So I bought a co-op in NYC, and here’s my story
This past summer my husband and I decided it was time to invest in some New York City real estate. During the 5 years in our beautiful 2-bedroom rental in South Williamsburg, we watched our rent move from affordable to embarrassingly high. Though we realized becoming owners would mean a downsize, we could no longer justify paying anyone other than ourselves.
We visited the first prospective purchase on June 27th, 2015. We went without a broker, and with very little knowledge of what was involved in beginning our search. We met a nice broker (he was the seller’s broker), who offered to work with us. In our naivety we thought, “great, let’s do it”, but we were rookies and it turned out so was he.
Our first broker was extremely new to the NYC market, which meant learning in tandem. We visited about 7 properties, even made and retracted an offer on a place with him, before realizing it was time to do our research. Lesson learned — we were the real owners of this process.
We then decided to start open-house hopping on our own, which was a great experience. We were able to view up to 8 apartments in one Sunday. We would strategize and jet around the city freely, popping in and making our own notes on the places we would see. Some open house agents were averse to broker-less visitors, but I recommend it. Especially if you are in the education phase. In parallel, we started reaching out for new broker referrals.
We were eventually referred to a wonderful broker that had worked with friends of ours, and started to view properties with her. The process was much more organized and informational — it changed our entire perspective on a broker and their role in the process. We felt so lucky to have an informed advocate for our search.
Players in the game
Bottom line — there are just a lot of people involved in this process. Half of them I learned about along the way. In our experience, the diagram below demonstrates how our world played out. The main communication channel is between brokers, and between attorneys.
Get referrals for your broker and your attorney — these are the 2 most important players in your game.
As a buyer, the onus is on you to manage and funnel communication through all the different parties, coordinating alignment for each piece along the way (e.g. brokers don’t speak to attorneys; loan officers speak only to you). Being a product manager in my professional life, this hub-and-spoke model felt all too familiar. Solid lines are direct communication; dotted lines represent indirect (or infrequent) communication.
There are others minor characters like the underwriter, appraiser and inspection agent. Your bank loan officer should help manage these players for you.
Between June 27th and September 27th, we visited 27 apartments. (Total coincidence that 27 just showed up 3 times in a row). We made two offers.
Offer #1 On August 19th we made our first offer on a property we had visited twice. Our offer was accepted after a bit of negotiation. We weren’t the highest bidder, but had the favored profile. We ended up retracting our offer on the property after several red flags found during our attorney’s due diligence on the property. This is why your attorney matters! Ours was very thorough, and we are super thankful that we walked away from Offer #1.
Offer #2 On September 29th we made our second offer on the property we ended up purchasing. It was not originally accepted, due to our unwillingness to waive financing contingencies, but the Sellers came back to us a week later after their preferred deal fell through for unknown reasons.
During our search, we felt frustrated by the lack of tools to organize properties visited, trends and notes. So we created a shared Google Doc to aggregate all of the properties visited, their associated data (pulled from StreetEasy, or public NYC records), and our extrapolation predictions for resale in 5–10 years. This helped us understand the comps in the neighborhood and the resale trends for the properties we were considering. Ultimately we were able to model out a scenario that we felt comfortable with when we put in our offers.
Once we had an accepted offer in place, it was time to move forward. Having just gone through it, what I could not find anywhere was a real example of a buyer’s timeline. So, I documented mine precisely. Duration is how long each individual line item took. Note that the sum of the duration column does not match the total numbers of days. Total # of Days represents the entire purchase timeline, so for us, just shy of 4 months.
10 things I learned the hard way, so you don’t have to
So what did we get out of all this? A whole lot of learning, and a few sleepless nights! Here are some of the most valuable take-aways I wish I had known before I started.
1 — It is okay to view open houses without a broker, but you definitely need one to buy a place
As mentioned above, we felt much relief and freedom exploring on our own. We saw plenty of others viewing open houses without a broker. In fact, I really recommend this when you start. Find a broker when you’re serious & 100% ready to buy. Go out there, visit 20 or 30 properties months before you’re even ready to buy to educate yourself and explore neighborhoods.
2 — You need more than your down payment
To buy a co-op in NYC you need cash for your down payment (usually 20–25% of the purchase price) and you need cash for closing costs. However, there are also two important requirements that the co-op will impose (but the bank will not). This means the bank will qualify you for a loan much higher than the co-op may allow you to accept, or that you would want to risk for that matter…
So for us, we had to meet these two requirements after paying the downpayment:
- We needed a combined debt-to-income ratio of 30% or lower. Meaning, the ratio of our future monthly debt (any revolving loans + mortgage + insurance + maintenance) to our monthly combined income needed to be 30% or lower.
- In addition we needed to demonstrate access to a lump sum of cash in the bank post-purchase to cover either 2.5 years of our maintenance payments OR 12 months of our mortgage payment.
We were lucky that we met them, but we certainly were not prepared for that. No one gave us a “heads up” on this when we began our search. In fact, our original budget was much higher than the place we chose — thankfully. In the end, affording any more would have be hard.
3 — Don’t move large sums of money between bank accounts in the months before applying for a loan
We had just gotten married a few months before our search and were in the process of figuring out how to share finances. That involved a couple mistakes, like moving money around. It also included a large deposit of wedding cash given to us graciously by our guests. The underwriter on our loan needed an excruciating amount of detail about these transactions. Bottom line, anything over $10,000 will be scrutinized.
I had to send them an itemized list of every guest at our wedding, and the amount in cash they gifted us, and a written confirmation that they did not expect reimbursement. Yep.
4 — Credit scores; no new credit cards, please!
Ugh, this was another rookie move by us. My husband is Brazilian with only 3 years of established credit in the United States. As mentioned, we were just attempting to combine finances. This involved opening up a new joint credit card at the end of the summer. Which inadvertently dropped his average years of established credit and docked his credit score by 30 points mid-search! Credit scores matter because they affect the interest rate on your loan. Really, I’m telling you the credit industry is just bizarre. Here’s a guy that has never been in debt in his life, but has struggled endlessly to establish (and now maintain) excellent credit due to a system that is unfriendly to foreigners. In the end, we found a great loan officer and got an excellent rate. But we were worried there for a bit.
5— Ask about the % of renters in the Co-op
So this is an important question you must ask. Banks are hesitant to finance a co-op that has a high percentage of renters (i.e not the original owners) living in the building. Typically, it should be well under 20%. The first place we made an offer on had a rental percentage of 56%. This was one of the biggest red flags we found out late in the game — and it caused us to retract our offer. Beyond the bank being opposed to financing such a situation, your attorney should discourage you (ours did!) because after all, you will be paying for any issues those renters incur and they won’t be. Welcome to shared ownership, my friends.
6 — There are lots of hidden fees
Beyond your hefty downpayment, there are many other fees along the way. I just tallied our numbers, and it added up to quite a bit extra. Good to know ahead of time for budgeting!
Here are some fees to expect, and what we paid:
- Attorney Fees | Your Real Estate Lawyer = $2,800.00
- Inspection Fee | Bank = $500.00
- Appraisal + Loan Application Fee| Bank = $652.25
- Lien Search Fee | Bank = $381.06
- UCC-1 Filing Fee | Bank = $125.00
- Bank Attorney Fee | Bank = $925.00
- Additional Bank Fees (i.e. origination fees) | Bank = $1,521.53
- Co-op Application Fee | Co-op = $500.00
- Credit Check Fee, per person | Managing Agency = $240.00
- Move-in Security Deposit | Co-op = $750.00
- Recognition Agreement Fee | Managing Agency = $250.00
- Messenger Fees | Managing Agency = $50.00
- Homeowner’s insurance (required for closing) = $650.00
7— You are your biggest advocate
Listen, this a complicated transaction, with many moving pieces, and you are your own advocate. You best get yourself as educated as possible, talk to other friends who have purchased, get advice, do what you need to do before you start. We were so lucky that a handful of our close friends had purchased in New York. I bugged every single one of them on the most detailed issues to fully understand our options and risks. It took an incredible about of determination (and anxiety!) to fully understand all the different moments in time.
Your broker, your attorney, and your loan officer help you move the purchase process along as fast as possible… but there are delays, and it is your responsibility to stay on top of them. If you ever find yourself wondering, “should I be doing something? emailing someone? is the ball in my court?”, the answer is probably Yes!
As a first-time buyer, don’t ever feel that you’re being too annoying, too anxious, too hesitant or asking too much of any of the other players in this game. To them, this is their everyday. To you, this is the single most important transaction in your life to date!
8— You may feel pushed, but listen to your lawyer
Along the way, there will be negotiation. Because of confidentiality, I can’t go into much detail but a couple times we received advice from other players that contradicted our lawyer’s, and just felt risky. Seller’s (especially in New York) will ask for more than you feel comfortable with, so push back. You’re not going to lose the place. Our seller’s wanted us to waive all financing contingencies but we did not budge. In the end, they still chose us, and we avoided months of anxiety as a result. You are paying your lawyer to give you legal advice, take it.
9 — Closing dates are subject to change, so plan for that
Our contract had a closing date & time in it when we signed. We expected that to be our date. Once we got our board approval and it came time to schedule the official closing, that date no longer mattered. In the end, due to legal jargon, the seller’s had a 30-day window in which to set the closing date. For us, that pushed our closing into 2016 when we were ready to go in 2015.
10 — Read every word in every document that is sent to you, and check those numbers!
Listen, legal docs are boring. Bank docs are confusing. Everything comes to you either in a paper print-out, or a PDF. Take the time to create your own spreadsheet where you can double-check the math. We found numerical mistakes in almost every document sent to us — the contract, the loan commitment, and even the final closing statement. Had I not double-checked all the numbers meticulously we would have showed up to closing with the wrong amount in a cashier’s check.
We also read every single word of our contract, our possession agreement, and the addendum. It took over an hour, but I’m so glad I did. These are all templates that people work off of, so there are bound to be misses. And there were, and we saved ourselves as a result. Your attorney is human, and even they make mistakes.
Tools that helped us
There is very little out there resource-wise for buying a place in Manhattan. But we did find the data on StreetEasy to be the most accessible and complete (historically as well). We also used the Office of the City Registrar’s doc search engine. Google Maps helped us understand the neighborhood, and NYC.gov for school districts. Compass just launched a great market trends app that I wish I had known about during my search.
To manage our own process we used a shared Google doc and documented everything. From the moment we began our search until the day we closed, we were in the multi-tab doc studying our stats until we wrapped our heads around exactly what we were getting ourselves in to…
Our closing proceeded as planned. It was a wild experience with a room full of people, each with a pile of their own papers, frantically signing and shuffling. As buyers we tried to stay abreast of all that was happening but eventually succumbed to the frenetic energy of overstimulation. Coming from essentially paperless work environments, we were in awe of how old school the process seemed. Here was an enormous conference table, filled with laptop-less people using handheld accounting calculators. How can this be human-error free???
In a period of two hours we signed a lot of papers, wrote a lots of checks, and walked away with a nice photocopy of our stock certificate signifying ownership in the Co-op. It was an exhilarating experience worthy of a nice bottle of champagne! And so we did…
And that’s my story. I hope yours is slightly less turbulent, but just as rewarding. Cheers to becoming a homeowner!
So tell me, what’s your purchase story?