Upon signing of the contract, which is usually no more than 10 days after the offer is accepted, the buyer must submit a deposit of 10% of the purchase price to the seller’s attorney. The deposit is held in escrow, usually by the seller’s attorney, until the closing.If the buyer is obtaining a mortgage, he or she will work on obtaining a Mortgage Commitment Letter from the bank for the mortgage. The Mortgage Commitment Letter is issued once the buyer has secured the loan. This letter is a requirement of the Board Package.
Securing The Loan
Applying for a mortgage can begin before you find a home or after you have submitted an offer, however, it is best to do this as early in the process as possible so as to eliminate any surprises.The buyer will have to fill out an application that involves a lot of paperwork.The lender will take a detailed look at the buyer’s credit history, employment record and financial assets and liabilities.Issuance Of The Mortgage Commitment LetterA Mortgage Commitment Letter is the document an underwriter sends to the loan officer once a loan is approved. This is the real thing! The Mortgage Commitment Letter will detail every aspect of the mortgage. It will include the terms and interest rate. It will itemize the “Conditions” (the items that must be provided or explained for final approval). The Mortgage Commitment Letter will be dated and it will have an expiration date. It may be signed by the underwriter.While the pre-approval letter is a great thing to have when beginning your search, the buyer is not really approved until the Mortgage Commitment Letter is issued, as the Mortgage Commitment Letter is a formal, legally-binding document.
|1. Mortgage Pre-Approval|
|Oftentimes, buyers begin their property search before they know how much they can afford and whether a bank will finance their purchase. However, it is best to get a bank pre-approval for a mortgage before one starts searching.
Sellers and their brokers will want to know that the buyer is qualified to purchase their apartment before they begin negotiations.Pre-approval only takes one or two days to obtain, so it is best to do this step first.
|2. Determine The Type Of Property To Buy|
|Before beginning the property search, the buyer should understand the different types of property that are available for sale. In Manhattan, there are four property types: Cooperatives (Coops), Condominiums (Condos), Townhouses (or Brownstones) and Condops.
Manhattan residential real estate is comprised of approximately 25% Condos, 70% Coops and 5% Condops and Townhouses.CondosA Condominium is real property, similar to owning a home. The owner of a Condo holds title by deed of the apartment and a percentage of the building’s common areas. Owning a Condominium is much more democratic than owning a Coop, as Condos are much less restrictive than Coops.
Generally, Condos allow subleases with few restrictions, as well as foreign ownership. Investors and foreign buyers, therefore, should focus their property searches on Condos. Owners pay property taxes to the city and common charges to the Condo Board, which oversees the operation of the Condo.
Traditional financing can be obtained for Condo purchases with only a 20% down payment in most cases for U.S. residents and a 40% down payment for foreign nationals. The few restrictions, low down payment requirements, and easy access to financing increase the marketability/saleability of Condos.
Due to supply constraints (i.e., only 25% of the inventory is Condo), high demand, and a high degree of marketability, Condos are generally more expensive than Coops.
Coops (or Cooperatives) are buildings owned by corporations that sell shares of stock in the corporation to shareholders in return for long-term proprietary leases.
The proprietary lease allows a shareholder to use a particular apartment in the Coop building. The larger the apartment, the more shares the shareholder will hold and the higher share of maintenance costs the shareholder will pay.
Maintenance charges are paid to the corporation and include all of the building expenses, including property taxes and mortgage interest if the corporation holds a mortgage on the building. Condo buildings are prohibited from obtaining mortgages, so Condo common charges do not include mortgage interest.
Generally, Coops can make up any rules they want and their shareholders are required to adhere to these rules. Most Coops require shareholders to occupy their apartments as their primary residence. Most Coops also have rules sharply limiting or prohibiting subleases, so investors should not be looking at Coops as a viable investment.
One common Coop rule is the prohibition of foreign ownership. Generally, Coops prohibit foreign buyers since it is very difficult to successfully sue a foreign national that has the bulk of their assets and source of income outside of the U.S. Even if the corporation obtained a judgment against a foreign owner, it would likely be unenforceable if the owner’s assets were sitting in another country 4,000 miles away.
Financing of a Coop requires the use of a personal loan rather than a mortgage. The corporation dictates the amount that can be financed, generally between 50% and 75% of the value of the property. Like that of a mortgage, interest on the personal loan is deductible for tax purposes. One common feature of Coops is a flip tax, generally 2-3% of the sale price of the apartment, which is paid by the seller to the Coop upon selling their apartment.
Potential owners (and tenants, if allowed) must be interviewed by the Coop Board and present formal applications to be approved by the Board. This process can take months, not weeks. While Condos require an application, buyers and renters are not interviewed.
A Condop is touted in the real estate industry as essentially a Coop with Condo rules, usually allowing subleases and foreign buyers. Technically, however, a Condop is defined as a residential Coop that has sold its ground floor as a Condominium, but the term is used in practice as meaning a Coop with Condo rules. Often, one will find that buildings that were built on land leases are Condops rather than Condos. A building with a land lease requires owners to pay rent on the land over a long period of time, usually 99 years. These leases, in practice, are usually renewed before the land lease expires.
Townhouses (and Free-Standing Homes)
Buying a Townhouse, or Brownstone, as some are called, is similar to buying a free-standing house. The owner receives “fee simple” ownership in the property and is the sole party responsible for paying property taxes and maintenance costs.
|3. Property Search|
|I have access to all the listings in Manhattan.
If you would like me to prepare a Tailored Search of properties for you, click here and I will return to you a Tailored Search based on your parameters.If you search other websites for properties, please let me know which properties you like. Since I have access to (and can sell) all NYC properties, you won’t need to go to multiple real estate agents to find a property, unlike in many other countries.Foreign nationals should focus their property search on Condos, Condops and Townhouses. However, foreign buyers are generally prohibited from buying Coops.
The Fun Part Of The Search Is The Property Visits
Once you select the properties you like, we will narrow down the selection to a short-list of properties. We will arrange individual appointments to see properties, or if you are available to see properties on a Sunday, we will attend open houses with you. You can see a lot of properties in one day with the open house option, however, if you prefer more privacy, the individual appointments would be more apropos.
In no time, you will narrow down your selection and we will have one or two properties to choose from.
We Provide Detailed Analyses To Assist In Developing The Offering Price
For any of the properties that you select, I will provide a property valuation that is based upon comparable properties. I can help prepare a bidding strategy and develop negotiation tactics depending upon the property, location and current market conditions.
I will prepare an analysis of comparable properties, similar to the comparable market analysis (CMA) used by a seller, in determining the offering price. My analysis will focus on the most recent closed sales data for neighboring apartments in buildings with similar characteristics. I will provide all the latest data that you need to make a decision – closed sales analysis, average listing discount for the quarter, current market conditions, latest average price per square foot, trends, etc. From all of this data and market information, I will distill an opening offer price.
|4. Offer And Negotiations|
The Buyer Makes An Offer In New York, offers are made orally through the buyer’s real estate agent. Oral offers are not legally binding. Only written contracts are enforceable for real estate transactions in New York. Therefore, until the contract is signed there is no obligation on the part of the buyer or the seller.
Accordingly, a buyer can place a number of offers on different apartments to try to get the best deal.
Counter Offers And Negotiating
The seller will usually come back with a counter offer. Buyer and seller will go back and forth until they agree on the final purchase price and special terms of the deal. One special term might be a mortgage contingency, which allows the buyer to get out of the contract and receive their deposit back if the bank will not enter into a mortgage for the property. Mortgage contingencies provide for the buyer to obtain the mortgage within 45 days.
The seller might accept a 60-day term, but most sellers would prefer no mortgage contingency at all. With no contingency, the seller may go lower in the price.
Often, sellers will not allow a mortgage contingency for foreign buyers, since it is difficult for the seller know if the buyer was truly turned down by a bank or simply changed their mind about buying the property. This might become an issue for some foreign buyers if the seller won’t allow the contingency. Having a pre-approval letter from the bank often helps the foreign buyer clear this hurdle.
Buyer Will Need An Attorney Once The Offer Is Accepted
Upon acceptance, the buyer’s agent will fill out a “deal sheet” that contains the names of the purchasers, as well as all contact information, including the name and address of the buyer’s attorney, therefore the buyer must know which attorney they will be working with at this point.
Within one day, the Condo documents will be sent to the buyer’s attorney to review.
The buyer’s attorney will read the Condo documents and the building’s financial statements, among other documents, to determine the health of the building and any issues that should be addressed. The buyer’s attorney will pose questions to the seller’s attorney and sponsor of the building. The contract will then be revised to address any issues noted in the review, if any.
Until the contract is signed by the buyer, the seller can show the apartment and accept higher offers, if they wish. Therefore, time is of the essence when going through the process.
|5. Contract Signing|
|6. Mortgage Commitment Letter|
|7. Board Approval|
|Condos And Coops Once the contract is executed by both parties, the buyer must submit a Board Package to the Condo or Coop board. The Coop and Condo boards will have the Right of First Refusal, and that is why the Board Approval is required. The Board Package will include/require:
The package is submitted to the building’s management company for review.
Once the Board “waives the Right of First Refusal”, or in other words, approves the purchaser, then a closing can be scheduled.
There is no Board Approval for whole Townhouses or Free-Standing Homes.
|Preparing For Closing|
|There Are A Number Of Things To Do Before The Closing Date.Set the closing date.
Meet conditions of the loan offer.
Buyer’s attorney will run a title search to make sure the buyer received “clean title”, which will ensure that the seller owns the property and that there are no liens filed against the property.
Obtain homeowners insurance to protect the owner (and the lender) from losses in the event that the house is damaged or destroyed.
Final walk-through inspection before closing.
The closing will take place within 30/45/60 days from contract signing, depending upon what terms have been agreed. If paying cash, then a 30-day closing is more likely. If obtaining a mortgage, the buyer will likely get up to 60 days, with the average being 45 days.
The Closing, Or Sometimes Called The Settlement, Is The Final Step In A Real Estate Transaction.On the closing date, the parties consummate the purchase contract and transfer ownership of the property from the seller to the buyer.
The buyer (or the buyer’s bank) delivers payment for the balance owed on the purchase, which is usually the remaining 90% of the purchase price plus closing costs of 3.5% (without a mortgage) to 5.5% (with a mortgage).
For foreign buyers, the closing can take place without the buyer being physically present in the US. The buyer would simply assign Power of Attorney to the buyer’s lawyer or another representative who would then close the deal on the buyer’s behalf. This is a common practice.
|After the closing, the fun has just begun.
If You Are An Investor, You Will Want To Rent Out Your Apartment Right Away.If you decide to rent the apartment, we will help you find a tenant. In New York City, the tenant pays a commission of 15% of the annual rent. This amount is divided between the listing broker and the tenant’s broker.
If you are going to use the apartment yourself, it will have to be furnished.