Specializing in Business Transactions, Commercial Litigation, and Real Estate Law
Purchasing a Home in New York
Purchasing a home in New York is undoubtedly a unique experience for the first-time homebuyer. Whether the market is strong or faltering, the experience can be both exhilarating and overwhelming for the uninitiated purchaser. With this in mind, we offer the following primer on purchasing a home in New York, with added commentary on purchasing co-operative apartments and condominiums, due to their unique characteristics and ubiquitous nature in New York City.
Property in New York can be divided into three general classifications:
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co-operatives
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condominiums
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one- to four-family homes (including townhouses and brownstones)
Co-operative apartments: A purchaser of a co-operative apartment does not buy real estate per se, but rather, buys shares of stock in a corporation, which, in turn, owns a residential building. The shares of stock entitle the buyer to a “proprietary lease,” which evidences the buyer’s right to occupy a specific apartment. The tenant/shareholder pays a monthly maintenance fee to the cooperative corporation based upon the number of shares he or she owns, which fee includes real estate taxes, mortgage interest on the building, employee salaries, building upkeep, etc. A prospective purchaser of a co-operative apartment will often need to submit a co-op application and meet with members of a co-op board in order to obtain the co-operative’s approval of his/her proposed purchase. The purchaser shares the common areas of the building with the other tenants/shareholders.
Condominium apartments: While a purchaser of a condominium unit shares the common areas in a building, much like the purchaser of a co-operative apartment, the similarities end there, as a purchaser of a condominium does acquire title to real property. Indeed, rather than acquiring shares of stock in a corporation, a purchaser of a condominium receives a deed to the specific apartment being purchased. Each owner is therefore responsible for his or her own real estate taxes and mortgage payments, and pays monthly “common charges” to the condominium, representing maintenance and upkeep for the common areas of the building. Unlike cooperatives, condominium buildings do not have an underlying mortgage.
One- to Four-Family Homes (including townhouses and brownstones): A purchaser of a one- to four-family home, whether a traditional detached house, townhouse or brownstone, acquires real property, as evidenced by a deed delivered by the seller at the closing. A purchaser is responsible for his or her own real estate taxes and mortgage payments, and is also solely responsible for the upkeep and maintenance of his or her home. These homes are often the most expensive in New York City, particularly in the boroughs of Manhattan and Brooklyn.
A. Considerations When Buying Co-operatives
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The co-operative’s board of directors, elected by the tenant/shareholders, are typically able to accept or reject potential shareholders without having to provide a reason for such rejection. The qualifying standards may vary from building to building. However, under no circumstances may an applicant be rejected based upon discrimination.
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Buyers are typically required to provide detailed personal financial data, including one or two year(s) worth of tax returns and bank statements, as well as personal and professional reference letters, to the board of directors. For some, this may be viewed as an invasion of privacy. However, it is necessary for admittance into most co-operatives. Following the submission of a board package, including the application and supporting financial information and references, the applicant is typically interviewed by the building's board of directors.
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Each co-operative has its own rules regarding how much financing a prospective purchaser may assume. While some limit financing to 80% of the purchase price, some highly selective co-operatives limit financing to 50% or less of the purchase price.
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Of the maintenance charges that a tenant/shareholder pays each month, a significant percentage is often tax-deductible (which is comprised of real estate taxes and interest charges on the building's underlying mortgage). These percentages may vary greatly. And, if the purchaser finances his/her purchase, the interest on his/her loan may also be tax-deductible.
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When a tenant/shareholder wishes to sublease, permission must generally be granted by the board of directors. Many buildings limit subleases and/or require the subleases to be of a certain duration, such as one year.
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“Flip taxes” are a common feature in co-operatives. This tax, imposed by the co-op, is used to build up the capital reserve and/or pay for improvements to the building. The tax is typically one to three percent of the purchase price (but may be more and other formulas exist for assessing the tax) and is usually payable by the seller, although this is sometimes negotiable and varies depending upon the co-op's rules.
B. Considerations When Buying Condominiums
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While an application submitted to the condominium's board of managers is typically required to purchase a condominium, the application process is streamlined and less formal than for co-operatives. Additionally, less financial information is required. Condominium purchasers are rarely rejected.
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The board of managers has the first right of refusal to purchase or lease any condominium being offered for sale or lease, but rarely exercises such a right.
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If the board of managers exercises its first right of refusal, it must purchase or lease the unit on the same terms and conditions upon which the purchaser or lessee has agreed.
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The purchaser receives a deed, which is recorded in the office of the county clerk where the property is situated.
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Owners are responsible for their own real estate taxes.
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Financing is generally easier to secure than with a co-op.
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There is no mortgage on the underlying building.
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Owners are typically required to maintain insurance coverage on their condominium unit.
C. Considerations When Buying Townhouses
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The purchaser receives a deed to the land which is recorded in the office of the county clerk.
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Owners are responsible for the real estate taxes.
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Financing is readily available.
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Owners will need to maintain insurance coverage on the dwelling.
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The ability for rental income usually exists, subject to the building's certificate of occupancy and the zoning district in which the property is situated.
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The building may possess unused development rights, which may be utilized or sold to another party, subject to the building's certificate of occupancy and the zoning district in which the property is situated.