Thinking of Buying a Home in NYC? Here’s What You NEED to Know.

By: Jennefer Witter

The ups and downs of the 2022 real estate market continue to keep buyers wary about making a move — literally. But even as ominous headlines warn about a tumultuous market, three top New York City residential real estate experts say buyers are in a good position to realize their dream of home ownership with the help of a savvy team of professionals and wise planning.

“They say that fortune favors the bold and you do have to be bold right now, when you’re reading these headlines, to go and make a new purchase,” said Benjamin Dixon, a licensed associate real estate broker and co-founder of The Mackay Dixon Team at Douglas Elliman. “But you also have to remember that sellers are reading those same headlines and that right now as a buyer, you have less competition and you’ve got more motivated sellers. That’s a great formula to get a really great purchase price.”

Dixon provided guidance on the home-buying process during a Mackay Dixon-sponsored webinar, “Thinking of Buying a Home in NYC? Here’s What You NEED to Know.” He was joined by Alison C. Gaskin, Esq., senior counsel at Chaves Perlowitz Luftig LLP and Shimon Betesh, Esq. founder of Everest Abstract Services, LLC. The trio answered a range of questions on mortgage rates, the purchase process, title insurance, and closing costs.

“Buyers should be thinking about finding the right home for them, being aggressive, and getting the right price,” said Dixon, whose team has sold more than a billion dollars in residential real estate in New York City and the Hamptons. “Yes, they’re going to have a higher payment because of higher interest rates. But those rates will subside and you can always refinance a mortgage. So buyers should be thinking about what their budget is, where they want to be living, and getting pre-approved. That makes them ready to strike when they find the right opportunity.”

[Related: Your Guide to Year-End Financial Planning for 2022]

Don’t go it alone.

Being bold doesn’t mean going solo. It’s crucial to use an experienced real estate attorney to ensure your deal ends with a successful closing.

“We know all the management companies and we can do due diligence faster,” explained Gaskin, listing the benefits of working with a local attorney over one based miles away. “We know what the market is here in New York City, for example, and what it is not. This is really important in the deal because you need to ensure that the attorney you work with knows how to make deals rather than kill them. If you use an out-of-area attorney, they may be unknowingly killing your deal by asking for some unreasonable things.”

As home-buying is a team sport, Dixon advises starting to connect and collaborate right from the start as prospective buyers consider their favorite locations and think about their budget.

“Everything is a little bit different in Manhattan, which is why we have experts to help us through the transaction,” said Dixon, using his home region as an example. “We’ll go out and we’ll look for the right home for you. Once we find that home, we’re going to make an offer with headline terms like ‘price’ and ‘closing timeline’ that are going to end up in the contract. “

Gaskin, a Super Lawyers Rising Star from 2016 to 2021 who is consistently rated a top real estate attorney in New York City, said real estate attorneys ensure that those business terms, particularly financing terms, are accurately reflected in the contract. “New York is a ‘buyer beware’ state,” she noted. “That means that it’s up to the buyer to accurately complete due diligence on the property or waive the right to do so. For any buyer anywhere, you can’t sign the contract and then find out something unsavory about the building’s finances and decide to walk away with your 10% deposit. So, it’s up to us to complete that due diligence. This is actually crucial on a deal because it will make a difference between signing the contract within a week or two weeks and in this market, it’s really important.”

For cooperatives and condominiums, attorneys review minutes of board meetings to check that board members are involved in a building’s activities. They also examine financial statements, budgets, and the offering plan. Gaskin’s firm typically submits a 15-page questionnaire to the managing agent that asks for additional detail about the building, planned capital improvements, and plans to assess shareholders to ensure that budgets are sound.

Sometimes, attorneys discover that the building has a low reserve fund, meaning its savings account isn’t well-funded. Buyers, as investors in the building, need to understand how high-cost capital improvements, such as a new roof, will affect them if an assessment is required to raise funds.

“Another flag is if there’s one entity that owns too much in the building,” Gaskin added. “This is very common in new developments where the sponsor ­ — the building’s developer — is still holding on to a good number of units. This is mainly a concern because what if an entity that owns a lot doesn’t pay their charges? If one person owns 50% of the building, that’s half of the building’s cost that they are paying with their monthly common charges. So, these are all sorts of areas where we’ll look into and again, we’ll find more information with the goal of giving you the opportunity to make an educated decision” about the purchase.

“Date the rate, marry the house.”

The Federal Reserve’s seventh interest rate hike in 2022 (most recently a .5% increase) has impacted mortgage rates and financing, but Dixon sees a bright side:

“Mortgages are generally 10 years to 30 years,” he noted. “So there’s not a one-to-one ratio here — it does not mean that things just jumped 75 basis points for buyers. What you see in the headlines are often Fannie Mae rates, which are non-jumbo mortgages. Most mortgages here in Manhattan are jumbo mortgages, which have a lower rate. So be careful of what you’re reading in the newspapers. You need to understand what is going to be applicable to your situation in particular, and there are some strategies we can use to bring those payments down.”

One such strategy is considering a 10-year interest-only mortgage, which will result in payments equivalent to a longer-term mortgage (effectively keeping buying power stable). While the terms mean a buyer won’t amortize his or her debt, Dixon, who is a CPA and holds an MBA from the University of California, Berkeley, noted that the shorter interest-only mortgage may make it possible for the buyer to realize an optimal purchase price.

“My suggestion is to go and find the right home now, when there is less buyer competition and more motivated sellers,” Dixon said. “And you’ll feel like a genius in three years when you when you refinance that mortgage.”

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Celebrate the contract signing, but look ahead to closing.

Signing a contract represents the first hurdle, but much work remains as buyers anticipate a closing. Attorneys order title reports and search for liens to make sure the property’s title is clean and unencumbered by unpaid taxes, payments to contractors, or other judgments. Open work permits or violations can also present snags, said Gaskin.

“Sometimes there are documents or explanations needed about the property so the lender’s underwriter can approve the loan,” she said. “Your real estate attorney should be there to proactively guide you throughout the process. There’s invariably going to be questions that come up along the way.”

Attorneys can also negotiate with a seller’s attorney to help make sure the closing occurs within the customary 60- to 90-day period after the contract is signed. The range can sometimes cause conflict if a buyer needs to close quickly to lock into a better interest rate but the seller is not ready to move.

“On the flip side, a seller may want to close fast while the buyer needs more time because their loan is not clear. Even travel schedules can cause an issue in scheduling…And sometimes, getting all the parties to sit in one room at one time can be tricky,” said Gaskin.

Title insurance: a must-have — plus other costs.

The experts agreed that buyers should add title insurance to their home-buying budget. These policies insure the lender and protect the buyer against future claims that may arise on the property from previous owners. Since purchasing title insurance is a one-time cost that affords lifetime protection, Betesh said buyers should not hesitate to obtain a policy from a well-known, publicly traded company. Eagle 9 policies insure the interests of the buyer, who is really a co-op shareholder rather than a property owner.

“It’s very important you purchase it,” said Betesh. “I can’t stress it enough. While there are not many claims in New York, when it comes to title insurance, it’s a one-time fee. So, if you think about it, if you’re buying a million-dollar condo or a million-dollar home, you’re paying basically $4,000 to $5,000 for title insurance that’ll protect you for the rest of your life.”

In addition to title insurance, bank fees, and fees for an attorney, buyers can expect to pay additional closing costs, such as recording fees, mortgage taxes, and a mansion tax that is applied to any purchase over $1 million. Condominiums and cooperatives often require buyers to pay moving and application fees. Betesh noted that a tool known as a Purchase CEMA (Purchase Consolidation Extension Modification Agreement) can help a buyer save on mortgage taxes. Cooperative buyers, he added, do not pay mortgage taxes (because they are buying shares in the stock and lease rather than real property), which can be a significant savings that attract buyers to cooperative units.

“I think the real key thing to focus on is that we still have strong underlying demand,” said Dixon. “Here in Manhattan, our phones are ringing with people looking to move to New York City. And on the flip side, we don’t have a whole lot of supply. So it’s a buyer’s market right now — take advantage of it while it lasts.”

[Related: Overcoming the Mental Hurdles to Home Buying]

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Jennefer Witter is the CEO/Founder of The Boreland Group, a NYC-based boutique public relations agency. Witter has been featured in many top-tier media outlets including The Wall Street Journal, Business Insider, Bloomberg Radio and WJLA. She also speaks on business topics and has presented at The Brookings Institution, the Durst Corporation, Columbia University and The Riveter, among others. She is the author of “The Little Book of Big PR: 100+ Quick Tips to Get Your Small Business Noticed” (Amacom/HarperCollins).

Follow Jennefer on LinkedIn.

Originally published at https://www.ellevatenetwork.com on January 4, 2023.