Archive for the ‘Tips for Home Buyers’ 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.

screen-shot-2016-12-15-at-3-51-52-pm

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…)

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

Low Inventory: What does this mean for NYC Home Buyers and Sellers?

Tuesday, December 16th, 2014

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.

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.

Simplify Your NYC Apartment Search with New Buyer Tools

Thursday, February 28th, 2013

The core of our mission at RealDirect is to utilize technology to simplify the process of buying and selling real estate. With everything we do, we continue to push toward more efficient methods of matching properties with buyers. To this end, we have recently released new features which make it easier for buyers to quickly find the most suitable properties for their needs.

Buyer Survey
One way we’re helping buyers find their new home faster is through integration of our Buyer Survey with property search. Buyers wishing to receive personalized property recommendations can fill out all or part of our 65 point survey which helps define which criteria are most important in a new apartment. Our survey asks buyers questions such as which schools, parks or transit lines they wish to live near, are they willing to do renovations or live in a walk-up, and how important are these criteria. We then take all of the survey respondent’s answers and compile the data into “Must Have,” “Wish-List,” and “Deal Breakers.” This information is compared against available listings in order to recommend the most accurate matches for each buyer.

Tips

The goal of a real estate listing is to make the property seem as appealing as possible in order to get potential buyers through the door. But with the need to give a strong overview of the apartment, little details are often missed. For example, a built in bookcase in the living room, the view from the kitchen window, or a better look at the outdoor space. While the listing may not note that there’s a dry cleaner conveniently located in the lobby, this is the sort of thing that may be a selling point for some buyers. That’s why we’ve created the ability to leave tips on a an apartment or building. Anyone who visits the listing can leave a text and/or photo tip which will be shared with registered RealDirect users searching for properties. Much like Yelp or TripAdvisor, RealDirect brings a candid crowd sourced perspective to real estate.

Top NYC Neighborhoods for 2013 Real Estate Investment

Monday, February 4th, 2013

Wondering where you should spend your real estate dollar in 2013? We asked our agents to pick out the neighborhoods that they felt were going to be hot in the coming year and got a wide range of answers. While our top picks aren’t necessarily hidden gems or NYC bargain neighborhoods (as if!), they are areas where home buyers are likely to see a strong return on their investment while enjoying a high quality of life. Whether it’s ease of commute, great schools, trendy nightlife, fine dining or open space, there’s something for everyone in our list of top  NYC neighborhoods for 2013 real estate investment. (more…)

225 West 83rd Street – The Bromley

Friday, January 4th, 2013

I believe that I live one of the nicest buildings on the Upper West Side – if you want to combine convenience, amenities and lovely views. The Bromley, at 225 West 83rd Street, is one of those postwar buildings that were built to be solid (I cannot hear my neighbors at all) and attractive. The lobby and entrance have a very pleasant art deco feel to them. There is a dry cleaner/valet service on the ground floor. The staff is attentive, friendly and helpful. Repairs are made immediately by an excellent professional maintenance staff. There is a garage and a roof deck.

But the most wonderful thing about the Bromley is The Second Floor:
• fully equipped health club with pool, Jacuzzi, sauna, steam room, yoga studio and basketball half court
• huge and very well equipped children’s play room with kitchen
• large clean and well maintained laundry with lots of machines
• event space that can be rented at very reasonable rates

So if you want to be my neighbor – right now there are 3 units for sale in my building.
2 bedroom 2 bath high floor Apt.15M
Panoramic southern views, lots of closet space, including a walk-in,washer/dryer in the unit. $1,750,000

• 1 bedroom1 bath
Open city west and south views. GORGEOUS SUNSETS! 727 sq ft. Fantastic storage space. New plank wood floors granite counters and kitchen floor and glass cabinets. Will be freshly painted and ready to move-in. $859.000
1 bedroom 1 bath Apt. 8A
Open city view. This is the largest line of the one bedrooms in the building at about 900 sq ft. $950,000

Three Helpful Tips For a Stress-Free NYC Apartment Closing

Thursday, October 11th, 2012

Relax and enjoy a stress-free nyc real estate closingIf you are unfamiliar with the New York City housing market, closing on an apartment can be an intimidating process. However, a little bit of preparation can go a long way toward making your purchase as simple as possible. Buying real estate need not be a daunting task if you follow these three helpful tips for a stress-free NYC apartment closing.

1. Hire a good attorney.

To make negotiating a contract on an apartment easy in New York, you need a real estate attorney that can take the time to explain to you what is in the contract and how it affects you.  This is a legal and binding document so you need to be sure you understand what you’re agreeing to. Try to find an attorney who understands your preferences and communication style, as he will be your primary point of contact during the negotiation process. (more…)