The Madness of Purchasing Your First Home in NYC

  • 1 Couple with a "good" idea
  • 5 Months
  • 4 Real Estate Brokers
  • 34 Open houses
  • 2 offers
  • 1 lost bidding war
  • 5 Checks at closing 

In the end, we ended up with less than 700 square feet that needed a lot of work to make it a home. I want to share a bit about our story of purchasing, how we made that decision and what we would do different next time. 

At the start of 2015 Taylor and I decided to move in together. In New York that decision was as much about love as it was about similar lease cycles and financial sense. At the time, I was living in the East Village and Taylor in Williamsburg (yeah, she was a hipster). We ended up finding a great appartment in Williamsburg right near Greenpoint, and were extremely happy there. About 10 months later we found out that the L Train that we depended on every day to get to work (the only train from North Brooklyn into Manhattan) was going to be shut down at some point for repairs to the tunnel. Rumors started flying - some said it was going to be closed on weekends for 5 years, others said it was going to be completely shut down for 2 years straight. 

That was our catalyst. 

It was time to move out of Williamsburg, but where to? We started checking out South Brooklyn neighborhoods like Clinton Hill and Prospect Heights as well as Manhattan neighborhoods like the Upper West and Upper East Sides. At the same time my brother, a mortgage broker, made some good points about interest rates and NYC real estate. Taylor and I started seriously considering buying and browsed at a website, streeteasy.com

Streeteasy is a great website, and available in a few other cities as well. They do both rentals and sales, and the information is organized in a very digestible way. Taylor and I started more actively looking at the site in December 2015, and began reaching out to agents in February 2016 through the site.

We quickly learned that we needed to start the loan pre-approval process

At the time Taylor, and I were only dating, but we both banked with Bank of America. We started our loan search there. We also checked USAA, but discovered USAA does not finance co-op purchases, which is what the majority of NY housing is. The loan pre-approval is an important part of the process and shows sellers that you are serious about purchasing a home. The average time on the market for homes in certain neighborhoods (including the ones we were looking in) is less than 25 days, and the reality is that most sellers have an accepted offer by the end of the first open house weekend.

Open house marathons

Taylor and I would spend Monday-Thursday on Streeteasy saving places we wanted to look at that weekend, and then we would organize a schedule on our calendars of open houses with links to each listing:

 
Mark's Calendar screenshot
 

If you're thinking that schedule looks crazy - you're right. We actually made almost every single one of those. A few we Noped right out of there before going in if we weren't feeling the neighborhood or appearance of the building. In NYC all of the open houses are scheduled on Sunday afternoons, or appointments are made during the week, so spacing the visits out was not really an option. Every quick Nope was actually a relief.

At this point we didn't have a broker. Honestly, we are still confused how the broker we ended up purchasing through even got involved. He just kind of showed up to that open house with us, despite the fact that we found it, and it ended up being the one we bought.

But first, we had to lose out

The infamous bidding war. We got in a war, went for it, and lost. There was a very unique place on State Street in Boerum Hill that we put an offer in. There were already 3 offers in on the 3rd day the appartment was listed - pre open house. We decided to bid at asking price, because we were naive and fell in love with the place. The seller's broker came back and let us know it was going to "best and final", which means we have one last opportunity to submit a bid and the seller will pick the best one; no second chances. We struggled over the right number for a few days. We double checked our finances and ran the monthly payments multiple times. In the end we went with 109% of asking price, and added my lucky number in as the last two digits (because... desperation). We even wrote the seller a letter explaining who we were, how much we wanted to make their appartment our home, etc (apparently this is somewhat normal in NYC). We got the call that we "had been significantly out-bid by an all cash offer". 

The all cash offer

A seller has incentive to take an all cash offer. It means that the buyer will pay cash up front without financing. This makes the sale happen much faster, and also removes the risk of the bank creating problems or delaying the process. We were devastated having heard that. We almost gave up at this point - everything we had heard about trying to buy real estate in the city was true: you can't win if you aren't in the know and well financed. We kept looking, but with less gusto than before.

Diamond in the rough

There was one appartment we had seen early on that we liked, but it was a mess. It had been on the market for over 100 days because it was barely livable in its current state (keep in mind the average time on market in this neighborhood was 25 days). The first time we saw it was in the evening, and the track lighting was so dim that everything looked like it could have mold on it. It was relatively in budget, but we would need to put forward a lot more cash than we intended since the renovation could not be financed. After a lot of discussion we decided to put in an offer. 

Us "veterans" were more experienced the second time around

After we lost the State St. appartment we thought were hardened. We weren't going to take shit this time and we started with a very low offer at under 90% of asking. We had a target in mind that we would go for and shot well below that. The truth was that we didn't know how much a renovation in NYC would cost (both financially and emotionally). Knowing what we know now, we would have pegged that number even lower, but in the end we came out to a price that we were happy with an we went for it. 

It took time to get through all the loan documents and the co-op interview, but by mid-summer we closed and were owners of a dingy 7th floor studio in Brooklyn. Success!

What we would do different and other advice:

Start with a good broker. 

Brokers are an unfortunate reality in the current real estate market. They've done well to set up legal constructs and pseudo-consumer protection organizations that prevent people from getting around that 6% fee (paid by the seller, factored into the selling price). Someday I hope to see them reduced in fee and power, but until the you need to start with a broker you can trust. Do research and ask friends/coworkers. Do not go with someone simply because you know them, or because someone you know used them and it worked out okay. Really interview them - push them on how they think about purchasing properties and what their role is in making sure you're happy in your new home. 

Couples - communicate

If you're purchasing a home as part of a couple then you have to communicate about what you want and be real about your financial situation. Taylor and I definitely over communicate with each other, but even then I just recently found out she was terrified of taking on the renovation project and wouldn't have done it if I hadn't been so bullheaded and excited about it. That could have turned out really poorly if things didn't work out with the renovation. 

Start looking early

You don't want to feel rushed. We spent the first 3 months just getting a feel for pricing, the flow of open houses and what we need to look for in each unit/building. During that time we realized the basement of a building really said a lot about how well it was run. How orderly and clean was everything down there? If its a mess then most likely the management company and the board are not very strong, or overwhelmed with other problems. We built our "wish list" (and then dramatically cut it down as we continued our search) over time. These are only things learned from experience, so take your time and learn first.