Saturday, November 3, 2012

Buying apartment in New York - insights, surprises, points of view

Buying an apartment in New York is an experience that ranges from scary for the first time international property investor to weekend shopping for a seasoned, high net worth, individual.  In both cases, the buyer is venturing into a different country.  The rules of the game are different, laws are different, you're wary on who can be trusted etc....

I've been on a writing spell the past week hence would like to share some insights from working with clients from all over the world when buying an apartment here in New York.

Macro vs micro level research:
Buyers of New York property who are from out-of-town are sophisticated.  As such, you would have performed a tremendous amount of reading about the New York property market and other potential markets such as London etc.  Potential buyers would know more about the GDP growth rate, unemployment rate, economic drivers more than locals would.  I recall during my first property shopping trip where I ventured outside of New York (my home city).  I had stacks of documents and while in the destination city, I was questioning the locals about these things which they had no idea about.

My agent was surprised I knew about the new mall 5 minutes away, the developer of the mall, how many jobs the mall is expected to create and the number of retail shops in that mall.  To the local, it's just a new mall that will make shopping easier for residents in the area.  To me, the investor who is potentially putting money at stake, the mall is not just a mall.  It's job creation, GDP growth for the city and appreciation of property prices in the surrounding area.

A local person usually looks at things from a micro perspective.  Where is the supermarket with the best organic selection, where is the pharmacy, what are the good French or Szechuan restaurants etc.  And most often, a local wouldn't be as familiar with such things in other neighborhoods despite being in the same city.   In contrast, an out-of-town investor would look at things from a macro perspective.  What are the economic drivers of a city, where are the new jobs, what are the drivers of property price appreciation, where are the three-star Michelin restaurants.  This is where the disconnect happens.

Comfort level: 
The ability to find a trusted guide (an agent if buying property) is perhaps the top priority in terms of starting the search process.  To hedge their bets, most buyers start by reaching out to multiple agents and from there, see how they like each of the agent's responses. 

After he/she establishes a comfort level with a local agent, steps along the buying process often present more surprises.  For example, why does the buyer have to wire funds into an attorney's account?  This seems weird - what happens if the attorney runs away with the money?  Shouldn't he be wiring funds into the seller's account?  But wait, according to the attorney, the risk of a seller running away with your money before the closing is even higher! 

Even I would be wary of people, regardless of how nice they look or sincere they sound, when large amounts of money is at stake.  This is totally understandable.   

Anyway, my point is that level of comfort is a very important consideration especially for the first time international investor wanting to buy an apartment in New York.

Contract has to be written:
In certain countries a verbal agreement is a contract.  But with New York real estate, a contract has to be in writing.  This means that until a contract is fully executed (signed by seller and buyer), either party can back out.  This is why, despite having an agreed upon price, let's say $1 million for a 1-bedroom apartment, the seller's agent usually continues to show the apartment to other potential buyers while the buyer's attorney reviews the contract.  The seller could even back out if the contract has already arrived at the seller's attorney's office with the contract deposit.  It's only considered "fully executed" after the seller countersigns the contract and delivers to the buyer's attorney. 

Does it come with a kitchen?
When buying an apartment in New York, the apartment would come with the kitchen and bathroom including fixtures.  Buyers won't just get a "shell."  Furniture doesn't come with the apartment unless it's negotiated.

Another cultural difference - in New York, the interiors of apartments usually have the same type and quality kitchen, bathroom, floors because these were put in by the developer when initially sold.  With older apartments, there tends to be more difference in interior quality as owners would have performed renovations over the (10 to 20) years.  Well, I am referring to apartments in the $500,000 to $5 million price point. 

One issue mentioned by the developer of One57 is that since this is the "billionaire's club," the owners are all having their own crews re-do their respective $50 to $90 million pads.  In that case, interiors would look quite different.

Going back to interiors usually the same quality, it doesn't make sense for a buyer to renovate his/her apartment to look like a palace when the other units within the building are not comparable.  For example, if apartments within a building transacts at $1500 per square foot, a seller would not get $3000 per square foot even if the apartment is renovated like a palace.

These are some insights on the differing points of view when buyers are buying an apartment in New York.  Have fun and enjoy the experience!

Wei Min Tan is Managing Director of Castle Avenue Partners and focuses on luxury condominium apartments in Manhattan, New York.  He is one of the most interviewed experts on Manhattan condominiums by the media such as New York Times, Wall Street Journal and CNN.


Anonymous said...

Good article, thanks for sharing. Not loaded with all the technicalities.

Barren @ Columbus circle apartments said...

Loved the way this article has captured and considered every single note of what to be considered when thinking about buying an apartment in NY.

Barren @ Chelsea condominiums said...

Lovely blogpost with the most profound features about the city of NYC with the best apartments.