Author Archive

3 Things You Should Know About The Floor Area Ratio (FAR) Calculation

Wednesday, December 14th, 2016

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.

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There are three main points you should understand about the Floor Area Ratio calculation.

1. It can tell you if the property is “legal”. If the actual floor area ratio exceeds the maximum allowed, it is possible that work was done to the building illegally, and a future owner may not be allowed to do work without fixing this – usually by removing the additional structure or getting a variance of some sort. However just because the FAR exceeds the maximum amount doesn’t mean it is illegal. Often buildings that exceed the maximum FAR are “grandfathered” since the FAR rules were imposed after the construction of the building.

2. The difference between the actual FAR and maximum FAR has value. This additional square footage is essentially a right to build (subject to building and zoning rules), and for savvy buyers who are willing to do some work, there could be great upside to properties with additional, unconstructed floor area 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 floor area 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 vs. a similar smaller home in the same condition.

3. There can be more than one maximum Floor Area Ratio in a given building. Depending on the building and zoning, it is possible that by using the property for a community or commercial facility, you can have a higher FAR. This is done to encourage community facilities in certain neighborhoods. By doing the FAR calculation, you can determine which use type will provide the most value and highest use for the property.

The key is finding a property with a footprint that is conducive to “adding on” to maximize your FAR. Ideally you would want a lot that is wide enough to allow a comfortable layout, and a yard that will allow for an addition and still have enough outdoor space for the residents to enjoy. And if the building 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 property with a FAR that allows for significant build outs, there is a lot of upside potential if bought at a fair price.

*Caveat – consult with a knowledgeable architect to confirm the viability of any project you are considering prior to purchase.

RealDirect is NYC’s Premier Discount Real Estate Brokerage

Tuesday, November 8th, 2016

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 schlocky 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.

How Do Real Estate Commissions Work?

Friday, January 15th, 2016

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. (more…)

Bidding Strategy for Residential Real Estate

Wednesday, January 13th, 2016

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: (more…)

Buying a NYC Co-Op: High Maintenance, Lower Price vs. Low Maintenance, Higher Price

Sunday, January 10th, 2016

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:

-Tax deductions
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

Calculating Home Affordability in New York City

Thursday, January 7th, 2016

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.

RealDirect is NYC’s Discount Real Estate Broker

Thursday, March 5th, 2015

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.

O.P.P. – 200 West 79th Street #10N

Thursday, May 23rd, 2013

Whenever I see a listing description that says “bring your contractor” I immediately get excited. That usually means that the apartment needs a lot of work, and that the home will trade at a discount because of this – and a savvy buyer can get a brand new apartment customized to their taste – and one that has never been lived in.

This particular apartment has nice views and is in a prime location. The building is well amenitized, and has a highly desirable convertible 3BR floor plan. It also has through-wall A/C and large closets. But what makes this unit stand out is that the kitchen layout includes a window, which is highly unusual for the typical convertible 3BR, in which the kitchen is usually on an interior wall with no window.

I could see the next owner opening up this kitchen to the living room and building a 3rd bedroom/home office in the dining area. Add new floors and 2 new bathrooms, and the price of this renovation on top of the asking price is still less than a comparable renovated apartment.

http://www.realdirect.com/listing/2102578/200-W-79th-St-10N-New-York-NY-10024/

O.P.P.

Tuesday, May 21st, 2013

For some of us, the term O.P.P. takes us back to the early ’90s when the Naughty by Nature single was ubiquitous. But here at RealDirect, O.P.P. means “Other People’s Property” i.e. a property that RealDirect is not representing (or representin’, if you you want to keep with the theme.) Every once in a while we see some O.P.P. that is so interesting or compelling, that we highlight it in our team meeting so everyone will know about it and can share with their potential clients. Well, rather than just keeping it to ourselves and our clients, we are starting a new post that highlights these properties and explains why we are “down” with it.

The RealBargain

Monday, March 4th, 2013

We have recently added a new feature to RealDirect search called the RealBargain. This is an algorithm we have devised for finding homes that are priced particularly aggressively. We look for homes that have a total cost per foot that are in the bottom 20th percentile or lower for comparable homes. We exclude homes that are unrenovated, are dark, and have other associated issues. They are then flagged in our Finder so that you can easily spot them.

Keep in mind that these are not necessarily the lowest price homes in a neighborhood. A home may have a very low maintenance, but be priced in line with other homes in the area. But the very low common charge may make it a bargain. And the opposite is true as well – a home that is priced low, but with very high common charges will not qualify. And we only look for bright, renovated apartments because most buyers put “light” as their top must have, and they are typically unwilling to do more than a moderate renovation. Of course, if you are willing to renovate a dark apartment, you will find even lower cost/foot opportunities, but they are not necessarily bargains for the average buyer.

Take a look and let us know if you think this is a useful feature.