Friday, March 29, 2013

Here’s what’s different about buying an apartment in a new development. (It's not just the fresh paint.)

Buying an apartment in a a brand new and possibly unfinished building can be a bit like buying a suit or a dress online.

You don't get to try the clothes on.  And you may not get to walk around in the apartment.  But that's only part of it.

While you will have the advantage of living in an absolutely brand new, sparkling clean, freshly painted space with appliances that all still have their leaflets inside, there are some things you need to be aware of.

Here’s a link to an article that will give you some important information about financing. Mortgage 101: 6 Tips to Remember When Buying in a New Development

One extremely important point the article makes is that you should research the developer.

I say you should also research the contractor, the architect, and anybody else involved with the project. What other projects have they done? Were they successful? Did resale values hold up in those projects? Is anyone suing them? Google is your best friend.

Note in particular what the article says about closing costs, which are significantly higher in a new development. Developers, unlike most sellers, expect you to pay the New York state and city transfer taxes, which will come to about 2% of the purchase price.

You may be expected to pay the developer’s legal fees. In a buyer’s market, a developer may be willing to negotiate costs, but right now we’re in a seller’s market, and sellers get to call the shots. Closing costs for a condo in a new development could be as high as 4% or even 8% of the price of the apartment.

All of this should be explained in detail in the offering plan, which is a volume usually the thickness of, say, the Philadelphia telephone book.

By all means look through it yourself, especially the parts about costs, but it’s even more important to have your real estate lawyer look at it. (It should go without saying that your lawyer should specialize in Manhattan real estate and have represented many buyers of properties in new developments.)

The number of contracts already signed has an important effect on your ability to get financing, which the article discusses. But the number of contracts signed also affects the price you’ll pay for the apartment. There’s a trade-off.

The more units that are under contract in the building, the clearer it is that the project is successful and will be completed, the developer is not going to go broke, and the risk to you is small.

But you pay for this protection in the form of a higher price for the unit you buy.

When a new development comes on the market, the prices are as low as they will ever be. The developer wants to get as many contracts as possible signed as quickly as possible.

The condo plan cannot be declared effective until at least 15% of the units are in contract with bona fide buyers. So the units are priced attractively.

If you sign a contract at this early stage, you will get a lower price than if you wait. But there are risks involved. Besides the difficulties you may face in getting financing, it’s also not clear yet that the development will be a success. Once that’s clear, the prices go up.

It seems counter-intuitive that developers raise prices on unsold units, but once they’ve got 15% of the units or more under contract, prices climb, usually more than once.

It’s now clear that the project is reasonably successful, and the developer knows he doesn’t have to price so compellingly. You have more protection at this point, and you pay for it.

The longer you wait, the more units are sold, the lower the risk, the higher the price. Some developers will take as many as four or five price hikes before a building is sold out. It’s not difficult for them.

All they have to do is file an amendment with the Attorney General’s office—this involves filling out a form—and as soon as the amendment lands on the AG’s doorstep, it’s approved.

Another interesting aspect to marketing a development isinventory control. Developers don’t put every apartment in the building on the market at the same time.

They don’t want buyers to be confused by being offered too many properties. So if somebody else beats you to the one you want, ask the broker if any others like it will be coming on the market.

If the one you didn’t get is the last one like it, and you want it enough to try to outbid the buyer who got it which results in a bidding war, the developer will file an amendment raising the price on that unit to a higher level than what he actually expects to get.

The developer may not even tell you what the new price is. Normally, he will ask you and your rival buyer for your best offers, and he will decide between them.

Do not expect to negotiate the price on an apartment in a new development. You can always try, and any offer has to be presented, but typically the prices are set in stone.

Of course, when you buy after seeing only a floor plan rather than the actual space, there are many more questions you need to ask. Do the marketers have pictures of what the view will be like on the floor you’re interested in? How high will the ceilings be? Where will the air conditioning equipment be?

It’s not a bad idea to ask an engineer what other questions you should be asking. And from an esthetic standpoint, make sure you see samples of the flooring, the tile in the kitchen and bathrooms, and any other samples they have. Ask to see an artist’s rendering of the lobby.

This is not meant to scare you away from new developments. My late husband and I bought an apartment in one more than 26 years ago, before there was glass in the windows or wood on the floors. I have always been, and continue to be, very happy there.

Just make sure you do your homework.


Saturday, March 23, 2013

It's officially 26% cheaper to buy than to rent. Or it would be, if only there was something to buy.

The 26% figure applies to New York.  (In Detroit, it's 70% cheaper to buy than to rent, but who cares?)

But no matter where you are, it appears that right now you're better off buying than renting, at least partly due to low interest rates.

The real estate website Trulia reports the gap in New York between buying and renting is the fourth smallest in the country.  San Francisco has the very smallest, at 19%. 

According to Trulia, Honolulu (23%) and San Diego (33%) are also among those with the smallest difference. Even there, it's significant.

Of course, this does not include properties that are bought and quickly resold.  You have to own the property for more than three years (Trulia says three; the New York Times says five) to amortize the costs of buying and selling and make these numbers work.

Cities where there is the largest difference between renting and buying, besides Detroit, are Gary, Indiana; Memphis, Tennessee; Dayton, Cleveland and Toledo, Ohio, and a few other places where you'd have to live for a while to understand why someone would want to.  (Nobody ever sang about how they left their heart in Cleveland, or if they could make it in Dayton they'd make it anywhere, or that Toledo, Toledo is a hell of a town.) 

Here's the link:  Trulia: 10 Markets Where Buying is a No-Brainer

It's interesting to note that the cities where there's the biggest difference between the costs of renting and buying are considered by many (ok, me) to be less desirable places to live than those at the other end of the range.  (San Francisco, San Diego and Honoluly are by no means The Big Apple, but at least they're warm.)  Have no idea why there should be a correlation, but there seems to be one.

But enough with the snide remarks about America's heartland. I have no quarrel with those who prefer Ohio or Indiana or Tennessee.  To each his own, and my own is New York. 

Here's a link to a New York Times site that helps you figure out the difference in cost between buying and renting a particular property: NY Times: Buying VS Renting Calculator

As you'll see, the Times formula is quite complex and sophisticated and allows for appreciation of the owned property and loss of income on the down payment, among other things. 

The chart is from 2011; I'm not sure the numbers in the example would work today, but you can plug in your own numbers. 

But it's all moot, at least to some extent, because in New York, as in much of the rest of the country, inventory is at a 12-year low.  Buying is a great option, but there's not much to buy. 

A report prepared by the appraisal firm Miller Samuel says that there are just 4,749 units for sale in New York, the lowest number since the firm began tracking in 2000. 

And relief is not in sight.  While there are new developments coming on the market (most of them large, luxurious and expensive condos), Jonathan Miller says that developments comprise only 10 to 20% of the total market.  Learn more at Miller: Manhattan's Inventory Skyfall

So, bottom line, if you can find something to buy, by all means buy it.  (If you need any help, give me a call.  917-991-9549.  Any time.  And by the way, if you want to sell, I will be way beyond thrilled.)

Tuesday, March 19, 2013

$4,000,000+ properties are selling like hotcakes. Whole wheat. Hold the syrup and powdered sugar.

This week's Olshan Luxury Market Report says that between March 11 and March 17, 63 contracts were signed for properties asking $4,000,000 and above. 

That's a huge number, but the big news is that this beats by a mile the previous record of 43, which was set, believe it or not, the previous week.

The latest Stribling Luxury Market Report, put together by our own Kirk Henckels, says that co-op and townhouse sales of $5,000,000 or more hit a record in 2012, exceeding totals in 2008. 

That was the peak year for Manhattan before the crash sent wealthy buyers back into the woodwork.

But there's a subtle change. 
The general feeling among brokers is that while the rich are by no means averse to spending a lot of money for the right property, the right property is now more than ever one that offers quality and craftsmanship as opposed to details that wear obvious dollar signs.
150 Charles (artist's rendering, from Curbed)
Leonard Steinberg, the Douglas Elliman broker who is overseeing sales at 150 Charles, said in the Wall Street Journal that "Crystal chandeliers and marble lobbies are not what buyers are looking for today.  They want rich, warm character."

150 Charles, a West Village condominium of 91 units (presumably loaded with rich, warm character) where prices start above $3,000,000, is well on its way to selling out.

In the wake of the Great Recession, a private report prepared by Luxury Portfolio International (TM) offers this:  "With increased confidence comes less fear in the marketplace and more expectations focused on the quality [the rich] are receiving for their money, a phenomenon presented as the 'Worth Dynamic'--where consumers weigh whether the details of a property are worth paying a premium."

Here are the links:

The Stribling Luxury Market report is not yet on the Stribling website but it should be there momentarily:

Monday, March 11, 2013

Central Park West: How much extra does it cost to have a view of the park?

Central Park West stretches from the extravaganza of condos, shops and hotels surrounding Columbus Circle all the way up to the more sedate and peaceful Frederick Douglass Circle, presided over by the statue of Frederick Douglass.

Central Park West, looking south
at 82nd Street
There are clusters of huge, modern condominium buildings at both ends.  In between are the stately Grand Dames--the Beresford, the Dakota, the Majestic and other co-op buildings--most of them eighty or ninety years old, with their white-gloved doormen and limestone or antique brick facades. 

The condos at the two circles represent the extreme ends of the condo market as well as the extreme ends of the park.

In the last twelve months, about twenty condos have sold in the buildings on Columbus Circle and Trump International, at 1 Central Park West, with an average price per square foot of $4,400.

At Towers on the Park, 300 Central Park North, Streeteasy shows only two sales, each a one bedroom of 589 square feet.  One went for $405,000, the other for $426,400.

But even the rarefied atmosphere of Columbus Circle, where you can live in luxury on the 70th floor and admire views of Chicago while sipping your evening cocktail, does not approach that of 15 Central Park West, almost certainly the most sought-after (as we say in the trade) condo building in New York. 

Average sale price per square foot for the last twelve months at 15 CPW was about $6,300 per square foot, or almost $2,000 more than that for the Columbus Circle condos.

Even the highest priced co-ops cannot approach these levels.  It's hard to compare co-op and condo prices because square footages are rarely given for co-ops.  But the highest price for a co-op on CPW in the last twelve months was $20,000,000, while a condo at 15 CPW went for $32,500,000.

However, the Beresford, at 81st Street, and the legendary Dakota, at 72nd, along with a few others, can regard most of their co-op opposite numbers across the park on Fifth Avenue as equals in sought-afterness.

Eight apartments have sold in the past year at the Beresford and the Dakota with between five and nine rooms and an average price of more than $6,000,000.

(Pictured at right, 15 CPW) But if you can live without a park view, there are some real bargains on CPW.  A two-bedroom apartment at 370, a co-op which was built in 1917 and which has a doorman, closed just two months ago for $865,000. 

It's small for a two-bedroom, and it had only one bathroom, but it was described as being in excellent condition and there are trees outside the living room window.  They're not park trees, but they're trees.

(At left, the legendary Dakota)

A park view makes an almost unbelievable difference in the price of a Central Park West apartment.  The extra advantage of the view can double the price. 

(A view of the park that clears the trees will command even more, but we're not going to discuss that now.)

 Average price for a two-bedroom co-op with no park view was about $2,750,000.  With a park view, the average zoomed to more than $4,000,000.

For four bedrooms or more, the average price was about $12,300,000.  Take away the park view and the average was well under half that at $5,400,000. 

For three bedrooms with park views, the average was about $6,125,000; without park views it was only $3,425,000.

Two bedrooms with two bathrooms and park views averaged out at just over $4,000,000, with the range being from about $1,500,000 to $10,250,000. 

It's a wide range.  A perfectly respectable two bedroom with a living room large enough for a dining area in a prewar doorman building (nearly all buildings on CPW are prewar and have doormen) with direct park views from the living room and one of the bedrooms went for $1,650,000. 

The one that went for $10,250,000 was on a very high floor, had a formal dining room and a pantry as well as the two bedrooms, kitchen and living room, and besides the views of Central Park, it also had views of the George Washington Bridge.

One bedroom and studio apartments unfortunately do not come with park views, those being reserved for the larger spaces at the fronts of the buildings.

In fact, those smaller apartments often look at interior courtyards. They're very quiet, though they get little light. But they're fantastic value for someone who wants to be near the park. Average price for a one bedroom was a little over $700,000, for a studio a little over $300,000.

As is the case with Fifth and Park Avenues as well as CPW, there are far fewer condos than co-ops.  These avenues were built up long before the condo era began.

There were just 116 condo sales on all of Central Park West in the last 12 months, and only 44 of those were below 96th Street.  Most of the remaining 72 sales were in the four park-facing buildings of the seven-building Park West complex, built in the late 50s-early 60s as an urban renewal project, from 97th to 100th streets. 

Prices for apartments here are substantially lower than those for apartments farther south.  If you want a condo near the park and you're not obsessed with prewar, Park West offers excellent value.

Of the other 44 sales, sixteen were at Trump International, aka 1 Central park West.  Five were at 15 CPW and seventeen were in The Century, built in 1932, converted from a rental in 1989, and comprising 411 units.

Here's the link to an article in the Sunday Times about Central Park West:

Sunday, March 3, 2013

How many of your secrets do you have to tell to get into a co-op? Or condo?

There’s no question that buying a co-op involves a serious invasion of the buyer’s privacy.  But the truth is, today, buying a condo is often just as invasive.

If you want to buy either, you’re just going to have to bite the bullet and prepare to bare.  Your consolation is that so does everybody else. 
And in a co-op, it means that your neighbors are all highly qualified and nobody’s going to default, sticking you and the other tenant-shareholders with their share of the maintenance.

The typical co-op or condo board application requires most if not all of the following:

A highly detailed application form of several pages which includes, among many other things, employment information and history, memberships in any clubs, societies, fraternities or boards which the applicant believes would be beneficial to the building, and whether not the applicant and/or any other proposed occupants of the co-op has ever been convicted of a felony. 
(The one I’m looking at says “If yes, please explain,” but I would say if yes, forget about it.)

An equally highly detailed financial statement including an itemized schedule of cash, stocks, bonds, mutual funds, real estate, and other assets.  Verification of all of these--current statements--is required. 

Answers to many other personal questions about any bankruptcies, judgments, foreclosures, lawsuits, defaults that may be lurking in the applicant’s past. 

The contract of sale

If the purchase is financed, loan information including the application, commitment letter and recognition agreement.

Applicant’s  most recent two to three years’ income tax returns and W-2 forms

Letter from employer verifying employment, annual salary, bonus if any, position and length of employment.  If self-employed, a letter from CPA or accountant stating income.

Three business and three personal reference letters

Reference letter from current landlord or managing agent stating length of residence and payment history.  (Yes, you can leave this out if you currently live in your own house.)

Personally, I have always thought that the financial information should be reviewed ONLY by the managing agent and the treasurer of the board, and they should deliver a yea or nay.  If it’s yea, then the board could review the personal and other, non-financial information. 
But nobody’s asked me what I think.

The law says that a co-op can reject a buyer for any legal reason it wants to, including (as one seller reminded me) an objection to the shape of the buyer’s ears. 
Of course, it’s illegal to reject a buyer because of race, color, creed, religion, sex, sexual orientation, military status, age, disability, ancestry, familial status, national origin, or any other grounds prohibited by city, state or federal law.

A condo can not reject a buyer.  All a condo board can do if for some reason they don’t want the buyer in their building is buy the apartment itself at the contract price. 
This happens approximately never.  But they still want approximately the same amount of information.  I don’t see why this should be, but once again, nobody’s asked me.
Your broker takes care of all the organizing, typing, etc.  All you have to do is gather the information.
Do not for one second imagine that you can leave any space blank or omit anything that's requested.  The managing agent will send your package right back to your broker and will not accept it until it's complete.

If you’re buying a condo, there’s one way out of this:  buy it via a limited liability or other kind of corporation.  The corporation’s information will have to be disclosed, but not yours.  Establishing a corporation requires a legal process. Ask your attorney for details. 

Many celebrities buy through corporations because, as sales information is public, it’s a way of hiding a home address.   
Co-ops, as a rule, do not allow this kind of purchase.  (They also do not allow purchase by anyone with diplomatic immunity, as there’s no way to collect maintenance charges if the buyer defaults.)

The only real way to maintain privacy is to buy a house.  With cash.  Because if you want to borrow the money, you’re still going to have to answer a lot of nosy questions.