Off-Market Deals

Inventory is LOW, so low, across the board, for both rentals and sales. Some of this is simply time of year: fewer people list apartments over the holidays, and there are fewer people leaving their homes than there are "new year new me" people moving to NYC.

We also have a more general lack of available units, as sellers try to figure out when they can get the maximum price (and buy something else with that money), and buyers try to sneak in before the expected mortgage rate increases. And as I've said before, rentals got pushed off of their normal summer lease cycle when units sat vacant until the end of 2020. Add to this a recent COVID wave that has quarantined agents (and owners) sidelined, it's unsurprising we're feeling a crunch.

Because inventory is low, buyers' agents are increasingly advertising themselves as "able to do off-market deals," but literally all of us can do that. Being at a company like Compass (or in an organization like NYRAC) may give some of us an edge, because we can see what our colleagues plan to bring to market, and but I'm not going to pretend I'm the only one who has this access.

And the most important thing to remember about off market deals: they aren't "deals." You are paying a premium to basically skip the line and buy without the unit coming onto market. Is it possible you'll get a good price from a seller you find who doesn't want to go through the effort of cleaning/listing? Perhaps. But they're going to need to do that before they move out anyway, so it may not be the motivator you think it is, especially when we're in such a strong sellers' market.

Finally, before you think that you can just reach out to owners and get something without any agent involvement, take a moment to realize you'll still need an attorney, a mortgage provider, and a deep knowledge of how to close a sale. It doesn't have to be me, but you should almost always have a broker by your side if you're buying.

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What About Off-Market Rentals?

Unfortunately the one thing I can't do is create inventory where there is none. Aside from some large, luxury buildings in "less-desirable" areas and rent-controlled/stabilized units that are being intentionally given to friends/family (more on that later), landlords aren't currently holding units vacant. We just have a TON of new transplants, and people who would normally buy aren't able to because our vacancies are overpriced new dev "luxury" and co-ops (more on these things also, later). All this to say, there aren't enough rentals for the people who want them, at prices that people can comfortably afford.

If you want to find an "off-market" rental, you're going to have to do a lot of legwork. You can walk around and see if anyone has posted "for rent" signs. You can scour Craigslist (just be sure not to get scammed), Facebook groups/marketplace, and subscribe to Listings Project. You can ask your current landlord or your friends to find out about other, upcoming inventory.

Long term, if you want to solve this issue, tell your representatives that you want more non-luxury (and not ONLY affordable/income restricted; it's a "yes and" situation) housing ASAP.

Market Monday - 2.1.21

Brick Underground has declared Brooklyn a "seller's market," leaving Manhattan stuck in the grey area where neither party has the upper hand. In reality, both in BK and city-wide, leverage depends on the specific product and location.

It'll be interesting to see how this headline affects BK buyers' sense of urgency as, especially recently, the press has an outsize effect on real estate consumer activity. Behavioral economics, anyone?

Remember that a "buyer's market" in NYC just means you have a chance to purchase the home of your choice, at a reasonable pace/price, using financing. Want to know what an NYC seller's market looks like? Imagine what most first time buyers around the country went through in 2020, except at a 5-10x higher price point.

But the big takeaway right now? We still don't know whether demand or supply will increase at a faster rate as we get into the "spring market," since the past 12 months have not had the typical annual cadence. I foresee a huge year, and would bet that by Q3 sellers have the definitive upper hand again, but for now (with the NYC mayoral primary in June as a huge unknown) it's TBD. I'll be back in two weeks with updates.

The Rental Corner

Since I know that my audience is split between renters and buyers/sellers (with a few landlords thrown in), here's a breakdown of current rental trends.

1. After a record number of leases signed were signed in December, inventory has decreased and months free have dropped to roughly 2 per lease term.

2. If a building is still offering 4-5 months free, the gross prices are way above market (this is typical in new builds in places like Midtown). Many landlords don't have the ability to reduce them much further due to bank loans, so you can get a great 1-2 year deal but be mindful you will need to qualify based on the gross price. 

3. Landlords are feeling more confident and pushing back on longer leases or additional credits, as people return to the city with spring/reopening/vaccine optimism.

4. Don't be the person who reaches out on something that was just listed demanding rent discounts and additional concessions. It makes you look like a bargain vulture with no idea what you're doing.

5. Related, read the copy on a listing before you reach out. The number of times I've had someone email "CAN I PUT IN A FLEX WALL" on a listing where the first line is "no flex walls allowed"....

xo

Anna

Buying a Townhouse in NYC

I can’t believe how long it’s been since I wrote something on here. I’ve sent out a newsletter (which had nothing to do with real estate) and I’ve been active on Instagram. But, unsurprisingly, being in the epicenter of a global pandemic led to anxiety, depression, and writers’ block. When nothing is certain it’s hard to write, and I’ve basically just been absorbing.

Now that NYC has passed its shocking peak and we are able to see a way forward, I’m feeling more comfortable writing again. At the same time I just started sobbing during Cuomo’s daily briefing after he read a letter from a farmer in Kansas, then laughed and started clapping (I’ve clearly lost it) at his call out of McConnell. So it’s still touch and go.

But enough about me and global pandemic: we’re here to talk about townhouses.

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Over the last year I’ve been fortunate to work with multiple townhouse buyers. Nothing has closed yet, but from the beginning of the process I realized how different it was than the co-op and condo purchases that make up the majority of NYC transactions. I didn’t realize until recently how few agents have actually done a townhouse transaction, nor how little information many of them have about them. If agents don’t know, then why would the consumer have any idea at all?

So, after a Zoom continuing education class, I’ve combined my notes with some of the key things I learned

Financing/Buying Process

In one way, townhouse purchases are easier than most condos or co-ops: there is no board process. Sponsor units within buildings also have no board package or interview, but you end up paying the sponsor’s closing costs, so this costs you. When you’re buying a townhouse, you get the best of both worlds! The seller still pays transfer taxes and other fees, while you don’t have to go through the nightmare of a board package.

Banks have been tightening their lending standards and last I heard are insisting on 20% or more down on all transactions. But pre-COVID, you also didn’t need the 20% down or post-closing requirement (both requirements to buy a co-op) to purchase a townhouse. Even more so than with condos, in a townhouse deal the limits on financing are tied to the bank rather than the building. This is a rarity in NYC, where a bank will generally give you a loan with less money down than a building requires.

But just because the process is easier from this point of view doesn’t mean it’s easy in general. For all the paperwork you don’t need to do for a board package, there’s something you need to make sure you look out for before officially closing. Unlike in a shared building, you are responsible for ALL upkeep, permits, etc. And the first big item is really the inspection.

Inspection

My team does inspections on everything our buyers purchase, and it recently came very much in handy when a client had to close virtually during COVID quarantine. Because the buyer already knew the status on the apartment, she felt comfortable closing with a Facetime walkthrough (combined with funds in escrow), and I didn’t feel like we were taking as much of a risk. Always. Be. Inspecting.

While I highly recommend inspections on any piece of property, you need to go next-level with a townhouse. But to buyers who think they can do this without an agent, beware: you are going to end up with a massive report that includes every loose floorboard, roof leak, and potential future issue. At least you will if you get the right inspector, also a challenge if you aren’t in real estate and don’t do this regularly. Unlike in a condo or co-op where neighbors can pick up the slack with any building-wide repairs, the townhouse falls entirely on you. And, so that it doesn’t LITERALLY fall on you, you need to pay a couple thousand dollars to have an accurate accounting of potential problems.

Certificate of Occupancy

If you are living in a home, it needs to have a certificate of occupancy (C of O). This also tells you what the legal use is for the building. If you live in a building with multiple units and some form of management, this is a building-wide issue and you rarely need to look into it (new developments trying to get their C of O are an example when this does affect buyers within buildings). You generally check that your building has a current, valid C of O by going to the Department of Buildings’ website, but many townhouses do not have C of O’s listed online.

Only 80% of records are actually online, and the ones missing tend to be older. Since about 90% of townhouses were built prior to 1920, many original townhouse C of O’s are not digitized. If the property doesn’t have one online at all (for example, on a property where the current owners have lived for generations and never bothered to deal with it), or you think the current one is somehow faulty, you need to do some digging. In order to verify the use of a property, if it isn’t on the Department of Buildings’ website, you’ll need to go in person to find the card originally filed. I have yet to do this but I’ve been told it will look like a lot of the old stuff we find in my house in Virginia: a yellowed paper with beautiful handwriting describing the legal use of an OG townhouse. So much cooler than an online listed use.

You can’t skip this step and just look at what the Department of Finance lists as the legal use, because the Department of Buildings and the Dept of Finance do not communicate with each other. Is that silly? Maybe. But hey, who doesn’t want an excuse to go read an old, hand-written certificate? OK, maybe a lot of people, but I love that stuff. Maybe this is why I like my job so much…

Taxes

Woooo! Taxes!!!! If you’ve ever looked at property in NYC, you’ve likely been stunned by some of the monthly taxes on resale properties around the city (many new developments have tax abatements, which is where you see condos with monthly taxes as low as $0). Yes, you can easily pay tens of thousands a year in real estate taxes. Which is why my hope is that we get a repeal of the SALT tax deduction cap out of this crisis. New York, New Jersey, and Connecticut were all specifically targeted by this part of the GOP’s 2017 tax law. Super cool how the liberal cities that generate over a 5th of the country’s GDP keep getting singled out so some chump in Kentucky can look even smugger than usual. Go back into the pond with the other snapping turtles, Mitch. Leave governing to people with souls.

ANYWAY, real estate taxes in NYC are high. On a million dollar property you can very easily pay upward of a thousand dollars a month in taxes. Let’s just use that as our benchmark, because it varies so, so wildly. In contrast, you can easily buy a townhouse for $3.5m that only has monthly taxes of $400 per month. Yes, you read that correctly. Next time you’re scoping properties online take a look at different townhouses at the same price point and you’ll see an insanely broad spectrum of tax bills.

The reasons behind this are complicated and make very little sense. It’s also illegal for me to advise you on taxes in any way, shape, or form. So all I’m going to say is that you should be aware of the taxes on a piece of property before you purchase it, even though they apply to the seller and are not necessarily exactly what you will pay. If you aren’t doing work to the outside of a structure, changing its use, it is unlikely that without major legislative changes your tax burden will suddenly change in a major way. But again, that’s a few caveats and you should always speak to your CPA about what real estate taxes will mean for you and your specific situation.

And one interesting townhouse tax fact, that leads us into our next section: if the property was a nonprofit in the past and you want to convert it to residential, there is no tax records, as nonprofits don’t pay taxes by design. While you could hire a tax attorney to do an assessment of your potential tax burden, the juice probably isn’t worth the squeeze. Your best bet is a comparative analysis of similar properties on the same block. But you won’t know for certain until you have moved in, converted, and the city sends your tax bill.

SRO, Converting Use, FAR, Etc

Say SRO to someone who does real estate and they’ll probably run in the opposite direction. SRO, or single room occupancy, is a designation that came about during “the olden times” (I forgot to write down a date) when uptown had space aplenty and midtown needed low-cost labor. These SRO’s provided cheap lodging with little oversight and a lot of transience. Tenants would stay for a few weeks or months and then head out, potentially not even alerting anyone they were leaving. Leases were informal and not filed with city government. A lot of these buildings are now completely vacant, but their zoning as an SRO remains valid.

The reason that people generally run screaming from an SRO purchase is the element of risk inherent in any SRO purchase. Like I said, tenants would come through and there would be very little in the form of official documentation. However, just because it’s informal doesn’t mean it’s invalid. It’s entirely possible that a tenant is out there, somewhere, with a legitimate claim to a room in the building. And that claim can interfere with an owner’s ability to rezone the home. So even if a place is vacant and has all the required documentation, there will always be a risk that someone comes out of the woodwork and throws a wrench into things before you’re able to finish the use conversion.

In order to change a property from an SRO to something like a single family home, you first need a Certificate of Non-Harassment to prove you aren’t violating the law by kicking out tenants. Much like when you form an LLC and take out an ad in a paper, the first step should be to take out an ad stating you are filing for the Certificate. Second, you should post notices throughout the building stating the same thing, giving anyone who may still have keys an opportunity to reach out. Third, look in the records and see if you can contact any of the prior tenants. Fourth, go back as far as you can in the utility records to look for proof that it has been vacant for a long time. If the electricity bill has been $80/month for five years, that points to the property being vacant that entire time. You’re building a case to take to the city. Finally, go apply for the certificate.

If a home isn’t an SRO but you want to convert it from commercial to residential use, or from a single family to a three family (or vise versa), you still have to do some legwork (including getting a Certificate of Non Harassment) and wait patiently for the city to approve you, but it is significantly less risky. Since rent stabilized or rent controlled tenants have leases that must be filed with the city, there tends to be more of a record. And free-market tenants who have already left the premises can’t claim they need their leases reinstated.

Another thing to look out for is FAR, or Floor Area Ratio. This gets complicated but it shows you the potential additional square footage you can add to a property. You need to be very careful that you can actually build the addition you want (restrictions are even stricter if it’s in a landmarked district, as many townhomes are) but it is a cool potential upside. Just remember: any time you are changing the outside of a property, you may drastically change your tax burden.

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Wow, this is so much longer than I expected it to be, and there is much more to say about townhouse deals. Maybe I’ll do a part two. For now I’ll go back to eating cheese and trying to decide if I’m happy or sad or somewhere in between. Keep on keepin on, guys. Being a human is so hard and we are all just doing what we can.

xo

Anna

New York Values #58 - Floor Plans and Online Listings

This is design month so each week I’m going to focus in a little more on the process of purchasing/designing an apartment. This week we are starting with the basics: online listings and floor plans, because online listings are where you start your search and floor plans are the most base level when evaluating a purchase. Why? Because photos lie but floor plans tell you the size, shape, and other things you cannot change. 

I love floor plans. They are the best thing. While listing photos can be edited into oblivion, virtually staged, or simply inaccurate, a  good floor plan gives you actual data. They are also part of the first line of attack when looking at a new listing and evaluating whether you want to see it in person. A note to prospective tenants: unless you are looking at a luxury price point, you are not going to get square footage and a floor plan. I love it when rentals have floorpans, but I understand that it isn’t usually cost-effective to do them. For sales, however, it is imperative. 

Listing agents on sales have, for the most part, stepped up their game even since I started real estate in 2018. You see fewer and fewer listings with wonky iPhone photos and incoherent descriptions, and far more with beautiful photography. But sometimes an agent is too complacent, happy to do a sub-par job because “someone will buy it.” It’s lazy and brings down the industry as a whole, but it’s also a source of opportunity if you’re a buyer looking for a “sick deal.” If something is poorly marketed it’s not going to get as high a price as if it were done well. 

But back to listings/floor plans. As a seller, what should I expect from my agent and as a consumer, what should I be looking at when I’m viewing a listing? An expert will be able to most quickly and thoroughly gauge an apartment (I do this day in and day out), but here are some helpful tips for both sides. 

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You Need A Floorplan

Period. End of story. If a listing doesn’t have a floor plan I wonder what is wrong with the agent, or I assume there was a technology issue when they were uploading photos. If an agent didn’t have someone come in and do the floor plan, they are legitimately not doing a good job. I can’t think of a single reason or excuse. 

Floor plans are also the first thing you should review as a consumer. A floor plan won’t tell you which walls are load bearing vs which ones can be moved, but it can let you know whether the bedroom is actually legal (must be 10x10 ft and have a window) or if there’s a second bedroom at all (because people will market a studio as a one bed if you could, in theory, put up a wall). It will show you where the windows are and what direction they face. It should include dimensions (but even if it doesn’t it will give you a rough idea of the space). It will show if there’s actually private outdoor space or if the agent just checked the wrong box uploading the listing. And it will give you a feel for the layout, flow, and general design of an apartment.

You Need Square Footage

Co-ops, or co-operatives, sell purchasers shares in the company/building rather than real property. There are a few ramifications there, but for the sake of floor plans the big one is that they do not have official square footage. 

But as a seller/listing agent you should still be working with a photographer and someone who will do a floor plan and give you the square footage. Some agents will be cagey about it and refuse to give an estimate, but so much time is wasted when an agent’s response is “Co-ops don’t have square footage” and then the second we walk in my clients decide it’s too small. Sellers, if your agent doesn’t have estimated square footage that’s a bad sign.

Buyers, if a listing doesn’t have square footage on it and it’s a condo or townhouse, an agent really dropped the ball. If it’s a co-op it in all likelihood won’t say the square footage, but ask your agent to reach out and check. A good seller’s agent will give an estimate, and if he/she won’t? Well then you have a pretty good idea how communication throughout the deal will go.

You Need Accurate (If Enhanced) Photos, With Disclaimers if Needed

Photography in real estate is inherently misleading; it’s impossible to truly capture a 3D space in a 2D photo. You won’t be able to show a place from every angle, accurately capture the light at every hour of the day, and make sure the size is totally clear from these few images. But there is a point at which it goes from just the reality of life to an actively misleading, when you’re changing views rather than just lightening photos. Don’t do this. It will just make people sad when they arrive and see the real thing (like face-tuning your dating app pics).

There is also the issue of virtual staging, where you are actively changing the reality of a space to add furniture, change wall coverings, add new fixtures, etc. If you are virtually staging a photo you MUST include that information, ideally on the photo itself but at the very least in the description. And it is also good to put the un-edited photos in the listing as well. It makes total sense that if you’re selling a gut or an estate that you’d want to give buyers an idea of the possibilities. But you also want to make sure the reality is clear. Much like with square footage, why waste everyone’s time and disappoint someone when they walk in? Be up front about the condition of the apartment.

You Need Monthly Costs

As a seller, you should know your monthly tax burden and whatever fees are being paid to the building. You should also be aware of any assessments on the building and when they end, same with tax abatements. All of this information is important to perspective buyers, and your agent should ask you for it. If your agent doesn’t ask and isn’t putting this on the listing, this is another red flag. It’s especially important in townhouses, where taxes vary a ton even for similarly priced and sized homes.

As a buyer, your “new rent” or your monthly cost of purchasing (fees to the building, real estate taxes, and mortgage payments) is a huge consideration when figuring out what you can afford.

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What’s the New York Value here? That NYC real estate is held to a higher standard than most of the US so overall its listings are high quality. If you’re spending a million dollars on something you probably aren’t . It also means that the listing agents

New York Values #54: Co-op Board Rejections

Co-ops are a huge part of NYC’s real estate market, despite the fact that anything being built today is a condo. I’ve explained the differences in property types, mentioned how the unique mechanisms for approving buyers help keep the city’s real estate market stable, and outlined the process for purchasing one. But today I want to talk about one of the downsides of co-op purchasing, something that has become more common over the past two years in a challenging sales market: board rejections. 

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The Good

There is a reason that co-op boards have a right to reject someone for nearly any reason (minus racism/sexism/ageism/etc).  When you buy into a building with other people you are buying into a community, and they want to . If you are extremely mean during the application process when you should be on your best behavior, they will probably imagine you’re only going to get worse once you move in. If you claim not to smoke and it’s a non-smoking building, but you show up at the interview reeking of cigarettes, you may not be the right fit. Yes, sometimes this turns sour with board members making a business decision too personal, but sometimes it’s for the benefit of all parties involved.

They also want to make sure that you are financially qualified. Bank lending standards vary wildly, even since the crackdown in sub-prime mortgages after the ’08 crisis. And the seller may not care that a buyer would only have $10 left over after closing. But allowing someone who can’t really afford to buy purchase a home puts the building at risk. This is a problem in condos that causes the apartments to go up and down in value whereas co-ops tend to fluctuate less. 

The last positive rejection reason is to protect the building. If too many units in a building are owned by the same person or company, or if too many are rented out at one time, it can cause issues with banks’ ability to finance a building. Meaning you could be going to sell and the buyer can’t get a mortgage. And nothing drops the value of a home faster than it needing to be a cash deal. Yes, there are cash buyers, but any time you limit your buyer pool you are taking money out of your own pocket. 

The Bad

Boards are made of human beings, meaning they are fallible and sometimes make poor choices. There are two common and incredibly stupid reasons that these boards reject buyers. I’m sure there are others, but these have come up a lot over the past couple years. 

The first is a rejection because the buyer has “too much money” to purchase a home. This is usually because one person on the board, often who was a holdover tenant from when the co-op was still formed, or someone who bought decades ago for 45 cents and a cow, and thinks that the building needs to retain . It’s a bias against wealthy people that is often also bias against millennials. Sorry, guys, millennials with trust funds are the ones who can buy right now. It’s not their fault that they have money, and they aren’t inherently evil or lazy because they do. If they are buy8ing in a co-op that means they DO have their own source of income, so why don’t you welcome this influx of money rather than listen to the chip on your shoulder?

The second, which was INCREDIBLY common in 2019, is a rejection because the board doesn’t like the price. Since about 2015 the market has been in a correction, meaning that while it was going up and up each year from about ’08-’15, prices have been dropping since. In 2018 no one seemed to buy anything because sellers and buyers were so far apart with what each wanted. So then in 2019 sellers became more realistic and were able to meet buyers in the middle. 

The Ugly

Co-op boards are allowed to reject someone for ANY reason, as long as it isn’t against fair housing laws. But again, boards are human. And it’s not like these people have taken legal training to be on a board. They just happened to own in the building. That’s the only qualification. So here are some real examples of completely bullshit reasons that shouldn’t be tolerated, but sometimes are.

The first example is a couple purchasing in a co-op where she mentioned in her letter to the board how excited she was to raise her baby in the new apartment. The board rejected her and the seller was told this was because the board decided she would probably stop working soon and they wouldn’t be able to afford a nanny or appropriate help on just the husband’s salary. This is speculative, sexist, and disgusting. 

The second example is a co-op that has decided it wants to keep the “cultural integrity” of the building, i.e. only accept buyers of a certain race or nationality. It’s not always white; this can be a reaction to gentrification as well, where a building tries to keep “too many” white people from moving to an area. This is clearly racist and illegal, no matter the perpetrators. 

The last example is ageism, where someone on the board doesn’t trust the new buyer at his/her word because of age. Yes, I’m a 35 year old professional, but that doesn’t mean I’m going to Airbnb this apartment! Yes, my money came from legal activities; I showed you all my documents and tax returns. Yes, I plan on living here and being part o the community. No, I’m not flighty and irresponsible just because I’m younger than you. There are few things more frustrating than following the rules and doing everything right only to be told by someone that you’re clearly lying and actually breaking the law. Again, this isn’t legal, and it shouldn’t be tolerated. 

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So overall, I love co-ops. Not every co-op is for everyone, and you need to shop around to find the size, amenity level, and vibe that works for you. Really, the only reason to avoid co-ops is if you want to buy the property to rent out for passive income. If you want to live there, it’s an amazing way to buy into a stable community and pay far lower closing costs/75 cents on the dollar compared to a condo.

And I think as co-op boards are slowly dragged into the 21st century, the process will just become less painful. As much as they fight it, we need oversight to make sure that racism, sexism, ageism, and other illegal reasons for turning someone away are eliminated. Because right now it’s just another example of the smallest amount of power potentially turning someone from a homeowner into a control freak who wants to keep anyone he doesn’t like out of the building.

If you do buy in a co-op, I also highly recommend you get on the board. Because if you’re reading this, you’re clearly better educated about real estate than most of the public, and will ideally be good at following all the laws. They exist for a good reason!

xo

Anna