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unpakt (01/20/2014) - Buy vs. Rent
Buy vs. Rent
I bought my first apartment in Manhattan when I was 29. I was a single woman and what I could afford was a studio coop. Friends and family, even strangers, told me that I was crazy. I didn’t listen. What I knew was that I wanted to live in Manhattan, and I could afford a better quality-of-life if I purchased my home. By owning a home, I knew that I would be able to live in a better apartment, and I would be more inclined to paint with color, to buy nicer furniture, to do renovations, and to befriend my neighbors. I felt like I was ready to nest and was ready to stop living like a nomad. I was able to save money through building equity in my home. And I even made some money when I sold it!
My experience buying my first apartment was so life-changing for me that I decided to become a real estate broker.As a real estate broker, often the first thing that people ask is “Should I buy or should I rent a home?”
The answer for everyone is different. Do you want to stay in the city or town where you are now? History has proven that if you own your home for the long term, the value will appreciate. How do the costs compare between buying and renting where you live? This varies from state to state, from city to city, and even from neighborhood to neighborhood.If you’re considering strictly the financial reasons, it only makes more sense to rent IF you want to move in a few years and/or IF the costs of renting are less and you will honestly rigorously invest the monthly amount that you are saving. If you are not inclined to be a successful and disciplined investor, then the equity you build in your home and the tax benefits you receive from homeownership will outweigh any benefits from spending less monthly on a rental.There is no question that right now the real estate market is very strong, especially here in NYC. Inventory is low and competition for good apartments is fierce. This increased competition is pushing prices higher. In order to be a successful home purchaser, you have to be confident and aggressive. You have to be willing to spend more than a buyer had to spend a few months ago. You have to have enough cash saved up for your down payment and you can’t be broke after that. But if you have the confidence and the money to buy a home, the payoff can be huge and not just financially.Financially, it only makes sense to rent:
IF you are planning to move within the next few years and/or
IF you are honestly going to rigorously invest the monthly amount that you are saving. If you are not inclined to be a successful and disciplined investor, then the equity you build in your home and the tax benefits you receive from homeownership will outweigh any benefits from spending less monthly on a rental.
If I’m working with someone who does want to purchase a home, I begin by asking some basic questions about the buyer’s financial qualifications.
According to Ari Sorotzkin from Citibank, while different mortgage products are available for people in varied financial positions, in order to get the best mortgage terms, a buyer should have:
1. At least 20% down-payment.
2. Post-closing liquidity (cash available after your down payment) of at least 6 months of housing payments.
3. A credit score of 720 or higher.
4. Your debt-to-income ratio (all monthly debt payments to your income) should be no greater than 40%.I work in NYC and because cooperative apartments tend to be less expensive than condominium apartments, buyers are often interested in purchasing coops. I need to make sure that a buyer understands that coops often have even stricter financial requirements than mortgage lenders. A coop may require two years of post-closing liquidity, or a 30% down payment. These requirements are the very reasons why a coop may be a more stable investment, but a buyer and his broker need to be aware of these requirements, which can vary from building to building.If a buyer doesn’t have the cash necessary for a down payment or the required post-closing liquidity, I ask if there is someone in the buyer’s family who can “gift” them the money. It needs to be a gift because the lender (and the coop) will want to see that the buyer doesn’t OWE anyone ELSE any money. Any cash that is remaining after the closing belongs to the buyer and the buyer can do with it what he wishes (including giving the money right back).After having an initial conversation with my new buyer, I immediately ask him to call a mortgage lender like Ari Sorotzkin from Citibank to get pre-approved. A buyer who has a real pre-approval letter will be in a much stronger position when he finds the right apartment and is ready to make an offer. A seller will take his offer much more seriously.
A buyer also doesn’t want to forget about closing costs. Closing costs for a coop apartment will run about $5000 or $6000. Closing costs include several fees and the exact amounts will vary for every deal; check with your broker and your attorney for your specific numbers. If the apartment is over $1M, then there is an additional “Mansion Tax” of 1% of the sale price. Because a condominium is real property, closing costs for a condo are a little more substantial. They include the mansion tax as well as city and state transfer taxes and mortgage recording taxes. Those taxes will total up to approximately 4.4% of the purchase price.
For the new home purchaser, the process isn’t easy. There is no question that right now the real estate market is very strong, especially here in NYC. Inventory is low and competition for good apartments is fierce. This increased competition is pushing prices higher. In order to be a successful home purchaser, you have to be confident and aggressive. You have to be willing to spend more than a buyer had to spend a few months ago. You have to have enough cash saved up for your down payment and you can’t be broke after that. But if you have the confidence and the money to buy a home, the payoff can be huge.
The benefits to buying a home are many, financially and otherwise:
1. Build equity.
2. Tax benefits.
4. Security and Stability.
5. Control over your environment.
6. You love where you live.
As I experienced firsthand, the emotional payoff of owning a home is the most important thing.
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DNAinfo New York (09/11/2013) - Tips for Winning a Bidding War in an Overheated Real Estate Market
Tips for Winning a Bidding War in an Overheated Real Estate Market
BROOKLYN — More than 100 people flocked to a recent open house for a two-bedroom penthouse in a boutique condo at the corner of Williamsburg’s Hope and Havemeyer streets.
A few days later, 15 offers came in for the $1.3 million, gut-renovated, 1,206-square-foot home at 14 Hope St., according to Eric Hantman, CEO of Prime Realty, which represented the seller.
But instead of provoking a bidding war among potential buyers for a popular apartment in a highly competitive part of town, the seller chose to ask for a "best and final" offer — the one-shot bidding strategy that's gaining in popularity, according to brokers.
Inventory has been tightening across the city — Manhattan had the lowest second-quarter inventory in the last 12 years, Brooklyn fell to a five-year low, and Queens was at the lowest point in eight years, according to Douglas Elliman market reports.
So whether it's a "best and final offer" option, or an all-out bidding war where everyone's cards are on the table, prospective buyers need a strategy if they want to find a new home.
Here are some tips from experts on how to win a bidding war
1. No regrets: offer as much as you’re willing to pay.
“If you treat it like a flea market, you won’t get something,” Stacey Max, of BOND New York. “If you bid $950,000 and someone else bids $1 million and you regret it, then you have to bid $1 million. If you weren’t willing to pay $1 million, then that’s fine.”
It's no time to haggle, Max said.
“Don’t play games in this market," said Eric Barron, CEO of Keller Williams Realty, advising buyers to go strong from the start. “There are times when your best and final should be your first offer.”
2. Drop the attitude.
“If you were a seller or listing broker with multiple offers, would you want to deal with an unprofessional and/or arrogant broker or buyer?" Barron asked.
3. Be flexible, not nitpicky.
When sellers have the upper hand, they don't need to work with a buyer with a lot of demands.
"Don't ask for things to be changed or for things to be included," Hantman said. "Take the apartment as is."
"Don’t drive the seller crazy with 'small' requests," echoed Barron, who said flexibility may be just as important as money.
4. Pay cash if you can. There is always the possibility of financing later.
Cash is king in this market, and the more a buyer can put down, the better, agents said.
“Getting a mortgage is not a sure thing, and a seller wants to chose something that's going to go through,” Max said.
5. If you can't pay cash up front, offer to waive the financing contingency — understanding the risks involved.
Contracts often enable a buyer to get out of a deal if they don't get a mortgage, but many house hunters are now waiving this.
“It’s a risky decision because if you don’t get a loan you either lose your deposit or have to pay cash,” Max said. “We only encourage [buyers to agree to this] if they’re able to. But in a market like this, probably most contracts don’t have the financing contingency.”
6. Offer an appraisal guarantee if financing is required.
In such a fast-appreciating market, appraisals sometimes come in lower than the offer, and low appraisals may hurt a buyer's chance at getting a mortgage unless a buyer agrees to put more down for a smaller loan.
"The bank wants to know that what you're paying is worth it, so if they foreclose they can their get money back,” Max said.
7. Write a personal letter.
"You want the letter to be really warm and fuzzy and well-written," Max said. "It should talk about how much they want the apartment and how great their life would be if they get it, but it can't be presumptuous. It has to read like they’re applicants."
Some sellers may even take a lower offer if they connect with a buyer, said Hantman, especially with "creative types," which is why he often encourages buyers to praise a seller's renovation or artwork, for example.
"People make emotional decisions," Barron said. "Find a commonality and bring emotion into the seller’s decision, particularly if you think you won’t have the strongest offer."
JeanChatzky (08/28/2013) - Wednesday Welcome: Coming Out On Top in a Competitive Market
Posted by Arielle O'Shea
This week we’re welcoming Stacey Max, a real estate broker who offered to share some tip for home buyers who are thinking of dipping a toe in the market.
Are you thinking that now’s the right time for you to buy a home? It seems that the bottom of the market is in our rear-view mirror and interest rates are beginning to eeek up from their record lows, showing economic strength. Around the country the real estate market definitely feels like it’s in an optimistic place. Prices are still not at their peak and mortgage rates are still very favorable.
Now may be the perfect time to buy. Here’s what you need to do:
- Get pre-approved. The first thing that you want to do is speak with a mortgage professional to find out how much you can afford. This is not the world that it used to be where you would overextend yourself on the purchase of a home expecting that it will appreciate exponentially. History shows that your home WILL appreciate over the long term, but you also need to be able to afford it for the long term. So make sure that you’re comfortable with the amount that you are going to spend, and make sure that you still have your emergency fund even after your down payment.
- Be prepared for a competitive market. Now that you know how much you want to spend, be prepared to spend THAT MUCH. I work in New York City, and right now we have fewer listings than we’ve had in 13 years. It feels like there are 6 buyers for every listing. I think that the inventory shortage is similar in many markets around the country. This is a good thing for the strength of the real estate market overall, but it definitely makes it more challenging for the purchaser who is out there looking for a home.
- Use a good real estate agent. As a real estate broker myself, I can’t help but advise you that you should work with a good real estate agent in whatever city you’re in. In a competitive market, your real estate agent’s job is to teach you how to get the home that you want.
- Be confident that you know what a home is worth to you. In order to actually GET the home that you want, you need to be aggressive. There will be other times when you can haggle — like at a flea market — but this is not that time. And you need to feel confident that you know what different homes are worth to you. Nobody else can tell you what something is worth to you. You are the buyer who is out there looking at properties, you know what you want, and you know what other houses are asking. When you find the home that you want, think about how much it is worth to you. If you want to try to get it for less than you’re willing to pay, then you can certainly bid less. But if there is competition for the home then be prepared to offer as much as you are willing and able to pay. Offer as much as you would regret that you didn’t. What I mean is if you are willing to pay $500K for a house and you bid only $450K, and someone else bids $500K and you lose the house, would you regret that you didn’t bid $500K? If you bid $500K and someone else bids $600K but you weren’t willing to pay more than $500K, you won’t have any regrets. In strong markets, the average negotiability is less than 5%, so be aware that often the asking price or more is what it will take to secure the home.
- Don’t think about everyone else. Emotionally, competitive markets are very difficult for buyers. Don’t pay attention to the competition. Don’t pay attention to the other buyers; only think about what the home is worth to you; and if you bid that much, you have nothing to lose. But you could get your dream house. Good luck!
About Stacey: Stacey Max is the Managing Sales Director of the Chelsea office for BOND New York Properties, a residential and commercial real estate brokerage in New York City. She’s been a residential real estate broker for over 16 years. Stacey is also a graduate of the Cornell University School of Hotel Administration and a volunteer Chapter Ambassador for her local chapter of the National Multiple Sclerosis Society.
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