Tips for buying a home in NYC
For those of you looking for tips for buying a home in NYC, welcome to the ultimate jungle of the 1%.
Depending on what price range you’re looking for, you’ll be facing off against competition ranging from desperate working professional couples to wealthy cash buyers from China happy to leave their “store of value” completely empty and un-rented.
Competition for homes up to $2mm is known to be extremely fierce in NYC due to the large numbers of working professionals making $300,000 a year who can afford that price range. If possible, buy when the market is taking a breather and at a price range higher than $3mm. However, given that having unlimited cash and flexibility in timing is not a luxury for everyone, we’ll deconstruct every typical piece of advice you’ll find on the internet written by people who have never bought or sold an apartment.
Competition for homes up to $2mm is known to be extremely fierce in NYC
Find a real estate agent
This is the typical first piece of advice you’ll find online for tips for buying a home in NYC. The typical article will suggest you work with someone you trust (who doesn’t have at least 5 real estate agent friends in NYC?), ask friends and family for a referral or look online for public reviews of top agents in your area.
The primary flaw of this advice, much to the detriment of all home buyers, is that it doesn’t even present to first time buyers the possibility that they can get a buyer agent commission rebate to help cover their closing costs. While frustratingly uncommon in NYC even after it’s been legalized in New York by the New York State Attorney General, it’s almost criminal that we have not found one article in the first few pages of Google results that even mention the possibility of a commission rebate.
The key for buyers to understand is that even though the services of buyers’ agents are pitched as “free,” you along with every other buyer are paying for it collectively in the form of higher sale prices. Just because sellers have to pay the broker fee (which is typically shared among the listing and buyer broker) does not mean they don’t markup sale prices to account for this cost. Given this clarification does it not make sense then to ask for a commission rebate to account for the higher purchase price you are paying?
We suggest first deciding whether the average 1% off your purchase price in the form of a commission rebate is worth it to you when buying a home in NYC. If it doesn’t and you just want to work with someone you already know and are comfortable with (Russian and Chinese overseas buyers we’re talking to you) and the money doesn’t matter, then congratulations and you probably don’t need to be spending time reading this in the first place.
If however, you think that 1% off your purchase price (that’s over $20,000 on average in Manhattan where the average sale price is now $2 million) is worth it, you’ll want to know whether receiving one will affect your ability to close on a scarce piece of inventory.
While there may be unprofessionalism and listing broker discrimination against the typical one-man broker offering these types of rebates, there will not be any issues in working with a full-service broker affiliated with Hauseit. The key is to work with a top professional in your area who has full access to all listings and does not advertise him or herself as a discount broker in any way. You want the benefit of working with a full-service broker with a stellar reputation and also get the benefit of a commission rebate when buying a home in NYC.
Get a Pre-Approval letter from your Mortgage Lender
The typical piece of advice online will suggest you get “pre-approved” so that you have a sense of what you can actually borrow and afford to buy. What they won’t tell you is that the best brokers won’t work with you unless you can demonstrate that you are a real buyer. That means if you’re going to need financing, you have already been “pre-approved” by your bank or mortgage lender and that you have a minimum of 25% in a down payment. A bank pre-approval letter is much stronger than a simple pre-qualification letter. The former means the bank has already partially underwritten your loan and typically means that you are already 80% of the way there. The latter is much easier to secure, typically as quickly as after a 15 minute phone call with a mortgage banker where no documents have been submitted or verified by the lender.
As a result, if you’re going to need a mortgage, make sure you get pre-approved before you begin your search. This way, listing agents will taking your inquiries and offers much more seriously if you’re buying directly. And if you’re planning on working with a buyers’ agent, they will take you much more seriously as well if you’ve demonstrated your intent and ability to buy by already having a pre-approval letter.
Begin Your Search
At this point, the typical article you’ll find on the web will give you a range of fluff ranging from “move fast” to “exceed the ask” to “establish a connection” and to “show kindness and flexibility” to the seller. While most of these may make sense (and some are just common sense) under certain conditions, they are all automatically addressed if you have a competent agent.
What’s more important is to clarify the advantages at this crucial stage of searching with an agent vs yourself. What’s important to realize is that one of the primary advantages of working with a buyers’ agent is that they actually do have fresher and more accurate listing data than consumers have access to.
A consumer will typically use a popular search website like Zillow or StreetEasy in NYC; however, what they fail to realize is that these websites do not refresh their feeds continuously. In contrast, real estate agents in NYC are contractually obligated to update their listings immediately or face stiff penalties from the local real estate trade organization. An agent in NYC must update a listing’s status change within 24 hours or face fines that range from hundreds to thousands of dollars and suspension from their local interbroker database. And because agents update their listing data directly to their local interbroker database, which also happens to refresh almost instantaneously (we’ve heard 30 minutes or less), the data they have is by default always fresher and most up to date.
At this point, you should have an idea of whether you want to buy a condo, co-op or townhouse in NYC. Generally, condominiums and townhouses are more popular but priced higher because they are “real property” with all the traditional rights of real estate ownership. Co-operatives actually are shares in a non-profit corporation which actually owns the entire building. A co-operative owner receives a stock certificate and a proprietary lease with the right to occupy a certain unit in the building. Co-operative boards have much more power than condo boards as they are essentially a “Board of Directors” of the corporation. Please be aware that owning stock in a co-op is not considered personal property versus real property. Since it’s required to have a real estate attorney represent you in New York, make sure to ask them any questions you might have. They will handle the entire transaction after your broker has negotiated an accepted offer with the seller. Contrary to normal practice in other states, real estate brokers in NYC do not handle any of the contracts related to buying a home in NYC. Your real estate attorney will negotiate the purchase and sale contract and manage and represent you at closing.
Don’t reach out to listing agents directly
Assuming you’ve decided to work with a buyers’ agent, you’ve got to respect industry conventions for buying a home in NYC and not make the “substantive first contact” directly with the listing agent. Doing so may give cause for the listing agent to refuse to work with your buyers’ agent because you are arguably a “direct buyer.”
We realize this can be tough sometimes as you are eager to buy, looking at homes yourself on the internet and want to have your questions answered immediately. However, resist the urge to hit “Contact Agent” on a listing and instead send a list of your questions and listings you want to see to your buyers’ agent. Your buyer agent will reach out, schedule showings, sign you up for open houses and get your questions answered. It may seem cumbersome to have to work through a middleman, but the upside is you’ll have a loyal, dedicated agent who does have better data than you do who will help you schedule, negotiate and be with you every step of the way when buying a home in NYC.
What happens if I reach out to a listing agent directly?
Most real estate agents who are REBNY Members will behave professionally and realizes that it sometimes happens that a buyer agent’s client will reach out to a listing agent directly. Most listing agents will not make a big deal out of it and will not have an issue with buyers going to open houses and even private showings alone.
Why? Because it makes the lives of buyer agents easier and every listing agent can also be a buyer’s agent. And because agents need to be able to work harmoniously with other agents to be able to close a deal, they typically behave professionally so they can get the same lenient treatment in return.
Moreover, there is no specific REBNY rule that requires a buyer’s agent to accompany the buyer to a showing. Some new development “sponsor sales” may have a separate co-brokerage agreement specifying that the buyer’s agent must attend the showing, but even that is not often enforced in practice.
There is a note in REBNY’s Professional Code of Conduct where agents are encouraged to conduct their own showings
What can go wrong if I reach out to a listing agent directly?
This is an actual email exchange between a childish junior listing agent, our affiliate buyer’s agent and a home buyer commission rebate customer who had reached out directly to schedule a private viewing. Here’s what happened even though she had copied her buyer’s agent on all emails.
Hi Angel, Are you working with a broker? If so, they need to confirm with us and they should be in attendance as well. Thanks, Roxanne
Hi Roxanne — yes, Angel is working with us and someone on our team will attend with Angel on Friday. Thanks! [affiliate contact info]
Angel- please confirm.
Hi All, Confirmed. Thanks! Angel
[redacted affiliate brokerage name] — please provide the contact info of who from your team will be in attendance. Thanks, Zac
Zachary, we’ll see you there. Thanks. [affiliate contact info again provided]
John — Just to reconfirm, you will be there? If so, please provide your cell number. Thanks, Zac
Hi Angel, Confirmed for Friday at 9:30am. John, please let us know who we’ll be meeting from your team. You’ll be meeting Rob, cc’d here, his cell is [redacted]. Thanks, Roxanne
Ironically, this junior listing agent troublemaker had scheduled a viewing for one of our affiliate’s Agent Managed FSBO listings. Our affiliate checked with the seller of that apartment about how the showing went and if the troublemaker ever bothered to attend the showing:
The “buyer” (Emmelien Brouwers) showed up to view the apartment, but was alone. Zac didn’t join her. I emailed both of them separately after the showing but never heard back. I assumed she was just looking and the broker didn’t want to waste his time seeing a bunch of random places with her because he knew she wasn’t serious.
Disclosure: Hauseit and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.