New Yorkers have been buying and selling real estate for hundreds of years and, for the most part, the process is rather straightforward. However, for those who are inexperienced, it is very important to understand the numerous stages in the acquisition process and sometimes, complex choreography that goes with it.
DETERMINE WHAT YOUR GOALS ARE
There are many factors, which determine where and what kind of property you can purchase. Much depends on your current finanсial situation but there are many lifestyle considerations that have to be taken into account. Etage Real Estate will advise you how best to achieve your goals based on your individual profile and preferences.
If you plan on borrowing money to purchase property, it is advisable to obtain a "pre-approval" from a bank. Pre-approval helps you understand your spending limit and helps focus you on aspects of transaction execution. The pre-approval process itself can sometimes take weeks and often requires a lot of paper work on your part. However, one you are pre-approved, you decrease the risk associated with third-party financing substantially and therefore you gain negotiating power vis-a-vis counterparties to the transaction who are able to be more confident that you have there wherewithal to close. Etage Real Estate has substantial relationships with lenders of all types and will advise you on where and when is the best time to arrange finanсing for your purchase.
HIRE AN ATTORNEY
Lawyers are an essential part of the real estate purchasing process. Lawyers negotiate the sales contract, conduct due diligence to unearth any underlying risks, and manage the closing process. Lawyers, who are also tax advisors, can advise on the ideal holding struсture for your investment, something which may not always be so obvious. You should consult with an attorney before you begin your search for property.
Etage Real Estate works with numerous law firms and can help you find a lawyer that meets your individual needs. Despite what many believe, lawyers are not a commodity in real estate transactions and often lawyers can add specific and valuable knowledge to the acquisition process. You should always have a lawyer representing you who is a specialist in the particular area, which is relevant to the acquisition.
TALK TO A TAX ADVISOR
Overall, the United States tax code provides many incentives to real estate ownership. There may be benefits to owning real estate that you were not even aware of! However, taxes are colleсted not just on the federal level, but on the state and municipal level as well. As an owner of real estate you will be faced with issues of property tax, income tax and capital gains tax at the very minimum. Therefore you should be well versed in how these taxes can effect the fundamentals of your investment.
Furthermore, foreign buyers should be aware that there are separate tax rules for non-US residents. It is imperative that you have a tax advisor experienced in working with non-residents who also has knowledge of the tax code in your home country. A Certified Public Acсountant or tax attorney are the only ones who can properly advise you on these matters. Etage Real Estate has assisted its local and international clients in the past in finding the right advisor based on their individual profile.
PREPARE YOUR FINANCES
Despite the fact that banks are still very eager to lend money against real estate purchases, the amount of equity required in a transaction has increased over the past few years. Whereas previously it was possible to acquire property with no money down, you should assume that now you will need at least 25% of the acquisition price. For foreign buyers or buyers without a steady income stream, you may be required to come up with as much as 50% of the purchase price, so be sure you have this money in liquid assets well before you begin your search.
II. Searching for a Property
There are approximately 975,000 buildings in New York City and millions of apartments. At any one time there are tens of thousands of properties on the market across the city. Many more may be for sale but not officially on the market. Becoming comfortable with the market is a daunting task. Finding a property that matches your preferences and pricing requirements is indeed a full time job. Investing in the market opportunistically requires not just time but a tremendous amount of knowledge.
Etage Real Estate gives its clients access to their Residential Property Listings System, which is a database containing all the exclusive listings on the market. It is the same database that all the major brokerages use. By registering on our site, you can search all the exclusive listings in New York City from your computer ir handheld.
You may not know that in New York City it is customary for a buyer to engage a real estate agent and that these services, in most cases, come at no additional cost to the buyer. This is a fact that many listing agents try to keep a secret from potential clients. Want to find out how this works? Contact us and we will tell you all about it.
III. Making an Offer
Once a buyer has identified a property that matches their requirements, the next step is to make an offer. The offer should always be in written form addressed to the broker and/or the owner of the property. The offer should contain information on the proposed purchase price, financing conditions, due diligenсe period, and other terms the buyer or their advisers require. If the offer is accepted, then the seller's lawyer will draft a contract that reflects the conditions in the offer letter. This contract is usually sent to the buyer's lawyer or agent.
IV. Contract Negotiation and Signing
Once the buyer's lawyer gets the contract, it should take no more than a week for them to review it and give their markup. In New York, most property transactions are fairly simple, so the buyer's lawyer will mostly be reviewing on the conditions precedent to closing and the timing thereof. Until the buyer signs the contract and sends a deposit (if stipulated in the agreement) the seller can continue to show the property and accept offers.
In New York it is customary for the buyer to deposit 10% of the purchase price in escrow upon the contract being signed. Deposits are held in the escrow account of the seller's lawyer. Deposits are only refundable under specific conditions such as a financing contingency or other due diligence clauses.
V. Co-op or Condo Board Approval
Unfortunately, in New York a willing seller and a willing buyer do not always lead to a deal. In most apartment buildings the sale is also contingent on getting consent from the board of directors of the building where you are buying. Gaining board approval is a major obstacle to buying and selling co-op apartments especially. To be considered by the board, you must submit an application known as the "board package". If your application has gotten past their initial review stage (usually 3-5 weeks), an interview is often requested by the co-op board. Ethics and legality aside, co-ops have the power to reject you for any reason and maintain the right not to disclose why. For the most part, however, the board approval process mostly involves checking the financials of the purchasers to make sure they will not run into difficulties later that might affect their ability to pay the maintenance charges.
While condo boards require certain documentation and follow similar procedures, the approval method for condos is more of a formality.
As mentioned above, a board package is a personal statement that contains everything the boards need to accept or reject an applicant. The package will generally include two years’ worth of tax returns with W-2 forms, 1099s and K-1 (partnership income) forms attached. It will also require a detailed financial statement, usually prepared by an accountant containing proof of your reported net worth. If a buyer is purchasing with financing, the board package should also contain a commitment letter from a lender for the proposed financing. Most boards will also want three or four personal letters of reference.
In a co-op board interview, the buyer is questioned on aspects of his or her finances, and personal and professional life. Often a buyer has to bring his whole family to a co-op interview. Some co-op boards insist on interviewing your dog and your cat! While this all sounds ridiculous, this is how it works in New York City.
Etage Real Estate offers the following tips to clients in preparing their board package: First, complete the application in its entirety. If something is left out the board will send it back delaying the process substantially. Second, clearly and concisely answer all the questions, but offer no more information that that which has been requested. Third, be sure to have reference letters written on either business or personal letterhead. If you know that you will be buying a co-op, make sure to ask your friends or employers to start working on the letter well in advance. Fourth, and most importantly, review the board package you intend to submit with the broker representing you and your lawyer.
The interview provides the board with the opportunity to meet you and discuss your application in further detail. Board interviews can range from an informal coffee to a formal interview. The following will help you prepare: First, always be friendly and polite. Second, decide in advance who will answer which types of questions. Third, always arrive on time and dress conservatively. Most importantly, remember that often there are conflicts among the existing shareholders regarding management of the building. If someone on the board asks you a questions like "would you be in favor of us renovating the lobby?" or "do you think that the elevator needs to be upgraded?", - avoid answering definitively.
VI. Prepаration for Closing
In the period between contract signing and closing, the buyer is given time to secure their financing and conduct due diligence. During this period, the buyer's attorney will perform a title search and check for violations or clouds on the title. If you have applied for a mortgage, the bank will also be conducting due diligence on you and the property. When the bank has finished their due diligence, they will wire the loan amount to the escrow account of the seller's attorney.
On the closing date, all parties to the transaction (seller, buyer, attorneys for both sides, as well as the bank, title insurance company, etc.) gather to sign the remaining documents and settle all payments. In New York, the title is transferred when the seller gives the buyer a deed to the property together with the keys and the seller receives the long-awaited certified check.