The journey from deciding to purchase a home in New York City to getting to the closing table is not for the faint hearted. Even the savviest real estate buyers are frequently confused because it is a long, somewhat opaque journey bearing little resemblance to purchasing a home in the rest of the county.
Here are the 50 terms you need to know to get you started on the path to success.
Preparing to Purchase: In a competitive market, you need to be prepared to submit an offer before you look at property.
Debt to Income Ratio
You will need to understand your debt-to-income ratio (DTI) not only for your mortgage but also for your application to a co-op. At this point you may be telling yourself you have no interest in purchasing a co-op but given that they are approximately 70% of the overall housing stock in NYC and represent great value, you may change your mind.
To calculate your DTI, simply add up all your monthly payments for expenses and divide them by your gross monthly income. To get a mortgage your ratio will need to be between 28% – 36% — and lower is much better. Co-ops tend to be very conservative and they will be looking for a ratio below 24%.
You will need your pre-approval letter to make an offer on a property in NYC. The seller will want proof that you are qualified to purchase the home so they don’t waste time on someone who is not qualified and end up missing out on a deal.
Down Payment Money
Typically called earnest money in other parts of the country, many buildings may require you to put down 20% of the purchase price or more even if your bank does not have as stringent a requirement. You are only required to deposit 10% when you sign your contract to purchase.
The REBNY Form
It is standard to submit your pre-approval letter along with your REBNY financial form when putting in an offer on a property. REBNY stands for the Real Estate Board of New York, the trade organization which works to create rules and standardization in the New York City real estate industry.
The financial form is a simple spreadsheet which is universally used by agents to communicate a prospective buyer’s net worth by listing their assets and liabilities. Why would you need to do that if you are already pre-approved for a mortgage? The reason is that when you are purchasing a co-op you are buying shares in a corporation and your application to purchase can be denied if you do not have sufficient financial assets to meet the investment requirements of the building.
A seller of a co-op will want to know not only how much you are offering and how you are paying but also if you will be approved by the Board. As this has become standard practice it is not uncommon to also send a REBNY financial form in with an offer on a condominium. These sellers will want to be certain they are not wasting their time with a buyer who is uninformed and doesn’t have enough cash on hand for the downpayment and closing costs.
Proof of Funds
If you are planning on purchasing with cash, be prepared with a proof of funds statement which can be as simple as a bank statement with the account number redacted.
While this clearly isn’t a NYC specific term it bears being included in this list because many would-be investors assume they can rent out their homes freely on Airbnb. For security purposes and avoiding unnecessary wear and tear, the vast majority of buildings require a 12-month minimum. If you own a townhouse, NYC law requires you rent for a minimum of 30 days. If you think no one will check, I can introduce you to some townhouse owners who received some steep fines.
Agency Disclosure Form
If you are working with a broker, they will ask you to sign an Agency Disclosure Form. The form states that the seller pays the commission and not the buyer.
Note that buyer broker agreements are not common in NYC and this form does not bind you to working with the agent who gave it to you even if you sign it. You can always change agents.
Fair Housing and Anti-Discrimination Form
The other form your agent may ask you to sign is the Anti-Discrimination Form. This is simply to remind you and your agent of the extensive anti-discrimination and fair housing laws which are abided by in all residential transactions.
Looking at Property Online: Buyers are frequently confused by the NYC terms used when looking at property online. Here are the key terms you need to know.
Days on Market. The longer a home is on the market, the more “stale” it becomes. A property that doesn’t sell quickly may be priced incorrectly for its area and amenities. If a listing has been on the market for a while, then you know the seller is likely primed to negotiate. Don’t assume that a simple 30 days on market means the seller is ready to negotiate. Every market cycle is different so it helps to know what the current average days on market are in the neighborhood.
You might see a property has been listed for 90 days but if the average days on market is 180 days, then they are only halfway through the cycle.
Many listings will quote the square feet but there is no one agreed upon method for measuring square feet in NYC so it is not an apples-to-apples comparison. Additionally, many co-ops do not quote the square feet because you are not buying real property but shares in a corporation.
When you purchase a condo, you are purchasing real property. Every apartment owns the actual physical space which has its own tax lot. You also own a percentage of the common interest (hallways, lobby etc.) and the percentage is allocated to each apartment when the condo is formed and that almost never changes.
Your common charges are based on what percentage of the overall expenses of running the building you own. If the annual operating budget is $1 million and you own 1% common interest your yearly bill will be $10,000 which will be paid to your managing agent in monthly installments of $ 833.33.
When you purchase a Co-op, you are buying shares in a corporation. Every apartment was allocated shares at the time the co-op was formed and that allotment does not typically change. Your portion of the annual operating budget will be determined by how many shares you own.
Just like the condominium, if the annual operating budget is $1 million and you own 1% of the total shares in the corporation, your yearly bill will be $10,000 which will be paid to your managing agent in monthly installments of $ 833.33.
The difference is in a coop, the entire building is one tax lot, therefore the tax bill is added to the overall expenses of running the building. Let’s say your portion of the tax bill is $1,000/month. You will pay a monthly maintenance charge of $1,833.33. This payment includes the costs of running the building plus real estate taxes.
Real Estate Taxes
When you purchase a condominium, the real estate taxes are separate and paid by you. You will be able to look up your real estate taxes on the city website with the block and lot which was assigned to your apartment when the tax lot was created.
A concierge might seem like a doorman because they are sitting at the front desk, collecting packages and letting you know when guests arrive. But unlike a doorman, they do not leave the building to help you.
Many buildings will have more than one doorman as their roles encompass all the same tasks as a concierge (sitting at the front desk, collecting packages and letting you know when guests arrive) but they will also walk out to the curb, helping you carry your packages or get in and out of a vehicle.
Parents buying for children/guarantors/pied a Terre
All three may be grouped together in a listing description if you are looking at a co-op. Every co-cop has varying rules around allowing parents to help an adult child purchase, allowing guarantors for an applicant who may not be strong enough to get by the board and pied a Terre usage. Many co-ops require that it be your primary residence and not a second home.
There are certain co-ops through the city where there are income restrictions to purchase the apartment. They tend to be priced well below the market making them very attractive at first. However, you need to make sure you meet the income requirements in order to purchase. These requirements vary widely.
Not all buildings allow pets and those that do may have a weight limit. Many buildings only allow dogs who weigh less than 50 lbs. Additionally they may restrict the number of pets you may have, limiting them to two pets.
You may find an apartment for sale in a building which does not appear to be new construction but it is called a sponsor sale. The original sponsor may have owned this unit for a period of time and now they are looking to sell. Many times, they will also be doing a full renovation. The most important detail to note is that the sponsor will ask you to pay the transfer taxes which can be about 1.825% of your purchase price.
Sometimes the owner of a rental building will decide to convert a building to a condo and sell off units one by one. It is considered a sponsor sale so new development guidelines apply. The apartments are renovated as tenants leave. These can be great deals, but if the building is less than 50% sold you might have trouble getting financing.
There is no need to be afraid of a land lease but you should be informed. There are some buildings which do not own the land they are built on. They lease the land from a third party. The cost of the rental is divided up amongst the units and the charge is included in the monthly maintenance. Most leases are for 99 years and renegotiated in year 50 but not all leases are the same. Start by asking the listing broker and then have your real estate attorney dig into the terms of the lease.
This term is used loosely to indicate that a property is a co-op but has condo rules making it easier to get board approval and rent.
Pre-war vs post war
Pre-war buildings are generally thought to be more desirable than a postwar for their architectural details and high ceilings. The war these buildings refer to is World War Two. In the past 20 years so many beautiful buildings have been built that the designation is watered down. Yet, if you love old world details, pre-war is for you.
Live in Super
Having a live-in superintendent can give you peace of mind even if you never need their services in the middle of the night. There is nothing wrong with a building having a super who doesn’t live in the building but you may want to check to see if they live nearby in case of an emergency.
Local Law 11
NYC buildings taller than six stories are required to have their facades inspected for safety every five years. Inspecting and repairing the facade can be a big expense which is why you may notice your agent asking if Local Law 11 was done recently or is coming up soon. Buildings without adequate reserves typically either impose a monthly assessment or raise the monthly charges.
Making an Offer There are a number of factors to consider before submitting an offer: do you qualify, if you are renovating what are the building rules and how much cash will you need for the closing costs.
Post liquidity requirements
Not all co-ops are the same but many would like to see that after you purchase your apartment and pay the closing costs you will have anywhere from twelve to twenty-four months of mortgage payments and maintenance payments. Should you fall on economic hard times, the board wants to be certain you can meet your monthly obligations.
Bidding wars are competitive bidding situations and they are tricky for all parties involved. There is also not one particular method for conducting them. In general, the listing broker will advise all interested parties to submit their highest and best offer by a certain date and time. Lean heavily on your agent for guidance.
In a competitive bidding situation, it may help you to write a letter about yourself and anyone who will be living in the home with the reasons you wish to purchase this particular home. Many sellers are emotionally attached and want someone to enjoy the property.
If you are considering renovating, be aware of summer rules. In some buildings, renovations are only allowed during the summer months. The idea is that in order not to disturb other residents with the noise and dust, renovations are confined to the summer months when many residents are away. If your renovations are not complete in the summer time you will simply have to wait for the following summer. Fortunately, not that many buildings still adhere to these rules anymore.
“Wet over dry”
This is a big deal when looking at an apartment to purchase which needs renovating. The concept is that only wet rooms can go over wet rooms and not over dry rooms. For example, you cannot relocate a bathroom over your downstairs neighbor’s bedroom or living room in case you have a leak. A floor plan is not a blank slate.
If you are renovating an apartment you will need to submit an alteration agreement to the managing agent before you proceed with the work. While the board will not weigh in on your design choices, they do care about protecting the structural integrity of the building. These agreements may only be submitted after you close on the apartment.
The city and state collect transfer taxes from the seller. However, when you are purchasing a property in new development it is customary for the sponsor to ask the buyer to pay these taxes. NY City transfer taxes are 1.425% of the purchase price for properties over $500K. The NY State transfer taxes are 0.4% of the sale price for properties under $3 million and 0.65% for properties over $3 million.
This tax always prompts some eye rolls. Buyers purchasing a home over $1million are subject to a 1% tax. Given that a one bedroom can easily cost a million dollars or more it is probably time to rename this tax. The rate does escalate based on the purchase price topping out at 3.9% for properties over $25 million.
Buying in New Development
Temporary Certificate of Occupancy. Closings in a new development are contingent on the sponsor acquiring the TCO which is issued by the Buildings Department once the building has successfully passed all of the required inspections. Once the TCO is issued, the city will issue tax lots to the building and at that point closings may begin.
New Development Closing Costs
Pay particular attention to the closing costs in a new development. They will be higher than a resale. The sponsor will ask buyers to pay the transfer taxes, a portion of the sponsor’s attorney fee and a contribution to the building’s reserve fund of anywhere from one to three months of common charges.
Punch List Walkthrough
If you are buying in a new development, you should expect your new home to be in excellent condition. A few weeks before closing you will be invited to view your apartment and put together a punch list. While you inspect the unit and try all the appliances, plumbing and electricity, you and the sponsor’s representative will compile a list of all the items which need repairing, replacing or touching up.
Certificate of Non-Harassment
Having or not having a CONH is a big deal. If you are purchasing a townhouse without one, you will have to apply to the city and it can take many months to obtain it. The certificate states that no tenant was forced to leave the property against their will which requires signatures and can be difficult to obtain. Without the CONH the Department of Buildings will not issue permits for renovations.
Looking for a hassle-free closing on a townhouse? Delivered vacant is ideal. This means all existing tenants have leases which will expire and they will leave. However, although a house can be delivered vacant doesn’t necessarily it must be. If you want to buy with tenants in place, simply inquire about the lease terms and the disposition of the tenants toward staying.
3 Family vs. 4 Family in Multi Family Homes
The meaning of this term is obvious but the implications are what is important. A three family is a standard mortgage whereas a four family is considered a commercial property and your loan will be at a higher rate and you will be required to put down a minimum of 40% in cash.
Could your money be working harder elsewhere or is NYC real estate a good investment for you? Condominiums and townhouses are typically the best way to purchase an investment property in the city as they have fewer restrictions on rentals than most co-ops. Yet determining if that is a smart financial move can be confusing. Each property has its own unique features and benefits making it hard to do an apples-to-apples comparison. One of the best ways to compare the yield on a property is by using a Capitalization Rate (CAP rate) formula. It is based on the premise that you make money when you buy real estate and you collect it when you sell.
The formula for a CAP rate is simply the net operating income divided by the purchase price. When calculating your net operating income, you want to take a look at how much rental income you will receive in a year and subtract your annual common charges, real estate tax and your mortgage payments. For example:
123 Main Street, Apt A purchase price = $1,250,000
Projected monthly rent = $5,000 ($5,000 x 12 = $60,000)
Monthly common charges = $1,250 ($1,250 x 12 = $15,000)
Monthly taxes = $1,000 ($1,000 x 12 = $12,000)
Net Income = Total Income ($60,000) – expenses ($15,000+ $12,000 = $27,000) = $33,000
CAP rate for 123 Main Street = $33,000/ $1,250,000 = 2.6%
When purchasing a townhouse, you are buying the house and the land. Your bank is likely to request a surveyor who will be measuring the property
Lot and Building Size
When looking at townhouses online not all listings will offer the building width and depth. This is important to know because a 20-foot-wide townhouse is far more valuable than a 16-foot-wide townhouse because of the functionality. Lot sizes also vary. While most lots are approximately 100 feet deep with a 30-foot garden, a large townhouse on a main avenue may have a much smaller backyard. Your agent will be able to help you navigate the city records to determine the true size.
Your Purchase Contract and Application
“On or About”
In NYC you will not have a set closing date until about two weeks before you are closing. While this is a point of stress and contention for buyers and sellers alike there are practical considerations that make finalizing a closing date in advance impossible. So, when your contract reads, “on or about” and then lists a date, know that it could easily be 30 days later or more.
Aztec Recognition Agreement
This agreement is between the purchaser, the co-op and the bank. It establishes that the lender has the first lien on the property and the proprietary lease is the collateral. These are only used for co-ops.
When purchasing in a co-op, the proprietary lease gives you the right to occupy your apartment.
If you are purchasing a co-op, you will have an interview with the Board of Directors before you are accepted. Typically, a board will reject you before the interview so getting that far in the process is a good sign. Unlike a job interview, do not try to sell yourself. Simply be polite, on time and answer all questions as succinctly as possible.
Right of First Refusal
A condo board can only reject your purchase application by exercising their Right of First Refusal. The board would have to purchase the same unit you are in contract to purchase at the same price in order to reject your application.
The board package is an application to a coop which gives the Board of Directors a snap shot of your financial picture at one given time. While a board package can be slightly more rigorous, the truth is that such a package of information is required for a co-op and a condo. For a condo, the same application is called a purchase application.
A purchase application is essentially the same as a board package yet it is likely to be less rigorous as you are not being vetted as a co-investor but simply an owner.
Time is of the essence
If a buyer or seller is unable or unwilling to close 30 days from the date stated in the purchase contract, a “Time is of the essence” letter can be sent to their attorney. Frequently this will resolve the issue.
Final Walk through
Just before closing, a buyer will do a final walk through of the property to be certain the apartment hasn’t sustained damage since the last viewing. When purchasing a resale, the contract will state that the buyer is purchasing, ‘as is”. While no additional upgrades or repairs will be made to the property unless they are stated in the contract, the buyer should expect the electricity, plumbing and appliances to be working.