Guide for Buyers
When buying a property in Manhattan you will have 3 different options of ownership:
1) Co-operative apartments: a phenomenon very specific to New York City market!
In Manhattan, 80% of the apartments for sale (and almost 100% of units in pre-war constructions) are located in Co-op buildings. When you buy in a Co-op, you actually purchase shares of a corporation that correspond to a specific apartment in the building. The larger your apartment, the more shares within the corporation you will own.
Monthly maintenance fees cover building expenses including heat, hot water, insurance, staff salaries, and real estate taxes
Advantages of Buying a Co-op apartment:
- Purchase price of Co-ops are generally 15 to 20% less expensive than a comparable condominium apartment.
- A percentage of your monthly maintenance fee is tax deductible (variable according the building).
Disadvantages of Buying a Co-op apartment
- All prospective purchasers must be approved by the Board of Directors. The Board approval process is often time consuming and rigorous. It requires disclosing extensive information regarding finances, employment, and personal background.
- Many co-op boards limit the proportion of the purchase price that can be financed, requiring higher down payments than for a purchase in a condominium.
- Many co-ops forbid subletting or limit it to a certain number of years of the total period of ownership.
- Some co-ops have strict requirements about the time and length of renovation works.
- Some Co-ops apply a fee, called “Flip Tax” at the time an apartment is sold which goal is to build up a capital reserve fund for future or unexpected improvements and expenses (generally 1 to 2% of the sold/purchase price, payable by the seller or the buyer depending on the co-op rules of the building)
2) Condominiums apartments: mostly newer buildings
Only 20% of constructions in New York City are Condominiums. Most of them are newer buildings but there are a few pre-war Condominiums. Unlike co-ops, condominiums apartments are “real property”. Instead of buying shares in a corporation (like in a co-op), the buyer of a Condo receives a deed that is recorded in the office of the County clerk.
Each Condo’ owner is responsible for the payments of his own real estate taxes and mortgage and need to maintain insurance coverage on the dwelling. Condominiums buildings by law cannot have an underlying mortgage.
The building’ Common Charges, for maintenance and upkeep, are billed to the owner on a monthly basis. The Real Estate Taxes are paid separately and are payable to the City twice a year (unless your mortgage company requires you to pay the taxes, on a monthly basis, at the time of your mortgage payment)
Advantages of Buying in a Condominium building
- Buyers of Condos can finance a larger portion of the purchase price: up to 90% for American citizen or residents but foreign buyers will be asked to provide a down payment of 35% to 40% of the purchase price.
- When buying in a Condominium, you don’t have to deal with “board approval” and interview like in a Co-op. The application process is far easier all along.
- Real estate taxes can be deducted from your taxable income.
- Condo apartments can be freely sublet, and therefore are the best option for an investor.
- Title may be held in the name of a corporation or a trust.
Disadvantages of Buying a Condo
- Condos are generally 15% more expensive than comparable Co-op apartments.
- There are fewer condos available in the New York City real estate market, which limits your options and may request you to take a prompt decision and have to face a situation with multiple offers.
3) Townhouses or Brownstones:
This type of ownership represents a much smaller, though highly coveted percentage of the Manhattan real estate market. The purchasing process and upkeep requirements are similar to owning a house in any other American city.
In Manhattan you will have the choice between two different housing types:
- Single-family home: a single-family home is a building intended to house one family only. This type of property will give you total privacy and freedom to make all decisions regarding your home and its renovation.
- Multiple-Family home: although the initial purchase price of a two or three family may slightly be more expensive than a single family home, you may actually be able to borrow more for its purchase and you will have the option of using the rentals from tenants to reimburse your mortgage.
When purchasing in a new development
A great number of new luxurious high-rise have been built in Manhattan over the last 10 years. They fall in the category of condominiums buildings. Here are some facts to bear in mind when buying in a new development:
- You will have a wide choice of units and floor plans available but you will have to use your imagination as you may not be able to see the actual unit but the model apartment
- Since most purchase agreements in new developments do not include a financing contingency, you may want to obtain pre-approval for financing from a mortgage banker or broker before signing a contract
- You should retain an attorney with a specific experience in reviewing offering plans for new developments
- You should be flexible when it comes to a closing date because of eventual construction delays. In new development, closings cannot occur until the building has received a Temporary Certificate of Occupancy (TCO) from the New York City Department of Buildings.
- There are additional closing costs for new developments such as New York City and State transfer taxes and attorney’s fees on behalf of the developer.
The seven steps in purchasing a co-operative or condominium apartment:
- Your offer to buy will be made in writing through your real estate agent: it will include the amount of your bid along with information about your financial qualifications. It should specify if your offer is contingent or not contingent on financing. It will indicate the name and contact of your attorney. (Choosing an attorney specialized in real estate transactions is highly recommended)
- The seller may accept or counter your offer, thus initiating a price negotiation. When an agreement on the purchase price and an “on or about” closing date has been reached, a deal sheet with the terms of the transaction will be issued and the seller’s attorney will draft a contract of sale to be sent to the buyer’s attorney.
- During the approximate 7 days that follow the acceptance of your offer, your attorney will do its “due diligence” which includes: reading of the minutes of the most recent Board meetings, reviewing the by-laws and the financials of the building, and working on an agreement of the terms of the contract issued by the seller’s attorney.
- If everything has been agreed on and the due diligence is satisfactory, your attorney will give you his approval to sign the contract at which time you will be required to provide 10% of the purchase price. The contract (signed by you first) and the amount of your deposit will be forwarded to the seller’s attorney for seller’s signature. The contract will be binding only after it has been signed by both parties, buyer then seller. Your 10 % deposit will be held in the seller’s attorney’s escrow account until the closing date.
- Mortgage applications cannot be processed without a “Fully Executed Signed Contract”. If financing, you should proceed promptly after contract signing as you will be asked to provide a “commitment letter” from your lender institution in the Board package application.
- Your real estate agent will help you to gather the elements required for the “Board package application” that includes the application itself, a signed financial statement, tax returns, bank statements, brokerage statements, 2 or 3 personal and 2 or 3 business letters of reference, the “fully executed” contract of sale and, if financing, the “commitment letter” from the lender.
- Your “board package” will have to be completed in a timely manner as specified by the contract of sale. When completed, your broker will review it with the seller’s broker before sending it to the building’s managing agent. After doing a “credit check” and making sure your “board package” is complete, the managing agent will forward it to the building’s Board of Directors.
You will then have to wait for receiving an approval from the Board Members of the building. On occasion, additional information may be requested.
If the initial review of your “board package” is satisfactory:
- In the case of a purchase in a Condominium, a “waiver” will be issue by the Board members and a closing date will be scheduled.
- In the case of a Co-op purchase, you will receive a date for an interview with the Board appointed committee. Although you have been granted an interview this does not mean that you have been fully approval. It takes generally between 1 and 3 days after the interview to get the final decision from the Board members.
When fully approved by the Board members, the closing date will be scheduled in accordance to the availability of the building’s managing agent, the attorneys and the lending institution if any. Because of the number of parties involved the date of the closing will have to be flexible to accommodate everyone’s schedule. For this reason, most attorneys advise clients to expect a leeway period of up to 30 days from the closing date indicated in the contract.
Some advantages of homeownership are:
- Security: unlike a renter you won’t be forced to move when your lease expires.
- Autonomy: you will enjoy as a homeowner the freedom to make changes to your property.
- Tax advantages: the money you will spend on your mortgage interest and real estate taxes will be deductible from your taxable income
- Value appreciation: the value of your home may increase over time, providing you with a valuable asset and a smart investment