New York is one of the greatest cities in the world. It is also one of the most unique. It may not be surprising to learn that buying real estate in this special town is also different from nearly everywhere else on the globe. If you’re considering buying in New York City, here’s a guide to understanding the real estate landscape and navigating through some of the challenges that buying in New York City can present.
Condo vs. Co-Op
One of the biggest distinguishing factors of the New York City real estate market is the preponderance of cooperative apartments, or co-ops. Seventy-five percent of Manhattan properties are co-ops. So, what is the difference between buying a co-op and a condo?
When you buy a co-op, you buy shares in a private corporation where you become a shareholder. A board of directors, voted on by the building residents, determines the co-op rules. Many co-ops have very stringent rules around purchasing and living. For example, many co-ops set minimums for the amount you can finance when purchasing, and you must show proof of personal liquid and non-liquid assets. When purchasing a co-op, in addition to an extensive board application you must prepare, which outlines all your financials and provides personal recommendations and more, you will also need to have an interview with the board to approve your application for purchase.
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Co-op rules can also cover areas such as times of the year when you can renovate, pets allowed in the building, permission to sublet and more.
A condo, on the other hand, is an individually owned unit. Owners can sublet at will; these buildings usually offer more flexible financing terms. For example, a condo may only require you to put down 10% of the purchase price upfront and allow you to finance the remainder, whereas a co-op could require you to put down 25% or more upfront.
Condos in New York City also have elected boards of directors who make decisions about common areas such as lobbies and gyms, and major building purchases and construction or repair. Condos require you to submit an application, but it is usually shorter, and the board only turns an application down if the condo buys the unit, which is very rare.
So why would you choose a co-op over a condo when the purchasing process for condos is more straightforward? First and foremost is price. Co-ops in New York are usually less expensive than condos. Another factor is space. Many of the city’s co-ops reflect grand prewar layouts with a formal dining room, entry foyer and large rooms. Condos tend to be smaller in scale.
Community and security are also factors to consider. Because co-ops typically do not allow you to rent out your unit, co-ops are a lot less transient as owners are using their apartments as their primary residence. This helps to facilitate a community feel where residents know their neighbors. Inventory is also a significant factor: While today’s newest construction in New York is mostly condos, there are still vastly more co-ops available than condos.
In response to the competition from new condos posting a wide range of amenities, co-op boards have become less restrictive in recent years, helping to make the purchasing process more manageable.
It is also worth noting that in addition to co-ops and condos, there are some buildings called cond-ops in New York (a combination of condo and co-op). These buildings operate as a co-op regarding ownership but run the building more like a condo with less restrictive rules. In addition, there are townhouses throughout the city. These properties are individual residences, and purchasing a townhouse is much like buying a private house elsewhere in the country.
Monthly Maintenance Fees
Every building in New York City charges some monthly fees. These can vary widely, depending on the services offered by your building. Monthly maintenance fees cover salaries for staff such as doormen and cleaning staff, maintenance of public areas such as lobbies, halls and gyms, and the management fee charged to the building by the managing agent. The greater the services and amenities in your building, the higher your monthly fees will be.
Apartments on higher floors usually pay higher fees. Monthly fees generally go up every year, 2%-3% on average. When evaluating your ongoing costs, you should be aware that you’re likely to pay higher fees each year due to inflation and other rising costs in the maintenance of your building.
Sometimes buildings have a one-time unexpected large cost, such as replacing an elevator, water tank, or boiler. A capital assessment often covers these expenses: an increase to your monthly maintenance for a set time until the new purchase is paid off. The building’s board of directors determines how much each resident must pay and for how long.
The Necessity of a Real Estate Attorney
New York City real estate transactions require the services of a real estate attorney. While the broker will help you negotiate the price, the real estate attorney drafts the purchase contract. They perform due diligence on the building before you sign a contract and can determine upcoming expected costs that even the seller might not know.
The attorney reviews the minutes from the board meetings and closely reviews the building’s financials. For example, upon reviewing the building’s board meeting minutes, your real estate attorney might determine that a big expense will be forthcoming to replace a roof or a boiler. Those expenses are usually passed on to the individual owners, which is valuable information to know before purchasing. The attorney will also determine the financial health of a building.
New York City real estate attorney fees generally start around $2,500.
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Closing Costs
In New York City, purchases over $1 million are subject to a mansion tax, which the buyer pays. The tax is a graduated scale, starting at 1% for homes between $1 million and $1,999,999 and up to 3.9% for purchases over $25 million.
The seller generally pays New York city and state transfer taxes on purchases. However, when purchasing a brand-new construction home from the developer — also frequently referred to as the sponsor — expect to pay hefty transfer taxes since you are covering the developer’s costs, attorney’s fees, and city and state transfer taxes.
Some of these costs can be negotiable, depending on the market. Developers desperate to sell properties in new buildings may be negotiable on these costs.
The flip side of paying those significant transfer taxes is that you will be the first owner of a brand-new apartment. Today’s new developments feature incredible cutting-edge amenities. Some of New York City’s new construction communities offer golf simulators, pet spas, skateboard parks, tennis courts and even a private yacht that residents can charter.
New York City Neighborhoods
Manhattan has 53 distinct neighborhoods, each with its own vibe and characteristics. In addition, there are easily commutable boroughs, such as Brooklyn and Queens, which offer even more neighborhood options.
Before launching into a search for a home in Manhattan and beyond, it is highly beneficial to take some time to explore these neighborhoods and get a sense of what you like and what works best for your lifestyle. Do you like being in the middle of the action? Close to work? Are you easily bothered by noise? These are all things to consider when picking your neighborhood.
In New York City, a Broker Is Crucial
While it may be possible to find an apartment online and purchase it without the services of a broker in many other cities in the U.S., New York’s competitive, confusing and complicated real estate landscape almost always requires you to have a buyer’s broker.
An experienced broker will be knowledgeable about which buildings are healthier and which are notorious for problems. The broker’s knowledge will help ensure that you are investing in a property that will maintain or increase in value. They will help you navigate the board approval process, whether it’s for a condo or a co-op, which will require a great deal of organization and information.
Having a broker also means there’s someone in the process that represents your interests specifically and can go to bat for you when negotiating with the seller’s broker. As explained here, buying in New York City is no simple matter, and an experienced broker as part of your team is priceless.
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New York City real estate is almost always a stable investment. Spending a little time educating yourself on the types of homes available, reflecting on what you are looking for and using the services of a knowledgeable broker will result in you owning a home in one of the the greatest cities in the world.
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The Guide for First-Time Homebuyers in New York originally appeared on usnews.com
