A first time buyer

look at rentals

Thanks for the suggestion; what is your rationale for continuing to rent, and at what point should we be looking to enter the market?

As I am in a similar situation, I'll throw my 2 cents in... the Manhattan drop started a little late. We are in the middle of it, but there is is some room to go down some more. If you rent a year you can save up a little more and not suffer the risk of Manhattan real-estate reversing course and start to shoot up.

Best Case: Rent a year, save up some, prices come down a little more
Medium Case: Rent a year, save up some, prices stagnant from here on in
Worst Case: Rent a year, save up some, prices shoot up... what are the chances?

Do you plan to buy the apartment yourself? Or do you intend to purchase it with your boyfriend as a co-owner? If the latter, I'd strongly urge against that. Very, very risky.

reddog, I can definitely see what you're saying, but how does say, the medium case play out from buying now vs. buying a year (for us, a year and a half because of when our lease is up) from now assuming we are going to stay in the place for at least 5 years?

My logic is as follows: we can buy a place now and we have about 2 years of living expenses saved up should anything happen to our jobs. We have a backup source of liquidity to tap should we need it, but would prefer not to have to touch that. We've been renting for some time now and are getting sick of tossing money into a hole and the desirability of renting vs owning has tipped in favor of owning at this point because all of our monthly expenses would basically be lower. Even if the bottom drops out of the market in the next 5 years, we will have paid down some combination of our mortgage and the bank and even if we sell or are forced to sell at a huge loss, we are much more likely to pocket some net positive given how small the mortgage/total value of the property is.

I'm having some trouble articulating what I think, but my inclination is to say that a 30% drop in higher value properties (ie in the millions) hurts more than a 30% drop in the value of a $500k apartment because you'd have had to pay a minimum amount to live somewhere in the intervening years. What i mean to say is that you can rent plenty of units for $100k of mortgage/year and downsize to smaller units to tip the balance in favor of renting, but not so much for the $20k/year or so that my bf and I will be paying in mortgage.

Thoughts?

Tils,

I plan on buying the apartment myself outright (my equity), with boyfriend living in it, and both of us contributing to expenses, etc. We have been living together for a while and have a very stable relationship, but I totally understand why you'd caution against buying together, and I agree with you

At 350K you are probably looking at 3rd tier apartments.
Save some money.
Then buy.

feingirl,

not sure I love the tone of your response, considering I didn't really mention how much I have "saved". I'd prefer my first purchase not to be a 500k purchase and this is what I am comfortable spending, regardless of resources. If you can explain to me what you mean by 3rd tier, that'd be helpful. Thanks

booyakasha - look at other feingirl comments on street easy - then ignore

cool, thanks Tam

just do your math and see what happens if the value of the place you buy drops by 20-30%. i think reddog lays out the scenarios pretty clearly...maybe you wait a year and you're out a little bit because prices stabilized...oh well, so what? on the other hand, if you make a mistake, ouch!

No snark intended, but why purchase a depreciating asset when sale prices and rents are dropping? Renting isn't necessarily throwing away money, it is often minimizing risk until prices turn around and it truly is cheaper to buy than rent.

Well, the big question then hinges on how low rents can get, and i'm wondering whether rents can really fall low enough. The scenario we have now is paying $1800 or so in mortgage + maintenance, which is ridiculously low compared to renting, which is around $2200+ right now...

And i'm asking the question because it seems like studio/1br prices aren't really falling that much, and their rents are relatively stable - but this is just my impression.

booyakasha, I don't know the studio market very well, but I would be very surprised if the math showed that owning is cheaper than buying. You talk about throwing money into a hole - well, what do you think interest on a mortgage is?

The other problem with buying a studio is the time horizon. You say you want to buy for 5 years. Are you sure you won't grow out of the place or get sick of it sooner? Besides, even 5 years is too short of a time horizon unless you're very sure prices will go up dramatically in that time (if you are sure of that, check out the data for the early 90s, and ask yourself - are the fundamentals better or worse now?) Transaction costs are very significant, and I don't think 5 years justifies them, in most cases.

So, I would say, rent, save, watch the market, and buy a place when (a) it's as cheap or cheaper than renting and (b) you think you can live there for at least 7-10 years. My guess is that's very unlikely to be a studio.

Just my 2 cents.

What percent would you have to put down to get that ratio you describe? $1800 for mortgage and maintenance sounds very, very low.

Well maintenance is about $450 (this is pretty typical of the units we have looked at); on a $335k, with 25% down, the mortgage is roughly 250k - which at 4.875% (what I was quoted given my FICO and the percentage I'd put down), is roughly an all-in of $1850/month, not factoring in interest tax deductions and things like that.

I haven't been watching your zone very closely, but friends who are looking in your area of interest have certainly remarked that things are falling. How long have you been watching?

But if the numbers work for you, it's your money.

Been looking since about October. I just noticed recently that some apartments that were on the market forever (even though I wouldn't have bought them) went into contract recently, and was wondering whether this was part of some larger trend for smaller units:

http://www.streeteasy.com/nyc/sale/360426-coop-530-grand-street-lower-east-side-new-york
http://www.streeteasy.com/nyc/sale/91240-coop-610-east-5th-street-east-village-new-york
http://www.streeteasy.com/nyc/sale/378046-coop-315-west-106th-street-manhattan-valley-new-york

Not trying to cherrypick, but found these few listings odd.

It is easy to suggest that the price of apartments will go down. Obviously, no one can predict, but even if you assume that the purchase price does get lower, the analysis must include other major factors. You must weigh out:
a) Will purchase price increase or decrease (cost to purchase)
b) will mortgage rates increase or decrease (cost to finance, unless you are paying all cash - which is discouraged in nearly all cases)
c) will rents increase or decrease
d) what other investment offers you better risk/reward than NYC real estate (I am not suggesting whether there are/are not better investments, but you have to look at whether you are losing 'equity' by having funds elsewhere in order to make an accurate comparison)
e) what are the potential tax benefits from the profit/loss on the alternative investments (remember the first $250K of tax gains on your property are tax free, as are improvements, mortgage, etc)
f) how likely do you think you will need more space in the next 4 years?
g) will you potentially lose your job (a factor if you would need to leave NYC as a result of lost job)

There are financial models you can use for portions of this, but ultimately, they are all based on whatever assumption you plug in for the direction of the housing market and the direction of the overall economy. Lets take Reddog's example above and make it more complete:

1) Rent a year, save up some, prices come down a little more
2) Rent a year, save up some, prices stagnant from here on in
3) Rent a year, save up some, prices shoot up... what are the chances?

Now add in mortgage rates. For every 1% increase in mortgage rates, prices have to drop 17% to keep your housing payment the same. May or may not happen, but when you apply that filter, the 'cost' of waiting potentially gets much higher.

Now add in a prediction on where the stock market goes from here. In the last year, market has dropped from peak of 13,026 to 6,547, more than 49%. Real Estate in NYC can't be measured quite so precisely, but most numbers today are hovering in the 15-20% range. If you had invested your money in the market versus buying an apartment, you would have lost at least 30% more in equity, and would be that much farther away. Now obviously, housing market should not be compared to day trading, but it is critical to consider what you would do with your money while you are waiting (per many people's suggestion) for the housing market to fall more.

Here is the scenario in which it ABSOLUTELY makes sense to wait:
a) purchase prices stay the same or fall AND
b) mortgage prices remain the same or fall AND
c) your rent is less that your calculation of mortgage + maintenance AND
d) your investment portfolio increases in value AND
e) the increases exceed the tax liability of capital gains versus tax deductibility of real estate.

Unless you can definitively answer ALL the above, then there could be a compelling case for purchasing now. As anyone in the market will tell you, there is great negotiability, especially with new developments, and you can get some impressive concessions, including:
- lowest price guarantee (within a year of your purchase, if they do a deal on a comparable unit at lower price, then they refund you the difference)
- housing payment guarantee (within a year of your purchase, if you lose your job, then they cover payments for 12 months)

Onward and upward

FULL DISCLOSURE - I am the Chief Technologist at Coldwell Banker and President of Manhattan Association of Realtors. As a leader in the industry and a member of society, I have a vested interest in seeing the housing market and general economy turn around and start rising.

Philip: Have you bought yet?

booya, i hear what you are saying. the typical rent vs. buy debates we have in our apartment. and the one guy is right, if interest rates go up a point, that would wipe out any 17% drop in the purchase price. renting is not throwing your money away if you A. have a rent controlled place (we wish!) or B. you are banking the rent vs. mortgage payment difference into savings. i wish i coulc offer more, but I am in the same boat!

The 1%/17% scenario sounds compelling. But on a $1,000,000 dollar property I would rather pay $830,000 dollars. Then to offset the 1% higher interest rate, I would rather pay an additional $200 dollars per month(above min. mort. payment.) I can finagle around with interest rates with additional princ. payments, I can not magically make up a $170,000 dollars in lost equity due to a declining market.

The bottom line is that currently you can rent for much less than ownership in most of Manhattan. I see no compelling empirical argument to buy now, (other than a personal one). In my opinion as a real estate broker with 17 years under my belt, smart money waits to purchase.

except, if by some miracle, you find the one place in a million that you are convinced will be right for the long haul. but, I would urge steering clear of anything that you are interested in because you think you may save on your monthly costs or that you're going to lock in a low interest rate. much too risky at this point.

evnyc=modern just fyi

redd, we don't have a rent controlled place (we wish we did) :(

I'm curious, burkhardt; if on a $300k property, 17% is roughly $50k, or two year's worth of rent for argument's sake, how does the fact that you are "saving" rent by owning now vs a year from now factor in? It seems to me that the opportunity cost of having to live somewhere should factor into the "lost equity" situation. Or am i thinking about this all wrong? At the end of the day, we still need somewhere to live and it doesn't look like it'll cost us less than 20k/year.
I am thinking that the difference between buying and renting lies in the fact that when you rent, you are paying for the privilege of living somewhere without having to put your equity (down payment) at risk.

Another thing about the 1%-17% arguement is this; right now prices are falling with mortgage rates remianing steady. If mortgage rates go up, prices will have to overcorrect because banks give out loans based on ones estimated mortgage payment to income ratio (correct me if I`m wrong). So at 5%, the bank might give me a $300K mortgage, but at 6% i`d only get a $250K mortgage. This would push prices down further since everyones buying power goes down. I think it is in the FEDS best interest (no pun intended) to keep mortgage rates the same while the market attempts to stabilize.

you are assuming that you are going for the max mortgage based on your income...if not, your example doesn't work. also agree with you that feds will keep interest rates low for as long as possible. rate increase at this point would be throwing gas on fire.

back to OP.

assume that all in it costs you 20 K a year to rent...lets assume that you buy something equivalent and save $5 K per year. if that property depreciates by more than that 5K per year, you lose money at the end. and unless you are planning to walk away from your mortgage your risk is not just your down payment but a portion of the money you borrow (asssuming that property will not drop to 0!)

Thanks for the explanation, columbia.

I am still leaning towards buying, caution be somewhat thrown to the wind; we have been renting for 5 years now, since soph. year of college, and we are getting thoroughly sick of having to move, renegotiate rents, bump up security deposits, etc. Those costs, coupled with the strange appeal of a tax-deductible mortgage are pushing us towards buying. I suppose I would feel very differently (and probably much more patient) if I were investing every dime into a down payment and maxing out our mortgage capacity, but it's getting to the point where we feel comfortable that we won't have to change our overall investment strategy or cashflows much to put this apt. in the picture.

Thanks to everyone who's responded!

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OP: Also if possible strive to buy a one bedroom, I think for many reasons this will serve your interests well in the future. A lot of my opinions are based on anecdotal evidence, market experience over the years. For good math based research few can keep up with Urban Digs.

I am old enough to remember the boom years of the 80's and then the bust(I also remember 18% mortgage rates as a teen,lol). I started in RE in 1990 and it wasn't pretty, the sales market was frozen(at least downtown). When I see bank stocks trading in single digits I get nervous, I am hoping for the best...but I do expect the worst is yet to come. I hope I'm wrong and will gladly take the lampooning on SE early 2010.

The simplest way to look at your example is to compare one investment (apartment) with your best alternative (stocks, bonds, pillowcase, etc) in two columns. Each of those has potential upside and downside. All the arguments that say 'better to wait' are *only* looking at one column, and assuming that the other side remains static or increases.

Assume you are putting down 25% on $300K, or $75K. If one could *guarantee* that the housing market would stay precisely level for a year, would it be wise to buy now? It's impossible to answer that without the next logical question 'what would that same $75K earn me in another investment?' If the stock market [or insert any other investment option] went up significantly, then you would have been better off *not* buying. If it stayed level, then you would have been somewhat better off having purchased (due to tax benefits, rent savings, etc), and if the stock market dropped while housing stayed level, then you would have been the big winner.

I am not suggesting that I (or anybody) can predict where any of these markets are going. I can't, nobody on these forums can, and you can't either.

What you can say for sure is this. Assume everything (housing market, stock market, etc) stayed perfectly level for a year. If you rent instead of pay a mortgage, then that is $20K that is absolutely lost to you. What that means is that with a flat market, you are already $20K ahead of the game (for simplicity, I am not factoring in tax advantages or taking out transaction costs). Stated another way, even if the property lost $20K in value (equity), you would actually be no worse off than had you rented for a year.

And to further hammer home the point, lets go back to May 08, and you decide to wait for the real estate market to come down a bit. So you put your $75K (downpayment) in an index fund. Today, that represents a loss of $37K. Meanwhile, the housing market, having dropped maybe 20% would mean a loss of equity of $60K. Ouch, except that over the year, you have effectively invested $20K that otherwise would have been flushed away in rent payments, so now that is effectively a $40K loss on the housing market side. Factor in tax benefits, and the apartment investment would have been the 'smart' money.

The point is that it is impossible to time the market, and no matter how much we all would like to figure it out, it is a true unknown. A year ago, would anybody have said the stock market could be cut by 50%? No way!

If you find a place where you would like to live, and you can see yourself living their comfortably for 4-5 years, then you should buy it. If you don't find that place, then you should keep looking, or just continue renting an apartment. Whatever you do, trust that it is the right thing for you, and don't worry about the myriad of 'experts' weighing in on where the market will be.

Onward and upward,

FULL DISCLOSURE - I am the Chief Technologist at Coldwell Banker and President of Manhattan Association of Realtors. As a leader in the industry and a member of society, I have a vested interest in seeing the housing market and general economy turn around and start rising.

don't buy. Take a look at history. In October 1987 we had a stock market crash, which recovered fairly quickly, but there were significant Wall Street job losses. Eighteen months later the Manhattan property market began to crack, down 30% for most generic units, with some studios down 60% or even unsaleable. Today's market crash has been FAR FAR WORSE. We have had six months of value erosion off 50% and major job losses and several banks are out-of-business--others are virtually nationalized. This is very serious. Manhattan property values WILL DECLINE SUBSTANTIALLY, but it will take time, just like in the 80s. Trust your elders, they know.

If you choose to ignore this advice and decide to buy, don't pay more than $700 psf. In the long run, inflation may take prices far far higher, true, but in the short run a lot of recent buyers will be in trouble.

pkiracofe: I'm just curious? Has there ever been a time where you have gone on record and stated "This is not a good time to buy".

I think there are times to buy and a time to reflect on market/economic conditions and perhaps rent. It appears that you work for a firm that would not do so well telling people to hold on and consider other options.

FYI: There were people saying the stock market would be down 50% a year ago. There were people saying the RE market was do for a beating.

You have to factor in transaction costs and lets remember also that approx. the first 10 years of your mortgage payment is servicing interest only. We also need to factor in property taxes and mnt./CC charges.

I think there are many reasons to buy, but just don't think you are pointing them out, imho.

hey pkiracofe: how the hell did you come up with the 20K in savings?

pkiracofe, there are more places to put your money than real estate or the stock market.

Diversify, my friend.

theburkhardtgroup (and all),

I am *not* stating that now is a good time to buy. Nor am I saying it is a bad time to buy. My consistent position is that nobody can predict which direction the housing market, the stock market, mortgage rates, tax deductions, and all the other factors are going to go. Therefore, nobody can say with any credibility if you *should* or *should not* buy.

What I *am* saying is that there are *potential* costs for sitting and waiting, which have been largely overlooked on these forums. My only advice is to consider *all* the variables in the equation, rather than focus ones attention solely on whether the purchase price might drop further. For anyone interested in owning a home, they would be best served to find a couple of options that they are interested in, and then run those numbers with a mortgage broker AND their accountant. Then they can move past hypothetical considerations and see the actual pro/con.

Amateur, for example, says "Manhattan property values WILL DECLINE SUBSTANTIALLY" but does not offer an alternative suggestion on where one should invest, or how long to wait, or the basis for $700psf, etc. Again, I am not saying that Amateur, or any one else is wrong, I am simply pointing out that all the predictions are pure speculation, and that the direction, speed, velocity, etc of the markets is IMPOSSIBLE TO PREDICT.

Finally, I want to address your comment "It appears that you work for a firm that would not do so well telling people to hold on and consider other options." This is a very important issue that probably warrants its own thread, but in the interest of simplicity, I will start here, and then let the forum decide how to respond.

I do work for a real estate firm, and I have fully disclosed that in all my posts to allow readers to add any context or bias they feel is appropriate. In that disclosure, I state "As a leader in the industry and a member of society, I have a vested interest in seeing the housing market and general economy turn around and start rising." Our firm, as have all real estate firms, have certainly suffered as transaction volume has fallen off. Likewise, the mortgage industries, the banking sector, insurance, finance, credit markets, the auto industry, and candidly, every aspect of the economy has collapsed as a result of the fall-off in transactions. The issue is less about the *value* of the transactions, and more about the *volume* of the transactions.

As an analogy, think about the human circulatory system. If blood stops flowing through the system, every part of the body is suffering. The organism can not survive unless the flow of nutrients and oxygen picks up again. The housing market is so fundamental to the health of our economy that I believe that we all share the common goal of seeing it start moving again. There are plenty of valid complaints that people have about the real estate industry, and I am a huge advocate of fixing those through transparency. But there is no hidden agenda is this arena. A stagnant housing market hurts everyone (including real estate firms) - a vibrant market benefits everyone (including real estate firms).

I hope that addresses your question/concern. If not, I look forward to continuing the discussion, and can also be reached directly via email, phone, sms, twitter, facebook, etc. This is truly the paramount issue of our time, and I am absolutely committed to seeing it through.

Onward and upward,

FULL DISCLOSURE - I am the Chief Technologist at Coldwell Banker and President of Manhattan Association of Realtors. As a leader in the industry and a member of society, I have a vested interest in seeing the housing market and general economy turn around and start rising.

hey man--how does he save 20 k by buying.

hey big shot:

"What you can say for sure is this. Assume everything (housing market, stock market, etc) stayed perfectly level for a year. If you rent instead of pay a mortgage, then that is $20K that is absolutely lost to you. What that means is that with a flat market, you are already $20K ahead of the game (for simplicity, I am not factoring in tax advantages or taking out transaction costs)."

how?

lookingforhome - yes, there are many potential investments, it is just easiest to use stocks as a placeholder for all the potential alternative investment to real estate. As you likely realize, replacing [stocks] with [any other investments] makes no difference in the discussion thread. If you are deciding on whether to (A) invest in real estate, or (B) invest in anything else, or (C) invest in lots of other things, then you are still forced to guess which will produce the best returns. No one on this forum has suggested what that alternative would be that would return more than real estate. And obviously, no one could possibly predict that. And no amount of diversification would hedge against that (reference current success rates of large financial institutions)

ColumbiaCounty - in the hypothetical example, the $20K is rent, which you can never recover, versus the same $20K put into mortgage payments, which is an asset/equity that would therefore be recovered when you sold the property. It was part of the hypothetical example to evaluate the cost of renting, assuming you hold all other variables constant.

>>Assume everything (housing market, stock market, etc) stayed perfectly level for a year. If you rent instead of pay a mortgage, then that is $20K that is absolutely lost to you. What that means is that with a flat market, you are already $20K ahead of the game (for simplicity, I am not factoring in tax advantages or taking out transaction costs). Stated another way, even if the property lost $20K in value (equity), you would actually be no worse off than had you rented for a year.

Onward and upward,

FULL DISCLOSURE - I am the Chief Technologist at Coldwell Banker and President of Manhattan Association of Realtors. As a leader in the industry and a member of society, I have a vested interest in seeing the housing market and general economy turn around and start rising.

whoa...you're just another stinking broker...where the hell are numbers to support your dumb ass post? this poor guy is looking for real advice not stinking broker crap....

you can't ever recover rent?

how do you recover capital losses, you dummy?

if the capital loss and carrying charges exceed your rent, stupid, what's the outcome?

give us a bunch of your stupid crap you moron

hey...while you're at it...tell us what the chief technologist does. run the stupid web site?

PKIRACPFE,
It is not impossible to make a prediction based on an experience and market data. Obviously no one has a crystal ball, but the point of my post is that history shows that the stock market and the local job market are often good leading indicators of the NYC housing market. Look at the decline in all three markets in the early 70s, for example. I used the example of the late 80s, when it took 18 months from the stock market decline to lead to a significant property price decline.

I am saying be patient, the decline in real estate is coming. Real estate is not liquid like stocks, which can have price adjustments by the hour. You are not saying I am wrong, because you know in your heart I am probably right. Young people are generally less aware of history and more inclined to believe that the present and future have no bearing on the past. I am a nyc condo owner, so I too have a natural bias to be optimistic on nyc values. I just call it like I see it--short term very bearish; long term bullish.

You're not presenting a fair case - you're playing the fear game (what if it goes up) brokers are experts at - you've also added in the "what if you lose money in the stock market" reverse fear argument. If booyah is as serious as she sounds, do you think she's leaving her deposit in the stock market?

If the stock market plunges further, that's probably a bad thing for the real estate market as prices will likely fall further instead of making some opportunity cost argument compelling. There's a compelling case the stock market will return before the longer cycle real estate market- when a broker obfuscates the argument by saying "no one knows", you know there is a more compelling argument for a correlation than not.

Her savings are not 20k- rent vs buy- The difference in cash flow payouts is 400*12 = 4800 with 4500 more for tax savings on a 1350/mo mortgage at 28% taxes and maybe 600 more tax savings if maintenance at 450 is deductible at 40%. So you're under 10k max savings and I would guess maintenance is going up faster than rent next few years. You could lose that in a second as your neighbor drops his ask next week.

However, if the math works, it appears she could consider it on the surface. But a prior poster makes a good point - the math works today but you're locking yourself into a pre-war studio or small 1 bed deep in Yorkville for several years. Your fiscal situation could get worse; your life needs and preferences could upgrade. It's tough to catch this real estate falling knife now- you retain significant flexibility short-term if you continue to wait and save more money.

where are the numbers from mr. big shot?

> ColumbiaCounty - in the hypothetical example, the $20K is rent, which you can never recover, versus the same $20K put into mortgage payments, which is an asset/equity that would therefore be recovered when you sold the property.

How do you recover the 95% of the early mortgage payments that are interest? Deductibility at 28%? Hope she doesn't lose her job.

what?

how do you recover your capital loss?

Philip: Have you bought yet?

I don't want to come off as against buying, I just don't think it is one size fits all. OP should probably wait for a number of reasons as far as buying in Yorkville goes. If her and BF were buying in NJ, were going to get prego and raise the little rug-rats there, perhaps buying would be fine. At least 15 years in the burbs same house...ok I get that.

But Phil's idea of buying now with a 4-5 year time frame is crazy talk. Look I'm just a humble broker, a salesman, service provider....borker, but give me a break!

My question was quite simple, direct; "Have you ever gone on record as saying buying is a bad idea?" Yes or no?

Look I went all cash January 2008. Although I was bearish on RE most of 2007 I did not act on it, and my colleagues told me I was crazy. I officially went on record last spring that it was time to put buying on the back burner.

Declining employment, frozen credit, falling compensation: A trifecta!

Do you have ten years? OK buy! Are you uber wealthy (uppereast) Buy!

Crescent22 - thank you for making the point even more clear. If the question is, "should I buy or should I rent," the answer is "it depends." For the sake of this example, we can go to one extreme and
(A) ask booyakasha to provide all the relevant financial information - credit scores, base income, bonus income, other income, tax bracket, dependents, purchase price, rent (current, and potential for negotiation), mortgage rates, other investments, returns on those investments, job security, savings, etc, etc. OR
(B) we can can make some general assumptions, with an inherent loss of detail.

In your response, all your points are completely valid, and provide further support for the point we all know to be true. That it's not possible to advise someone on whether they *should* or *should not* with less than complete information, which we don't/can't have.

Reiterating again, I am not advocating that booyakasha, or any one in particular, *should* or *should not* buy, and would never suggest that anyone take any steps based on fear. Quite the contrary, one of the biggest reasons the market is stagnated today is because of uncertainty/fear of the near term future. Potential buyers who are willing to enter the market are holding off based on fear, partly based on a single variable analysis of their best move.

PMG, regardless of whether the real estate market continues to fall, you have to compare that 'loss' to what else one does with their money. Sitting and waiting makes sense, but only if you can retain the purchasing power of the capital. I truly believe that the markets are impossible to predict, and I also truly believe that everyone will benefit if activity and volume increase.

If you carry the suggestion to the logical extreme, and every buyer sat on the sideline, what would happen? What would stimulate the market to turnaround, what external influence is going to be the key to trigger all the buyers to get back into the market. The beauty of a free market is that buyers and sellers are all presumably making independent decisions on when is the right time to conduct a transaction. Let's all hope that the pendulum starts swinging back soon.

TheBurkhardtGroup -
>> "I just don't think it is one size fits all."
Thanks for also supporting the point many of us are now making. And to answer your question directly, I have advised plenty of prospective buyers over the years, and there are certainly cases where their specific situations did not warrant purchasing. Any time I make a recommendation, it is based on a full evaluation of all the options, as I have recommended above. You brought up several other lifestyle considerations that would be core to any decision that booyakasha, or any one in particular would have to factor in.

But to make a blanket recommendation for or against buying would have no credibility. It is an individual decision that has to be considered on a case-by-case basis.

Onward and upward,

- Philip (not Phil, please)

FULL DISCLOSURE - I am the Chief Technologist at Coldwell Banker and President of Manhattan Association of Realtors. As a leader in the industry and a member of society, I have a vested interest in seeing the housing market and general economy turn around and start rising.

Philip it is, I apologise.

Pkiracofe wrote: "The beauty of a free market is that buyers and sellers are all presumably making independent decisions on when is the right time to conduct a transaction. Let's all hope that the pendulum starts swinging back soon."

I agree. For the most part, though, the ball remains in the sellers' court. Transactions are happening where sellers adjust their expectations to reflect the diminished wealth, incomes, expectations and borrowing power of buyers. Rather than rail at buyers to get happy, I suggest you focus on persuading sellers to get real. I see certain brokers doing that, and in general they're doing a lot better than the cheerleaders.

The one thing sellers always have in their favor is 'the greater idiot theory'. All it takes is one person to offer their price!

This thread has gotten really complex for me. I always looked at buying vs renting in a much simpler scope. When I can afoord to buy, I will. And it will be for the longer term. For awhile I thought it would have to be either in Inwood or NJ (Linden/Rahway) but with prices dropping in the UES, that might be possible. I love the back and forth on this thread. Quality stuff!

West81st - You are spot on. Transactions only happen when buyers and seller find a mutually acceptable price point. As these forums tend to draw much larger and more active participation by buyers than sellers, my comments have been oriented towards that audience. Behind the scenes, the brokerage community has been pushing for realistic expectations. However, herein lies the major sticking point. How much trust would you put in a broker walking through the door saying 'Drop the price __% and it will sell?' Probably about as much as you trust a broker saying '$____ is a good deal for this place.'

An owner hires a broker to get the highest price possible for their property. In today's market, with so few actual transactions, it is nearly impossible to get a good comparable. Although there are very active discussions here on StreetEasy with many participants debating the value of units, we all know, there is no magic *objective* value that someone can conjure up.

The broker is not serving the fiduciary interests of the seller by posting a 'firesale' price, and then hoping that a buyer offers *more* than the asking price. On the other hand, a seller's broker *will* take *any* bona fide offer to the seller and work to show the merits of that offer. If there are multiple offers coming in that are under the asking price, and those offers are generally grouped around a similar number, then that 'data' can be very compelling in helping a seller to accept the market valuation of their property. At that point, they may or may not actually agree to sell, but at least the market value has been established by *actual* buyers interested in that *specific* apartment.

The absolute best thing that everyone here could do is to make bonafide offers on properties that you would strongly consider buying. Naturally, the more data you have to back up your offer, the more realistic and compelling your offer will appear, and the more likely you will get a counteroffer and a contract. Given the depth of discussions here, it's clear that many are very well informed, and StreetEasy provides ample data for you to work with. The obvious caveat here is that you should be prepared to carry through with an accepted offer, as a flood of bogus offers would not serve anyone's interests.

An additional resource that you may want to consider is Miller Samuel, a Manhattan appraisal firm that collects data on sold properties and makes it available on their website in customizable charts.
http://www.millersamuel.com/data/

In many cases, you may be able to prepare a more compelling argument if you use also use a separate broker to submit your offer, as the seller may feel more confident that their broker is representing their side 100%. On the other hand, you may be able to negotiate with the sellers broker to help bridge the gap by discounting the commission being paid by the seller.

Bottom line, if you find a property that feels like home, then make an offer you feel comfortable with. Everyone benefits if activity increases.

Onward and Upward
~ Philip

FULL DISCLOSURE - I am the Chief Technologist at Coldwell Banker and President of Manhattan Association of Realtors. As a leader in the industry and a member of society, I have a vested interest in seeing the housing market and general economy turn around and start rising.

Owners can also wise up and sell their assets on their own, cutting out these expensive brokers and their exorbitant commissions. In the end, an owner might net themselves a little more money in the process. You, as a seller and an owner, will get to meet real buyers and stay part of the process. Brokers work for themselves, let's be honest, they don't work for anybody else. Brokers care little about prices and more about volume.

Why anybody who is looking at taking a loss or a near loss on the sale of their apartment, would pay a broker to sell is beyond me. They should try to sell it on their own first and see how the market responds to their new low price.

If sellers and buyers are sick of how brokers treat them, as is clearly evident on this board, it is time for sellers and buyers to start talking to each other.

FULL DISCLOSURE:
I am an owner who is selling my own apartment, directly to a buyer, with no agents in the deal. I am Executive President of My Own Destiny.

looks to me that philip (dont call me phil!) thinks he's getting paid by the word.

FULL DISCLOSURE: I think phil is a dirty, stinking, windbag who completely misses the point.

"I am *not* stating that now is a good time to buy. Nor am I saying it is a bad time to buy. My consistent position is that nobody can predict which direction the housing market, the stock market, mortgage rates, tax deductions, and all the other factors are going to go. Therefore, nobody can say with any credibility if you *should* or *should not* buy."

I simply disagree with this statement.

Housing market -> Down. Decreasing financing. Diminishing jobs.

Stock Market -> Down. We will have bear market rallies like the current episode, but we have not seen the bottom yet.

Mortgage rates -> Up. Yields on longer term Gov't Bonds will increase to attract demand (market driven, not Fed driven). We've already seen China play chicken with Obama about this. Even if Geithner follows BoE's King and starts printing money (buying Treasuries), we will have the opposite of Greenspan's 'conundrum' where no matter how hard the Fed tries, it cannot make the long term rates go lower (Greenspan tried very hard for it to go higher).

Tax deductions -> this one I agree is difficult to predict as it really depends on your individual situation and political changes

So, should you buy now? No. Especially not in Manhattan which is a laggard and has yet to catch up with the rest of the nation now that ground-zero has hit Wall St. The spectre of rising mortgage rates will put even more downward pressure on prices as monthly affordability diminishes.

407PAS - The (unfortunate) reality is that today, a large percentage of buyers are still using brokers to help them with the search process. Most recent statistics I have seen is approx 98% of transactions in Manhattan involved at least one broker.

If you are explicitly turning away those brokers, and their buyers, then you are drastically reducing the pool of potential buyers that may make offers on your home. If one believes a fundamental tenant of economics, that greater demand will yield the highest possible sales price, then wouldn't you want to reach the largest pool of buyers possible?

As you have likely seen, many developers are actually increasing commissions and incentives for buyers to try and attract more traffic to their listings.

You might very well find that you have to reduce your price by an amount greater than the commission in order to attract a qualified buyer.

As a staunch advocate of free markets, I fully support any sellers choice to explore the direct route. Especially in cases where you may have lots of time to be posting your property for sale on all the various sites that are out there. To assist you, here is a list of the websites that we post our exclusive listings to http://spreadsheets.google.com/pub?key=p-L4s8HgQUj9MFqs0tjo4Pg

While a number of the sites are available only to sellers using brokers, nearly the entire right column (~50 sites) are open to direct sellers, and most are free. As with anything, it just requires time to create and maintain the listings so the information is current and accurate.

Hope this helps

Onward and Upward
~ Philip

FULL DISCLOSURE - I am the Chief Technologist at Coldwell Banker and President of Manhattan Association of Realtors. As a leader in the industry and a member of society, I have a vested interest in seeing the housing market and general economy turn around and start rising.

Whoa, this post clearly exploded in my absence...(for a day)

I guess I should clarify: there are a number of factors that make me want to buy (and not in Yorkville, I was just using it as an example). 1) Tax deductibility: I'm in a bit of an odd situation that every last little bit of tax deductibility helps. I know this can't cover the mortgage, but it definitely tips the balance in favor of buying vs renting. 2) I will be in the city for at least the next 5 years, and this is confirmed - regardless of whether I have a job or not, and it is much more likely that I will (a long story). 3) I fully understand that I could be buying a declining asset, but the numbers work for us, especially when I look at whether I would, say, take a "guaranteed rent cost" of $1800/month for around 400 sq ft for the next 5 years. To argue I could do something else with the money is not wrong, but I have to balance that with the fact that bf and I need to live somewhere and we are pretty simple people: we are young (very young) and have no plans for starting a family any time within the next 5 years at least. Even after that, we will not be selling said apartment, period. That being said:

I acknowledge that my situation which pushes me, personally, to buy is totally unique and not really appropriate as a general litmus test for whether *all* first time buyers should be buying now. And I acknowledge there is risk - a whole lot of risk involved - BUT thanks to everyone who chipped in and gave us potential first time buyers a lot to think about.

"The (unfortunate) reality is that today, a large percentage of buyers are still using brokers to help them with the search process. Most recent statistics I have seen is approx 98% of transactions in Manhattan involved at least one broker."

Reality can change. When was the last time you booked your flight though a travel agent?

"As you have likely seen, many developers are actually increasing commissions and incentives for buyers to try and attract more traffic to their listings."

Hilarious. You are arguing for even HIGHER commissions, on top of your already EXORBITANT commissions. Unbelievable. Some day, people will wake up to the fact that brokers in Manhattan are not worth the money they are paid. After all, they do very little work for their money. They don't even negotiate a contract, something that brokers in the rest of the country do. Instead, I have to pay a lawyer from day one in order to get a deal done in Manhattan.

Brokers continually lie to me about having interested buyers. I think most buyers like to go out and look at apartments without having a broker listen to every word they say. After all, a "buyer's broker" does not work for the buyer, they work for the seller. The whole "buyer's broker" scheme is a canard perpetrated by the real estate industry.

Buyers, do your own research and go out and look at properties on your own. That way, you will not be steered towards or away from certain properties, at the whim of the agent. You are also less likely to be surprised when you find out that your broker has not revealed everything to you about the deal.

booyakasha,
Don't forget your possible $8000 tax credit on first time purchases:

http://www.federalhousingtaxcredit.com/

407PAS - While I appreciate that you are generalizing about the broker community, you might consider that individual leaders in the industry have a vested interest in serving the needs for buyers and sellers. My participation here is to help shape the industry for the future, not try to preserve practices that don't work.

In case it was lost in the lengthy post, here is a list of sites you can use to market your property *directly* and for *free*. http://spreadsheets.google.com/pub?key=p-L4s8HgQUj9MFqs0tjo4Pg No need to thank me, but perhaps you can simply direct your frustration towards the specific brokers who you feel have lied to you.

You are spot on regarding the changing markets. And since you brought up the travel industry, do you know which company Rich Barton (founder of Expedia) founded after he sold out in 2003? Zillow.

Change is absolutely coming, and will come in many different channels. My only point above is that by cutting out the vast majority of prospective buyers, you hurt yourself rather than the brokers. There are other ways to prompt change in the market that might serve your needs better.

Hope this helps

Onward and Upward
~ Philip

FULL DISCLOSURE - I am the Chief Technologist at Coldwell Banker and President of Manhattan Association of Realtors. As a leader in the industry and a member of society, I have a vested interest in seeing the housing market and general economy turn around and start rising.

"My participation here is to help shape the industry for the future, not try to preserve practices that don't work. "

If you want to change your industry then why don't you figure out a way to reduce commissions so that the costs are LOWER for sellers. The United States has, I believe, the highest transfer costs of any industrialized country. My friend in Sweden sold his apartment for a fee of 1.5%, all inclusive.

Until your industry's pricing becomes more realistic, I have no choice but to cut out these brokers. I have long ago stopped responding to individual brokers. As a seller, it is a complete waste of time. A person can only be lied to so many times by people in your profession before they throw up their hands in disgust.

"You are spot on regarding the changing markets. And since you brought up the travel industry, do you know which company Rich Barton (founder of Expedia) founded after he sold out in 2003? Zillow."

And all those people who were travel agents went on to other careers.

Cutting out the brokers has allowed me to listen to buyers and see what they're looking for in the market. If they want my place, fine, if not, no problem, we both move on. As long as a buyer and a seller can agree on a price and have lawyers to draw up a contract, there is no reason they can't do a deal.

Phil, do you also have a website that supports Analog film over digital? For the good of Kodak?
You're a putz...things change, get used to it.
My expert guess is you're out of a job in 12 months.

We don't have to call people names to make our point.

Manhattan can learn from Madison, Wisconsin, yes, that's right, Madison, Wisconsin, which now has a robust FSBO based sales model in place.

Change can come.

http://propertygrunt.blogspot.com/2006/01/fsbo-wars-battlefield-madison.html

Surprise, surprise.

"The conclusion, in a study to be released today based on home-sales data from 1998 to 2004 in Madison, Wis., is that people in that city who sold their homes through real estate agents typically did not get a higher sale price than people who sold their homes themselves. When the agent’s commission is factored in, the for-sale-by-owner people came out ahead financially."

Exactly. The seller's net is higher when they sell their property on their own.

from:

http://www.nytimes.com/2007/06/08/business/08home.html

"The findings fly in the face of studies by the National Association of Realtors. The group has said that houses sold via its members’ local multiple listing services get a 16 percent premium over homes sold by their owners."

"Some buyers think a 6 percent commission — $33,600 in Mrs. Mohr’s case — is too much. Dr. Harry Sharata, a Madison dermatologist, listed his four-bedroom West Side house on FSBOMadison.com. “We try to avoid the Realtors as much as possible, thinking we can have more room to negotiate if that fee isn’t built into the price,” he said."

His claims are ridiculous. I have no patience for stuff like that, that's my character flaw.
I'm not perfect, but I'm willing to hear the other side.

Mr Analog film on the other hand is not.
Perhaps we should all be using typewriters as well as analog film? Come on...
"you might consider that individual leaders in the industry have a vested interest in serving the needs for buyers and sellers. My participation here is to help shape the industry for the future, not try to preserve practices that don't work."
How? How is helping to shape the industry for the future? Do any of his posts mention how things are going to change (or how he thinks they are going to change?)
All I see is blahblah about how you can't predict the market. Thanks chief, brilliant.
By the way, do we not think the head of Lehman/Bear/AIG etc said the same thing? Didn't they have a vested interest (staying in BUSINESS) in serving peoples needs? And yet...here we are.

I'll admit, I flap my gums and make fun of people on here, but when I attempt to make a point, I don't spit out garbage and pretend I'm a saint quoting gospel.

He's just too high and mighty in his posts for me...it annoys me

407PAS -
>> If you want to change your industry then why don't you figure out a way to reduce commissions so that the costs are LOWER for sellers. The United States has, I believe, the highest transfer costs of any industrialized country. My friend in Sweden sold his apartment for a fee of 1.5%, all inclusive.

There are many business models available in the US that cost the buyer and/or seller well under the 1.5% you referenced. Redfin in particular has proven to be very successful and is slated to open in Long Island, which means you could have them represent your sale as NYS Licensed agents

As much as I applaud your entrepreneurial spirit, the timing is working against you. When the market was booming and buyers were outbidding themselves at a frantic pace, you would have easily sold your apartment with a single NYTimes or Craigslist ad. But in today's market, buyers hold all the cards, and have a vast number of choices. Many buyers are happy to have their brokers do all the research and work for them, and you are turning that pool of buyers away.

If you look back to the article you posted above, you will find that even in Madison, WI, FSBO sale prices were less than broker represented prices when the market started to slide.

>> "There are asterisks...
>> "The authors cautioned that they did not know whether the results from Madison applied to the country as a whole; certainly, selling a house without a real estate agent would be harder in a city without a heavily trafficked for-sale-by-owner Web site." Unfortunately, NYC does not yet have an entrenched FSBO website

>> "The authors are also analyzing Madison data from 2005 and 2006, when the housing market cooled after a long run-up, to see how their findings might have changed. Some aspects tilted in agents’ favor. The researchers found that homes on the multiple listing service sold somewhat faster than houses on the for-sale-by-owner site." If you are fortunate enough to not have a time factor, then sitting it out for an extended period might not be an issue, although a long 'time on market' might lower the perceived value. If the market does decline, as many on this forum predict, then naturally, the lower sales price from your direct sale might exceed the commission you wish not to pay.

Honestly, it makes no difference to me, personally, whether you choose to use a broker or not. But for your sake, please do the math and strongly consider the financial impact you will potentially incur by excluding brokers.

One option for you would be to have an exclusion clause in your listing agreement that allows you to sell the property directly and pay a reduced commission. The most common way that is done would be for you to list a specific set of people that you think are potential buyers. In this way, you can continue to negotiate with people you have already brought in through your marketing efforts, and also benefit from the increased marketing channels (think of it like a hedge)

Another option is to have a sunset provision, so that any sale in the first 30 days that you procur is totally excluded. This can be very compelling, because when buyers see your ad, you can share that there is a limited time for them to act at the current price, and then you will be hiring a broker, meaning the price goes up, or your willingness to negotiate goes down. That might help you get a buyer off the fence.

A third option is to have a licensed attorney friend act as your listing broker. Then you could co-broke and only pay 1/2 the commission, which you could set at whatever amount you want (make sure you offer your attorney friend a nece dinner for the hassle)

These approaches protect your financial interests, although you do run the risk of having a broker involved in your sale.

Onward and Upward
~ Philip

FULL DISCLOSURE - I am the Chief Technologist at Coldwell Banker and President of Manhattan Association of Realtors. As a leader in the industry and a member of society, I have a vested interest in seeing the housing market and general economy turn around and start rising.

Although I opened up my own shop to focus on rentals with a discounted fee last Spring, I do offer an alternative model for sellers. Although so far I have only consulted on on 2 sales, both for buyers I will be marketing this new model soon. As I have stated a few other times the difference between what I offer and other discount operations(such as Foxtons), I include the brokerage community. The way I am reducing commissions, I agree to be paid less. List at 3%-$3.5% and my cut is 1/2% to 1%(direct deal to buyer 1%) and on the big Manhattan price tags that ain't bad. My overhead is low; thanks to technology and it most efficient use.

You see a listing broker is no more than a conduit to the marketplace and as Philip has pointed(and is fact) most buyers have engaged broker representation, why not in their eyes it's "free". So whether you list with Philips firm or Corcoran or me your listing ends up in the same place for all brokers to see. Yes we all do some other marketing, broker open houses, NYT's , dump the listing into a multitude of online listing database and a very effective tool for instant gratification...the e-blast!

Read all about it; http://www.theburkhardtgroup.com/about.php

www.NYCRentRant.blogspot.com

I have been very busy with my rental business, February from a dollar perspective has been my best ever...in 17 years and it ain't over yet. But I promise you will see more about this discounted commission schedule soon. There are a few very big players who may enter the market, anyone out there want to talk? Send me an e-mail.

407PAS: For you I will accept .05%(usually this rate is for 1M+) and we give 2.5%(3% total) to cooperating brokers, re-list your property at $499,000 and give it a whirl. Let's see if having the cooperation of the brokerage community can help you achieve your goal of a sale. Your a rebel let's try and shake things up! Don't be so skeptical of me, this is not just about money! You don't have to sign a thing and can participate as much or as little as you please.

Thanks for all of your comments. Some people decide to sell on their own and that is what I have chosen to do. You may not like it but I have every right to sell my apartment directly, from a seller to a buyer, without the involvement of agents.

"Honestly, it makes no difference to me, personally, whether you choose to use a broker or not. But for your sake, please do the math and strongly consider the financial impact you will potentially incur by excluding brokers."

The trouble is that I have done the math and see that using a broker will raise my costs and make me less flexible in being able to negotiate with a buyer. I find it instructive that Mr. Burkhardt has requested that I raise my price by $10,000 dollars in order to accommodate his commission, not a win for a buyer. I may have to point this out to potential buyers. Another unit in my building that was listed FSBO also raised their price when they listed with an agent.

In a rising market, it is much easier to justify using a broker. In a declining market, after I have already had to make price cuts to attract a buyer, it is hard to justify paying a commission to sell my place. My unit is the least expensive one bedroom for sale in my building, and agents always say that FSBOs are not price competitive. Well, they're wrong. The real estate industry also claims that an agent can get an seller a higher price, but the truth is that a seller nets more if he sells directly. It is a hard truth, but there it is.

The other part of my decision to sell directly is that I like to retain control over the marketing of my property. I lose this control when I hire a broker. I feel responsible for what is said about my property and how it is sold to other people.

Recently, I was stunned when I heard from a potential buyer, who had visited a broker-represented unit in my building, that the board was thinking about refunding some maintenance. There is no such movement afoot and I saw that as a dirty broker trick to try to make a sale. I won't lie to sell my property and I won't hire someone else to lie for me.

By the way, there are plenty of buyers who walk around without brokers. I have met lots of these people. You guys think you can lock up all players in the transaction in order to extract your commission. Well, many people choose to do their own internet searches and look at properties on their own, as is their right.

Contrary to what some people think, these buyers do not run for the door when they find out I am the owner. They ask me lots of questions and I answer them to the best of my ability.

Attack me if you will but that is how I feel. Good luck with all your listings. It is a big city and we can co-exist. Most owners are not willing to work hard in order to sell a property. Agents will always have customers. I will continue to go it alone.

407pas: You have a great home and I love the furniture! Best of luck.

Oh and raising the price 10K was in your interest, remember I'm working for .05%, I can't get the guys that low though :)

Thanks Mr. Burkhardt. I'm glad you like the furniture. I built the table and chairs myself, out of black walnut. Somebody in another discussion wanted to know where they could buy the table, well, they can't, it's not for sale.

The modular couch is from Design Within Reach. It is a little expensive but is very flexible and can be moved around to create other configurations. The Nelson floor lamp is from eBay and does not convey. The Nelson Pear lamp over the dining table conveys. Everything on the balcony stays for the next urban gardener. The table and two stools in the kitchen also conveys. That's about it.

Beautiful table! you have some serious skills,no wonder you hate "salesmen". :)

Honestly, I don't hate salesmen, I am sorry that I sound so harsh. Sometimes I choose to utilize agents and sometimes I choose not to. I sold a house using an agent and he worked his tail off to get the property sold. I was not around to try to do it so it made more sense, and there was a lot of work to get the property ready for market.

I'm not that good a furniture maker. The guy I rented shop space from was far more talented but he had been beaten down after sixteen years of trying to make a living at it. It's a tough business. This guy did lots of high-end work but working for a fixed price, and spending too many hours on a piece, can destroy your living wage.

I helped this furniture maker install a beautiful cabinet in an apartment at The Beresford. It was a nice experience. I don't think he made enough profit on that piece but there it is. Another time, this guy was flabbergasted to learn the movers had gotten $3,000 to move a $5,000 bed he had built for a wealthy client. Life is tough for people who build things with their hands.