Here at RealDirect, our goal is to work with our clients in the way that suits them the best. Sometimes that means they use our free services (RealPrice). Other times we work on a monthly fee basis (as in our Owner Managed program). And still other times, we earn a commission Agent Managed and Buyer Service). However, not all commission based real estate brokers are the same, and to best understand our commission structure, you need to understand how the typical brokerage is compensated. Read the rest of this entry »
When researching homes and buildings in New York City on building information sites like RealDirect’s Free Property Reports, buyers and investors will often encounter a field called “FAR”. This stands for Floor Area Ratio and is an important yet confusing term, that typical buyers rarely encounter. This relates to the zoning of the property, and how much “floor space” is allowed on a given lot.
For example, a house at 115 Ainslie Street in Williamsburg has a built FAR of .87 and a maximum FAR of 2. The square footage is 1,738, so this lot can support a total of 2,266 additional square feet – for a total of 4,004 square feet of floor area.
This additional square footage has value, and for savvy buyers who are willing to do some work, there could be great upside to properties with low FARs and high sale price cost per foot.
For the above property, which has sold for approximately $1,000/ft, an investor or “flipper” would typically evaluate the upside opportunity by looking at the cost per foot and determine what the renovated price would be – and if they can renovate at a significant discount to what the market price is on a cost per foot basis for a renovated property, it is worth the cost of the renovation. Here, a $150/ft renovation budget could probably yield an additional $200/ft of value – which is not typically enough of a return to take a risk on a property like this. However, if one can add another 1,500 square feet at $350/ft, the economics make a lot more sense.
It looks like this:
1,738 x $150 = $260,700 – renovation of existing property
1,500 x $350 = $525,000 – additional living space
Now, after this work has been completed and assuming the property has a value of $1,200/ft, the new value is $3.885M. So the value of the additional FAR is nearly $1M.
Of course it’s rarely that simple, but in some cases increasing the square footage has an even bigger impact. In many neighborhoods, there is a premium for larger homes on a cost per foot basis, so by increasing the square footage, you will get a higher price per foot for the entire property than a similar smaller home in the same condition.
The key is finding a property with a footprint that is conducive to “adding on”. Ideally you would want a lot that is at least 20 ft wide, and a yard that will allow for an addition and still have enough outdoor space for the residents to enjoy. And if the home is brick, even better, since you may be able to build up with minimal structural and fire safety modifications. But if you can find a low floor area ratio building on a good lot, there is a lot of upside potential.
*Caveat – consult with a knowledgeable architect to confirm the viability of any project you are considering prior to purchase.
When we work with buyers and they find a home they love, the first question they ask is “How much should I bid?” Unfortunately the answer is not always easy. They need to not only figure out what the value of the property is to them, but also a bidding strategy that will get their offer accepted, and not tee the property up for another bidder who will pay a little more.
In order to develop a winning bidding strategy without over-paying, we advise our clients to consider these three points: Read the rest of this entry »
When trying to decide how much to spend on an apartment purchase, listing price is a helpful starting point, but doesn’t convey the whole picture. In fact, it’s possible for an $800,000 apartment to actually cost more than a $900,000 apartment. The consideration when buying a NYC co-op is high maintenance, lower price vs. lower maintenance, higher price. In order to really do an apples to apples cost comparison between apartments, you need to look at the whole picture and calculate “total monthly payment.”
Total monthly payment is a figure which includes mortgage and maintenance. While your mortgage will always be the same on equally priced apartments, maintenance varies (often significantly) from building to building. Though you may be able to afford the mortgage on an $800,000 apartment, you may not be able to afford it in a building with very high maintenance. The opposite is also true, i.e. you might be able to afford a higher mortgage amount in a building with very low maintenance. For example, if your typical apartment has a maintenance of $2,000/month and another comparable apartment has a $5,000/month maintenance, then you have another $3,000/month of mortgage service. Since you can get $100K of mortgage for less than $500/month in this market, the second apartment should be discounted by at least $600K to make up for the higher maintenance.
Of course it’s rarely this easy. You also need to consider:
Compare the deduction you’ll get from your maintenance (of which only a percent can be deducted) versus your mortgage, which is almost all deductible in the beginning.
-Why might a building’s maintenance be high to begin with?
High maintenance can be because of a ground lease, a lawsuit, or improvements from years of neglect. However, sometimes it is because the building has a high mortgage which will be paid off shortly. This could actually be good news for shareholders since the apartment may increase in value due to lower monthly costs on the horizon.
-There is a stigma associated with a high maintenance building (at least for units in the under $3 million price range) and there is a small discount on top of the analytically driven discount as well.
You’ll need to evaluate each apartment on a case by case basis and look not only at price, but also at total monthly payment when deciding where to buy.
image via cogdogblog
One of the most difficult questions to answer for home buyers in New York City, is “How much home can I afford?”
And the reason it’s so tough, is that there are a lot of different types of homes in NYC. And even the same type of home, may have very different requirements.
Co-ops usually have specific requirements for approval. They typically want to see a Debt:Income ratio of 28% or less. The “debt to income ratio” is the total debt you have (which includes your mortgage and maintenance, any outstanding personal loans, and any additional loans or expenses you have – i.e. vacation home mortgage and taxes, car loan, student loan, etc.) divided by the total household income (typically monthly). Keep in mind that your DTI might be quite different from one co-op to the next, since the monthly maintenance can vary by thousands of dollars at a given price of an apartment. We see $1M apartments with $800/month maintenances, and $1M apartments at $3,000/month – and they will be quite different as far as affordability is concerned.
However, this only one part of the affordability calculation.
In addition to a low debt to income ratio requirement, co-ops will often want a down payment that is substantially higher than buying a comparably priced house or condo. 25% is typical, but it could be much higher, as some Park and Fifth Avenue co-ops require 50-100% in cash. The good news with co-ops however is that the closing costs are lower than condos. But keep in mind that co-ops sometimes have flip taxes, or transfer fees, which could cost you as much as the NYC/NYS transfer taxes – as much as 3% of the purchase price.
Condominiums in NYC are a bit more straightforward when it comes to establishing affordability since it for the most part is determined by your own financial ability to get a mortgage and make payments, and not on a specific building’s debt to income formula, or cash at closing requirements. But there are still things to consider. First, instead of a monthly maintenance, you will pay common charges and taxes. In theory, these charges should be equivalent to the maintenance payment for a co-op, but condominiums often come with a 421A tax abatement, that will reduce or eliminate the monthly taxes for a period of time. So while you may be able to “afford” a condo when you purchase it, you may find that the monthly charges become un-affordable when the tax abatement expires. And although you can usually finance more of the purchase price in a condo, you will be subject to Private Mortgage Insurance (PMI) if you finance more than 80% of the purchase price.
Private homes are the most common purchases in the US, but in NYC – especially in Manhattan – they are the least common transactions. Similar to condos, the buyer’s affordability is determined by what a bank will give them. And that is typically no more than a 36% overall DTI – and it is generally considered the “right” amount of debt to have to maintain financial security. Of course, if you have other big expenses, like schools, it may be too much. And if you have a huge income, you may still be able to afford a bigger monthly nut. And of course, what’s “affordable” to one family, may be considered outrageously unaffordable to another, even if they have the same income.
Before I became a real estate broker, I thought I knew how real estate brokers were paid. Listing brokers would simply split the commission with the buyer’s broker, and everyone took their money at the closing and lived happily ever after. And if there was no buyer’s broker, I figured the owner of the property would save the buyer’s broker commission.
Well, I clearly had no idea how it all worked. Here are some of the common misconceptions about real estate brokerage commissions, and the truth about how real estate brokerage commissions work.
1. Real Estate Brokerage commissions are way too high!
Actually I started RealDirect because of this myth, but eventually learned this was not, in fact, true. What I did discover, however, is that real estate brokerage commissions are almost always wrong. For every deal that closes in 2 weeks from when the property was listed, there are others that are on the market for a year and then get de-listed, only to be given to another brokerage. In the first case, the broker probably received a windfall for 2 weeks’ worth of work. But in the second case, a year’s worth of work was provided for free. So in all likelihood, any given deal is probably paying too much or too little to the broker.
2. Real Estate Agents can cut their commission to get a deal done.
While some agents will cut their commissions to get a deal done, not all can. Depending on the price of the home, the number of agents on the deal and the commission offered, it may or may not make sense to reduce the commission. And some brokerages have a blanket prohibition on this.
3. Real Estate Agent commissions are fixed by the brokerage.
Rarely do brokerages have fixed commissions – but they will often have minimums that they will take, and those are often tied to gross commission revenue rather than percentages per deal.
4. All Real Estate Brokerage commissions are 6%.
Commissions vary by region and company with some higher than 6% in low price areas with slow moving inventory, and lower in others.
5. Real Estate agents split their commissions evenly with their brokerage.
Commission splits vary dramatically between brokerages and even withing brokerages. There are 100% commission brokerages, where agents pay a fixed transaction fee per deal, and a monthly “desk fee”, and more traditional brokerages where the split is determined by how much business a broker does – i.e. the more business they bring in, the higher the split.
6. Real Estate Agents split the commission evenly between buyer’s and seller’s agent.
Listing agents offer what appears to be a 50:50 split, but it doesn’t have to be. Many listing agents are willing to pay more to buyer’s agents than they are getting for their listing.
7. If I don’t use an agent, the listing broker will make more money.
In many cases, listing brokers will keep the entire commission if the buyer comes without a broker. But some brokerages, like RealDirect, take a fixed commission or fee regardless of whether there is a buyer’s broker – so the seller gets the benefit of a direct deal, and not the broker.
8. If I don’t use an agent, the owner will save money, making my offer better to them.
While this is true for RealDirect, and for FSBO sellers, in most situations, as we have said above, the owner does not benefit from direct deals. So using a service like RealDirect for Buyers is the best way for buyers to gain an advantage on a purchase.
From a few hundred dollars for some paint and new hardware, to a six-figure gut renovation, updating a kitchen can be accomplished in a multitude of ways. Whether your kitchen just needs to be freshened up, or requires a complete overhaul, you’ll want to create a space that works for your own needs and adds to the resale value of your home. We’ve put together this guide to help you determine what your kitchen renovation needs really are and how best to accomplish your goals with an eye to resale.
Before undertaking a kitchen renovation, it’s important to assess your needs. Ask yourself the following questions:
What is my budget?
Does my current kitchen layout work?
What condition is my kitchen in? Can it be refinished, does it need to be gutted, or somewhere in between?
Once you have a clear picture of what needs to be addressed and how much you want to spend, you can move forward with your renovation project.
The Budget Kitchen Overhaul:
kitchen has functional layout, working appliances, cabinets & countertops in good condition
bonus – change out flooring, laminate, peel & stick, tile, add backsplash
Entry level renovation:
kitchen has functional layout, may need new appliances, countertops, floor
-change out light fixture
-new countertops (laminate)
-change out flooring
-stainless steel appliances
layout doesn’t work, nothing is salvageable
-new kitchen layout
-new cabinets (Ikea or Home Depot)
high end appliances
solid surface countertops
Use these 4 tips to save money when buying or selling your next home.
1. Negotiate directly with FSBOs.
Many FSBOs advertise that they are willing to pay a brokers commission, but keep in mind that if you bring your buyers broker to the deal, the price you offer will be 3% less attractive to the buyer than if you were to have come to them as a direct buyer. So while buyers brokers offer a lot of value and do a lot of work in a transaction – and do not typically cost the buyer any money (because of how commissions are structured) – a buyer can sometimes get a better deal without one if the seller is a FSBO.
2. Ask for a rebate.
Sellers often ask for reduced commissions from their listing agents, but buyers rarely do. Since buyers do not technically pay the broker (the commission is paid by the seller), buyers often feel that the service is free. Of course, nothing is free, and that is especially true in real estate! A buyer’s broker gets a percentage of the deal (usually 3%) and a buyer can sometimes negotiate a rebate from the buyer’s broker ahead of time. In our case at RealDirect, we rebate up to 1% of the sale price to the buyer on closing, keeping just 2% for ourselves. This rebate is, in effect, a reduction of the purchase price, and a great way to get a better deal on a property.
1. Use the web to list your home.
The internet provides great opportunities to reach buyers more efficiently than ever before, and you can use web based services to easily get the word out that your home is for sale. Places like NYTimes.com, Streeteasy and Facebook will reach most of your buyers. And some companies like RealDirect’s Owner Managed service will send your listing to those places and also the local broker database for a monthly fee. In this case, you can save a listing broker’s commission, and potentially save the full commission if you sell to a direct buyer.
2. Negotiate a different commission with your broker if a buyer doesn’t have a buyer’s broker.
Many sellers try to negotiate their overall commission, but most do not realize there are other ways to bring your commission lower and can have a higher degree of savings. In a typical commission agreement, if a buyer is unrepresented, the listing broker keeps the full commission (usually 6%), which is usually at least 2x as much as they would have received if there was a buyer’s broker on the other side. Yes, there is often some more work to do if there isn’t a buyer’s broker, but not 2x the work. Some brokers would consider shaving a point off the commission if there was a direct buyer. And other firms, like RealDirect’s Agent Managed program, only takes a 2% commission regardless of whether the buyer has a broker or not. If they do not, the seller gets the benefit of the savings, not the brokerage.
For the past 4 years, I bristled whenever someone would introduce RealDirect as a discount NYC real estate brokerage. My thought was that we are so much more than that. Our technology is the driving force behind our business, and while our technology allows us to do what we do for less money than a traditional brokerage, the discount brokerage terminology makes us sound like a cheap storefront discount brokerage, rather than a technology driven business. Do people refer to Zip Car as a discount car rental? No – it is the efficiency of the technology that allows them to keep the price lower than traditional car rental business. Same with us!
But over the past few years, I have mellowed a bit – and I have come to embrace the “discount” term. The truth is, most of our clients love our technology, but they love even more the fact that they pay only a 2% commission (or low monthly fee) to RealDirect when they sell their homes. And while buyers really dig our collaborative buying platform, they like our cash rebate of between .5 and 1% better.
So I am done fighting, and I have come to terms with the discount brokerage label. But I will continue to let everyone know that while RealDirect is a discount real estate brokerage, our technology is what allows us to offer FULL service at the discount price. And for New Yorkers who don’t want to be seen using a discount real estate brokerage, they can tell everyone that they use us for the cool technology.
Brokers like to quote market reports showing that NYC Co-op “inventory” is lower than last year, and that in general, there are fewer homes on the market now than in the past few years. What does this mean, and why is this happening?
First, the word “inventory” needs to be explained. While homes are not like cars that sit on a lot, the amount of homes that are for sale at any given moment is the “inventory” that buyers have to choose from. There is also the “shadow inventory” that people referred to a few years ago – homes that would have been for sale but for the fact that they have mortgages that have put them under water, keeping them temporarily off market. But those don’t have much of a presence in the NYC since most homes are purchased with a 15% or more down payment, and the market never had the sustained dip that others have had.
But the question remains – why are there less homes for sale now – specifically in the NYC market – than there have been historically?
There are all kinds of theories about why (both macro and micro) but our opinion is that people prefer cities to suburbs more than they did in the past. It used to be that the “first home” segment of the market was heavily favored towards urban living, but that as people advanced to other stages of life, they would gradually leave for the suburbs. This started in the 1950s when highways opened up suburban neighborhoods, and many middle class families fled to suburbs for lower crime and open spaces.
However as we now see, with a steep decline in the crime rate, and the appreciation for a shorter commute and greener footprint, city living is a more and more attractive alternative not just for young singles, but for families, retirees and other demographics. Others have pointed out that suburban homes were designed to have a full time “homemaker”, and that families with a homemaker are in rapid decline.
And as fewer people leave, and demand grows, inventory declines and prices increase.
This is exacerbated in Manhattan and to a lesser but still significant extent, Brooklyn, by the fact that all new construction seems to only be for the wealthy and foreign investors, with prices from $2-4K/foot.
So with the new construction market favoring the wealthy, what’s an average buyer to do? RealDirect CEO, Doug Perlson, offers the following 3 tips:
“First, if you want to live in a “hot” neighborhood, buy a co-op over a condo (assuming you can qualify). You will get more bang for your buck, because you will not be competing with investors and foreign buyers, who are typically limited to condominiums.
Second, consider neighborhoods that are “up and coming” rather than the ones that you have been priced out of. For example, if you can’t find the perfect home in Park Slope, consider Jackson Heights, where a charming pre-war classic 6 apartment could be less than half of the price.
Third, use RealDirect and get back up to 1 percent on your purchase to offset the sting of the high price.”
And if you are a seller, congratulations! You are selling into a market with limited choices for buyers, so you should see a great return on your investment.