Buying a home in New York City is a unique process. The requirements of buildings’ boards make home-purchases unlike any other in the United States or Europe. However, while a sale can be complex, it need not be difficult.
Sierra agents will guide buyers through the entire purchase-process from first showings to closing.
In New York, there are two types of apartments that can be purchased:
Approximately 75% of the apartments in New York City that can be purchased are co-operative apartments. When you purchase a co-op, you are not purchasing actual real estate. Instead, you are purchasing shares in the corporation that owns the building. The corporation will typically have an underlying mortgage, of which it is the responsibility of each shareholder to pay a portion.
Each shareholder pays monthly maintenance fees to the corporation. These maintenance fees are comprised of three separate charges:
- A portion of the building’s underlying mortgage payment.
- A portion of the building’s property taxes.
- Common charges for the upkeep of the building.
The first and second portions of monthly maintenance fees are 100% tax deductible. The third portion is not.
Co-ops have financing requirements which are stricter than those of virtually any lending institution. Down-payment requirements are a minimum of 20% and can range as high as 50%. Certain “exclusive” co-ops do not permit any financing; in those co-ops purchasers must pay cash.
Co-ops often require minimum levels of income, minimum levels of assets, and minimum debt-to-income ratios. They sometimes place limits on co-purchasers, as well sub-lets.
After the seller has approved your offer and signed the contract, you cannot close on a co-op without approval from the board of directors. A co-op board may reject a purchaser’s application without giving any official explanation.
As co-ops are not actual real estate, when you have close you are given a stock certificate and a proprietary lease rather than a deed of ownership.
Approximately 25% of the apartments in New York City that can be purchased are condominiums. Unlike a co-op, a condo is actual real estate. The scarcity of condominiums, in comparison with their co-op counterparts, generally makes them more expensive. Buyers who wish to purchase a condominium should expect to pay approximately 30% more than they would for a similarly-sized co-op.
Condominiums have financing requirements. However, they are generally far less stringent than those of co-op boards. The down-payment required for a condominium is typically 10%, as opposed to a co-op’s 20% minimum. Condominiums will check a prospective purchaser’s credit and financials. However, they generally do not have any standard requirements for credit approval.
A condo may be purchased by one individual, by several individuals, or by a corporate entity. The sub-let policy in condominiums is typically unlimited.
The timetable below will take you step-by-step through the process of purchasing an apartment.
Touring of properties
This process typically takes 3-6 months. It is essential to know in advance what your budget is. In order to determine how much you can afford, it is important that you speak with a mortgage broker before viewing property. If you are not financing a property (i.e. paying cash) you do not need to speak with a mortgage broker. Regardless, it is important to know what your monthly expenses will be.
Negotiating the price
Once you have found an apartment, your agent will submit an offer on your behalf. They will then generally receive a counter-offer from the seller’s broker. The process of negotiating typically takes up to 2 weeks.
Contract of sale
When you and the seller have agreed upon the price, the seller’s attorney will issue a contract to your attorney. Your attorney will review the contract and perform due diligence. Due diligence includes reviewing building financials as well as reading minutes of board meetings. Upon agreement all terms, you will sign the contract and present it to your attorney with a check for a 10% deposit. Your attorney will then send the contract and deposit to the seller’s attorney for the seller to sign. The 10% deposit will be used at the closing to cover broker fees and various other closing costs of the seller.
Mortgage application (if not paying all cash)
Following the execution of the contract of sale, you will begin the application for a mortgage. At this point your mortgage broker will gather appraisals and other valuations of the property. They will also carefully examine your own income, assets, and liabilities. Based on this information, they will work to find you the best rate from several competing lending institutions. When a lending institution agrees to finance the purchase, they will present you with a load commitment letter that authorizes the terms and conditions of the loan.
After the loan commitment letter has been issued, your agent will begin the process of compiling a board package to submit to the co-op or condo’s managing agent. Once the board package is received, it will be sent to the co-op or condo board to review. The typical documentation required for a co-op or condo board package is as follows:
- A purchase application
- Credit release form
- Financial statement
- Personal reference letters
- Business reference letters
- Tax returns
- Bank reference letters
- Landlord reference letters
Board interview (for co-ops only)
Once the co-op board package has been submitted and the board has finished reviewing, they will contact your agent to schedule a board meeting for you. At the board meeting, you will meet several members of the board who will ask you various questions about your purchase application. They will also explain to you the house-rules of the building so that you will be better acquainted with them in the event you are approved.
Waiver of right of first refusal (for condos only)
After the condo board has reviewed your purchase application, they will notify their managing agent if they are choosing to waive the right of first refusal. By waiving the right of first refusal, the condo board is informing the seller that the board will not buy the apartment for $1 more than the contract price your agent previously negotiated. Very rarely in New York do condo boards ever exercise the right of first refusal.
Your attorney will schedule a closing with the seller and the managing agent. This generally happens within 2 weeks of board approval.