Guide to buying property in NEW York city
New York city
New York city Contents The residential property purchase procedure in New York City 5 Condominiums and cooperatives 6 What is a condominium? 7 What is a cooperative (Co-op)? 8 The purchase process 11 Closing costs 12 Estimated purchase costs - cooperative apartment 12 Estimated purchase costs - condominium apartment 13 Glossary 14 Contacts 16 Guide to the buying process in New York City 3
New york city
New York city The Residential Property Purchase Procedure in New York City Buying property in New York City should be relatively straightforward, but we would always recommend that you instruct the services of a reputable agent and lawyer. This document has been compiled as a guide for potential purchasers of property in New York City. It does not seek to provide or replace legal advice which you should obtain, nor is it intended to have any contractual effect. Guide to the buying process in New York City 5
New york city Condominiums and Cooperatives New York is a city comprised mainly of cooperative and condominium apartments, with a smaller selection of private homes called townhouses or brownstones. It is important to understand the differences between the two types of apartment found in Manhattan before starting the buying process. 6 Guide to the buying process in New York City
New York city What is a condominium? While condominiums are quite common across the US, they are fairly new to New York City. Buying a condominium apartment is an actual purchase of the bricks and mortar and the purchaser receives a deed as they would if they were buying a house. There is a separate tax bracket for each apartment meaning the owner is responsible for the property taxes, as well as the common monthly charges. Common charges are similar to maintenance in a cooperative. However, they will not include real estate taxes since these are paid separately, nor will they include the buildings mortgage and interest, as a condominium by law cannot have an underlying mortgage and must be owned out right. Considerations when buying a condominium: 1. Financing is much more flexible than on a cooperative apartment, with the possibility to finance up to 90% of the purchase price. 2. Although there is still an application process, it is not as formal as the cooperative process and the chances of rejection, far less. 3. There is far greater flexibility for sub-letting an apartment within a condominium, making it a better choice for an investment property. 4. Condominiums are the better choice for non-us citizens or for those with their assets held outside of the United States. It is unlikely that the board of directors of a co-op would approve a new shareholder whose funds are not held in the US. The supply of condominiums within New York City is far fewer than cooperatives, making them more expensive to purchase. However, the monthly combined common charges and estate taxes in a condominium are typically less than the monthly maintenance charges within a cooperative. Guide to the buying process in New York City 7
New york city What is a Cooperative? Cooperatives are not a new concept, although they are a type of ownership that is common in New York, more so than elsewhere in the United States. In New York City, 85% of apartments available for purchase are in cooperative buildings, while only 15% are in condominiums. This means two things for a potential purchaser in New York City: 1. There are more available properties to choose from, if cooperatives are included as an option. 2. Because of the supply of cooperative properties, prices are generally more attractive. Cooperatives are owned by an apartment corporation. Individuals do not actually own the bricks and mortar of the building, but rather shares in the corporation that entitle a long term proprietary lease. The corporation pays the building s mortgage, real estate taxes, employee salaries and other expenses for the upkeep of the building. The shareholders then in turn pay a share of these expenses, determined by the number of shares owned in the corporation. Share amounts are determined by apartment size and floor level. Considerations when buying a cooperative: 1. The shareholders have the right to approve or reject any potential new shareholders. The board of directors are elected by all the shareholders of the cooperative, and they interview all prospective new shareholders. The board has the responsibility of protecting the interests of their fellow shareholders by selecting well-qualified candidates. 2. The quality of services and the security of the building are kept to a high standard. 3. Portions of the monthly maintenance are tax deductible. Each building has its own tax structure but all cooperatives offer a tax advantage. Shareholders can deduct their portion of the buildings real estate taxes, as well as the interest on the buildings mortgage. 8 Guide to the buying process in New York City
New York city 4. The amount of money that can be financed is determined by each cooperative. Some buildings require substantial deposits. As a rule in Manhattan, prospective purchasers should be prepared to put down 20-25% of the purchase price. This could, however be higher in some buildings. 5. Sub-letting an apartment in a cooperative must be approved by the board of directors of the cooperative. Each corporation has its own rules, and they would need to be double checked before attempting to sub-let. 6. Cooperatives are the norm in New York City, not the exception, so it is important to consider the finance limitations, and the application and interview process before proceeding. Guide to the buying process in New York City 9
New York city
New York city The Purchase Process Although cooperatives and condominiums are two very different types of apartment, the steps required to purchase are relatively similar: 1. Offers are made orally in New York City. The offer will be made by an agent either to the sellers agent or direct to the seller. 2. The seller may counter an offer, beginning negotiations, once a price is reached that both parties agree on. Price terms and a closing date will be decided upon. 3. Employing a property lawyer who knows the New York market is crucial. The sellers lawyer will begin preparing a contract of sale, and during this time the purchasers lawyer should begin to examine the finances of the building in question. 4. Once the purchaser s lawyer concludes that the financial checks are satisfactory, that the by-laws of the building are acceptable, and that the contract of sale is also acceptable, the purchaser will sign the contract. This is the point at which the purchaser is usually required to pay a deposit of 10% of the purchase price. The contract is then sent for signature by the seller along with the deposit. The deposit is held in escrow by the sellers lawyer until the deal is done. Until all parties have signed the contract and it has been delivered, the seller can still entertain and accept other offers. 5. If finance is being sought, at this stage it should be progressed. 6. The purchasers agent will pass on the board requirements and application materials, which can be similar for both condominiums and cooperatives, however the process is quite different. The materials will need to be completed and usually consist of: an application form, a financial statement signed by a Certified Public Accountant, and all necessary support documents for your financial statement, namely three years of tax returns, bank statements, letters of personal and financial reference, letters of professional reference, the contract of sale, and bank documents (if taking out finance/mortgage) indicating the loan is in place. 7. Once the package is complete, it is reviewed by a member of the agent s management team, and assuming everything is accurate, it is then passed back to the managing agent for review. Once approved at this level and all credit checks are verified, the application package is then forwarded to the board of directors. No incomplete applications will be accepted by a managing agent. 8. In the case of a cooperative, if the application meets initial approval, the purchaser would be invited to an interview with the board or with an interviewing committee. This should be treated as a business meeting. 9. After approval by the board, the purchaser can then being planning for closing. 10. In the case of a condominium, there is generally no formal interview, the application is reviewed, and if all required materials are included and in good order, approval is typically granted. The entire process can move quickly in a condominium, and assuming a loan/ mortgage can be secured in a timely fashion, the whole process can move from contract to closing in as little as 60 days. However, the cooperative process is more involved, and 60 to 90 days or more is not uncommon. New Developments When purchasing within a new development, please reference the offering plan and a New York real estate attorney as procedures, deposits, and contract procedure vary from property to property. Guide to the buying process in New York City 11
New york city Purchase Costs The following information offers a guide to the general purchase costs for both a cooperative and condominium apartment. Please note that these figures should always be checked with a property lawyer or financial adviser. Importantly, we do not present that these are potential costs in their entirety, but are only to be used as a guide. Estimated Purchase costs Cooperative apartment For the Seller Agent: Typically 6% For the Purchaser Own Lawyer: Consult Own Lawyer: Consult Bank Fees: $350 - $750 Co-op Lawyer: $450+ Application Fee: $350 Flip Tax: 1% to 3% of the sales price Processing Fee: $280 Stock Transfer Tax: $0.05 per share Appraisal Fee: $300 - $1,500 (dependent on the sales price) Move-out Deposit: One off fee of $500+ Credit Report Fee: $9.80 single/$14.60 joint NYC Transfer Tax: 1% of the sales price up to $500,000 or 1.425% of the sales price if $500,000 or over Bank Lawyer: $750 NY State Transfer Tax: $4.00 per $1,000 of the sales price Lien Search: $250 - $350 Payoff Fee for Title Closing: $250 - $500 UCC-1 Filing Fee: $100 UCC-3 filing fee: $100 Mansion Tax: 1% of the entire purchase price, when it is $1,000,000 or more Additional real estate expenses Miscellaneous Cooperative charges vary by building Recognition Agreement Fee: $200+ Maintenance adjustment: Pro-rated for the month of finalising the purchase Short Term Interest: Equal to interest for the balance of the month in which the purchase is finalised. 12 Guide to the buying process in New York City
New york city Estimated Purchase costs Condominium apartment For the Seller Agent: Typically 6% For the Purchaser Own Lawyer: Consult Own Lawyer: Consult Bank Fees: $350 - $750 Processing Fee: $450+ Application Fee: $350 NYC Transfer Tax: 1% of the sales price up to $500,000 or 1.425% of the sales price if $500,000 or over NY State Transfer Tax: $4 per $1,000 of the sales price Appraisal Fee: $300 - $1,500 (depending on the purchase price) Credit Report Fee: $9.80 singles/$14.60 joint Miscellaneous Title Fees: $200 - $500 Bank Lawyer: $750 Pick-up/Payoff Fee to Title Closer: $100 - $300 Tax Escrows: 2 to 6 months Miscellaneous Condominium Charges: Vary by building Recording Fees: $200 - $500 Note: For condominiums in new developments, the purchaser will pay costs normally paid by the seller. These include seller Lawyer fees as well as New York State and New York City Transfer taxes Mortgage Tax: 1.80% of amount of mortgage on loans under $500,000, or 1.925% of amount of mortgage on loans of $500,000 and over Fee Title Insurance: Approx. $400 per $100,000 of the purchase price Mortgage Title Insurance: Approx. $200 per $100,000 of mortgage amount Municipal Search: $350 Additional Real Estate Charges Common Charge Adjustment: Pro-rated for the month of completing the purchase Real Estate Tax Adjustment: Pro-rated depending on when the tax is collected Miscellaneous Condominium Charges: Vary by building Short Term Interest: The balance of the month in which the purchase is finalised. Mansion Tax: 1% of the entire purchase price, when it is $1,000,000 or more. Guide to the buying process in New York City 13
New york city Glossary Building Terms Brownstone or Townhouse: This is typically a 4 to 6 storey building built between the 1800 and 1900 s. These can be single family houses or some may have been converted over the years into multiple apartments. As single family homes they offer the purchaser privacy, and the ability to purchase without the cooperative board process. Some apartments in townhouses can have grand living spaces, and will therefore, be quite expensive. Generally, these buildings afford more charm with features such as gardens, fireplaces, beautiful flooring and ornamental wood mouldings. Although in almost all cases these buildings will not have doormen. Elevator Buildings: This description is usually for those buildings without doormen, but that are between 6 to 20 storeys tall. There is usually an intercom security system, and some may have video security. These buildings can fall into the pre or post-war category. Loft Apartments: These will typically be former commercial or industrial buildings that have been converted into apartments. Generally these are large open spaces with high ceilings. These are found in Greenwich Village, SoHo, TriBeCa, Chelsea, Flatiron and lower Manhattan and often do not have the services of a doorman. Luxury Doorman Buildings: These are usually associated with new construction or are apartment buildings that were built from the 1980 s to the present. These tend to be condominiums and often have 20 to 40 or more storeys with doormen and concierge services. Often they will also have health clubs and swimming pools. Pre-war Buildings: These are those built before World War II. They are usually 10 to 20 storeys and are not known for views, except those along the park or river. They are recognised for their architectural interest, with features such as larger rooms, fireplaces, hardwood floors and high ceilings. These can either have doormen or not. Post-war Buildings: Built between the late 1940 s through to the 1970 s, these buildings are generally high-rise and built using white, red or brown brick and most will have doormen. Post-war apartments may actually afford more space than their pre-war counterparts in studio, 1 and 2 bed sizes. Walk-up Buildings: This is the least expensive type of housing, and the quality can vary widely. Usually these are 4 to 5 storey buildings with no doorman and no elevator, hence the term walk-up. They were originally constructed as multi-family housing and lack the charm and elegance of the more traditional brownstones or townhouses. 14 Guide to the buying process in New York City
New york city Apartment Terms It is important to be familiar with the following terminology as it is almost all unique to New York City. It is also important to know that New York agents speak in number of rooms as well as using the definitions below. A room in Manhattan must be at least 100 sq ft and have a window, except in the case of a kitchen, as most kitchens are considered to be a room, unless they are open-plan within the living room (Pullman type kitchen). Bathrooms are not counted as rooms either. So a three room apartment would comprise; a living room, a kitchen and a bedroom. A four room apartment would have a living room, a kitchen, two bedrooms, or one bedroom and a dining room. The term half a room is also often used, e.g. Three and a half rooms. This might mean that the living room has an alcove adjacent to it which is not quite the size of a true room, or it could mean a foyer large enough for dining. Always ask the agent for any clarification. Alcove: An area adjoining the living room space of an apartment. It is generally less than 100 sq ft and so not considered a separate room. It can be used for dining or a study/ sleeping area. Depending on size, it may actually be walled off to create an additional bedroom. Alcove Studio: A one or two room apartment with a separate alcove (see above) which can be used as a sleeping area. Classic: The word classic is usually followed by a number indicating the number of rooms in the apartment. It is generally associated with pre-war apartments that meet the criteria of room numbers and design for buildings of that period. However, classic can exist in a post-war. Convertible or Flex: This is typically an apartment with an alcove adjacent to the living room that can be used to create another bedroom. By utilising this flexible space, it is possible to convert the apartment from a one bedroom to a two bedroom. So a one bedroom apartment with this alcove could be called a convertible or flexible two bedroom. Duplex: In New York this means an apartment. Junior: Again, this is an apartment with an alcove off the living room which can be converted into a bedroom or used as a dining room. A junior 4, for example, would be a three room apartment (living room, kitchen and bedroom) which has the potential to be a four room apartment by using the alcove space to create an additional room. Loft Area: This is an additional space created in apartments with very high ceilings. The loft area is constructed above the traditional living area, accessed by a staircase or ladder, and used for extra storage, sleeping or living space (e.g. a mezzanine). Studio: This is one or two rooms with a combined living and sleeping area. If the studio is one room, the kitchen will be of the open-plan (Pullman) variety. If it is two rooms, the kitchen will be separate. Guide to the buying process in New York City 15
Contacts Paddy Dring Head of International Residential T +44 20 7861 1061 paddy.dring@knightfrank.com James Price Head of International Residential Development T +44 20 7861 1057 james.price@knightfrank.com @KFInternational KnightFrank.com Important Notice 1. No reliance on contents: This is only a guide to the buying process in New York City. It is not definitive and is not intended to give advice. It must not be relied upon in any way. So far as applicable laws allow, no responsibility or liability whatsoever will be accepted for any errors or for any loss or damage resulting from any use of or reference to the contents. As a general overview prepared using information from New York Property Agents, this guide does not necessarily represent the view of Knight Frank in any respect. 2. Independent advice: You must take specific independent advice from your professional advisers in all cases. In preparing this guide, we do not imply or establish any advisory or professional relationship. We do not have any relevant authorisation from the Financial Services Authority to undertake regulated activities. 3. Intellectual property: Knight Frank LLP 2013. All rights reserved. Copying, modification or reproduction of this review in whole or in part is not permitted without the prior written approval of Knight Frank LLP. 4. General: Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London W1U 8AN, where you may look at a list of members names. 5. Members of the Knight Frank Global Network: References to Knight Frank may be to, or include, any Member of the Knight Frank Global Network. Those Members are Knight Frank LLP and its direct subsidiaries which provide services in the UK and an international network of separate, distinct and independent entities or practices which provide services internationally. No Member has any authority to bind or represent any other Member. No Member operating under the name of Knight Frank (including Knight Frank LLP) is liable for the acts or omissions of any other Member. 2930SEP13