Buyer's Guide

Buying and selling real estate in New York City is different than anywhere else in the US and the world. Therefore, it is critically important to become an educated consumer.

The differences between Condominiums and Co-operative apartments:

Condominiums

Owning a condominium is just like owning any other kind of home - with one difference. In a condominium, a purchaser owns the apartment plus a percentage of the common areas of the building. The purchaser takes title by deed, which is recorded in the County Clerk's office.

Condominium boards often require a down payment of at least 10%. The condominium owner pays monthly "common charges" which are his or her share of the general upkeep of the building...i.e. employee salaries, fuel, insurance, management fees, etc.

The owner pays the real estate taxes allocated to the apartment. No board interview is required of a purchaser and there are often no limitations on the amount of money you can borrow to finance the apartment. You can sell your apartment to whomever you please, at any time, with only the condominium board's Right of First Refusal.

The closing costs for purchasing a condominium are higher than for a co-operative.

Cooperatives

In a co-op, the cooperative apartment corporation owns the entire building, including all the apartments. The corporation issues shares of its stock which are allocated to each apartment depending on the size and features.

When you purchase a co-op, you are actually purchasing shares in the apartment corporation. The corporation usually has a mortgage on the entire building. However each purchaser may have a separate loan for the purchase of his or her apartment.

The apartment corporation establishes the amount of financing allowable on apartments purchased in the building. The range is literally from all cash (i.e. no financing allowed), to 80% financing.

In a co-op, the purchaser pays monthly maintenance charges based on his or her share of the underlying mortgage and real estate taxes of entire building as well as expenses for general upkeep, salaries, fuel, etc. Monthly maintenance charges for co-ops are generally higher than for condominiums. The portion of the maintenance charge comprised of mortgage interest is tax deductible.

A major difference between co-op and condominium ownership is that in a co-op your ownership is subject to approval by a Board of Directors. This Board is elected from among the shareholders. The Board's job is to conduct the business of the Apartment Corporation and oversee the management of the building, usually with the assistance of a Managing Agent. The Board may impose limits on the amount of money you need to finance your apartment, as well as restrictions on sub-letting, etc. You cannot sell a co-op without the board's approval of the prospective buyer.

The Purchase Process

The purchase process in New York City is a complex series of events. It is difficult to estimate how long the process will take, from acceptance of the bid to closing. Under normal circumstances, a closing can take place in four to twelve weeks.

For a condominium closing, the purchaser must first obtain a loan commitment unless they are paying cash. Then the seller must receive a Waiver of the Right of First Refusal from the Condominium Association's board. For a co-op closing, the purchaser must obtain a loan commitment, and finally, approval of the sale by the co-op's Board of Directors after a personal interview. Your agent will be able to give you an estimate of closing time based on his/her experience dealing with the managing agent and board of the building you have chosen.

The Offer to Purchase

Once you have determined the apartment you want to purchase, your agent will help you negotiate an accepted offer. Your offer should include the price you will pay, the percentage of the price you will finance, if so, the inclusions or exclusions of any personal property and your desired closing date. Remember: until a contract is signed by and delivered to both parties, you do not have a deal.

Hiring an Attorney

New York City has complex real estate laws. Your agent can assist you in hiring a local real estate attorney. The lawyer will initially perform a "due diligence" review of the underlying documents for a co-op or condo to determine, prior to your signing a contract, whether there are any legal or financial problems with the building where the apartment is located.

For a condominium, the lawyer should review the offering plan, all the amendments, the by-laws, the house rules, the financial statements and the title report. For a co-op, the lawyer should review the offering plan and all the amendments, the by-laws and the house rules, the financial statements and the proprietary lease. In addition, the attorney should review the corporate minutes of the cooperative at the managing agent's office. Reviewing the minutes will provide insight into any current or future problems in the building and reveal if there are major expenses to be incurred by the co-op corporation and its shareholders.

The Contract of Sale

Once an offer has been accepted, the seller's real estate attorney will prepare the contract of sale and forward it to your real estate attorney. At this point, you should inform your attorney of any particular terms of the transaction or any special circumstances you think may be important. The attorney will make any changes or additions to the contract that may be necessary to protect your interests.

After the contract is finalized, the lawyer should meet with you to explain your rights and obligations under the terms of the contract. You will sign three or four copies of the contract and will provide a personal check payable to the order of the seller's attorney (usually equal to 10% of the purchased price), representing the down payment. The contracts and the down payment check are then delivered to the seller's attorney.

The sellers' attorney will hold your down payment in his trust or escrow account until closing. Thereafter, the seller counter-signs the contract, the seller's attorney signs the contract acknowledging receipt of the down payment and two fully executed copies are returned to your attorney. Your attorney will deliver one original contract to you and a copy to your lender or mortgage broker. After receiving the signed contract promptly submit your final mortgage application if you have not already done so.

Obtaining a Loan

Before you even start your apartment quest, your agent can put you in contact with a mortgage broker or lender to determine your qualifications and obtain the loan you want. You can apply for a loan directly through a lender (e.g. a bank) or use the services of a mortgage broker.

The Mortgage Broker

Residential mortgage brokers are regulated by the New York State Banking Department. Mortgage brokers negotiate, originate and process residential real estate loans on behalf of the borrower. A mortgage broker does not actually lend money to prospective purchasers. Instead, he/she will arrange for a loan through an institutional lender on behalf of the purchaser.

A lender's decision to make a loan is usually based upon the following factors: your credit rating, income, assets and liabilities, amount of the loan and the appraised value of the apartment. To verify this information, the lender will require you to complete a loan application setting forth your assets and liabilities, will confirm your employment and income, will request a credit report form a credit reporting agency and will have the apartment appraised.

When obtaining a loan on a condo or co-op apartment, the mortgage broker or lender will need to make sure the building is in good financial condition. Therefore, when applying for a loan, it is a good idea to obtain the building's financial statements for the last two years.

It normally takes three to six weeks to obtain a written loan commitment. A "commitment" is the lender's written agreement to lend you money to buy the apartment. Once the loan commitment has been issued, your attorney should review it. If everything is in order, sign the commitment and return it to the lender or mortgage broker as directed.

Board Approval (Co-ops Only)

The sale of a co-op is conditional upon the co-op board approving the purchaser, unless you are purchasing directly from the sponsor. The contract provides that you promptly submit your application for board approval after issuance of a financing commitment, if any. You must cooperate with the co-op board requests and provide any documentation it requires to approve your purchase.

Each co-op board establishes the financial requirements for prospective purchasers in their building. In addition, co-op boards set financial limitations on the amount of money a prospective purchaser may borrow in order to conclude the transaction. (For example, many co-ops allow a purchaser to finance only 75-80% of the purchase price or less.)

The Co-op Closing

It is attended by you, your attorney, the seller, the seller's attorney, the lender's attorney, a representative from the managing agent's office and the real estate agents involved. At the closing, you will first sign all the documents necessary to secure interest in the apartment. These documents include a Security Agreement, Promissory Note, a Stock Power and an Assignment of Lease.

Then you will sign and receive all documents to convey the co-op apartment to you, including stock certificates, the proprietary lease and consent. Checks, representing the balance of the purchase price and adjustments, are exchanged for the keys.

Board Approval - Condominiums

The sale of a condominium is conditional upon the Board of Managers' Waiver of the Right of First Refusal approving the purchaser, unless you are purchasing directly from the developer. Your purchase contract provides that you promptly submit your application for board approval after issuance of a financing commitment, if any. You must cooperate with the condo board requests and provide any documentation it requires to issue the waiver.

The Condo Closing

The closing is ordinarily held at the office of the lender's attorney unless it is a developer sale. In the latter case, it is held at the developer's attorney's office. The condo closing is attended by you, your attorney, the seller, the seller's attorney, the lender's attorney, the title company closer and the real estate agents involved.

At the closing, you will first sign all documents necessary to put a first mortgage on the apartment. These documents include a Mortgage and a Promissory Note. Then you will sign and receive all documents to convey the condo apartment to you, including a deed, title report and unit power of attorney. Checks representing the balance of the purchase price and adjustments are exchanged for the keys and you pay all appropriate taxes and title charges.

Tax Advantages of Home Ownership

The current federal and state tax laws favor and generously reward home ownership. There are numerous ways a condominium, co-op or townhouse owner will save on taxes while building equity in their property.

All of the interest paid toward a home mortgage is fully tax deductible. All the money you pay in real estate tax is fully deductible.

When your apartment is your principal residence and you decide to sell, you may exclude up to a certain amount of your total gain. This exclusion is allowed each time a taxpayer sells or exchanges a principal residence, although the exclusion generally may not be claimed more frequently than once every two years.

As you can see, the deduction from taxable income, and the deferral of capital gains when you sell are important considerations when you weigh the benefits of owning against renting in Manhattan.

Closing Cost Estimates, Condominium Apartments & Townhouses

For the Seller

Broker Commission: Set by broker

Seller's Attorney: Consult your Attorney

Managing Agent Processing Fee $450.00+

Move-out Deposit $500.00 - $1,000

New York City Transfer Tax:

1% of price for purchase of $500,000.00 or less

1.425% of price for purchase over $500,000.00

New York State Transfer Tax: $4 per $1,000 of price

Miscellaneous Title & Recording Fees: $100.00

Mortgage Satisfaction Fee: $150.00 - $300.00

*New development condos: the Purchaser will pay costs normally paid by the Seller (seller attorney fees as well as NY & NYC Transfer Taxes)

For the Purchaser

Purchaser's Attorney: Consult your Attorney

Bank Fees: $350 - $750

Application, credit check, etc. $500.00

Bank Attorney $650 - $750

Appraisal Fee: $300 - $1,500 (depending on sale price)

Tax Escrows: 2 to 6 months

Recording Fees: $250 - $750

NYC Mortgage Tax: 

1.80% of mortgage amount under $500,000.

1.925% of mortgage amount $500,000 and over for 1-3 family residential dwelling

2.8% of mortgage amount on all other types of property

Title Insurance Rates vary by NY law as insurance increases

Common Charge Adjustment: Up to one month

Real Estate Tax Adjustment: Pro-rated depending on when tax is collected

Mansion Tax:

$1M to less than $2M: 1% of purchase price

$2M to less than $3M: 1.25% of purchase price

$3M to less than $5M: 1.50% of purchase price

$5M to less than $10M: 2.25% of purchase price

$10M to less than $15M: 3.25% of purchase price

$15M to less than $20M: 3.50% of purchase price

$20M to less than $25M: 3.75% of purchase price

$25M or more: 3.90% of purchase price

Closing Cost Estimates, Cooperative Apartments

For the Seller

Broker Commission: Set by broker

Seller's Attorney: Consult your Attorney

Co-op Attorney: $450+

Flip Tax Varies by building (~1% - 3$), if any

Stock Transfer Tax $0.05 per share

Move-out Deposit Varies by building

New York City Transfer Tax:

1% of price for purchase of $500,000 or less

1.425% of price for purchase over $500,000.00

New York State Transfer Tax: $4 per $1,000 of price

Payoff Bank Attorney $250 - $500

UCC-3 Filing Fee $100.00

For the Purchaser

Purchaser's Attorney Consult your Attorney

Bank Fees: $350 - $750

Application, credit check, etc. Approximately $500+

Bank Attorney Approximately $650.00 - $800.00

UCC-I Filing $100.00

Short Term Interest: Equal to interest for balance of month of closing

Recognition Agreement Fee $200+

Lien Search $250 - $350

Maintenance Adjustment: Pro-rated for the month of closing

Mansion Tax:

$1M to less than $2M: 1% of purchase price

$2M to less than $3M: 1.25% of purchase price

$3M to less than $5M: 1.50% of purchase price

$5M to less than $10M: 2.25% of purchase price

$10M to less than $15M: 3.25% of purchase price

$15M to less than $20M: 3.50% of purchase price

$20M to less than $25M: 3.75% of purchase price

$25M or more: 3.90% of purchase price

*Miscellaneous Co-op fees vary by building