Board Package Tips

If you have attempted to purchase an apartment in a Co-op building, you know board packages can be extremely invasive and detail oriented. A board package is a detailed breakdown of your personal and financial information ultimately used by the co-op board to make the decision to either accept or reject your application to purchase. Perhaps the most important thing to know about board packages is that you should make them as thorough and as simple to read as possible. Make sure to include everything exactly as the board asks for it and make sure to pay attention to their specific criteria because every board has different requirements. As the old adage goes, control the controllables. When I put a board package together I image the board member coming home from a long day, with a glass of wine in his or her hand with a child at their feet. With that in mind, we want to present the materials in a manner that even a two year old could understand. The last thing we want is for the board member to come back to us asking questions. This only delays the decision making process and shows that we were not clear in our explanation of the submitted materials.

Gathering supporting documentation early on in the process is very helpful because in most cases, the board package needs to be assembled quickly performing to any guidelines mentioned in the sales contract and/or meeting any deadlines of the managing agent. In some cases, for example, the managing agent may have strict guidelines because of the number of monthly board packages in processes. If they only allow submissions before the end of the third week in order to be considered for the following month’s interviews, missing the cut off could delay a board decision by more than a month. If you are anxious to close, not being able to prepare quickly could be costly.

Some board packages require a commitment letter to be submitted from your lender, so starting the bank underwriting process early on and getting an appraisal ordered right after the sales contract is signed can save a tremendous amount of time. Receiving a pre-approval letter from your lender is the first step when looking for an apartment and this theme continues throughout the purchase process right up to this critical time when you are now required to perform and prepare the package for submission. As you can imagine, once the sales contract is signed, that is when the real stress begins. We already lead very stressful and busy lives living here in NYC, so while not completely controlling the ultimate decision of the board, understanding what lies ahead and preparing various components of the board package in a timely manner will prevent a number of potentially costly and devastating delays. For more information…
Check out Pre-Qualificaiton Letters v. Pre-Approval Letters

The Rise of Bidding Wars in Manhattan

The first half of 2012 brought a rise of bidding wars over many properties throughout New York City. These bidding wars are different than what we saw during the housing boom (2007). The new wave is due to a multitude of factors. A main factor is the shortage of properties to purchase in the New York City market. According to a report from The Real Deal: only 5,084 new listings were added [in the most recent quarter], 15 percent fewer than in the previous quarter and in the prior year quarter, according to the Corcoran Group’s report, which noted that available listings were off 35 percent from the peak in the first quarter of 2009. These estimates show there continues to be a decline in inventory, specifically a 12 percent decline from last year and 4 percent from last quarter.

In addition, with the downward trend in inventory, there is a white hot rental market in New York City. Such a flourishing market leads to low vacancy rates giving landlords the opportunity to drive up rental prices. As a buyer sees the staggering increase of rentals prices, many look to purchase rather than rent at these new higher prices. Along with the higher rental prices making these potential buyers even more eager to purchase, are the shockingly low interest rates currently in effect for 30 year fixed mortgages. All of these factors create a “perfect storm” for bidding wars. With a declining inventory, high rental prices, low vacancy rates, and extremely low interest rates many buyers are trying to seize this opportunity and are faced with a rather savvy buyer pool all bidding on the same listing. With an influx of increasing competition, and a record number of offers with a low number of closings, it is proving to be frustrating for both buyers and brokers. Pamela Liebman, the chief executive of the Corcoran Group gave her advice to buyers when discussing the rise of bidding wars in a recent New York Times Article:

I think buyers have gotten the message that if you’re ready to buy, be prepared to bid aggressively and to sign quickly. Pam’s simple yet sound advice for the potential homebuyer, who could potentially face a bidding war, reflects greatly in the current markets and is the best advice one can give when looking to buy in the markets during this perfect storm.

If you find yourself in a bidding war for a listing, there are a number of things you can do as the buyer to increase your chances of closing the deal. For one, a New York Times article suggests writing a letter to the seller can develop a personal connection between you and the seller. There are many things you can do to write a good letter such as: finding things in common between you and the seller, mentioning your kids and their names (if you have any), and even sharing personal compliments about specific interior design choices in the property. Aside from writing letters to the seller there are strategic things you can do to increase your chances of winning. Such things include: be flexible with the seller, increase your deposit, eliminate conditions, increase your price and be willing to close sooner. With the increase of bidding wars in the current real estate market, there is no guarantee your offer will be taken, so be prepared for disappointment, learn from your lessons and take your experience to the next property where there should be renewed hope for victory.

More tips on writing letters to the seller...

http://www.nytimes.com/2012/03/27/nyregion/securing-an-apartment-with-help-from-a-love-letter.html

A business insider's perspective on how to win a bidding war:

http://articles.businessinsider.com/2012-05-10/tech/31650766_1_bidding-wars-housing-market-dream-home

Renting vs. Buying in NYC  

 Many New Yorkers are recently facing this serious question; “Should I buy or should I rent?” While there is no simple answer, there are a series of steps you can take, before feeling confident you have made the right choice. Currently, in the Manhattan real estate market there is low rent vacancy (under 1%), therefore, with a low supply of apartments, landlords can charge much higher rents. If you want to avoid paying these high rents and if you have the means, buying seems favorable. In combination with historically low interest rates, this would entice most people to seriously consider buying. Along with the low interest rates, there is a very low inventory of apartments for sale currently in Manhattan, which causes an influx bidding wars.

Check Out Our Other Post –Bidding Wars and Rent Increases

With property prices significantly lower from the housing boom and these low interest rates, it is an optimal time to buy. However, you should always consider your current stage in life; think about if you should be making a huge commitment to buy an apartment.

There are a few calculations to make before you decide to continue renting or buying.The first step is to calculate your rent ratio. A rent ratio shows the average 

home price divided by the annual rent. Higher numbers mean that home values are high, relative to the cost of renting’. If you do indeed calculate a rent ratio below 15, safest bet is to buy. A good rule of thumb: if your ratio is greater than 20, than your monthly mortgage payment is  usually higher than rent for a similar home. 

Checkout the NY Times Online Rent Ratio Calculator

Beyond any calculations you can make it all comes down to if you are ready to make such an important commitment in your life. If you buy, are you willing to stay in this place for 5 years? If you need to move, selling your apartment is much harder than simply going on to rent another. However, many buyers are satisfied with the thought that they do not have to move if the rent increases, are locked into a comfortable payment and can enjoy a more owner occupied environment/neighborhood. Ultimately it’s a personal decision. If you are seriously considering this option, your best bet is to contact your broker and seek their opinion; they will be able to help you either way.

Check out this New York Times Article Answering the Same Question for the Whole Country- while the article may be a bit outdated the facts and suggestions are still relevant.

http://www.nytimes.com/2005/09/25/realestate/25cov.html



Renting vs. Buying in NYC

Many New Yorkers are recently facing this serious question; “Should I buy or should I rent?” While there is no simple answer, there are a series of steps you can take, before feeling confident you have made the right choice. Currently, in the Manhattan real estate market there is low rent vacancy (under 1%), therefore, with a low supply of apartments, landlords can charge much higher rents. If you want to avoid paying these high rents and if you have the means, buying seems favorable. In combination with historically low interest rates, this would entice most people to seriously consider buying. Along with the low interest rates, there is a very low inventory of apartments for sale currently in Manhattan, which causes an influx bidding wars.


Check Out Our Other Post –Bidding Wars and Rent Increases


With property prices significantly lower from the housing boom and these low interest rates, it is an optimal time to buy. However, you should always consider your current stage in life; think about if you should be making a huge commitment to buy an apartment.

There are a few calculations to make before you decide to continue renting or buying. The first step is to calculate your rent ratio. A rent ratio ‘shows the average home price divided by the annual rent. Higher numbers mean that home values are high, relative to the cost of renting’. If you do indeed calculate a rent ratio below 15, safest bet is to buy. A good rule of thumb: if your ratio is greater than 20, than your monthly mortgage payment is usually higher than rent for a similar home.

 Checkout the NY Times Online Rent Ratio Calculator


Beyond any calculations you can make it all comes down to if you are ready to make such an important commitment in your life. If you buy, are you willing to stay in this place for 5 years? If you need to move, selling your apartment is much harder than simply going on to rent another. However, many buyers are satisfied with the thought that they do not have to move if the rent increases, are locked into a comfortable payment and can enjoy a more owner occupied environment/neighborhood. Ultimately it’s a personal decision. If you are seriously considering this option, your best bet is to contact your broker and seek their opinion; they will be able to help you either way.


Check out this New York Times Article Answering the Same Question for the Whole Country- while the article may be a bit outdated the facts and suggestions are still relevant.


http://www.nytimes.com/2005/09/25/realestate/25cov.html

Negotiating a Mortgage Contingency

Most buyers require a mortgage to buy an apartment in NYC. Mortgage lenders typically require 30-60 days to process a loan application, complete the appraisal, review title and fund a loan, most sales contracts between buyers and sellers include a mortgage contingency clause. Buyers should pay close attention to the terms of that mortgage contingency before signing contracts so they can be prepared if a problem develops with their mortgage.

What is a Mortgage Contingency?

A mortgage contingency clause generally states the buyer will have a certain number of days from the time of signing the sales contract to obtain a mortgage commitment. The buyer is expected to make a good faith effort to obtain an application to apply for a mortgage.

Why a mortgage contingency is needed?

Buyers and sellers might ask the question: If a home buyer has to be pre-approved for a mortgage before a seller will accept an offer, why does the seller need to give the buyer a mortgage contingency at all? The main reason is pre-approvals are for the individual and not for the property, which is a key part of any mortgage loan approval. Mortgage lenders need to complete and review an appraisal of the property in addition to reviewing the title report before they are willing to issue a full mortgage commitment.

The second reason buyers need a mortgage contingency period in a contract is because pre-approvals are often subject to final verification of a borrower's documentation supporting their application. The lender needs time to collect, review and accept this documentation. Also, given the current lending environment, as a buyer, it makes sense to negotiate a contingency to protect yourself against losing your 10% earnest deposit monies if for some reason you are unable to secure a loan.

Buyer's Market

In the buyer's market of today, sellers are more than willing to give buyers a reasonable mortgage contingency period - usually 30 to 45 days. In addition, during periods where lenders are extremely busy and approvals take longer, buyers can usually obtain short extensions to the contingency as long as the seller is confident that the buyer is making progress on their mortgage.

Seller's Market

In a seller's market, however, buyers are lucky if they can get a mortgage contingency clause at all. When buyers are bidding against each other in a bidding war, many buyers are willing to gamble they will get there mortgage approved and sign a contract without any mortgage contingency at all. This means if the buyer does not get a mortgage they will not get the house and they will also lose whatever earnest deposit money they put down.

Negotiating a Mortgage Contingency

A purchasers request for a mortgage contingency doesn’t mean his/her financials aren’t strong. In many instances, not allowing a financing contingency may end negotiations with a Purchaser even though the chances of a Purchaser not obtaining financing are minimal. A seller’s real estate broker can reduce the risk to a Seller who gives a mortgage contingency by evaluating the following and tweaking the terms of the contingency: the purchaser’s finances, building financials and the lender’s requirements. They can also negotiate a lower percentage of allowable financing:

1. Negotiate a bi-furcated mortgage contingency, i.e. contingent on the lending institutions approval of the building’s financial condition.

2. If the purchaser can’t get a loan, the seller can keep a portion of the earnest deposit.

3. If Purchaser can’t get a loan, purchaser must apply to a 2nd lender chosen by Seller.

4. Negotiate a shorter time period for the Purchaser to obtain a loan commitment.

A few suggestions for buyers:

Home buyers should take a close look at the mortgage contingency clause in any contract they sign. There are three main problems usually not covered by standard mortgage contingencies:

1. You do not lock your mortgage rate or your mortgage rate expires. Most mortgage contingency clauses state as long as a home buyer obtains a mortgage at the "prevailing rate" then they are considered to have met the contingency and the buyer is stuck buying the apartment. If you do not lock your interest rate and rates spike up after you sign the contract but before the mortgage contingency is up, you may be forced to buy the house with a high interest rate and not be able to cancel the transaction.

2. What if your lender goes out of business before closing? In the past two years, hundreds of mortgage bankers have gone out of business. Buyers who had passed the date of their mortgage contingency and not yet closed with mortgages from these lenders were left hanging with no mortgage and a contract obligation to close on the purchase within a certain period. To avoid this add a clause that allows the buyer additional time to secure a loan with a second lender.

3. A documentation issue arises between mortgage contingency date and closing. Often, lenders find an additional document that they need right before closing when they do a final review of documents. If the buyer cannot provide the documentation, then the loan is denied. To avoid this situation, make every effort to get all conditions on your mortgage approval cleared before your mortgage contingency date.

Whether buying or selling, make sure your real estate attorney understands the real risks associated with the deal to avoid any major concerns and reduce your associated risks while keeping the deal alive.