staff.   However, larger buildings have economies of scale when it comes staffing and operation that are often reflected in lower common charges.

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4. Approval to buy

Co-op: We’ll go into more details about the approvals process below, but for now, let’s start with the fact that a co-op board can turn down a buyer for any lawful reason. And because the reason need not be divulged, this means that in practice, unlawful reasons (race, religion, profession, sexual orientation, nationality, etc.) may also prompt a rejection.

Condo: For various reasons, most condo buyers these days are subjected to nearly as much financial and personal scrutiny as co-op buyers. But rather than being turned down outright, pretty much the worst that can happen to a condo buyer is that they wither away on the vine while a board engages in deliberate stalling tactics. Stalling is about all an unenthusiastic board can do, except for buying the place outright via the right of “first refusal”—which virtually never happens

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5. Minimum downpayment and liquid assets

Co-op:  Most co-ops require buyers to put down 20-25% of the purchase price, about the same as what most lenders require these days.   But the range can be vast, depending on the co-op—anywhere from 10% down (very rare) to 50% or more at higher-end buildings.

Co-ops also expect you to have sufficient money left over (also known as ‘liquid asset requirements’).  The required amount can range drastically, from a few months worth of maintenance to 1 to 3 times the purchase price of the apartment.

Condo: The typical downpayment required in a condo building is around 10%, depending on the building’s bylaws. Bear in mind, though, that if you’re getting a mortgage, banks these days often require 20%, unless the building qualifies for an FHA loan, which carries a 3.5% downpayment requirement.

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6. Closing costs

Closing costs tend to be substantially higher in a condo if you’re taking out a mortgage: You will pay a mortgage recording tax of 1.8% of the mortgage amount for loans under $500k  or 1.925% for loans above that.  Also, your lender will require you to buy title insurance (about .5% of the purchase price).  

Substantially higher closing costs for condos may be temporary, however, as the New York State legislature is trying to extend the mortgage recording tax to co-op purchases as well.  

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7. Subletting

Co-op: Most co-ops have very strict policies about subletting, which does not make them an ideal investment opportunity and can present a serious challenge if your job suddenly relocates to London, for instance.  You are usually allowed to sublet your apartment no longer than 1 to 2 years in any 5-7 year period.  The board also gets to approve your tenant and charge you a fee for subletting.

Condo:  Condo sublet policies are far more liberal.  While there may be rules against short-term sublets (say, less than 6 months), there is usually no outside limit nor do boards have the right to turn down a tenant unless they exercise that right of first refusal. But just like a co-op, application fees, move-in fees, processing fees, etc., can range from a few hundred to a couple of thousand dollars extra that your potential tenant will have to pay. And you will be living in a building with a more transient population.

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8. Lifestyle and other considerations

Now, brace yourself for some sweeping generalizations about lifestyle and other considerations in a co-op vs condo. You will need to do your due diligence to discover which of these statements actually applies to the building you’re considering.

  • Condo owners favor freedom and autonomy. Among other things, they don’t want to be told whether they can buy an apartment or to whom they can sell it or sublet it to; whether they can have a dog (or what kind, or how much it must weigh); whether they may refinance or take out a home equity loan, etc.
  • Co-op owners are more worried about whether the living environment they think they are buying into will live up to their expectations—and they want to protect it.
  • For the reasons above, condos can be noisier and filled with a high turnover of renters who don’t care about getting along with the neighbors and may have a greater tendency to neglect the building.  Co-ops, while often more peaceful and better tended, can be micromanaged, inbred, and change averse.
  • Older people live in co-ops.  Younger people live in newer condos.
  • Newer condos that sprang up during the recent construction boom and afterward—the majority of condos for sale today--tend to be located in less convenient or desirable areas, where land was available. Harlem, the Financial District and Midtown West in particular saw a disproportionate share of new development.
  • Newer condos tend to have more desirable amenities both inside the apartment (washer/dryers, anyone?) and outside (roof decks, playrooms, health-club-quality gyms, etc.) than co-ops and older condos.
  • It can be hard, and expensive, to find condos in the most desirable areas such as Central Park West or the best parts of the West Village.  Similarly, if you’re looking for prewar details, the buildings are almost always co-ops--and when you find a rare prewar condo, demand and prices are typically high.

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9. Tipoffs that you may be the condo type

In addition to the generalizations above, you may want to focus your search on condos if:

  • You have a large or feared breed of dog (basis for being rejected from a co-op even if it allows dogs and does not have a stated size or breed restriction)
  • You are looking for a newer building (1980s through present)
  • You are buying using a trust or an LLC
  • You want to use the apartment as a pied a terre
  • You are buying the apartment for your kids
  • You have sued a landlord or your last co-op or condo board, or you’re generally litigious (or you are an attorney)
  • You’re a musician
  • You have a home-based business that involves noise or lots of visitors like teaching music or practicing psychology
  • You can’t afford a 20-25% downpayment
  • You’re a foreign citizen 

Related posts on BrickUnderground:

A few things every buyer should know

10 signs of a liberal co-op board

 

 

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Financing

Like everywhere else in this country, New York City is living through a post-boom credit crunch that has made securing a mortgage one of the most nail biting aspects of buying an apartment here.  The more you know going in, the better off you’ll be.

1. The preapproval letter

Before you start looking for an apartment, you need a preapproval letter.  Getting one is a cursory process that involves calling up a lender or mortgage broker, spending a few minutes on the phone answering questions about your income and financial history, and pretty much immediately receiving a letter stating that you are preapproved for a loan up to X amount at an interest rate of Y.

It’s easy to get a preapproval letter. Too easy.

One of the problems of the letter is that not only has none of the information relied on to produce been verified yet, but all too often, some critical nuance has been missed and inevitably surfaces later.

Therefore, this piece of paper means very little beyond giving you a sense of whether you qualify.

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2. The commitment letter

Once your offer on apartment is accepted, you return to your lender or mortgage broker for a commitment letter. You submit a lot of financial information, the property is appraised, the lender or mortgage broker looks at the building itself to make sure it meets their lending guidelines, and finally they give you a commitment to lend up to X amount by Y date at Z interest rate.

Once upon a time you could go to sleep on that assurance and quit worrying about financing the hugest purchase of your life.

These days, the letters are riddled with conditions. Some lenders try to sneak in “subject to appraisal” if they’ve issued the letter before the appraisal or “appraisal subject to underwriting review”—essentially,  these are loopholes inserted by the lender that allow them to walk away from the “commitment.”

Which leads us to….

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3. Mortgage contingency vs funding contingency

Though they didn’t used to, most NYC sellers will agree to a mortgage contingency clause in the contract. The clause gives you the right to walk away with your deposit if you are unable to get a commitment letter.

Obviously, that’s not enough now that commitment letters have so many loopholes. That’s why many buyers’ attorneys have begun asking for “funding contingencies” in addition to a mortgage contingency. A funding contingency frees you from the contract with your deposit if the bank fails to fund the loan.

Unfortunately for buyers, sellers won't necessarily agree to this.

Which brings us to….

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4. Mortgage brokers vs lenders

Banks are constantly changing programs and underwriting standards in today’s tumultuous credit environment.  The credit score that was good enough to qualify you for a $500k loan at 4.25% last week when you got your commitment letter is no longer good enough, and you can’t afford the apartment at the new terms, or the bank has decided not to lend to you at all.  At risk is not just the deal—it’s the earnest-money deposit (typically around 10% of the purchase price) you put down when you submitted your offer.

This is why we strongly advise you to use a mortgage broker rather than a direct lender:  The chances are greatly increased that a mortgage broker—familiar with every new program rolled out by banks on the day they come out--will hustle to find you another bank to get the deal done if your lender pulls out.  Is an institutional lender going to lift a finger to find you a deal with another bank? Nope.

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Related posts on BrickUnderground.com:

A buyer’s options when the appraisal is too low

Confessions of a mortgage banker

Hybrid contingency clauses

 

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Working with a real estate broker

1. Do you have to work with a broker?

Although the vast majority of NYC apartments are represented by a listing agent (FSBO—or For Sale By Owner—listings being relatively rare in NYC) whose 5-6% commission is paid by the seller, buyers do not have to pick one real estate broker with whom to work exclusively.

In fact, over the past few years, a growing number of buyers prefer to manage their own apartment search and deal directly with the selling broker of the apartment they want to buy.  Websites like StreetEasy.com—which operates as NYC’s de facto multiple listing service and features a deep bench of price history information—have made it easier than ever to research properties and compare values and past sale prices.

Moreover, buyers who fly solo argue that they can save money by persuading the listing broker (who now doesn’t have to split a 5- or 6% commission with the buyer’s broker) to kick in a percentage point of the commission toward to the purchase price. Whether most buyers successfully wrangle that extra percentage point is unclear. And as a recent New York Times article explains, using an agent whose loyalties are divided between you and the seller is a bad idea in pretty much every other way.  Among other things, you won’t have a real advocate during contract negotiations, and you may not hear about problems with the apartment or the building or resale potential.

2. It’s especially imperative to work with a good broker under any of the following circumstances:

  • You don’t have the time or inclination to manage your search, including researching available properties and comparables or setting up appointments with agents.
  • You are a first-time buyer.
  • You are new to New York City.
  • You are unfamiliar with the neighborhood in which you are looking.
  • There are special circumstances about your qualifications, circumstances or desired apartment that will make your search particularly challenging.
  • You are buying in a difficult co-op: A good broker will be able to determine the likelihood that you will pass the board before you ever make an offer, which will save everyone substantial time, money and heartache.  Also, a good broker will be able to help you craft an application package that caters to the whims of the board so that your chances of being approved are higher.
  • You are buying for investment: A good broker with a solid understanding of investment properties should be able to help you develop your pro forma to model anticipated cash flows, cap rates, internal rates of return, and expected net profits. They will also be able to put you in touch with lenders and property managers that specialize in investment property and help you determine the market value of rents. They may also be able to help with leasing after you buy.
  • You are buying from a developer: Because this can be much more complicated than the resale process, the sponsor/developer drafts their own purchase agreements (unlike the boilerplate contracts typically used for resales). That often leaves more issues to be protected against and negotiated that are largely unfamiliar to the typical purchaser. Also, a good broker should be able to provide you with some industry insight into the building before you submit an offer.

3. How to pick a good real estate agent

Here some signs of good agents:

  • They are intimately familiar with the neighborhood(s) you are looking in
  • They have at least a few year’s experience
  • They are busy, but not so busy that they hand you off to an assistant
  • They work full-time
  • You have a good gut instinct about them (no high-pressure tactics)
  • They have experience with condos, co-ops, and new developments (whichever you are focusing on)
  • They seem to understand your taste and sensibilities.

FYI, many buyers visit open houses on their own either while working with a broker (writing the broker’s name on the sign in sheet) or before picking one.  Even if you show up unrepresented to an open house, you usually have the right to bring in your own broker at any time up until an offer is submitted, no matter what the seller’s broker  (who now has to split the commission) says.

This is not true, however, if the seller’s broker is not a REBNY member--more common outside Manhattan--and not always true in new development when the seller’s agents are in-house or not REBNY members.  Although you have a legal right to choose an agent to represent you, you may have to pay them yourself under these circumstances as brokers have no legal obligation to co-broke with your agent--and many will not--if they are not REBNY members.

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Related articles on BrickUnderground.com:

How not to be a real estate agent

Signing in without a broker at an open house

8 things not to tell your broker

NYT warns buyers to get their own broker

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How to pick a good closing lawyer

Once a seller has accepted the offer negotiated with you and your broker, you will need to hire a real estate attorney to prepare and negotiate the details of the contract.

Don’t wait until the last minute to figure out which attorney you plan to work with. There will be a lot of fast moving pieces and heightened emotions--and you don’t want to rush this.

Here are a few pointers for picking a good closing lawyer:

  • Just about the worst thing you can do is hire an attorney who does not specialize in NYC residential real estate. Do not—repeat, do not--try to save money by dragging Uncle Morty away from his trusts & estates practice.  The intricacies of closing a NYC real estate deal—from due diligence on a co-op to reading a condo board minutes—are not taught in law school or dealt with in many other real estate markets.
  • On the other extreme, don’t pick a chop-shop closing lawyer who takes a cookie cutter approach to your transaction and/or is too overloaded to be responsive.
  • If you don’t already know a good closing attorney, ask for referrals from people you know, but be skeptical about referrals from brokers involved in your transaction. These attorneys may be quite competent, but they may also feel the need to help a transaction go through in order to keep getting referrals. This is especially true with referrals by a broker representing a new development, where the potential for future business can be huge.
  • Fees typically range from $1,500 to $2,500 for the average transaction. Expect to pay up to a few thousand more if, for instance, you want to preserve your privacy by buying an apartment under an LLC created for this purpose.
  • Make sure the fee includes due diligence, and that your attorney (not a paralegal) will be going to the managing agent’s office to read the financials and minutes (and read the offering plan if the building is less than 5 years old).  It’s also best practice for your attorney to administer the managing agent questionnaire (about bed bugs, leaks, noise complaints, reserve funds, major capital projects, etc.) in person or over the phone.   (As one closing attorney told us, “They have a duty to the building but generally they don’t want to lie. You can tell if they’re trying to avoid something.”)
  • Find out how much of the attorney’s fees are refundable if the deal doesn’t go through.

Related articles on BrickUnderground:

Confessions of a closing lawyer

Analyzing the “special risks” section of an offering plan

7 questions buyers should ask

 

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A few words about new construction

Buying a brand new condo poses some special risks and challenges:

1. Construction defects

New does not mean perfect, and construction defects have become a huge issue in recent years—both for buildings erected during the recent construction boom (when developers, including many novices, cut corners in a rush to bring their buildings to the frothy market) and afterward (when developers cut corners to make ends meet in a soft market).

The most common problems involve exterior leaks, windows that don’t work, defective wood floors, inferior substitutions of materials and appliances, missing fire proofing, heating and cooling system problems, and bad ventilation.

Your pain and suffering may be multiplied by the fact that the developer (also referred to as a 'sponsor') either doesn’t want to fix a project he doesn’t stand to make any more money on, or can’t afford to.  Worst case translation: Two to three years of lawsuits, five- or even six-figure assessments, mild-to-severe inconvenience, and repair work that could wind up costing each owner tens of thousands of dollars. (For real-life examples, see Our new construction nightmare and My 7-year new construction nightmare.)

In light of the uncertainties surrounding the quality of brand-new construction, many buyers these days are opting for “slightly used” condos—apartments in two-to-three-year old buildings that have already had their tires kicked.

2. Finding a reputable developer

While buyers of brand-new will never be able to eliminate the prospect of construction defects, the best hedge is to buy from a reputable developer—one who not only builds to a greater standard of care, but can afford to fix things that go wrong and wants to in order to preserve its reputation and be able to sell future projects.

So how do you find the good ones?

  • A good real estate attorney (not one referred to you by the developer) should be able to steer you away from the worst and recite a list of the best.
  • Google the name of the developer for discussions about problems in past projects. Remember that many developers create a new LLC for each project, so look in the offering plan—a huge telephone-book-sized document that along with its amendments essentially explains everything about the building, from how many units have to sell in order for the sponsor to relinquish management of the building right down to the finish of the countertop in the powder room—to find out exactly which entities are partners in the LLC, and Google those names too.
  • If you’re working with a less well-known sponsor, you may want to take the extra step of hiring an investigative attorney to run an asset search and litigation check.  It could cost a few thousand dollars, but depending on the size of your investment and your own personal rainy day fund and tolerance for trouble, it could be worth it. 

3. Buying “preconstruction” units

Plenty of people have lived to regret buying an apartment that has not yet been built. Buying “preconstruction” means relying on renderings (which may be deliberately distorted) to depict everything from the view outside the window, to the spaciousness of the master bedroom, to the finishes in the bathroom.

See How to Analyze a Rendering for some common trouble spots, and always remember that the sponsor is only legally obligated to deliver what’s specified in the offering plan; the pretty pictures are utterly irrelevant, and so is the model apartment. For best results, don’t buy until you can walk into your unit (not even one two stories up) and see it almost completely finished.

So why would anyone want to buy off of a floorplan?   Pricing.

Sponsors release units for sale in several batches, raising prices each time.  The spread between the first group and the last is usually 5 to 20%.

Note that while you may get a cheaper apartment if buy early, you won’t necessarily get a better one. Sponsors include a number of the most desirable units in each new batch of units and often save the best for last, when they expect to receive the highest price.

4. Financing new construction

In the skittish modern credit climate, lenders look as closely at the building as at your financial history and income in deciding whether to give you a mortgage.

Building-wise, lenders require that anywhere from 15% to 50% of the apartments in the building must be in contract. The exact percentage is up to the lender, and so-called “preferred” lenders are typically at the lower end of this range.  Preferred lenders, named in the offering plan, become intimately familiar with the development and don’t have to start from scratch as an outside lender might.  This generally rules out the possibility of the loan being denied because of issues with the building.

Before issuing a mortgage to a buyer, lenders also require that the building have a Certificate of Occupancy or Temporary Certificate of Occupancy issued by the Department of Buildings.

Most lenders require that you put at least 10% down on your new condo; the average is around 10-20%.  If your building is FHA-approved (more and more common in many emerging Brooklyn neighborhoods, for instance), you will only need to put 3.5% down.

5. Abatements

Many new buildings offer property tax abatements that range from 5 to 25 years, meaning that you will owe no property tax or only a specified fraction each year until the program expires and you rejoin the highly taxed herd.

A few points about abatements:

  • The longer abatements tend to be located in emerging neighborhoods like Upper Manhattan and certain parts of Brooklyn.
  • Make sure you understand the phasing-in schedule:  You may owe zero taxes for 10 years, then 25% of “normal” taxes in year 11, 50% in year 12 etc.  A rapid phase-in can be a financial shock.
  • Make sure you have a realistic sense of your actual tax burden once the abatement expires.  The dizzyingly high number that the offering plan says will be your tax at the expiration of your abatement is based on current tax rates and assessed property values.  Your actual number in 7, 14, or 25 years is likely to be much higher as tax rates and assessed values continue their inevitable climb.
  • Don’t assume you are going to sell in Year 7 in the event your income can’t keep up with your taxes. Many of your neighbors may have the same idea—and the competition will make it harder to sell for the price you need.
  • As a general rule of thumb, don’t spend up because you have an abatement: Buy the apartment you could afford if there were no abatement.  

6. Negotiating with a sponsor

In the current real estate market, many sponsors will negotiate, but unlike individual sellers, they generally avoid outright price reductions. These affect future sales, as each unit’s recorded sale price is a matter of public record. If the sponsor gives you $25,000 off, he will probably have to give every other buyer in that line $25,000 off. 

Instead, focus on extracting  “off-deed” concessions that the rest of the world will not automatically learn about, such as:

  • 3-12 months of common charges paid in advance
  • Payment of attorneys fees
  • Upgrades to your unit like a better floor (if not yet done) or other finishes and appliances
  • Roof rights, rooftop cabanas, storage bins, bike spaces, parking
  • Payment of your contribution to the building’s reserve fund (“capital contribution”)
  • Mortgage recording tax “splitter”: Not many buyers know about this, and it certainly pays to ask, as it can save you the entire amount of your mortgage recording tax (nearly 2% of your mortgage amount)
  • An interest rate "buy-down"
  • Furnishings, particularly when you're buying a model unit

In some cases, you may have more leverage at the beginning and end of a project. That’s because during the preconstruction phase, the sponsor will be focused on getting 15% of the units under contract. Fifteen percent is the magic number at which the offering plan is declared effective by the attorney general and closings can legally begin. It is also the minimum threshold at which most lenders will even consider financing sales in the building (some want to see as many as 50% of the units under contract).

Conversely, you may have extra leverage at the very end of the project, when a sponsor may be eager to close down the sales office and focus fully on the next project.

Other points of negotiation:

  • Deposit amount: Most sponsors ask for 10% down when you sign the contract, but in the preconstruction phase, when the sponsor is eager to hit the 15% mark described above—and is likely to be sitting on your deposit a very long time before delivering the unit--you may be able to negotiate a lower amount, such as 5%.
  • Drop dead dates: Sponsors will never offer this up, but most will agree to a reasonable “drop dead” date at which point you are let out of the contract.  For example, if you’re signing a contract in August and the sponsor predicts closings will start Oct. 1st when the building is predicted to be 25% sold, you can ask to be let out of the contract if closings are delayed 3-4 months past Oct. 1st. 

Related Articles on BrickUnderground:

The top 7 construction defects

How to analyze a rendering

The perfect condo

How do I check a developer’s track record

The real (scary) numbers behind those tax abatements

New condos called “sickest” buildings in NYC

“Splitters” can save you thousands on a new condo

Analyzing the “special risks” section of an offering plan

Confessions of a preconstruction buyer

Our new construction nightmare

Building a war chest to fight a sponsor

4 neat ways to use an investigative attorney in a co-op or condo

Concession Update: What developers are giving and how to give it

 

 

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Finding the right building

From a quality of life and investment perspective, the building you buy into can matter more than the specific apartment you wind up buying.  That’s a lesson first-time buyers and people new to NYC generally wind up learning the hard way--falling for the view and regretting the high maintenance charges (or the high-maintenance board).

1. Type of building

We’ve listed a few considerations here, but ultimately this choice comes down to personal preference. 

'Full service' and 'white-glove' vs plain old “doorman” buildings: Full-service implies all the trimmings you would expect such as porters, a resident manager, and possibly a concierge in addition to 24/7 doormen.  White glove includes all this plus five-star-hotel level of service and cleanliness.  A simple “doorman” building can be as no-frills as a part-time doorman and a live-in super.

Your monthly charges will reflect the level of staffing, and generally speaking,  there is an economy of scale: It can cost less per apartment to staff a 300-unit full-service building than it does to staff a 125-unit building.  Holiday tips in a full-service building can range from $1,000-2,500 per year, though there is no obligation to tip.

“Attended elevator” buildings: This is a rapidly dying breed of smaller prewar buildings that still have old-fashioned manually-operated elevators. The elevator is operated by a uniformed attendant who functions as a doorman when not ferrying passengers. However, there is not a separate doorman, so package acceptance and other types of duties cannot be reliably carried out at all times, with the attendant toggling back and forth between the front door and the elevator.

We can’t really think of an upside to this arrangement (besides delaying the cost of upgrading the elevator).   All things being equal, we’d rather have a doorman.

Elevator buildings:  Compared to luxury full-service buildings, these are generally on the  smaller side, topping out at around 10-15 stories.   At most, they are staffed with a live-in super and maybe a part-time porter/handyman to help out.

Many people swear they would never live in a doorman-less building, citing safety and convenience.  Others find that a good live-in super who accepts packages is an excellent trade off for increased privacy and significantly lower monthly charges.

Walk-ups: These five- or six-story buildings are usually very competitive pricewise. Many if not most rely on help from a part-time off-site super, and some require  that owners take up some duties usually performed by a super, such as shoveling snow.

Prewar vs postwar vs new

  • Prewar buildings were built before World War II and generally but not always embody the elegant, iconic architectural styles associated with “old” New York.  On the positive side, they tend to be very solidly constructed (resulting in less sound transmission between apartments, except in tenement-style apartments and brownstones) with more gracious proportions, from room size to closet size to ceiling height.  On the negative side, prewar buildings tend to have fewer amenities, and unlike the newest crop of construction, comparatively few allow in-unit washer dryers, though there is some progress being made on that point as prewar buildings revisit plumbing issues to try to remain competitive.  Due to their older vintage, most prewars are co-ops rather than condos.
  • Postwar buildings basically span the period from World War II up until the latest circa-2000 construction boom.  These buildings include the huge middle-class housing projects like Stuyvesant Town, to the 60s-era white-brick high-rises plentiful on the Upper East Side east of Lexington Avenue, to red-brick cookie cutter construction that characterizes much of the 1980s construction.   While there are exceptions, the cookie-cutter nature and lack of architectural detail of many of these buildings can render them a more affordable option than prewar or the newest construction.   They are likely to have amenities like laundry rooms and fitness centers, and their windows, bathrooms, and elevators are often larger than prewar, but many are also known for their low ceilings and slapdash construction that shows up in noise-transmitting walls and floors.
  • New construction Buildings born in the most recent (post-2000) construction boom and afterward tend to lavish much attention on style and design.  Hallmarks include an emphasis on floor-to-ceiling windows, open kitchens, and amenity spaces that can range from full-service gyms and screening rooms to pet spas, landscaped roof terraces and children’s playrooms with a full schedule of classes and activities.  Many units were designed to accommodate washer-dryers.

    All of this comes at a cost:  The sense of spaciousness provided by huge windows and open kitchens allow developers to shave actual square feet from living areas, amenities boost the common charges, and as mentioned above, many newer buildings (1-3 years) are still experiencing growing pains related to construction defects and sponsor rule. Depending on the developer, noise transmission and air quality issues can also be a problem.

    Also, because new construction was the last to the land-grab table, newer buildings tend to be less conveniently located than older housing stock. They are also condos, not co-ops; because of a condo’s lax sublet rules, this can lead to a higher proportion of renters than some owners are comfortable with.

2. Financial health

After your offer is accepted, a good attorney will conduct a thorough analysis of your prospective building’s financial situation. (Remember, we mean a good attorney; if you pick one unfamiliar with NYC real estate or who runs an assembly-line chop-shop practice, your attorney may not give this critical process the attention it needs.)

While you’re out there shopping and comparing buildings, keep in mind that if a building hasn’t raised its monthly charges in years, this is likely a sign of bad management in that important projects are probably being deferred.  Similarly, while some higher-end buildings make a practice of “running lean” and levying assessments for emergencies and improvement projects, a reserve fund of less than 3 months may mean this building is struggling.

3. Questions to ask before you sign the contract

Having to wait 10 minutes every single day for an elevator during rush hour can really crimp your happily-ever after. Issues like that and the ones below are not necessarily deal breakers, but it’s good to think about them in advance to identify the ones that might be:

  • Are there enough elevators to accommodate the number of residents? In a tall building, are all of the elevators “local” or is there an express option to speed things up?
  • What is the sublet policy? Are there any fees?
  • If the heat and air conditioning are centrally controlled, what time of year does the building switch over? (You could be poaching/freezing for a long time.)
  • Can meals be delivered to your door or do you have to go down to the lobby to get them?
  • Are all of the amenities included, or are there some pay-to-play options?
  • Is the board liberal or conservative? (Ask to see a copy of the house rules.)
  • Has the building had a bed bug problem within the past year, how was it handled, and what is the status?
  • Even if you don’t want one now, does the building allow dogs? If so, are there any restrictions on number, breed or size?
  • If your apartment doesn’t already have one, may you install a washer/dryer? (Beware of any answers to your renovation questions that include the words “the board approves this on a case-by-case basis.”)
  • Are there any nuisances on the block, such as a nightclub that gets going at midnight every night, or a restaurant that exhausts cooking smells into your apartment? (come back and check at the appropriate time of day)
  • What public elementary schools are in your zone, and are they considered “good”? (Even if you don’t have kids, your next buyer may care. Fair Housing Laws preclude your agent from discussing schools, but you can investigate on websites like InsideSchools.org and GreatSchools.org and stop by the local playground to ask a few a parents.)
  • What kind of people live in the building? Fair Housing Laws prevent your agent from talking about the presence of families, retirees, or young party animals—so ask the doorman and/or sit outside the building to watch who comes and goes.
  • Are there enough restaurants that deliver to the building? (Check SeamlessWeb.com.)
  • Is your prospective apartment located in a less-than-ideal spot in the building? (See The 7 Worst Places to Live in  a Building)
  • Be alert to any objectionable odors, ranging from cigarette or pot smoke to cat pee to strong cooking smells and make sure they are something you can live with.
  • How is garbage disposed of—for example, can you leave it on the service stairs for pickup or do you have to bring it down to the basement yourself?
  • Are strollers allowed in the elevator or relegated to the service elevator?

Related articles on BricUnderground.com:

The 7 worst places to live in a building

A few things every buyer should know

10 signs of a liberal co-op board

Drawbacks to high-rise living

13 NYC apartment buildings that have totally banned smoking

Using a trust to buy an apartment

Bed bug disclosure applies to co-ops too

The white-glove building, defined

How to live happily above a restaurant

The inside scoop on rent-to-own

Is it okay to put your kid in a windowless 'bedroom?'

How to raise 4 kids in a 4th-floor walk up

16 things I wish I knew before buying this place

How many sales is too many?

17 tips for casing the joint, from an open house addict

10 questions buyers forget to ask

Timing the building instead of the market

9 questions that separate the New Yorkers from the rookies

Prewar versus new: Which is better?

 

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The offer and the contract

1. The offer

Typically, the elements of an offer are pretty basic. These include price, expected closing date, the amount of the broker’s commission, the percent of the purchase price that will be financed through a mortgage, and whether you are asking for a mortgage contingency and/or a funding contingency.

Less commonly, the offer may include terms like the right to take possession before closing and pay rent to the seller. Inspection contingencies, allowing buyers to walk away from contracts with their deposits, are not common practice in NYC, but most sellers will agree to an offer that specifies “inspection prior to signing.” That basically means the seller will allow the buyer to have the apartment inspected before signing contract, leaving the buyer room to walk away without signing the contract if an insurmountable problem surfaces. 

A few words about lowball offers are in order.  Keep in mind that as of this writing, in a somewhat soft market, apartments in Manhattan are selling at an average discount of 3-4% off of list price.  Making an offer that is more than 10% below asking is, quite frankly, a horrible way to begin a negotiation. You will anger the seller, who may quite possibly refuse to counteroffer, and create a hostile relationship between the buyer’s broker and seller’s broker, which is not particularly helpful to your situation either.

When making an offer below the asking price, make sure it’s reasonable and share with the seller the facts that your offer is based on--specific comparable sales, an issue in the building, a change in the economy, etc.  This approach works psychologically by communicating that you’re serious and attempting to be fair, even if the seller does not agree with you.

Another tip: Don’t assume the seller’s broker is going to articulate your position very well.  Always give them something (a well reasoned and worded email, comparables pulled from StreetEasy, etc.) that they can cut and paste into an email to help convince the seller.

2.  The contract

Once you have an accepted offer in hand, it’s time for your attorney to get busy. Generally speaking, it takes about 10 business days to go from accepted offer to signed contract and another 30 – 75 days  to close depending on whether you’re using financing and the speed with which your lender and the building’s board move.  Of course there are always things that can delay closings even longer.

During this time, your attorney will review the last few years worth of minutes and financial statements and ask the managing agent some probing questions, all of which is intended to disclose any pre-existing or potential problems related to everything ranging from finances, bed bugs, leaks, noise complaints, reserve funds, major capital projects, problem neighbors, etc.  As we’ve said before, your attorney will ideally do these things him or herself, rather than dispatch a paralegal, and  speak to the managing agent in person or by phone, rather than sending a questionnaire.

Your attorney will also review the building’s offering plan, bylaws, rules and renovation policies to make sure there are no surprises that might change your mind about buying the place.

Related articles on BrickUnderground.com:

The art of the lowball offer

1 in 10 co-op sales inflated to pass board

Top negotiating mistakes of buyers, and their brokers

10 signs of a desperate seller

 

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Getting approved by the building

1. The process, and the exceptions

Whether you’re buying a co-op or condo resale, your purchase usually must be approved by the building. This involves submitting a 45-page-long, invasive, much bemoaned application package assembled by you and your broker that includes tax returns, recommendation letters, financial statements and much, much more.  Some applications only reach back a couple of years; others go all the way back to the day you graduated from college.

As explained earlier, condos may make you work just as hard as a co-op, but basically have to accept you, unless they exercise their right of first refusal and buy the apartment out from under you. This almost never happens. And in new construction, there is not even an application package.

There are a couple of situations in which a co-op cannot reject you:

  • “Cond-ops” A few buildings (sometimes referred to as “cond-ops” for their condo-like approvals power) are actually forbidden by their own bylaws from turning down a buyer who satisfies basic conditions for buying .
  • Sponsor sales -Co-op buyers can also avoid the approvals process by buying directly from the sponsor (i.e., the building’s owner when it converted from rental to co-op back in the 60s, 70s and 80s, when most co-ops were formed). In a sponsor purchase, the board typically has no power to turn down your application and in fact doesn’t even have the right to require you to fill out a package or even require the same minimum downpayment as the co-op. Because of this relatively unfettered approvals process, sponsor apartments tend to be priced a slight premium—often worth it for those who don’t want to reveal private information, suffer through an interview and/or risk rejection. (Downside: Many times, sponsor apartments are not in the greatest condition, having lived all their lives as rentals possibly capped off by a quickie “sponsor” renovation.)

If your application is approved by a co-op board, you proceed onto the final step: The board interview.  But first….

2. Reasons you might be rejected by a co-op before you ever reach the interview

The vast majority of turndowns occur before the interview, based solely on your application.

As stated before, co-ops do not have to explain why they rejected you. So although, legally, they must abide by Fair Housing Laws and not discriminate on the basis of race, religion, family status, etc., the fact is that anything can and probably does happen behind closed doors and sealed lips.

Here’s a brief tour of the possible, not always obvious reasons (most legal, some not) for rejection based on your application:

  • The size, breed, temperament, etc., of your dog.
  • They suspect you plan to use the apartment as a pied a terre rather than your primary residence.
  • You are buying the place for your grown kids.
  • You need a guarantor to afford the apartment.
  • You won’t have enough cash left over after buying the apartment to meet “liquid reserve” requirements, which can range from $25,000 all the way up to 1x to 3x the purchase price of the apartment.
  • You don’t have a strong enough presence in the United States (where will they sue and collect money if you default on the maintenance).
  • You are a musician (noisy), record producer (like to party), or attorney (litigious).
  • You are an at-home music teacher (noise + lots of visitors) or operate some other objectionable home-based business.
  • You have a history of being litigious and/or suing a former neighbor, board or landlord.
  • You posted stupid pictures of yourself on Facebook that suggest your lifestyle is not an ideal fit.
  • You are paying too little for the apartment (it will drag down property values for the whole building).
  • There are discrepancies in your financial package that have not been adequately explained.
  • Your income relies too much on discretionary bonuses or on commissions.
  • You haven’t been at your current job long enough.  

3. The Co-op Interview

The good news about the co-op board interview is that despite its fearsome reputation, the vast majority of turndowns occur beforehand based on the financial package. Attorneys have counseled their boards to do this in order to cut down on lawsuits alleging discrimination.

Most of the time, if you’ve gotten the interview, the apartment is yours to lose—something will need to go really awry in the interview.

That said, here are some tips:

  • Don’t answer any questions you’re not asked; give lots of “yes” and “no” answers, resisting the urge to elaborate or sell yourself.
  • Have a copy of your application with you and be familiar enough with it to quickly and concisely answer questions about it without looking (shuffling through papers gives a bad impression).
  • Arrive on time and dress professionally.
  • Couples should decide in advance who will answer certain types of questions (for example, one spouse answers all the financial questions, and the other handles the rest).
  • Don’t ask questions, as they can unintentionally convey negative feelings or intentions such as, “Do you intend to renovate the lobby?” Plus, all your questions should be answered by now as you’ve already agreed to buy the place.

Short, cordial interviews are generally a good sign. You won’t find out whether you’re approved until later though, usually within a few days.

Related articles on BrickUnderground.com:

My Big Fat Board Interview

How to get your dog past a co-op board

How to spin a board interview

How to appeal a co-op board turndown

 

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The closing

Typically about 60 days elapse between the time the seller accepted your offer, and the time you actually close on the apartment.

The closing will be attended by attorneys for you and the seller, a title company representative, a managing agent if it’s a co-op and probably the brokers for both sides, who have no official function but come to network and pick up their commission checks.  While buyers and sellers are usually there, they can skip it and hand power of attorney to their lawyer.

Arrive with your ID and your checkbook, to cover any minor last-minute ‘adjustments’ that spring up.

Ideally, your closing will last one to two hours, though any number of things like problems with the walk-through, tardy transfers of loan funds, and tardy arrivals of humans can slow things to a crawl.

Eventually, you will walk out with a signed purchase agreement, keys and a great new place to rest your head at night.