Archive for the ‘Buying & Selling’ Category

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.


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.

11 Mistakes to avoid when buying a New York City Co-op

Wednesday, December 14th, 2016

11 Mistakes to Avoid When Buying a New York City Co-op

The New York City co-op buying process may have you wondering if the principals of honesty, integrity, and good faith exist in the real estate market. They do, we can assure you, even though you may be feeling doubtful. To understand why so many wannabe co-op buyers are jaded you need to see that it’s often the real estate game, and not the players, that are causing problems. In our experience, many buyers seem destined to make the same 11 mistakes—again, and again, and again:

Mistake #1: Apartment hunting without the help of a broker.

When apartments in Manhattan change hands, sellers typically pay 5 to 6 percent commission. And what do you, a buyer, pay your broker to represent your interests? Nothing. That’s because the seller typically pays out half of the commission to your broker as compensation for finding a willing and able buyer.

Warning: If you don’t have a broker then you interface directly with the seller’s broker, a seasoned professional (usually) whose fiduciary responsibility is to do anything legally in their power to skew the deal in favor of the seller and against you. It’s a sad irony that many buyers don’t seek broker representation for themselves, especially when there is no cost for doing so.

A competent buyer’s broker will help you to navigate the complicated process of buying a co-op while protecting you from the common mistakes outlined in this article. Don’t be shark bait. Get a professional on your side—at no cost. (more…)

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.

For Sale By Owner (FSBO) Myths (And a Couple of Facts)

Friday, June 17th, 2016

Updated in 2016…

With more than 90% of prospective buyers beginning their home search online and multiple web outlets for listing publication, it seems that more sellers would be bucking the broker’s commission and listing their property for sale by owner (FSBO). Cutting a commission by 3-6% could save thousands of dollars, but it would also put some real estate brokers out of business. At RealDirect, we recognize that the traditional method of selling real estate needs to adjust and embrace a new way of doing things in order to stay relevant. However, to many brokers who are wedded to a standard commission, the easiest way to keep money coming in is to use fear. Fear that selling with anyone but a traditional broker is hard. Fear that buyers’ brokers won’t show homes that are not listed with the big brokers. Fear that sellers won’t know how to price their property. While the list goes on and on, most of these fear tactics are inaccurate at best, and outright lies at worst. If you’re thinking about selling your home without a traditional broker (or a FSBO), we’d like to debunk some of the for sale by owner myths (and share a couple of facts).


Myth: If you don’t list with us, we won’t bring our buyers.

Fact: Buyers’ agents want to earn a commission. If their client says they want to see a property, agents will typically try to work out a deal. However, getting brokers and owner to agree to a deal can be tricky, with many of the large brokerages refusing to show homes where they do not have agreements in place. But by working with an FSBO like service such as RealDirect’s Owner Managed service, we take care of the agreement, so it will be easy for brokers to show your home. Plus we are members of the Real Estate Board of NY – which is the de facto MLS in NYC. Being a member of REBNY requires that you co-broke with all other REBNY brokers.

Myth: You’ll get more money if you sell with a traditional broker.

Fact: That’s just plain fuzzy math. First, this does not take into consideration that the net proceeds could be higher with alternative sales models because the closing costs are lower (i.e. commissions) even if the sales price is lower. But even if you do not take that into consideration, if the property is marketed to every possible buyer, as done with RealDirect, the sale will be highly competitive, and you will get the highest possible price.

Myth: It’s too much work for you to handle on your own.

Fact: Maybe. It depends on how much time you’re able to devote to showing and answering questions about your home. That’s why RealDirect offers different listing options which allow you to handle your own showings and open houses or have a licensed agent do them for you. Our platform has baked in marketing that covers all the mediums a traditional broker would use (and several they don’t). We’re available to negotiate for you, or you can handle it yourself. Because every situation and every seller is different, we don’t prescribe to a one-size-fits-all real estate model and we don’t believe in one-size-fits-all pricing. You shouldn’t have to, either.

That said, there are some scary things brokers will tell you that are actually accurate.

Fact: People won’t find you unless you’re in the MLS.
Your local MLS is what most buyers’ brokers use to find properties for their clients, and also where sites such as Streeteasy, Trulia, Zillow and others get some of their listing info. While it’s certainly possible to find a direct buyer by doing your own advertising, if you want to appeal to the widest buyer base possible, it is critical that your listing appear in the MLS. And being in the MLS (or REBNY database in NYC) will also help you with the next one…

Fact: You have to offer a buyer’s broker commission.
While you can forego paying 2.5-3% to a seller’s broker by listing your home “for sale by owner (FSBO)”, if you want brokers to bring buyers to your home, you have to be willing to pay their commission. You can opt to only show your home to direct buyers with a strict “no brokers” policy, but in doing so, you eliminate every single buyer who wishes to work with a broker instead of representing themselves – and that is the majority of buyers. And eliminating buyers from the buyer pool can result in a lower purchase price, and work against your sale.

So the key to successfully selling your home as a FSBO is to do your research, understand how the process works, realistically evaluate your level of time and willingness to do work, and make a decision you’re comfortable with. Scare tactics are just that. Don’t believe the “for sale by owner” myths.

How to FSBO in NYC

Friday, June 17th, 2016

Updated for 2016…

When you are a real estate agent, one of the first rules of business is to reach out to “For Sale By Owner” listings (FSBO) and try to convince sellers to list with you.  It makes sense, since this group typically has a high rate of failure and usually decides to list with an agent after going it alone for a few weeks or months.  Since we operate a new kind of real estate company that can truly benefit FSBO sellers (among others), I figured I would share what I have learned in talking to NYC FSBO sellers as well as other real estate agents that call on FSBOs.

Here’s what I’ve learned:

Unfortunately, when some agents call on the FSBO, they don’t just come out and say they want their listing. Instead, they apply the “bait and switch”. First they say that they want to “preview” the apartment for an unnamed client or clients. This gets the FSBOs excited that they have an interested buyer and also puts the FSBO seller in a frame of mind that is more receptive to talking to a real estate agent (many FSBOs explicitly say “no brokers” on their listings for this reason). After a tour of the home and some compliments (“did you decorate this yourself?  It looks fantastic!”), the agents take out a glossy folder extolling the virtues of their firms, suggest that if the sellers wants to list, they should list with them, and then never bring a single buyer to the sellers’ homes. (more…)

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.

How Real Estate Brokerage Commissions Work

Friday, April 24th, 2015

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.