First Time Home Buyers Guide with Maggie Ross
Anthony interviews Maggie Ross, one of the top real estate agents in Brooklyn and Manhattan for over the past decade. Apart from being an agent, Maggie is also a licensed lawyer. Listen as she talks about everything you need to know when buying your first home. With Anthony, Maggie walks us through how people decide on purchasing a home, what factors are to consider, what role seasonality plays in the market when buying or selling, what are the possible location differences, budgets and costs.
- Deciding on a home purchase for 1st time buyers
- Factors that come in negotiation
- The difference between properties in the city and the suburb
- Budgets and Costs
- Red flags to look out for
- Offers and negotiations
- 00:13 – Anthony introduces Maggie
- 01:06 – How people decide on home purchases
- 02:08 – Closing depends on the purchaser
- If buyer finances the purchase — 60 days average
- Entire process can take less than 6 months
- Get into contract 60 days before you close
- 05:10 – An Attorney State
- An oral/written accepted offer is not legally binding until attorney performs due diligence
- Contract to be executed in 5 working days
- 06:34 – The factors in negotiation
- 09:07 – Seasonality in real estate
- Most transactions are in spring
- People’s need to move
- Possibility of better deals in winter months
- 12:46 – Locations: City vs Suburbs
- Each person has their own wishlists
- Co-purchasing needs a thought-about decision
- Layout considerations
- Willingness to do work/building amenities
- 14:15 – Condo Amenities
- Swimming pool
- Concierge service
- Children’s play rooms
- Common outdoor space
- 16:11 – Pet Friendliness as a factor
- A very big deal in a lot of buyers
- “Interviewing” dogs
- 18:26 – How package deliveries factor in home buying
- Doorman issues
- 20:13 – Zone Schools
- Important for people with children
- Fair housing rules
- Disclosing zones to buyers
- InsideSchools as a resource
- 26:26 – Budgets and Costs
- 20%-30% down payment or conforming loan
- PMI (Private Mortgage Insurance)
- Some instances 10% goes well too
- Post closing liquidity
- Closing costs
- 31:33 – Maggie shares more about closing costs
- Taxes and bank fees
- Mortgage Recording Tax
- Closing costs are paid upfront
- Mansion Tax
- Transfer Tax
- 39:02 – Working with real estate brokers that are on your side
- You don’t need to use a buyer’s agent
- Word-of-mouth recommendations
- 40:40 – Red flags you should look out for
- Chemistry matters
- Reliability in responses
- Anthony lists his share of red flags
- Don’t judge on years of experience
- 47:40 – Offers and negotiations
- Having a broker and a buffer
- Have someone who presents a number
- 53:55 – The next steps after deciding on a prospective property
- The difference of willingness and ability to pay
- Closing dates are dependent on the purchaser.
- Details, expectations, and wish lists are things to be talked about when co-purchasing a house.
- It’s important to consider all factors like zoning and amenities before deciding on a home.
- The ideal budget you should have upfront is the 20% down payment + closing costs + liquidity required by your bank/lender.
- Work with people who will be on the buyer’s side and not just on the seller’s.
- Get a broker rather than just selling/buying by yourself.
- It’s paramount to work with a broker or an agent that you trust.
Link and Resources
Call or text 212-401-2990 if you’d like to work with Anthony (or any of our guests).
[Anthony] Let’s talk about first time home buying in New York, and we’re really gonna focus on decision making and negotiations. I’m talking with my good friend Maggie Ross, she’s one of the top real estate agents in Brooklyn and Manhattan for over the past decade. And she’s not, she’s a little unusual in that she’s not only an agent but she’s a fellow attorney, and I don’t believe you’re practicing, but we both went to law school together, so I was able to see first hand how smart and hard working and dependable Maggie is.
[Maggie] Thank you.
[Anthony] So Maggie, why don’t we jump right into these questions to try to help out any young couples or families who are really hitting the first time home buying process, yes?
[Maggie] Yeah, definitely.
[Anthony] So, why don’t we first talk about the decision making process, I mean the first decision folks are making is whether or not to buy, as opposed to say, I suppose renting, can you talk a little bit about how folks should maybe approach that decision making process?
[Maggie] Well I can tell you how most people do approach it, which is, a lot of people are what I call real estate hobbyists, and I think most people in New York City, well before they buy, start looking online at listings, usually on the aggregation sites, at dueling listings, and I would love to live here someday, and then that kind of naturally evolves into using the rent versus buy calculator that you’ll find online. The New York Times has been that for years, and basically I think as people mature and maybe start making a little bit more in income, they decide whether they’re going to plant roots, and then do that assessment, and that’s kind of how they generally come to the decision.
[Anthony] When somebody thinks it’s about time to buy, how should they plan out their timing? I guess what I mean is, how far in advance should they start looking if they intend to close by a certain date? And I think the typical closing was they would wanna close before the start of the school year, or something like that.
[Maggie] Right, it really depends on how impulsive the purchaser is, honestly, some people are a lot pickier than other people, most buyers walk in with a pretty extensive wishlist, which I advocate, I think it’s important to shoot for the stars when you are investing in something as expensive and important as your home, so if somebody comes in with a wishlist of let’s say 10 items, I always tell them, that’s wonderful, but just be aware that you’re probably not going to get more than six or seven of those, ideally it’s as many as you can get, but some people are more particular, and that’s just their personal and stylistic aspect of personalities. But I would say for the average home buyer, if you’re financing the purchase, you can kind of back up the date based on how long the bank is gonna take. So, you’re looking at 60 days to close on your average property, condo, or co-op, in New York City. That’s how long the bank will take after you’re in contract. So, if you’re average I would say, and you really know what you want, and you have your ducks in a row, and you’ve been pre-approved by a lender, the entire process can certainly take less than six months, for some people it takes three, for some people it takes two years, but that’s just because they spend more time looking.
[Anthony] From when, by the way, you mentioned something really great, the wishlist, which I wanna get back to, but just staying focused now on the timing, so we’re talking about, on average, these are just averages, six months to get your financing finally approved, so backing that out from a closing date in August, let’s say, you’re going back to hopefully getting into contract, what? Maybe sometime in June, would be safe?
[Maggie] Right, so 60 days, you’d like to get into contract 60 days before you wish to close. August is a funny month because if you’re buying a co-op you’re also looking at board interviews, and a lot of co-op board members are human, and they go on vacation, just like most people do in August, so I always find August is a tricky date to get, and also mortgage lenders and attorneys, which I’m sure you know too, people tend to go away in August, but yeah, in general it’s 60 days, there’s a little bit of seasonality, you have to bump out holidays, delays, if you’re looking around the new year as well, for the same reasons, but yeah, 60 days to actually close, a week to get into contract, and then I would say the average purchaser’s looking for a couple months, three months, four months.
[Anthony] So you said a week to get into contract, so that’s the time between when an offer is accepted or when negotiation begins, and when the contract is signed?
[Maggie] So, in New York it’s called, the brokers call it an attorney state, and what that means, other states like California, the brokers on the deal handle everything, there’s no attorney involved at all, no closing attorney, and in those states, and I believe it’s very common throughout the United States, the accepted offer is actually binding. In New York, that’s not the case. So you can have an oral or a written accepted offer on a property, but it is not legally binding until your attorney performs their due diligence and you and the other party, the seller, fully execute, meaning you both sign the contract of sale. And that process, so from when you get the accepted offer, so that’s post your broker helping you to negotiate the price, and the seller and you coming to an agreement on that, post accepted offer, the contracts will go out, and it’s generally accepted that the contracts will be fully executed in five business days. So roughly a week.
[Anthony] So sticking to New York, and maybe some of the surrounding areas, Connecticut, New Jersey, wouldn’t other items beside price be entangled in a negotiation? Say closing date? Or, I don’t know, fixtures, inspection rules, things like that?
[Maggie] Sure, the biggest one is obviously price. When you’re purchasing a house, so whether you’re buying a townhouse in New York City, or you’re buying a house anywhere else, suburbs, upstate, Connecticut, wherever, you always do a home inspection. I suppose there are folks who skip that, but in general you do a home inspection, when you’re buying a condo or a co-op, I would say that about 50% of buyers do the home inspection, there’s simply less to inspect, you’re not buying all of the mechanicals usually, with the boiler and the hot water heater, those are building elements, but in New York City, that’s generally not a condition of the contract, that’s something that the buyers do before they actually even sign the contract, so they can decide if they wanna go forward. The home inspection is generally a condition outside of New York City, so yes, those items are negotiated, meaning you get the inspection, the deal, and we’re talking about outside of New York City now, the deal is conditioned on the inspection, and then you and the seller will negotiate if there are items that come up in the inspection that need to be addressed. It’ll either be a cost credit, or there will be items that are actually fixed. So other things that it can be, sure, closing date is, usually people don’t bicker a lot about closing date, I’ve had that happen very few times. The parties usually express that upfront, and then it’s understood before they start negotiating on the other points like price, so that tends not to be a huge deal. I suppose if you want a closing date that’s six months out, it could become more of a point of negotiation. And six years, I would say that falls under the same general rule, get your dates set forth up front, so the listing itself will say, hey, there’s this antique chandelier in the dining room that’s going to be replaced with something, quote, unquote, cheap and cheerful from Lowe’s, because it’s a family heirloom, and it doesn’t come with the house, or the air conditioners are coming with me when I move, or something like that.
[Anthony] Okay, speaking of air conditioners, you mentioned seasons before, how to time things and understand that people are human beings, might be on vacation, is there any element of timing to when to be on the market, or when to try to purchase that would impact the prices, for example, I’ve heard that buying in the winter, or in the more blustery months might fetch you a better deal than if you buy in the summer where everyone’s looking, is there any truth to that?
[Maggie] There’s some truth to it, seasonality is very real in real estate, spring and fall are when you have the highest inventory, and it’s in that order as well, so in the spring you’ll find most inventory on the market, we do the most transactions in the spring generally speaking, it kind of depends what the market is doing too, there have been years back, for example, during the crash, 2009, 2010, there was so much less seasonality, because people who needed to sell were just selling, prices were a lot lower, and buyer motivation was really varied, and was just very specific to buyers, there were fewer patterns. But yeah, and as far as getting a deal, one thing I learned very early on in real estate is that there’s always, regardless of the market, regardless of the month and the season, people, this is real life stuff, in addition to a transaction, so people always need to move, some people always need to move. For example, your job can be transferred to Detroit, and you’re out of New York City all of a sudden and it’s November, and in an ideal world, would you put your property on the market in November and sell it? No, probably not, but in that situation, you may. And financially it may work, you maybe have a relocation package that includes some of the cost. So yes, I would say, painting in very broad strokes, you might get a better deal in the winter months, but I wouldn’t always assume that because somebody has a property on the market, quote, unquote, off season, that you’re actually going to get a better deal because it doesn’t always mean they’re desperate, it might just mean that they’re pregnant with their third child, and need to move into a bigger place.
[Anthony] Thanks, that’s actually one of those urban legends, or myths, that I’ve always wondered about, and I’m sure a lot of other folks would love to hear about, so thank you for that.
[Maggie] It’s sometimes true, you know what’s a better indicator of getting a deal is days on market. If you have, there are occasionally very stubborn, I guess I would say stubborn sellers who have a price, a sale price in mind, and they’re not gonna waiver, and they can sit on the market for 200 days and the price is the price, that’s rare. I’ve definitely met sellers like that, and frankly kudos to them, that takes a lot of to stick with it, and to say hey, the right thing will come along, and occasionally it does. But in general, a better indicator of getting a deal is if it’s been on the market for a long time, if there have been price decreases, if you’ve seen two or three price decreases, A they’re probably at the bottom line, most sellers aren’t gonna chop down five times, I suppose if the sky falls, the economy completely crashes, you’ll see something different, but in general, those are the indicators of a property that you’re likely to get a better deal on, and it has less to do with the season.
[Anthony] I wanna circle back to something you talked about earlier about the wishlists, so, again, this talk I’d like to focus on really some of the psychological and decision making aspects of first time home buying, and I’m pretty sure, especially like with a young married couple, getting together on what are the key elements, the important deal breaker elements or wishlist items, is a big deal. Can you talk about some of the major ones? I think the first one we need to start with, since we both live in New York is, city versus burbs, yeah?
[Maggie] Well, you know, location, the broader topic of location. For sure, yeah, I do think it’s important. Most couples that I work with have, each person has their own wishlists, cause you’re individuals before we’re couples, and it should be that way, but you do need, if you’re purchasing together, regardless of what the relationship is, if you’re co-purchasing, you need to sync up, sometimes it’s very frustrating, for you. So for sure, I mean the items on the wishlist tend to be location, so broad geographic location like suburbs versus city, is something, obviously first in line to iron out. After that I would say, the type and size of outdoor space, or any outdoor space, if you’re in New York City, tends to be on a lot of peoples’ wishlists. Layout considerations, like do you need an open concept kitchen, is a galley okay for you? That goes to a broader question too, are you willing to do work? Is a fixer upper okay, does it have to be brand new? In, more so in the city, but there are condos everywhere, thinking about building amenities, and what’s important to you, if anything. Those are the types of things that, perhaps they need a subway, size, obviously, square footage, rough square footage, finishes, all of those types of things generally end up on the wishlist.
[Anthony] For folks who are not familiar, what are some examples of condo amenities, what does that mean?
[Maggie] Well building amenities, condo or co-op, is, so, does the building have a swimming pool? Some buildings have swimming pools.
[Anthony] Nice, nice.
[Maggie] Yeah, for sure, a doorman is a really common wish or don’t care, and your monthly cost will fall into line with the amenity package of the building, in other words, you’re going to pay more in common charges, or in monthly maintenance to a co-op if the building has more amenities. So, a lot of the new developments in New York are very amenity heavy, like One Manhattan I toured, a week or so ago, down on the lower east side, and they’ve got concierge service, they’ve got every type of child play area, room, I sound like I’m advertising for One Manhattan, I’m not.
[Anthony] You actually sound like you, I know you have young kids, you actually sound like you wish you could get into one of those.
[Maggie] Well, I think they’re a perk, I don’t live in a condo, but I think there are definite perks to that, it’s a snowy day in New York City and you’ve got a couple of kids who are bored in the apartment, and having a child lounge, there are buildings that have reading rooms, golf simulators, it really depends on how much common stake there is in the building. Parking, that’s a really big one, as well, is there onsite parking? Is there a gym? That’s important to a lot of people. And common outdoor space too, and maybe can you grill in the common outdoor space? You usually can’t, but in some buildings you can. So yeah, those are the types of amenities that people look for, although a lot of people don’t care, at all, and why should I pay for amenities if I’m never going to use them. So, that’s a personal call.
[Anthony] How often do you see pet friendliness as a factor in the decision making, is that a big deal?
[Maggie] Yeah it is, it’s huge, I mean, people love their pets, and you should love your pets, yeah, pet friendliness is a very big deal to a lot of buyers. And obviously, cats are generally speaking easier to place than dogs, co-ops often have restrictions on dogs, some co-ops don’t allow dogs at all, most co-ops just have size and breed restrictions, or one or the other. But there are cases where co-op boards actually interview dogs.
[Anthony] Wait, wait a second. We need to stop right there, did you just say that the co-op boards sometimes interview the dogs?
[Maggie] I wouldn’t say sometimes, I’ve definitely heard of it, it’s never, in 10 years it’s never happened to me with one of my purchasers, thankfully, but yes, in the history of New York real estate, dogs have definitely been interviewed by co-op boards.
[Anthony] So who is interviewing? Is it a board member? Or is it another dog? I mean, how does that work, even?
[Maggie] It’s usually another dog. You know what, I would not be surprised, the scenario I’ve heard of is, where there’s a question, is this gonna be a barker? Is this dog gonna be a menace to the building? Especially in a maybe more of a boutique building, where you have fewer neighbors and it’s really gonna stand out, or you know that, cause the thin walls, you know what the construction is like in the building, you can already hear your neighbor’s television set, so if there’s a barking dog it’s gonna be a huge nuisance. And yeah, I’ve heard of just a couple of cases where dogs have been actually brought in in front of the co-op board, and I wouldn’t be surprised if somebody brings another dog for them to interact with to see if they bark, but I cannot confirm that that’s actually happened.
[Anthony] I need to see a video of that, that would just be so funny.
[Maggie] I’m sure, somebody has to have that on YouTube, we’ll look it up and post it afterwards.
[Anthony] So this is also, this might be a very New York centric question, but again we’re coming back to amenities, and tell me if this applies to brownstones or non-condo buildings as well, but packages seems to be a bigger deal, what with Amazon taking over the world, so having a doorman to accept deliveries, tell me how that’s factoring in lately.
[Maggie] Right, people just wanna know that they’re gonna get them, most people. I mean, for some people, having a doorman is also a safety issue, and a convenience, it’s nice. Some people distinctly, I’ve had buyers who will not live in a doorman building because they find it very invasive to have somebody seeing them come and go, and what time they leave, and maybe what condition they come home in, so I’ve had that request, at all price points, no way would I ever live in a doorman building. But, in terms of packages, so one trend that’s become somewhat popular over the past years is also virtual doormen, where some buildings, especially smaller boutiques, in an effort to provide a way for packages to be delivered without actually staffing persons. Therefore keeping common charges a bit lower because you’re not paying for an actual staff, and all the associated costs of that, so there are these companies that provide virtual doorman services, usually door person services, that will, basically there’s a code, and then the carriers can, somehow technologic, I don’t really know how they, who, I suppose the UPS person has the code, and the FedEx person has the code, and that’s how it works. And then there’s a locked room where packages are delivered so that they’re not left out in the lobby for anybody to take, and the, of course, the owners all have access as well.
[Anthony] I kind of skipped over one of the bigger decision making questions before we move on, and it has to do with schools. How does zoned schools factor into all this?
[Maggie] So zoned schools are important to people with kids, I also find a lot of, obviously, if they plan to attend public schools, sometimes people even without kids will look at that as a factor for potential resale, if you’re buying a two bedroom or above, in particular, re-trading a product in a coveted school zone, eventually looking to say sell in five years, maybe you’ll make more money if you’re in a better school zone. As a caveat, brokers, there are fair housing rules and we as brokers cannot steer buyers toward specific school zones, at all, as a matter of fair housing.
[Anthony] Oh, I didn’t know that.
[Maggie] Yeah, so I kind of have to stay out of it. You’ll find, the aggregation sites will always list, what’s considered to be as nearby school, and then you should independently verify that on the Department of Education website. I honestly don’t know what the rules are for brokers with respect to schools in other states, so if somebody’s looking suburbs of New Jersey or Connecticut or something, I can’t tell you what the rules are around it, but here we have to be careful that, of course, if you have kids and you plan to put them in public school, that’s a big factor. Noise, is the building next to a firehouse? Is that gonna be an issue? I’ve had townhouse buyers purchasing in a more commercial area, and there’s one great family who I’ve worked with for years, and they ended up purchasing a house that’s next to a bar, and they were really worried about it, so they went at different times of evening, nighttime, to check out the noise, and it turned out that it wasn’t loud, and they in fact got along really well with the owner and they bought the house, so that’s part of the location talk is also noise.
[Anthony] Coming back to schools just for one second, are brokers allowed to discuss it at all? Do you just send them to a website? Do you send them to resources beyond the Department of Education? What are you allowed to say?
[Maggie] So, yeah, you’ll find in listings, disclosing that it is zoned for x, like zoned for, in Brooklyn, PS 321, or PS 29, or PS 58, these are some of the ones that I hear parents asking me about a lot. Or, maybe a school that they don’t know much about. So disclosing what the zoning is, that I believe is street legal, what’s not okay is saying, oh, you should really look in PS 321, or you should really try to buy something in district x, y, or z. So what I do, is I refer people first off the Department of Education website is where you independently verify what the zone is. You should also know that schools are rezoned periodically in the city, so, and schools reach capacity, so the fact that you’re in a specific zone doesn’t necessarily mean you get in, that’s not meant to scare anyone because I believe that you normally do, and this is, also, not my area of specialty, but it’s a consideration that you should independently research if it’s something that’s important to you. Through the DOE website there’s a website called Inside Schools that’s really useful that I refer buyers to as well, that has both parent ratings, about schools. I’m a parent too, and purchased property, and have gone through it myself, so I found that website really helpful. And then there are school consultants that people pay to sit down with, or you can go to lectures, in both Manhattan and Brooklyn, I’m sure in other boroughs, I just don’t know the characters in that space, in say Bronx, Queens, or Staten Island, but there are folks who specialize exactly in this area, that’s their job, is to educate parents about the public school system, in New York City it can be confusing and daunting.
[Anthony] And just to wrap that up, we’re talking about schools, not only for making sure that your kids get the best and safest possible education, but this does have a potential impact on resale value later on, especially if it’s a larger family sized type unit, or property, because you’ll have a broader number of potential buyers, or eager buyers if the place that you’re selling is in a good school zone, is that about right?
[Maggie] Yes, I mean generally speaking yes, I wouldn’t put all my eggs in that basket, I met with a school consultant in Brooklyn a few years ago, and one of the takeaways, cause this is what a lot of parents go to school consultants about, they’re looking for property, and they say, okay, I really wanna drill down and figure out strategically how to get my kid into the best school and move somewhere with the zoned middle schools, looking forward year from year, are also very good. And one of the takeaways I had was, at a certain point you buy a property that you like, and in New York there’s so many charters and different types of schools, and maybe you’re in gifted and talented, or maybe you have special needs, and you qualify for other schools, there are kind of no guarantees around it, but yeah, again, painting in broad strokes, sure, if you’re in a coveted district, and your property is not really zoned as part of a school rezoning, then that’s definitely a good thing for resale.
[Anthony] You mentioned that you’re not, you don’t give financial advise, of course, but I would like to just generally, at a high level, talk about, for first time budgets and how to financially prepare for purchasing your first home, can you just give us some real high level rules of thumbs, or just think of someone who’s never done this before, like what is a down payment? What amount should they be preparing? And what monthlies should they look out for? Post closing cost, what should they be thinking about? Things like that.
[Maggie] Okay, so I provide all of my purchasers with, a lot of this is helpful to just have in written form, so purchasers I work with get a buyer 101 email from me when we start working together. That starts the process, and then I also provide written materials about closing costs, so really, in general, you need, it’s best to have 20% to put down, you don’t need to, in co-ops, generally it’s 20%, sometimes it’s more, I’m selling a co-op right now where the minimum is 30% down.
[Anthony] Let me just jump in and make sure that everyone understands, 20% we’re talking about a percentage of the purchase price, so for a $500,000 unit, 20% would be 100,000, is that right?
[Maggie] Correct, yeah. So 20% down of the purchase price is called a conforming loan, and that just means that when you borrow money from the bank, when you get your mortgage, the cost associated with that loan are lower if it’s a conforming loan, if it falls under like Fannie Mae conforming loan guidelines. If you’re borrowing 90%, so in other words you’re putting 10% down of the purchase price, or on a $500,000 purchase you’re putting down $50,000, you’ll pay something called PMI, which is mortgage insurance, monthly, this is stuff that you want to, this is why really the first step if you plan to finance the purchase, is to speak to a loan officer, at an, either an institutional lender like a household name bank, Chase, CitiBank, whomever, Wells Fargo, or go to a mortgage broker, and your real estate broker can guide you, we all work with these folks regularly and have professional relationships. My mortgage lender is the best. And truthfully, the person I use is awesome. So you go to the mortgage lender because this is something really important to iron out upfront so that when you’re looking, and when you’re enjoying looking at all of these listings on StreetEasy and the New York Times, or whatever, at lunch time, at your desk at your office, that you’re being realistic. You don’t want to overshoot, and you don’t wanna cheat yourself too, you wanna work within budget. So in general, 20% down is going to make the loan product cheaper, it’s overall a better way to go. There are some instances where 10% down works really, really well, again that’s a loan officer question. You also wanna have a post closing liquidity, which means that after all the closing costs are paid, after you put your 20% down, first off, the bank is gonna require a certain amount of closing liquidity to approve you for the mortgage. Check in the building, so if you’re buying in particular in a co-op, they’re going to look for x number of months, and there’s generally no published formula for this, but really they’re looking for two years, some buildings a year is okay, but I try to get buyers to have two years of maintenance and mortgage payments in the bank post closing, that’s one of the things that co-op boards look for, most co-op boards look for. And again, it’s usually not a published formula, but you wanna have post closing liquidity. If you’re buying a house, or if you’re buying a condo, you’re really looking to the bank’s requirements for post closing liquidity, that’s determined whether they’ll lend you the money.
[Anthony] Is the bank requirement gonna be similar to the co-op’s? Is it gonna be in that one to two year range? Or is it generally more strict or less strict?
[Maggie] It really depends, and the trick with this is that also co-ops don’t, again, they don’t publish, so I can’t tell you, oh, this building wants to see two years, some buildings will publish it and they’ll tell you exactly what they want but most of them don’t. So as a broker you try to go a little bit conservative because you want your buyer to pass the board. I had places where I put buyers in front of a board with a year, sometimes if you’re a little thin some buildings will ask you to escrow maintenance, and sometimes if you know you’re a little thin going in, you can offer, you could say, with this board application, if the co-op requires, I would be happy to put a year of maintenance upfront to reassure you that I have enough for closing liquidity. There are ways around, but yeah, so 20% down, some amount of post closing liquidity depending on what you’re buying and what the bank requires, and then closing costs, which is the big piece of the puzzle, I would say this is the one financial area that first time home buyers are, in New York City, their jaws often drop when they realize what closing costs they’re in for, second, third time around the rodeo, when you’ve bought and sold before, it’s less daunting, but it does add up.
[Anthony] So talk about that, and you’re teasing us, what are these closing costs?
[Maggie] Yeah, so if you buy, it’s pretty silly, if you’re buying a condo, your closing costs are higher than if you’re buying a co-op. If you are buying a townhouse they’re also a little bit lower, but you’re basically paying closing costs that include taxes, and then bank fees. Bank fees are the really big one. So in New York we have something called mortgage recording tax, which is approximately two percent of the value of the loan. You’re paying that on the way in, if there’s an argument, put as much down as you can, too. Another argument against doing 10%, and really should include, to save up for that 20% if it’s within your range. So you put approximately 2% in mortgage recording costs. This is stuff also the bank gives you a good faith estimate of closing costs, up front, and you should ask your loan officer when you get your pre-approval for that good faith estimate of closing cost, because it’s just extraordinarily helpful in looking for stuff that you can actually afford.
[Anthony] I just wanna put some numbers on this, because I’m sure this is hard to follow for somebody who’s a first timer to all this, so let’s use an example of a million dollar listing, just cause it’s a nice round number, and our buyer is putting 20% down, which is $200,000. That means he’s taking out, or they’re taking out an $800,000 loan, and 2% of that $800,000, the mortgage recording tax, is $16,000. Is this $16,000 something that folds into the mortgage, or is that something all buyers have to come up with as cash at the closing table?
[Maggie] You’re paying that upfront. So your closing costs are paid upfront. If you’re buying, so there are a few others, if you’re buying a property, this is one that everybody finds laughable because of the terminology, but if you’re buying a property that’s a million dollars or more in New York City you also pay mansion tax, and we all know that when you purchase something for a million dollars in New York City it’s certainly not a mansion, but that’s 1% of, so if you’re buying a million dollar property, and this isn’t paid to the bank, this is paid in tax, to the city, you pay 1% of the purchase price for your mansion tax, so a million dollar purchase, you’re paying 10 in tax.
[Anthony] So would it be fair to say that if a young couple is preparing to purchase, they shouldn’t really think I have 20%, I need 20%, would it be fair to say they need something more like 23% or 24%? Because they need 20 of that for the actual down payment, and a couple of other points to cover all these other closing costs, does that sound about right?
[Maggie] Sure, well there are a couple other caveats, so it depends what you’re buying. So if you’re buying in a new development condo, there’s something called a sponsor in New York, so a sponsor is either, it’s the entity or person who converted a building, so it’s, in a co-op, it’s the entity that converted the building into a co-op, even if that happened 40 years ago, sometimes those owners, called sponsors, retain units in the co-op. If you buy from them, you are, and it’s the same type of purchase in terms of closing costs is if you’re buying in a new development condo, where the sponsor is the developer who developed the building, who built the building. So when you’re buying as the first purchaser, from whenever the building was built or converted, you are also paying transfer tax, typically transfer tax is paid by the seller, in a resale property, but when you’re buying from a sponsor, you as the purchaser are paying transfer tax, and that is, over $500,000 purchase is 1.825% of the purchase price, and that’s in tax combined to the city and state. If it’s under 500 it’s a little, it’s 1.4, or 1.45%, so that’s an additional, it does add up. So if you’re buying, and your loan officer will go through this with you as well when you get the pre-approval, if you’re interested in a development you definitely need to have more cash on hand for closing, significantly more.
[Anthony] That’s not even including what you need to have in the bank afterwards, for post closing liquidity, both for the bank, for the co-op board, or even just for your own peace of mind, your own savings plans.
[Maggie] Which is why I’m also, I’m not gonna advocate a strict number, so 20%, I think yes, you should have 20% down so that you have a conforming loan and you’re not paying PMI, if you can, I’ve done plenty of deals, and there are all sorts of loan products, like there are FHA loans, which is, and then there are other types of loans that are issued privately, but like an FHA loan, which has to do with where the property that you’re purchasing is, some buildings are eligible for FHA loans, and you can put three to 5% down, on an FHA loan, and you are paying PMI, but back in the crash, in 2010 I sold a bunch of FHA products, they were really popular, because people were, they were like, I know the market tanked, and I’m gonna stretch because I know I’m getting a deal, and frankly it really works out, for a lot of those buyers. There are circumstances under which a lower percentage is fine, but, I don’t wanna just paint in really broad strokes and just say, okay, 30% down, that they should have to feel comfortable, because it’s not necessarily true. In an ideal world you would wanna have 20% down plus your closing costs, plus liquidity.
[Anthony] Wow, a lot of numbers, that’s the kind of stuff you don’t really find on the internet or on Google, so that’s really just gold for somebody who needs to really drill down and figure out what they’re doing as a first time home buyer, so that’s really great.
[Maggie] And you have to realize too, like any industry, everybody who’s working for you in the process wants you to buy, cause it’s what we do for a living, and it’s, that brings up a much broader topic about peoples’ different professional styles. I, for example, just, I’m not pushy, cause it’s not my way, I consider myself part therapist, part real estate broker. With a little law sprinkled in there. Although I certainly don’t wear that hat on the real estate transactions, but there are ways to accomplish anything. You can come in, again, an FHA product, those are, I would say harder to sign these days, but you could have a total of 10% down, and maybe accomplish a purchase. Would I advocate that? No, not really, so it is important, it’s important to have a team around you who you feel is reliable and you can trust. You certainly want a good real estate broker, you wanna have a good attorney, and you wanna have a really top notch mortgage loan officer as well.
[Anthony] That’s a perfect transition, because the next area I wanted to ask you about was about how to work with a great, and I wanna be specific, buyer’s side, real estate broker, because the industry is sort of bifurcated, or, there’s three different roles on every transaction, and how do you find representation who is really gonna be great for you as a buyer? And especially as a first time home buyer?
[Maggie] Well you just call me, and we… But no, not every deal has two brokers, you do not have to use a buyer’s agent, you’re under no obligation in New York, and you’ll get an agency disclosure form from your real estate broker when you start working with them, but it’s through the fiduciary duties of the broker, easy enough to look it up online, and it’s called an agency disclosure form, and you really, that’s informative, it was a little legal, so just to break down the roles though, you need not use a buyer’s agent, but it’s certainly really, really useful especially for first time home buyers. I find it’s useful though, even for folks who’ve bought and sold three or four times, how do you find them? I’m word of mouth, so some brokers do a lot of advertising, and are really heavy, and other brokers are, I mean you can go on website, there are all sorts of technological ways, you can look in your Facebook friends, or however you go about finding recommendations for any kind of service professional in your life.
[Anthony] What are some red flags; so let’s say a friend recommends somebody to you, or you find somebody online, you meet with them or you chat with them, what are some things that might pop up that might be a warning sign, not a, I don’t wanna make it sound so insidious, but just something that you might think, hey, maybe this folk, this gentleman or this lady is not, is maybe more focused on sell side deals or buy side deals, or is not focused on this neighborhood, what are some things that first time home buyers should look out for?
[Maggie] Alright, I’m gonna challenge one of your assumptions, which is that brokers tend to work one or the other, because an awful lot of brokers, myself included, I would say my, I work slightly more sell side deals than buy side deals, but it kind of depends on the marketplace, and I’ve really kind of done 50, 50 for most of my career. Yeah, so it’s not, and most of the successful brokers work both, so it’s, a lot of brokers have teams, and sometimes duties are split up, there are dedicated buyer’s agents, within a team, but sometimes it’s just an individual broker, or maybe a broker plus an assistant, but I work both, and most brokers I know also work both, so I don’t think it’s broken so much into specialty on that, from that perspective. Red flags, I mean, honestly, this is sort of a boring answer, I think chemistry matters, and just general chemistry. You can usually, it’s like anything in life, you can sort of get a sense of the, what is the psychological, is it like within 10 seconds or a minute or something of meeting somebody you kind of know whether you’re gonna hire them? Or whether you like them, or whether they really love you the wrong way, but get on the phone with them, a lot of people prefer email, they’re busy at work, whatever, but make the time, do a, even if it’s just like a 10, 15 minute phone call, ask some questions, see if it’s all making sense to you, that’s number one, I would say, is chemistry, except my broker friends will not enjoy this answer, but it’s that knowing is really big, I found, and this is no dis to my colleagues in other regions, but I found, I’ve worked on and purchased property like upstate New York, where I’m from, and it’s a different response time in general, I would say, that I received from brokers. The urgency doesn’t feel, it just doesn’t feel like they’re working quite the same hours, maybe? Or as, as attached to their phone, honestly, this job is, it’s a very, very full time job, and there were days when I used to answer literally every email within minutes. And it could be midnight or it could be 7AM, and I could be on vacation.
[Anthony] Maggie, Maggie, Maggie, come on, that’s crazy.
[Maggie] No that’s awesome for the clients, but you don’t have to do that as a broker, but you don’t want somebody who, in New York real estate, time, you don’t want somebody who’s gonna blow you off for two days, cause real stuff happens.
[Anthony] Especially like mid-negotiation, yeah, yeah.
[Maggie] Totally, in mid-negotiation or in general, I feel like a fair expectation of a response the same day, it’s a pretty fast paced industry. To that point, everybody is, you mentioned this before, everybody, co-op boards are composed of human beings, and everybody’s a human, real estate brokers also go on vacation, but they share coverage, just like any professional, you wanna make sure that they’re reliable and responsive. So that I would say is another aspect. And then, I wouldn’t discount people who are new. Some of the most eager brokers that I’ve done deals with over the years have been new, newer agents, so I wouldn’t say that somebody has 20 years of experience that they’re better at the job. Yeah, they know what they’re talking about, they can inform you, we’re not loan officers, we’re not financial planners, we are not tax advisors, but certainly the conversation that you’d have about these topics, some understanding of the pieces that go into a purchase, those are things they should be looking for.
[Anthony] I think we’re coming up against the amount of time we have, so this’ll be the last line of questions, and again, thanks for sharing all this really great pro tips for.
[Maggie] Can I flip that question on you first? What do you think? Because you’ve worked with a lot of brokers in your life too, what do you find as the red flags?
[Anthony] I hear a lot of things that I’m supposed to look out for, but I’m just not sure, I don’t think I have enough volume of transactions to have drawn conclusions, for example, the issue of, the broker who lives in or is on the board of a building. I’ve kind of had experiences that have been good and bad, so I don’t know where I fall on that. Where the good would be they’re super friendly with the board, they’re just nice people in general, which always matters of course, and that can help you with your board application if your representation is on the board, or at least knows everybody on the board, I’m sure they have to recuse themselves or something like that. But on the other side, it sometimes turns out to be some kind of entrenched person who maybe gets a little, not as working as hard, because they suck up every deal that goes through that building, I’ve seen that happen before, that hasn’t been a great experience.
[Maggie] I’ve also seen people who the board doesn’t like, the resident broker becomes disliked by the board and the common, I’m certainly not throwing quote, unquote, resident brokers under the bus, but that happens too, so yeah, I don’t think that’s always the way to go. Interesting, you’re still forming your opinions.
[Anthony] Yeah, and I agree with your statement about don’t judge based on years of experience, necessarily. I mean you don’t want somebody who’s completely new, because there is a lot of moving parts on any deal, but a younger, less experienced broker, again, not completely inexperienced, but may have more energy, or a better feel for where trends are going, than somebody who’s maybe towards the end of their career or just kind of burnt out, it really depends on where that person is in their life stage and how it matches up with what you’re trying to do, that’s been my experience at least.
[Maggie] And maybe, with what they did before, most people come to real estate, this is their second or third career, too. So, for me, I practiced law, a lot of my colleagues, some of the best workers I worked with came from retail backgrounds, too, so, you never know.
[Anthony] One of my friends is an extra, meaning her main source of income is to be a background actor on movie sets, or TV shows, and she does the real estate whenever there’s, she’s in between movies, which is kind of a cool life to live in New York.
[Maggie] Yeah, yeah, that’s, I wonder how she balances when she’s in a show, she must have some kind of backup help, cause again it’s the response time. Yeah, yeah, interesting.
[Anthony] So the last area that I think a lot of first time home buyers need a lot of help on actually is the offer and negotiations. So, where do you, or where does their buyer’s broker fit into that part of the process. So they found the house that they love, or the property that they love, or they think they love, tell me how much your broker should be involved in that part, and just walk me through that please.
[Maggie] Well the broker is their mouthpiece, the broker is the person who negotiates the deals for the parties, the buyer and seller don’t have contact, unless nobody’s represented. It’s the homeowner selling, and I do not recommend that anybody engage in a transaction like that, cause most of the time it’s a mess.
[Anthony] Let’s be specific about that, because that’s common knowledge but it’s not really delved into a lot. Why is it, let’s give an example of why it’s a bad idea for a buyer and seller to have direct contact with each other, or one, so forth.
[Maggie] Right, well, most people want a buffer, because transmitting information is very, it’s a very rare personality trait to be so cool, and so, cool is maybe, I’m searching for the right word for it, just an even keeled, and diplomatic, because real estate transactions are kind of emotional, for most people, especially for the first time home buyers, it’s often the biggest financial investment you’ve ever made in your life, and the double whammy is it’s also where you’re gonna live potentially with your family, or even just yourself, and your dog, or whomever, but it’s your home. So, it’s a really big, emotionally weighted transaction, not having a buffer in that situation is generally a bad idea. You don’t wanna have direct contact because it can get emotionally charged, especially if you tend toward that as a human, which not everybody does, but even if you’re, some of the biggest know-it-alls, and I’m allowed to say this because I’m a lawyer, but some of the biggest know-it-all buyers that I’ve ever dealt with are lawyers, and lawyers and people who are in finance tend to, and this is no dis to anybody, but tend to think, okay, I can do this myself. But then when really faced with it, there is, and this sounds so stupid, but there’s kind of an art to the type of transaction, and it’s a lot of things can go wrong if you don’t have professionals representing you. You may not know certain questions to ask, how about that inspection? Maybe somebody, maybe the seller is in sales themselves, in some shape or form, in a different industry, but they’re really great at convincing you, oh yeah, yeah, yeah, so familial, there’s some radon in the basement, I don’t have to do anything, and you’re like, okay cool, it’s just gonna cost me a couple hundred bucks, but no, it’s something that they should actually fix. That’s, I guess the best example I can give on that point.
[Anthony] The best example I can, tell me if this sounds right to you, is when you’re negotiating the price, because if it’s a buyer directly offering a price below ask to a seller, there’s a good chance that’s not done artfully enough, because the seller is, you’re basically saying, hey guy, the house that you lived in for the past 20 years, I think it’s worth less than you do, and that needs to be done very delicately I would say. That house that you love and you raised your children in.
[Maggie] 100%, yeah, and that’s what I mean by the buffer, you wanna have somebody presenting a number. And frankly, numbers are numbers, and it is at the end of the day, even though it’s emotionally charged, and you will get help, and everybody loves the happiness of walking into a new home and knowing, accomplish the same thing, it is a business deal, and so having somebody run that for you, for sure, an offer is not an emotional expression, and sometimes seller really do take their self in, oh that was too low, the other reason to have a buyer’s agent is the relationships, so I call it, you can say I call it my cancer, but I know, in the real estate world, any listing, I know most of the brokers, and I’ve worked with them, doing this for 10 years, certainly in Brooklyn, I know the Catholic church, I have done deals with the lion share of these people who have been around for a long time, and so that helps, like in any industry, just having somebody who knows the cast of characters, and they can say, oh, you know, this person tends to bill ’em this way, he’ll give lots of information, this person doesn’t give much information, don’t take it as a sign, whatever the case is, but it’s really helpful to have somebody representing you who has those relationships.
[Anthony] That’s great, I guess almost inside information, just knowing all the parties involved.
[Maggie] Right, and so, to your question about the negotiation on price. So the broker’s the mouthpiece, and they should advise you, and we’ll look at things like the days on market, the resistance of other offers. Your broker, if they’re worth their salt, is always going to ask the seller’s agent, hey, do you have other offers on this property? That tells you, A, how quickly you need to act if you want it, and B, they’ll usually give a tid bit of information, they can’t tell you, shop, it’s called shopping offers, they’re not performing a fiduciary duty to the seller, if they tell you, oh yeah, somebody offered 495, I have a bid for 495, and a bid for 493, that’s not how it works, but they could say, hey, I have something I’m supposed to ask, and the brokers know each other, and they know they’re posting to be an honorable broker who wants to get a deal done, then, there you have some information that’s gonna help you crack your offer.
[Anthony] I just wanna get into specifics for somebody again who’s never done this before. If they’re in love with a house, that’s listed, meaning the asking price is a million dollars, what’s the next step? Do they come to you and ask you how should we do our first bid? Or do they usually come to you with their first bid and you are just executing and delivering communications, or does it kind of depend?
[Maggie] Well, usually they’re not coming to you even at all because they’d be working with you. Sometimes people will, but, okay, so they’ve been working with you for a little while, and property’s been identified, that the ask price is say a million dollars, and then usually the buyers come to me and say, what do you recommend I bid? And by that point, we already know what their budget is, what they can afford, there’s a real difference between willingness and ability, for people that I always sort of expect, and it has to do with what a specific property is worth to them, what they’re willing to pay for it, so you shouldn’t feel pushed, but you also, sometimes people surprise themselves too, cause they’ll this happens kind of a lot, people will fall in love with a property just a little bit over their budget, and they’ll say okay, I really didn’t wanna spend that, but I’m going to make it work because this is so perfect. That happens, and you shouldn’t feel pushed, but yeah, say they come to me and then I give them a recommendation on where I think they ought to come in, on a bid, and then we talk about it, it’s ultimately the buyer’s choice, if I don’t, in most cases, a real low ball offer is not met with a counter, so you wanna engage the seller, and again, as you mentioned before, you don’t wanna insult the seller, but there are circumstances under which maybe testing the waters and coming in lower is appropriate, the broker should help you with that, and then ultimately the choice is yours. You as the buyer direct the broker as to what you wanna bid.
[Anthony] Do you often get very data driven clients who ask you for comparables, and similar listings in a building to support your recommendations? Does that happen to you? Especially with all the financiers here in New York?
[Maggie] Yes, but that happens a lot, and also because there’s just so much data now too. So all of this information is, the aggregation sites are pulling together all of this data, so it’s all transparent to the folks who are looking at the stuff at lunchtime at their desks in their office, they have access, and I’m regularly asked to summarize, and often not even asked, it’s just something we do, another sign of a broker who kind of knows what they’re doing is just say, okay, this is x unit, 10A sold for a 1,200,000, three months ago, and we see that it closed for that number, this is the mirror image of that, or this is the same apartment but it’s two floors lower with an older kitchen, so I think we ought to bid x. That kind of information is definitely something to say.
[Anthony] Maggie, I have so many other questions, and I’m sure it would be just super valuable, but I wanna be respectful of your time, maybe we could do this again sometime, thanks again Maggie, and I’m looking forward to talking to you again.
[Maggie] Okay, thanks so much Anthony, bye.