Buying a house in NYC can be a daunting process. Not only will you be solely responsible for the future condition of an entire building, your lawyer won’t have audited financial statements, an original offering plan or board minutes to rely on for due diligence.
We’ll explain in this comprehensive overview everything you need to know about buying a house in NYC as well as some industry secrets and tips that will give you an edge over the competition.
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Why are you buying a house in NYC vs an apartment?
Is it because you’ve heard or experienced horror stories about overly nosy or bossy neighbors in co-op buildings? Are you buying a house in NYC because you want your own private backyard? Or is it because you want some rental income on the side so you’re looking at multi-family townhouses?
Are you aware of the additional responsibilities involved with buying a house in NYC?
Do you realize that you’ll be solely responsible for the condition and maintenance of an entire building? That means fixing roof leaks and broken boilers.
Are you an enthusiastic do it yourself kind of person? Do you have a handyman in the family or your circle of friends? Give yourself a few moments of introspection and really think about why you are buying a house in NYC vs a co op or condo apartment.
There will generally be a lot more apartments for sale, depending on where in NYC you’re looking to purchase.
For example, most of Manhattan’s inventory will consist of apartments and you will rarely find a free-standing house. While you will be able to find some attached townhouses, they will generally be exorbitantly expensive in Manhattan. However, many parts of the Upper West Side and Harlem close to the Hudson River will indeed have rows upon rows of townhouses, though they will still be expensive.
Townhouses will also be prevalent in many parts of Brooklyn, even as far out as Bed-Stuy. Prices in Brooklyn for houses will moderate as you go further from Manhattan, but they have caught up dramatically in valuation in the last decade. So if you’re considering buying a house in NYC, please do a realistic assessment of what the housing stock in your neighborhood of choice consists of.
If you’re currently renting, you’ll want to do a quick rent vs own analysis to make sure that buying a house in NYC makes better financial sense than continuing to rent.
As much as people will try to make this a quantitative science, the reality is that much of this will be subjective and will also depend on your personal desires.
Many people make the decision to buy vs rent because they are tired of being at the mercy of rent increases every year. They simply want some stability instead of potentially having to move every year if they don’t agree on a new rent amount with their landlord.
Instead of potentially having to look for and rent a new apartment at every lease expiration, some people choose to buy simply to not have the stress of a landlord breathing down their neck with constant rent inflation.
Furthermore, renters are often peeved at the inability to deduct rent payments from their taxes, while home owners are allowed to deduct mortgage interest.
Renters often decide to buy because they’ve had enough of paying down an investor’s mortgage. They feel that their monthly rent payments are going into a black hole with zero return on investment.
While much of the above sentiment will be shared by current renters and will often be enough reason to embark on buying a house in NYC, you should also consider the positives of renting vs owning.
For example, even if you face potential rent increases in the future, you may have such a great deal where it makes too much sense to stay. As we discuss in great detail in the section on rent vs own in our article on how to buy an apartment in NYC, the median rent for a rent controlled apartment is approximately $1,020 a month.
Even if you aren’t so lucky as to live in a rent controlled or rent stabilized apartment, you could still be paying only a little more than that by living with roommates. If you’ve got a two year lease with your share of the rent being $1,250 a month, then you may really consider staying especially if you’re not sure how long you’ll remain in the city.
Keep in mind that as a renter, you’re only responsible for that rent payment every month. You won’t be responsible for any maintenance or repairs, such as a boiler that unexpectedly breaks which can cost over $10,000 to replace.
Furthermore, there are closing costs associated with buying and selling which you’ll have to factor in. And as we discuss in more detail in the aforementioned article, you’ll have to pay home insurance, property taxes and common charges or maintenance which can amount to more than your rent payment on a monthly basis.
The great thing about buying a house in NYC is you’ll only be constrained by how much the bank will lend to you.
In contrast to buying a coop in NYC, you’ll never have to worry about a co op board imposing their own coop financial requirements on you which are often more onerous than that required by your mortgage broker or bank.
With that said, you should do a realistic assessment of how much property you can afford to buy. Don’t worry, you won’t need some fancy calculator or algorithm for this.
Simply open up a spreadsheet and start with your monthly income, post-tax withholding. Then start subtracting your monthly expenses, starting with ones that are necessary or which you don’t have a choice in such as 401K contributions and health insurance premiums.
And don’t forget about bare necessities such as $500 a month or so for groceries. What you’re left with is what you can actually put towards housing expenses such as your mortgage principal and interest, home insurance premiums, common charges and real estate taxes or maintenance.
The next step to buying a house in NYC is to find out how much the bank thinks you can borrow and afford to purchase.
This next step will be easier because you’ve already done your own affordability analysis in the previous step and have a realistic sense of how much you’re comfortable with in terms of housing expenses per month.
A pre-approval letter from a bank will be much more legitimate than a pre-qualification letter, which entails zero document verification and can be had with a 15 minute phone call.
A pre-approval letter entails submission of some important documents such as your W-2 and latest pay stubs, and receiving one means the bank has at least partially underwritten your file.
As a result, a bank pre-approval letter is not only a second opinion, but a seal of approval from the institution that will actually be lending you money on how much you can afford.
Not only will you have more certainty that you’ll actually be able to get a loan, you will appear more credible and serious to sellers and real estate agents.
We wouldn’t be surprised if many of you browsed online for your dream home before taking any of the previous steps to buying a house in NYC. It’s only human nature to want to skip ahead and see if there’s anything compelling on the market before you do the work of getting pre-approved for a mortgage and all.
Fortunately for those of you only interested in buying a house in NYC, most real estate search websites will allow you to filter by property type.
For example, the New York Times will allow you to filter by single-family and multi-family.
Both will be entire buildings, the difference being how many legally separate units there are. Similarly, Realtor.com and StreetEasy both allow you to filter by houses or multi-family. By houses, they mean single-family. Interestingly enough, Homes.com allows you to filter by houses, multi-family or townhouses on their website. Remember that a townhouse is a style, and a townhouse can either be a legal single family or be a multi-family.
Be careful on clicking the most obvious “contact agent” on any of these public search portals.
Real estate search websites generally make money by misleading home buyers into clicking on what are effectively advertisements by their real estate agent customers. In essence, the agent you are directed to when you hit “contact agent” may not be the listing agent, but rather a completely random real estate agent who simply paid for the lead.
Even though these real estate search websites are required to display who the listing agent (i.e. seller’s agent) is somewhere on their site, they certainly don’t make it easy. Often times, the listing agent who courteously provided them the listing information in the first place is only mentioned at the very bottom of the listing web page. Therefore, you can usually still contact the seller’s agent for more information about the property, but it’ll just be harder to do so.
At this point, you’ve probably spoken with a few real estate agents who have all told you that having a buyer’s agent is completely free because the seller is paying the same fee whether you have representation or not.
This is technically true because the typical real estate commission in NYC of 5-6% will be split evenly between the seller’s agent and the buyer’s agent. Therefore, you’ll never have to pay commission or owe anything to your buyer’s agent.
Furthermore, because 90% of all transactions in NYC are done between two agents, listing agents expect serious buyers to have a buyer’s agent.
However, just because broker fees are a seller closing cost doesn’t mean the commission isn’t at least partially baked into the sale price.
Fortunately, not only can you take advantage of free advice and guidance from one of our seasoned partner buyer brokers, you can also discreetly and safely receive $20,000 or more off your purchase in the form of a closing gift rebate.
Our brand name partner brokers will discreetly hand you a rebate check from their commission worth $20,000 or more on the average New York City home.
Best of all, because our partner brokers are all highly acclaimed, traditional, full-service real estate firms who never openly discount or tarnish their reputations in any way, no one will know you’re getting a better deal!
As a result, you’ll get excellent advice and the real thing in addition to a substantial closing gift. All without risking your deal by upsetting the seller and listing agent!
Now that you have a great buyer’s agent on your team, it’s time to attend as many open houses and view as many properties as possible. Depending on how independent you are, you can stop by open houses freely and by yourself, or you can ask your buyer’s agent to organize a property tour for you.
It’s standard practice however for buyers to attend open houses by themselves, as their agent will often have to host their own open houses on weekends.
Just remember to sign in with your buyer’s agent’s contact information at open houses so you don’t get added to countless newsletters and contact lists.
If a property isn’t hosting an open house or is hosting an open house by appointment only, please send a web link of the property to your buyer’s agent so they can check whether it’s still available and schedule a private showing for you.
If you’re not entirely sure on which neighborhood you’re most interested in yet, you should attend open houses by yourself in each potential neighborhood and take a walk through the area afterwards.
This will also save time for your buyer’s agent and is a courteous thing to do if you’re not too sure even where you want to live yet. Get a feel for the vibe of the place. Can you see yourself living here?
Be prepared with these insightful questions to ask when viewing an apartment to buy in NYC. Make the most out of your visit!
Savvy buyers will know to hire a real estate attorney before it’s time to submit an offer.
We’ve seen too many buyers have to scramble at the last minute to interview real estate attorneys after they’ve gotten an accepted offer. Not only will that delay your process and waste critical time, it’ll also make you look unprepared and not serious to the seller.
You should start by asking your buyer’s agent for referrals to competent, trustworthy and responsive real estate lawyers they’ve worked with before. You should generally avoid referrals from friends and family members who aren’t real estate professionals. They’ll just end up referring you to a distant cousin or aunt with a Yahoo! or AOL email account.
In fact, not having a corporate email address is a huge red flag when deciding on a real estate lawyer to hire.
Make sure to read our questions to ask your real estate attorney before you hire them.
Having a competent and professional real estate attorney is critical as you’ll be relying heavily on them for legal and financial due diligence on your behalf!
Once you’ve found a place that you like enough to submit an offer, you’ll want to consult your buyer’s agent for an overview of the NYC offer to closing process as well as what information your buyer’s agent will need in order to submit an offer on your behalf.
Generally speaking, most listing agents will accept offers by email.
It’s customary to include a loan pre-approval letter, a REBNY Financial Statement, a short bio or home buyer offer letter, attorney contact information and any contingencies (i.e. mortgage contingency or Hubbard contingency).
You’ll also need to include a proposed closing date, down payment percentage, legal name of buyers, and offer amount. A short bio and attorney contact information are not always included in email offer submissions, but are nice to have and certainly make your offer more serious.
If you’re buying a house in NYC all cash, then your buyer’s agent may be able to get away with only submitting proof of funds in lieu of a REBNY Financial Statement and pre-approval letter.
Once you’ve provided all offer documentation previously discussed to your buyer’s agent, he or she will submit it all by email to the listing agent. Please see below for a very professional sample offer email from one of our partner brokers:
Dear Layla, we are pleased to submit the following offer of $1,870,000 for 25 Manhattan Street on behalf of our clients Bill and Melinda Gaines.
As you’ve discussed with my colleague Lauren, our clients can put 40% down and are extremely financially qualified. Please see attached for a REBNY Financial Statement, pre-approval letter and a biography and letter from our buyers.
Although this offer is contingent on financing, you can see our clients have liquid assets multiple times in excess of the purchase price.
Please confirm receipt and let us know if we can do a deal. Thank you!
As you can see from this sample offer email, it’s not always necessary to include everything such as attorney contact information or a preferred closing date. In this case, the client had procrastinated and had not hired an attorney yet.
After your offer is submitted, there may be a period of back and forth negotiation on price and various other points before an offer is accepted. For example, the seller may push for a seller occupancy post close agreement if the seller is trying to simultaneously buy a new home to move into (i.e. perhaps through 1031 tax deferred exchange).
It’s important to understand that real estate offers are not binding in New York, whether they be written or verbal. An offer only becomes binding for each party after they have signed the purchase agreement.
Because the seller is traditionally last to act, it’s critical to realize that the offer is not binding for the seller until they counter-sign the contract.
That means even if you’ve signed the contract and it’s now binding for you, the seller could still sell it to someone else before they counter-sign and fully execute the contract.
As a result, your focus should be on making your offer as easy to accept and as digestible for the seller as possible. That means keeping it simple and not going overboard with various contingencies that are uncommon in New York. In fact, the only common contingency you’ll see if NYC real estate offers is the financing contingency, otherwise known as the mortgage contingency.
After your offer has been accepted, your lawyer will receive a draft of the purchase contract from the seller’s attorney. Your attorney will review and negotiate the contract while simultaneously conducting legal and financial due diligence on your behalf.
Even though much of this may be completely new and bewildering to first time home buyers in NYC, you should try to participate as much as possible in this process.
It’s important that the due diligence process will be different when buying a house in NYC vs a condo or coop apartment. That’s because there will be no original offering plan, financial statements and board minutes for your lawyer to review.
However, your lawyer will still order a title search and review the title report on your behalf. This report will be critical in finding out whether there are any liens, judgments or violations on the property.
Home inspections are critical when buying a house in NYC because you’ll be solely responsible for the entire building, meaning the roof, boilers, flooring, plumbing and electrical wiring.
This is in contrast to condo and co-op apartment purchases where home inspections are optional and often not conducted because the apartment owner is only responsible for the interior of his or her apartment.
Ask your buyer’s agent for a referral to a trusted home inspection company they’ve worked with before. You can expect to pay $400 or $500 for a home inspection that may last up to three hours or more. You should make every effort to attend the home inspection as it’ll be an opportunity to learn more about your home and how to maintain it.
If your home inspection report comes up with serious deficiencies that you did not see yourself before you made an offer, then you can negotiate with the seller to lower the price to adjust for the deficiencies.
This is more common than asking the seller to fix things before closing, as it’ll be easier for the seller to just sell it to someone else who doesn’t require additional effort from the seller.
After the lawyers have reviewed and negotiated the purchase and sale contract to everyone’s satisfaction, it’s time for you to meet with or call your lawyer to go over everything.
Traditionally, buyers would meet at the lawyer’s office to get an overview of the lawyer’s findings from due diligence as well as a summary of contract negotiations. After the buyer has been fully brief and is satisfied, the buyer will sign multiple copies of the purchase contract and hand over a check for 10% of the contract price, commonly known as a good faith deposit or contract deposit.
The buyer’s lawyer will typically messenger the signed contract and deposit to the seller’s attorney’s office same day.
The seller’s attorney will encourage the seller to counter-sign the contract within one or two business days out of professional courtesy.
Once the seller has counter-signed, the seller’s attorney will courier back a fully executed copy of the purchase contract to the buyer’s attorney.
At this stage, the listing and deal is considered to be “in contract” and both buyer and seller are locked into the deal, barring any contingencies.
Once you have a fully executed contract, you’ll need to work with your mortgage broker or bank to finish the mortgage underwriting process so they can provide you with a mortgage commitment letter. You’ll need to provide them with whatever additional documentation they’ll need, including a copy of the signed contract, so they can finish underwriting your loan.
While it’s possible to order an appraisal before you have a signed contract, many buyers wait to do so until they have a sure deal before spending additional money. The appraisal is ordered by the bank and paid for by you.
Appraisers these days are not selected by any interested party in the transaction to avoid any potential conflicts of interest. As a result, appraisers can sometimes come from out of town and may lack knowledge of the NYC real estate market. Fortunately, you can often ask for a second appraisal or even submit comparable sales to the original appraiser for reconsideration if you get a low appraised value.
The appraised value is important because it is the value that the bank will loan against.
For example, if you are expected to put 20% down, the bank will only loan at an 80% loan to value against the appraised value, not the contract price! That means you may be stuck with putting up more equity if you get an appraised value lower than the contract price.
You should also consider ordering a rate lock on your mortgage after you have a fully signed contract.
Keep in mind that rate locks expire after a certain number of days (i.e. 60 or 90 days typically) and rates change daily based on the movements of the 10 year treasury bond yield and other internal bank factors.
If your rate lock expires, you may have to pay a substantial fee to keep the original rate if you stay with the same bank. As a result, this will be a highly personal decision you’ll have to make with your mortgage banker.
Congratulations on making it this far! The best part of buying a house in NYC comes next. After you’ve received a commitment letter, the lawyers will agree on a mutually acceptable closing date and a location for the closing meeting.
You’ll also need to chase your mortgage banker to get a clear to close from the bank before closing day.
The closing will typically be held at the seller’s attorney’s office, though it may also be held at the buyer’s attorney’s office depending on availability and convenience. You can expect a whole host of people to be present on closing day. The buyer’s attorney, the seller’s attorney, the banks’ attorneys, the closing coordinator (i.e. title company representative), the buyers and the sellers will all be present.
The real estate brokers will typically not be present as they do not have a role at closing.
However, buyers and sellers can request them to be there for moral support. Keep in mind however that many conference rooms are not big enough and do not often have enough chairs for the brokers to be there as well. This is why most brokers simply pop by the end of closing to congratulate their clients, or pick up their commission checks at another more convenient time.
After your lawyer has guided you through all of the necessary disclosures and documents to be signed and ensured that all checks and payments are correctly made, it’s time for you to take the keys to your new home!
Better yet, you’ll also discreetly receive a commission rebate check from your buyer’s agent worth $20,000 or more if you’ve signed up for a NYC broker commission rebate through Hauseit. What a closing gift!
Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided.