It may take only two to tango, but to buy real estate in NYC, it takes a village. Knowing who does what and which functions they perform ahead of time can give you a leg up on the process.
Below, a quick primer on the six main players you are likely to encounter and what you can and should expect. For a more in depth overview of the buying process, consult BrickUnderground's popular guide on How to Buy a NYC Apartment.
1. Real estate agent
Real estate brokers can exclusively represent the buyer or the seller; alternatively the seller's agent can represent the buyer too, in which case the agent is a "dual" agent.
Some buyers prefer to work directly with the seller's agent, believing that in a competitive marketplace, they have an advantage if the seller's agent stands to gain the full commission rather than split it with a buyer's broker.
Be aware, though, that if you work directly with the seller's broker, your agent's loyalties are divided; you won't have a real advocate during contract negotiations and you may not hear about problems with the apartment or resale potential. (For more on the risks of dual agency, read this New York Times article.)
Whether you're buying or selling, if you plan to use broker, look for one first through a recommendation--from a friend, colleague, or neighbor who has had a good experience, or (shameless promotional plug) from BrickUnderground's very own referral service.
A real estate agent should have at least a few years' experience, work full-time, be busy but not so busy that they hand you off to an assistant, seem to understand your taste, and not use high pressure tactics on you.
"Interview prospective brokers to find out whether they specialize in the property types or buildings and neighborhoods you’re looking for," says real estate agent Barbara Fox of Fox Residential.
Fox also suggests checking an agent’s recent sales on local websites like StreetEasy.com, as well as whether or not they are members of the Real Estate Board of New York, which means they comply with REBNY’s standards of practice and ethics code, which, among other things, obligates listing agents to split the commission with a buyer's broker rather than keep the listing all to themselves.
2. Lenders: Mortgage brokers, mortgage banks, national and regional banks, and credit unions
Whichever type of lender you go with, "it's important to find one that understands co-ops and the approval process, knows the managing agents and has already preapproved lots of buildings," says Robbie Gendels, a senior loan officer at National Cooperative Bank in Manhattan, which specializes in co-op and condo mortgages.
Mortgage banks issue loans directly to consumers but then typically sell them into the secondary market immediately afterward--often to large banks like Chase, Wells Fargo, and Citi--which means Fannie Mae and/or other strict lending standards usually apply.
Unlike mortgage banks, regional banks and national banks are banks in the conventional sense, with actual branches and customers who open savings and checking accounts. Regional and national banks can also issue mortgages. Sometimes these mortgages are quickly resold into the secondary market.
However, many regional and national banks also issue "portfolio loans" held on their own books. Since these loans are not being sold into the secondary market, lending standards on these mortgages can be more flexible, explains Richard Martin, a managing director of Quontic Bank, a regional bank which issues portfolio loans in addition to traditional mortgages. So, for example, if you're a freelancer or the building or apartment you're interested in flunks a Fannie Mae requirement, a portfolio loan might be the way to go.
Mortgage brokers match borrowers with the best loan program currently being offered by a bank. They are paid on commission but have no responsibility if, for example, a buyer commits fraud, leaving the bank holding the bag.
Not surprisingly, "the ranks of mortgage brokers collapsed in the post-Lehman credit crunch era as banks--left holding bad loans that came through mortgage brokers--decided to reduce their dependence on them and keep the commission," explains Jonathan Miller, president of appraisal firm Miller Samuel.
Credit unions are cooperative banks that you need to join first, based on an affiliation with a business or organization or on your geographic location. Geared toward keeping costs down for their members, credit unions offer very competitive mortgage rates and flexible financing options.
3. Managing agent
Although they're often overlooked (and aren't hired by a buyer or a seller) one of the key players in any transaction is the building's managing agent.
Buyers and their attorneys "rely on managing agents to provide them with board minutes and to answer any questions regarding indvidial policies or building conditions," says Roberta Axelrod, an asset manager for Time Equities.
This is actually only the tip of the iceberg when it comes to managing agents. According to Axelrod and Midboro Managment president Michael Wolfe, the following is a sampling of just a few other things that a managing agent does:
- Gets board approval of the application in a co-op or act as an intermediary with regard to a condo board's right to refusal of an individual application
- Reviews all maintainance and common charges with a propsective buyer.
- Assists in obtaining the proper paperwork and guidance for buying co-op or condo insurance based on a building's current policies
- Reviews requests, plans and permits for any renovations or apartment operations
- Arranges and supervises move-ins
The appraiser is an important character in the process of buying a New York City apartment, but he or she is chosen by a lender and neither the buyer nor the seller has a say in it.
So what does an appraiser do?
“The job of an appraiser isn’t actually determining the exact value of the home, but rather taking an overall inventory of the market based on comparable sales and listings,” says Miller.
In a rapidly rising market like this one, low appraisals (based on sales data from a few months ago, versus what people are willing to pay right now) are a persistent problem. It may help to have the seller and seller's broker be proactively involved in the appraisal process. For specific tips, see How to Make or Break Your Appraisal.
Though the practice of hiring a home inspector isn't as widespread in New York City as other parts of the country, a growing number of buyers hire an inspector to look at the apartment and tell them what's wrong with the place before you sign on any dotted lines.
“The benefit of bringing in an apartment inspector would be to examine for any unforeseen conditions that might exist in an apartment, or perhaps to identify whether or not making certain changes in the apartment is feasible in addition to checking for such things as whether there is enough electrical power or adequate water pressure,” says Fox.
For a home inspection checklist (and more why New Yorkers are increasingly turning to home inspectors), read 'A Home Inspection Checklist for New Yorkers.'
6. Real estate attorney
Though not required in every part of the country, having a real estate attorney in New York City is required by law. Because of the complexities involved in buying a co-op or condo, it's imperative to make sure your attorney is an experienced real estate attorney (versus, say trusts & estates or securities law) with deep experience in residential real estate transactions.
“One of the worst things I see happening is people hiring an attorney just because they’re a family member or friend even though they know nothing about real estate transactions,” Miller says. “That’s a glaring mistake because it’s all different and it’s analogous to needing heart surgery and hiring a podiatrist to perform the operation.”
“Another important thing to remember,” says real estate attorney Jeffrey Reich of Wolf Haldenstein Adler Freeman & Herz, “is to have somebody lined up before you begin the process so that they can step in if something goes wrong before it’s too late.”
For more hiring tips, see How to Pick a Good Closing Lawyer.
Expect fees to average $1,500-$2,500 per closing; you'll pay a few thousand more if you want to preserve your privacy by buying under an LLC created for this purpose (allowed in condos but only some co-ops).