It has often been said that real estate can be a tough game to get into; when it comes to buying in New York City, that’s never been truer. NYC can feel like a shark tank with high price barriers, extreme demand, and a sometimes-convoluted buying process compared to other markets. So it’s definitely not a place for timid buyers. However, if you’ve got the perseverance and drive of a true New Yorker, the results can be well worth it. One good purchase can open the doors to more high-value investments in the future. Also, the opportunity comes from having a home in one of the most sought-after destinations in the world.
If you think you’ve got what it takes, read on to understand what makes buying real estate here different from anywhere else.
You’ll pay a lot for a small amount of space.You’ll pay a lot for a small amount of space.
You’ve probably heard about NYC’s high prices and small apartments. There’s no sense denying it; a studio apartment in Manhattan can cost as much (or more) a mansion in New Jersey. According to REBNY’s 2020 Q4 report, the average price of a residential home in NYC, including condominiums, cooperatives, and one-to-three family homes, was $953,733. The price averages are even more extreme in Manhattan at $2.5 million for a condo and $1.3 million for a co-op. This is before you even add maintenance or common charges, which are also pretty high.
Simply put, you’ll need to be ready for some high costs of entry to get an NYC apartment. There is some good news, though, in that, since the pandemic, prices have softened a bit. Of course, you’ll still pay a lot for a home here, but at least you have a good chance of paying a little less than you would have for the same property last year. Keep in mind as well that price averages do not tell the whole story. Since there are so many super-luxurious homes here, some of which can go for the price of a Boeing 747, one major sale can throw off the average for the others.
Co-op boards have a lot of power.Co-op boards have a lot of power.
About 75% of NYC’s housing inventory are co-ops. Compared to condos of similar size, the asking price for a co-op can be significantly lower. But they also tend to come with higher maintenance charges than you’d pay in common charges for a condo. Another major consideration with a co-op purchase is that to close, you’ll need board approval. Each co-op’s board comprises tenants who are annually elected and hold a lot of power in deciding who gets in and who doesn’t. The stories are legion about the number of difficulties many buyers have faced when trying to get the board to sign off on their purchase. Worst of all, they don’t even have to disclose the reasons for rejection. The only exception is if you suspect discrimination, and even that can be very hard to prove.
That said, their strictness does have its reasons. As each of the shareholders jointly owns the building, it’s in all of their interests to ensure each new tenant can keep up with their maintenance charges and look after their unit. Anyone looking for a building with a strong sense of community and doesn’t mind living with many house rules can benefit from choosing a co-op. Just make sure you know what you’re getting into and have a good buyer’s agent to help put together your board package.
You’ll need an attorney to close on a deal here.You’ll need an attorney to close on a deal here.
New York is one of 22 states (at last count) that require an attorney to be present at a real estate closing. Once you’ve got an accepted offer, your attorney’s job is to review all documents to ensure the title clearly, facilitate the transfer of funds, and coordinate for the closing day. Considering the amount of due diligence required for a home purchase, it would probably be a good idea to get one anyway, even if it wasn’t required. Having an experienced real estate attorney is especially important if you’re buying in a new development. The reason being that with new constructions, it’s hard to know when the apartment will be ready or how the sponsorship program actually works.
Attorney fees in NYC can start from $3,000 and go up from there. While it can seem at first like an unnecessary added expense, the cost is well worth it. Attorneys are also responsible for ensuring each party meets its deadlines and for renegotiating when they don’t. Ordinarily, a real estate attorney had to be physically present on the closing day. But since the pandemic started, the rules have been relaxed, and it’s now possible to conduct a virtual closing. It’s unknown yet whether this will remain an option once things have fully returned to normal. But so far, it’s been a welcome change in an industry that’s usually known for being slow to adapt.
NYC’s market can be highly competitiveNYC’s market can be highly competitive
If you’ve closed on a home sale before, then you might think you know the drill. But NYC’s market is a different beast entirely and can be so competitive you’ll wonder whether your last rodeo was anything but a warmup. Even experienced property investors are often surprised when they first encounter NYC’s fast-moving and uncompromising market. Almost anything that appears to be a good deal is sure to attract multiple offers, many of which will be all-cash with little to no contingencies. So don’t be surprised if your first few offers don’t get you the goods. Home sellers are also known to drive a hard bargain and play buyers off against each other. It’s not unusual for a seller to send out two contracts to expect that one buyer will back out or make a better offer.
The most important thing Is that you do your due diligence for every property that catches your eye. The last thing you want to do is get locked into a contract before discovering that a property has problems or that the building is in financial distress. There’s almost no way out of a contract once both parties have signed, at least not without losing your deposit. Anyone who’s buying with the help of a mortgage faces a tough but not impossible road ahead. Do all you can to position yourself as a confident buyer and make your offer stand out.
Closing costs and post-closing liquidity can be a shocker.Closing costs and post-closing liquidity can be a shocker.
If we only had one word to describe NYC closing costs, that word would be “insane.” They really are in a world of their own and have to be carefully budgeted for when determining what you can afford. To give you just a taste, NYC closing costs can include a recording tax, attorney fee, title insurance, application fees, and, if the property is priced at or over $1 million, a mansion tax. On average, you can expect to pay anywhere between 1.5% and 6% of the purchase price in closing costs.
Then there’s the matter of post-closing liquidity, a standard requirement with any co-op purchase in NYC. It varies from one building to another, but it essentially means that you need to have 1-2 years’ worth of mortgage and maintenance charges held in an escrow account. This is after you’ve already paid your down payment and closing costs. Without enough proof of post-closing liquid assets, your deal will never get past the board application phase. In addition, most co-ops also have strict debt-to-income ratio requirements, usually no higher than a third of a buyer’s gross income. These are all tough terms for any buyer to meet and can be quite a shock for new arrivals. Ensure you know what’s required to close before you make an offer.
Final ThoughtsFinal Thoughts
By now, you may be wondering why anyone would bother going to such lengths to own a home in New York City? As crazy as it all sounds, there’s rarely a shortage of interested buyers looking to have their own little slice of the Big Apple. For those who love this city and want to call it home, the headaches and high costs are all worth it in the end. If you’d like to be one of those people, then you can make the NYC buying journey a lot easier by hiring an experienced buyer’s agent. Not only can they serve as an irreplaceable guide to the buying process, but they can also handle all the headaches and hiccups that you’re sure to meet along the way.