We are closed! Any questions?

Yes -- can I offer big congratulations?

any snags or smooth sailing?

Congrats! Can't wait to see which one.

My question is why would you try to catch a falling knife? It's a serious question. I'm trying to figure out why anyone, especially a real estate professional, would look at the number of units for sale, consider how difficult it is for so many people to get a mortgage, consider that the unemployment rate is sky rocketing, consider that they can rent an equally good apartment in a condo or co-op building for much less, and still decide to buy?
I'm glad you like your home, but it just seems so short sighted to buy right now.

Jazzman - Are you really that much of an idiot? Surely you can do better than this. You're not saying anything that Ali has heard a thousand times before.

Congratulations Ali!!!! Welcome to the neighborhood!

Congrats Ali.

Jazzman - while I agree with you that there is continued downside in the market, I wouldn't assume a real estate professional necessarily has a better take on where the market is going than someone with a broader perspective. Look at all the brokers who bought investment properties at the peak of the market.

go easy on jazzman. ali asked "any questions?" and he had a good one and i look forward to hearing the answer. this ties right into your "summer heats up" post where we were talking about why people "need/want" to buy now and why there is a bump in volume. ali's answer will gives us some insight into why.

Thanks everybody for your congratulations! Alan, I will let you know when we come up to the 'hood.

Jazzman -- we couldn't, in our opinion, rent an equally good apartment. All in, we're paying about $3,500 a month to carry a doorman convertible two in a lovely area -- we didn't see that for rent, and we like being able to paint and customize, and we love the idea that we can set down roots for a few years. It's not like moving every two years is free.

What's more - because I'm not salaried -- my tax rate is pretty high and so I like having the tax deduction even more than most people (Did you guys see this new one that LLCs and small businesses have to pay, this 0.34 MCTD tax? Thanks, Mayor Mike!)

Now there's a big question about the opportunity cost of our down payment, but I don't have any great hedge fund connections, so it's not like I'm passing up a great return in equities by parking the cash in a co-op.

Sniper: as far as snags, appraisals are coming in crazy low. The appraisal came in fine on our new place, but the appraisal on our condo -- which we are holding and we will rent out -- came in at maybe 30 percent under what the place is worth. So watch out for that.

ali r.
{downtown broker}

Let me help.

Today, if you are smart and quick, you can find properties at a huge discount from peak values -some approaching prices not seen in 7 or 8 years.

Despite inventory, finding a great apartment in a prime area at a great price can be extremely difficult. If you find one, they continue to sell quickly.

Home ownership means a great deal to many people, especially If you have a family with school considerations.

It is a quality of life issue as well. Especially if you enjoy creating a space that reflects your tastes and design sensibilities. Living in a white box with standard building elements is depressing for people for whom architecture and living space is integral to their quality of life.

Mortgage rates are at lowest levels in a generation.

Many have made a conscious choice that they can afford a home now and wish to proceed for the above reasons. They are completely conscious of the potential for further market declines and they are fine with it if it means they can have what they want now. A bird in the hand. They will only realize a loss if they have to turn around and sell but most are in it for the long haul.

ome are willing to accept less than ideal

Congratulations Ali!
I'm about to join you in the "crazy real estate professionals catching a falling knife" club. My family has an accepted offer on a vacation/investment property on the North Fork, where NOBODY is buying real estate. If we can't get the kind of mortgage we want, though, we won't go to contract. I'm actually pining for the days of the 7/1 interest-only ARM! Ah, takes me back...
Tina
(Brooklyn broker)

Ali - I think you've expressed the best arguments to buy - the main one being - what else am I going to do with all this money. Some say to leave it in cash (that's my take) but it's your call. Personally I think the stock market is headed lower from here too so putting your money in a home is a better idea than the stock market.

I'm actually a big fan of buying in the high 90's as an investment. The 2/3 stop is golden there and the new Whole Foods will help. I drove by it yesterday and some of the scaffolding is down - the lobby and facade of the rental building there are actually better than I would have expected. It's amazing to me how little gentrification has occurred in the low 100's but that will change over time. The retail in the 100s is atrocious but will get better and when it does that will only help your property's value.

Congrats and good luck.

thanks jazz --

Tina, I think you're brilliant for buying on the North Fork now. I remember thinking in the early 90s "oh I wish I had the money to buy in the Hamptons."

rates are bouncing around a lot -- we took a 5/1 at 4 7/8s.

ali r.
{downtown broker}

Ali - can you explain your though process with respect to electing to go with the 5/1?

Congrats ali, I'm sure it's both exciting and relieving. Not sure if you went over this in the other thread, but what drew you to the building and neighborhood? How much negotiating on price were you able to engage in?

Ali, congratulations. My question is, are you selling your former apartment, or keeping it to rent out? I think you talked about this elsewhere, but I forget.

And I'd be interested in hearing about the process of price negotiation.

We are keeping the old condo to rent out. This is not even so much a financial decision as an emotional one -- it was "mine" before the marriage (we've been married four years) and the scared part of me (which went through a broken engagement with somebody else) wants to be sure "we" are happy in our new home before giving up my escape hatch.

Plus, I have this fantasy that I start making enough money that I can turn it into an office.

We had decided to buy because rates were low, so going with a 5/1 made sense -- we had done our budget assuming rates would be 5, and rates on the fixed spiraled from 4 7/8 to nearly 6 before we could lock, so we went with a 5/1 to get our rates back under 5.

I hope we'll outgrow the place in the next five years, but if we don't, we're comfortable with the risk of rates rising -- later!. Since my income is very variable, we will soften the adjustable by prepaying some of the principal over the next five years. I recommend that EVERYONE with an adjustable do this.

As far as negotiating on price, this is going to start a firestorm: but we didn't negotiate at all! The apartment was unlisted, the sellers said, "this is our price" -- and we liked it.

We had been looking for a couple of years, and had lost out in Gramercy, so we knew what our money would and wouldn't buy. I don't work the upper west, so I spent some time running comps to make sure we weren't being taken.

I'd say we paid about $700 per square foot for something that needs TLC (and remember, is above 96th) but the appraiser thinks the place is BIGGER (hah!) than I do, so according to the appraisal we're paying closer to $600 per square foot.

ali r.
{downtown broker}

I think it is fine to not negotiate – if the apartment is priced at what a buyer believes it is worth. I will never understand the obsession with list prices, discounts from list prices, price choppers, etc. To me – listing prices are completely irrelevant. I bid what I think a property is worth to me.

You caught an unfortunate spike in rates Ali. I hope your 5/1 works out for you. Sounds like you are a good candidate for this type of mortgage though.

Ali, I hope your office fantasy and your hope that you and your husband outgrow the new apartment in a few years both come true.

Thank you for sharing the details - it's good to know that sometimes negotiating isn't necessary. For some reason that's the part I fear most about the prospect of buying a property. I'm such a nonconfrontational wuss in real life.

Congratulations, ali, & to your lucky fella, too, & thanx for sharing so much with us. Hugs & kisses!

congrats. glad it turned out well for you. the new whole foods is gonna make you so happy.

Congratulations Ali!!!

scoots - good point.

scoots, I agree, listing prices are mostly irrelevant, but I still think it's worth testing the waters to see what kind of deal you can get. Even though it seems like a relative drop in the bucket, an extra $500 can buy some nice things (call me cheap, but it's in the blood, what can you do?). That said, seems she was very comfortable with the price, so no point in nitpicking too much.

Ali, was going to mention all the great food markets in the general vicinity, but forgot about the Whole Foods coming down the block from you. Should be great!

this seems kinda similar to my situation:
bought my place just under 5 years ago with a 5-year ARM. just my wife and i with baby #1 on the way. i figured we would last about 3 years, times would still be good and we would be upgrading. fast forward to today, baby # 2 is 2.5 years old and we are about 5 months before the ARM resets and the apartment is sold at a nice profit and we are moving on. the "upgrade" part still remains to be seen. move might be lateral.

Congrats Ali!

Good stuff

Enjoy, Ali. Best of luck.

Ali, thanks for the refreshingly real picture of buying in this market. I'm a sideline sitter, but agree with and appreciate all of your reasons for buying. It's nice not to hear the typical realtor hype!

I think you made a wise emotional decision to keep your "bachelor pad." I sold mine (in another city) because I thought it was going to be too much hassle to basically break even every month. There's a part of me that regrets doing so, even though the property has declined at least 20% in value from what I sold it for.

Even when rates are relatively low, I'm also a fan of 5/1 and 7/1 ARMs for people who will put the savings v. 30-year toward the principal and who have an intention to pay off the mortgage quickly. The risk is not that great if you can make a strong dent in the mortgage during the lock period and if you have reasonable caps on how much and how quickly the rates can rise. For the right person, ARMs offer a good compromise between committing to the high payments of a 15-year or the higher interest rate of the 30-year. I truly hope that the impromper, irresponsible use of ARM and interest-only loans (by both consumers and lenders) doesn't eventually lead to their demise.

Best wishes in your new place, and thanks for sharing your experiences!

I have a question: When you are upside down on your mortgage next year, are you going to walk away or keep making the payments? (JUST JOKING--- Enjoy your new place!)

Congratulations! If you are an outdoorsy person, you'll really love the neighborhood.

Congrads...

Just one question..."

The appraisal came in fine on our new place, but the appraisal on our condo -- which we are holding and we will rent out -- came in at maybe 30 percent under what the place is worth."

Isnt it more likely that your place is really worth 30% less than you think its worth?

Not trying to be a jerk, but just trying to understand because i see appraisals trending down, not going up anytime soon, and if this is the case the banks will dictate what your place is worth, not the sellers (unless they are an all cash buyer)...

I'm trying to decide if i should go through with a refi and if this is the "new normal" i guess i missed my chance and will have to wait for big O's "refi's for everyone no questions asked" which is coming

In two months log in and tell us how much you like having all those rooms, makes such a big difference having that third room. Enjoy it !

"Isnt it more likely that your place is really worth 30% less than you think its worth?"

I'm not the OP, but the answer is no. The same way appraisers over-stated vlaues during the boom, they are now under-stating them to cover their rears. Some appraisers even under-state vlaues in anticipation that values are going to fall more, which is not their job. They are supposed to value a proeprty at what it is worth in that exact period of time.

all relevance of analysis falls away -- as you have made your choice. Enjoy it and the best of luck to you in your new home.

garelj, our condo is in a 600-unit building so there are sales comps for it that are fairly recent. I know that the current mood is bad, but I find it hard to believe it would be worth $150K less than something that traded two months ago.

ali r.
{downtown broker}

Prez, I couldn't agree more on the "state of appraisers"...over the course of my old co-op I refied twice, and each time had to do an appraisal. Whan I was done laughing at the absurdity of how high it was, I offered to sell it to the appraiser at 10% LESS than what he said. Big surprise..he didn't jump on it!

Something to think about when dealing with appraisers...

http://www.cnbc.com/id/31509964

My friend's 2 br just got appraised as a 1 br, though 3 other appraisals before stated 2 br. The appraiser was clueless and gave the other properties additional % for being next to a waste treatment plant and projects. It all depends on the appraiser. If they know the area and work there, they will appraise right. If they come in once every 6 months, forgetaboutit.

Ali - Congrats! We're moving up to the mid-80's. Maybe I'll see you at the new Whole Foods ;). All the best with the transition.

Good point on recent comps....i just fear the power has shifted to the banks and given they will be making fewer loans due to TARP give back, securitization dead for near future, future losses coming which will tie up even more capital, their incentive will be to make sure the appraisals come in conservative to protect themselves...

Also, they might start pricing properties at interest rates more in line with typical mortgage rates....once the Fed pulls the IV from the MBS/Treasury market and private label MBS's still dont come back it will skyrocket mortgage rates...or reduce the amount of credit that will be available to go towards Mortgages...and thus reduce the price of all housing...

Who knows, but with this settlement by Cuomo insulating Appraisers from all other stakeholders it might get really scary....fast

Congratulations! That is wonderful news. Welcome to the nabe!

"so it's not like I'm passing up a great return in equities by parking the cash in a co-op. "

That's not really how opportunity cost works. Its not based on the point in time outlook for equities. However, even with the market rally, we're at a midpoint for equity valuation on trended earnings. In real estate, we're sitting at 2004 levels which set a high for price to rent.

The least you should do is look at 2-3% return on your downpayment and add that to you monthly payment. If its 3% on $300k, that's a solid $750/month. NYC munis are giving more than 3%. Cap rates are under 4% and mortgages are over 6%...Negative leverage - http://www.realestatechannel.com/news-assets/GraphE.jpg

PS:

Are appraisals coming in low, or are banks simply requiring a higher percentage down, implicitly and/or a greater margin of safety in valuation. This is back to normal, not some egregious new practice.

Figuring 40% federal, state, and local tax, the actual return on downpayment money is (unfortunately) probably closer to 1 - 1.25%, assuming you keep it in a savings account or money market fund. Not everyone would be comfortable keeping down payment cash in short-term bonds, especially in this crazy market.

I sold in '07 due to relocation and put the money into laddered CDs. Trust me, I cry every time one of those 5-point-something CDs comes due....

The relevant analysis actually isn't what you would do with the money...Its what the risk of real estate is....So in that sense 2-3% is actually low. I think putting $300k in short term bond funds where the worst drawdown through all of this has been 5%, is much much less risky that levering $300k into $900k+ exposure to real estate. I just think if the cap rate (buying for 100% cash and renting out your place) is lower than the mortgage rate, its a fundamentally bad purchase. Your income should cover your debt, conceptually.

Common misconception = oh well I'd have lost money in the stock market. Wrong, every investment needs to be evaluation on an absolute basis first. Also, 15% down payments made at the peak are down 200%, while the market was down 60% at trough, 40% now.

Lad, its really interesting on reflection that you would push back on short term bonds as an alternative to a real estate downpayment. It speaks volumes to the inconsistent views of risk that people apply to their home purchase and the impact of leverage to their risk in same.

Let's hope we don't get a double dip in the economy

Why are we hoping that? I'd like a buying opportunity in anything. Its been a shit 5 years, ex gold.

Congratulations and welcome to the neighborhood. You'll be well placed for the farmer's market on 97th between columbus and amsterdam -- cheaper and fresher than any whole foods -- but look out for pigeons in the trees!

Rhino86=creep

Congratulations. We know one thing for sure, we are all bound by the same 24 hours in a day and 365 days in a year, and God knows how many "moon rises" or "sun sets" we'll see. We also know something else; NOBODY knows what's going to happen tomorrow!

Well put, mad!

Ali - just an update. We were outbid by an all-cash buyer for our place on Greenport. It was going to be a stretch for us, but I've got to say I'm totally heartbroken. Congratulations again!
Tina
(Brooklyn broker)

Tina, I'm so sorry. you'll find something else. you can't live with RE regrets... When I moved in with my hubby he insisted I give up my rent-controlled, $200 a month one bedroom on Grove St. in the Village. He didn't want me to have an easy exit. It worked. We've been happily married all these years. (I haven't forgotten... but can't regret it, considering what I got)

I just bought a salad at Whole Foods.....about to eat it. Any questions?

Oh Tina, I stil remember losing a GIGANTIC one-bedroom at Stewart House to an all-cash buyer who came in at $290K (that tells you how many year ago it was) ... I hope you are not too disappointed, but I agree something else will come up!

Ali R.
Ask the Agent on CBS Moneywatch: bit.ly/12afCB

Tina, it's never a good time to s-t-r-e-t-c-h for housing so wipe your tears, thank your lucky stars & look for something you can easily afford. You'll find something MUCH better!