Incase you dont know a short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property’s loan. Search the recent sales listings and you’ll find dozens of advertised short sales, some being creative with their wording and saying something like “owner must sell.” Everything from town houses and co-ops to cond-ops and condos. Up until now, most short sales have been in other boroughs or the suburbs, but make no mistake- they are making their way into Manhattan. Property values are down as much as 25%, and many people who bought in 2006-07 are finding themselves underwater and grasping for a short sale. The New York Times tells some stories that will make you shake your head, but here are the basics of what Manhattan is looking at, beginning with a startling statistic:

Lis pendens filings (the first step in the foreclosure process for houses and condos) doubled in Manhattan from 334 in 2008 to 724 in 2009. There are 382 through the end of June this year.

And just because there are a growing number of short sale listings doesn’t mean they are happening quickly. While it is generally regarded as a softer landing for an underwater homeowner, it’s a laborious process involving many parties, many negotiations, and many months to even have a chance of happening.

First there is the art of pricing by the seller- low enough to create interest (and hopefully a bidding war) but not so low as to raise objections from lenders. Banks will never broadcast how much of a loss they are willing to take on a short sale, and negotiations can often come down to getting everyone to offer something the bank will agree to. Lower than list price will work, but lowballing an offer will never get approved. A seller must first get an application in hand, then submit it to the bank, then convince the bank in writing that they can’t pay the mortgage.

Then, when negotiations do start, buyers have to negotiate with the seller and the seller’s lender, and the seller has to negotiate with the lender as well around the terms of forgiving what’s left owed on the mortgage, whether the lender will sue for the loss and whether the seller will have to pay income taxes on a forgiven loan. To top that off, many mortgages are owned by more than one investor, all of whom must agree to the terms. And then there are everyone’s fees… If the short sale does go through, the seller tends to walk away with nothing to show for it- other than getting out from under a mortgage they couldn’t afford.

In the end, it can easily take more than 6 months or more, and banks routinely decline sales even after that long. Unfortunately, for both the buyers and sellers, the only thing moving fast about short sales is the number of them being listed.

Photo Credit: TheTruthAbout

After first listing it in 2006 for $24.9 million, Sting chopped the price on his 88 Central Park West duplex apartment to $19 million more recently- and the sale is now final at $17.75 million. That’s a 29% decrease from the original listing price. Someone may need to call the Police, the price dropped so much- that’s got to sting… So sorry, I couldn’t help myself.

Sting bought the 6,600 square foot apartment, four bedroom spot from Billy Joel in the 1980’s, but the string of rock and roll royalty owners will fade with now owner, Michael S. Naify. He comes from San Francisco Bay area, not the rock and roll hall of fame.

Photo Credit: Scott Ableman

Manhattan 2Q 2010 Market Report

The 2009 Manhattan real estate market is beginning, if slightly, to recede into the past. This year’s market is stronger than anyone could have hoped for last summer, which means we can all spend a little more time worrying about how to beat the heat than if sales are going to pick up. In fact, they are up 15% from last quarter and 80% from last year- something to smile about. While the first time home buyers’ tax credit is over, its effect was strong and the purchasing pick-up is making its way into higher end properties. The rest of the year looks to be driven by the dramatically low mortgage rates and lower, stabilizing prices.

2Q Market Report Overall

• There were 2,756 sales in the second quarter, up a dramatic 79.9% from 1,532 sales last year and up 15.6% from 2,384 sales in 1Q. This is the highest number of sales since 2Q 2008, and above the 2,411 quarterly average over the past decade.
• The median sales price for a Manhattan apartment was $899,000, up 7.6% from $835,000 last year and up 3.6% from $868,000 in 1Q.
• Average sales price rose 9.1% to $1,432,712, up from $1312,920 last year, and up 0.4% from $1,426,994 in 1Q.
• Price per square foot remained stable, down just 0.5% to $1,051 per square foot from $1,056 last year, and up from $1,038 in 1Q.
• Available listing inventory (excluding shadow inventory) was 8,157, 13% below the prior year but up 1.6% from the prior quarter.
• “Shadow inventory” is estimated at 6,500 units.
• Average Days on Market was 105 days, down from 162 last year and down from 124 in 1Q.
• The Listing Discount was 9.1%, up from 7.8% in the prior year quarter and up from 5.4% in 1Q.

Manhattan Co-Op Market

The Co-op market saw a sharp rise in sales, comprising 43.7% of all apartment sales this quarter, though still under the 5 year average of 47.9%. Studio and 1 bedroom apartments were down from 61% to 56% of total sales, indicating a rising demand for the upper-end of the co-op market. There was also an encouraging overall stabilization of price indicators.

• There were 1,203 sales in 2Q, up 65.2% from last year and 8.3% from 1,111 in the last quarter.

• Listing Inventory was 3,948 at the end of the quarter, 10.3% below last year at this time, but up 3.6% from last quarter. The monthly absorption rate is 9.8 months, almost one month faster than the past decade’s average of 10.5 months.

• The median sales price was $697,501, 7.5% higher than last year’s 2Q $649,000 and 1.8% higher than last quarter.
• Average sales price was $1,113,173, 4.2% higher than last year’s 2Q but 1.8% below last quarter.
• Price per square foot was $943, 2.8% higher than last year’s 2Q mark and 3.9% higher than last quarter. By region, the East Side was at $1,001 per square foot, Uptown at $653 per square foot, Downtown at $910 per square foot, and the West Side at $946 per square foot.
• Co-ops averaged 92 days on market, down from 141 last year at this point and down from 110 in the prior quarter.
• The Listing Discount was 7.3%, down from 8.7% last year but up from 3.8% in 1Q.

Manhattan Condo Market

The big story in the condo market is that sales numbers are up, as they are all over the City, but the price indicators remain mixed. Notably, the listing discounts have risen, pointing to a trend of sellers testing the market by setting higher prices but meeting resistance from buyers.

• There were 1,553 sales, almost double the 804 sales in last year’s 2Q, and up 22% from the 1,273 sales last quarter.
• The listing total was 4,209 units, excluding “shadow inventory,” which was 15.5% below last year’s 2Q and virtually identical to last quarter’s 4,218 listings.
• The median sales price was $1,100,000, which is 10.1% higher than last year at this point, and 3.3% higher than last quarter’s $1,065,000.
• The average sales price was $1,680,236, up 9.5% last year at this point, and holding steady with last quarter’s $1,690,399.
• The average square footage of properties sold was 1,482 square feet, up from 1,299 square feet at the same time last year.
• Average price per square foot was $1,134, down 4% from last year at this point, and down 1.7% from $1,154 in 2Q.
• Average days on market was 115, down dramatically from 181 in 2Q of last year, and down from 135 in 1Q of this year.
• The listing discount was at 10.5%, up from 7% last year and 6.7% last quarter.

Manhattan Luxury Market

The luxury market is seeing signs of renewed life, working off excess inventory and seeing price indicators stabilize.

• There were 1,304 listings over the $3,000,000 threshold, 29.3% fewer than 1,844 at this time last year and 13.2% fewer than the 1,502 listings last quarter.
• The median sales price for luxury apartments was $4,093,365, 11.8% higher than last year’s $3,660,608 but down 10.7% from $4,582,125 last quarter.
• The average sales price was $5,169,161, up 8.6% from last year at this point, but down 6.9% from last quarter.
• Average price per square foot held steady at $1,843, changing little from last year’s $1,848 and last quarter’s $1,881.
• The luxury market averaged 146 days on market, well down from 182 days at the end of last year’s 2Q as well as last quarter’s 193 days.
• The listing discount was 6.4%, less than last year’s 8.6% but higher than last quarter’s 3.6%.

Manhattan Loft Market

Like in other parts of the market this quarter, sales were up. But unlike any other sector, the sales in the loft market were up 263.9% from last year! That’s the good news. Less emphatic are the price indicators, that brought back mixed results.

• There were 262 loft sales, up that amazing 263.9% from 72 last year, and a 45.6% increase from last quarter. The mark was well over the 193 sale quarterly average over the past 20 years.
• Listing inventory was 548, 25.6% below last year at this time and 1.4% below last quarter.
• The median sales price was $1570,000, 15.9% below last year at this point, but up 12.1% from last quarter.
• The average sales price was $2,057,776, 5.7% higher than last year at this time and 0.9% higher than 1Q.
• Price per square foot was $1,145, down 4.3% from last year at this point and 2.1% up from last quarter.
• Days on market was 80, the quickest number in over 10 years. Last year at this point the average days on market was 138, and last quarter was 146.
• The listing discount was 5.4%, lower than last year’s 7.2% but above last quarter’s 3.3%.

After being listed for just nine days, hedge funder John Read Taylor shelled out $22 million for an apartment at 1068 Fifth Avenue. Listed at $17.5 million, Taylor saw their price and raised them $4.5 million. That’s almost a 25% rise.

The 4 bedroom, 4 bathroom co-op is designed “for preeminent collectors of contemporary art,” according to Curbed. What does that mean? The unit has mobile walls to hang your art, so you can display or store as you see fit. Designed by Shelton, Mindel & Associates, as a “private residential gallery,” it takes up the entire eleventh floor. Large windows offer great views of the city and Central Park. The floorplan includes a library with a fireplace and a windowed eat-in kitchen. 

I don’t think this is a indicator of the market on the whole but it does say something about the relative value of real estate. Basically, its worth what someone is willing to pay for it.

Photo Credit: CurbedNY

The Home Valuation Code of Conduct passed in May of 2009 with the goal of ensuring appraiser independence. But the rule has also produced low-ball appraisals that can shatter deals, and appraisers say it has harmed appraisal quality. It seems the only group happy about the law are the mortgage lenders, who have seen their business spike because of the rule. The mortgage-broker and real-estate industries want a measure included in new financial regulation legislation to end that rule.

Are new appraisal rules hurting Manhattan home values?

The rule is based on the idea that inflated appraisals helped run-up home prices over the last ten years. Loan officers and mortgage brokers typically worked regularly with the same appraisers, and lenders felt that the partnerships led to rising home values. Now much of the business goes to vendors that specialize in “farming out” appraisal requests to their networks, which some say leads to pushing appraisers to do more work in less time, driving fees down industry-wide and damaging appraisal quality. Some of these “middle-man” firms are owned by large mortgage companies like JP Morgan or Citigroup.

Fannie Mae and Freddie Mac adopted a Code of Conduct last Spring as part of a settlement in the New York state attorney general’s probe of their existing appraisal standards. In that case, realtors and mortgage brokers were successful in inserting language in the House-passed financial-regulation bill to put an end to the new protocols and push federal regulators to create a new set of rules. The rub is that the language has not been included in the most recent draft in Congressional negotiations.

Bill Garber, chief federal lobbyist for the Appraisal Institute, told the Wall Street Journal that appraiser fees have dropped by up to 60%. He believes that new broker licensing laws and other state laws do enough to keep brokers and appraisers from creating questionable partnerships.

National Association of Mortgage Brokers CEO Roy DeLoach adds that out-of-town appraisers are not credible and degrade home value. “It’s basically hollowing out the equity in communities whether you intend to sell or not,” he says.

Photo Credit: caruba

While Manhattan is certainly a city of condos and coops, it also has some of the biggest and most beautiful townhouse homes anywhere. The Real Deal highlighted the top ten single-family townhouses in Manhattan last week- here are the highlights.

Manhattan’s Biggest Homes

1. 4 East 75th Street. 21,700 square feet

The Harkness Mansion, built in 1899, is the only single-family townhouse over 20,000 square feet. J. Christopher Flowers purchased the townhouse in 2006 for a record $53 million. It is currently owned in C/O Neufield Doudna.

2. 5 East 68 Street. 19,746 square feet

Also built in 1899, it serves as the consulate of the Republic of Indonesia but remains classified as a single-family home. Currently owned by the Republic of Indonesia.

3. 690 Park Avenue. 19,580 square feet

Another from 1899, the Henry P. and Kate T. Davison House used as the Italian consulate and owned by the Republic of Italy.

4. 9 East 71st Street. 18,814 square feet

Built in 1910, this townhouse was previously owned by Leslie Wexner, the founding chairman of The Limited. He purchased it for $13.2 million in 1989. The current owner is Nine East 71^st Street.

5. 4 East 80th Street. 17,676 square feet

Originally commissioned by Frank Woolworth for his daughter, Barbara Hutton, and build in 1915, this home was also recently owned by Lucille Roberts, the late fitness entrepreneur. The current owner is 4 East 80^th Street LLC.

6. 38 East 69th Street. 16,800 square feet

Held by Erica Rlty. Corp. since 1966, this townhouse was constructed in 1910.

7. 1130 Fifth Avenue. 16,685 square feet

Built in 1914 and formerly used as the International Center for Photography, it was purchased in 1999 for $17 million and converted back into a single-family home. The current owner is Three Dogs LLC.

8. 4 East 67th Street. 16,416 square feet

Constructed in 1899 and used by the Japanese Consul General. Its current owner is the Government of Japan.

9. 926 Fifth Avenue. 16,367 square feet

This home was once on the market for $23.8 million for a 49 year leasehold. Its current owner is Torigua, S A Ltd.

10. 14-16 East 67th Street. 14,626 square feet

After being owned and lost by Penthouse publisher Bob Guccione in 2006 to creditors it has been renamed Milbank Mansion to help it sell. The current owner is Philip Falcone who bought it for $49 million in 2008.

All Photos: The Real Deal

Who's got the math skills to get the mortgage?

Should you have to take a math test to qualify for a loan? Columbia University assistant business professor Stephan Meier thinks maybe you should, and he has the survey results to back up his question. According to a New York Times report on Meier’s survey, people with poor math skill are three times more likely to go into foreclosure.

Try these two problems to see how you stack up:

1. What is 300 divided by 2?
2. What is 10% of 1,000?

In 2008, Meier surveyed around 340 borrowers from Connecticut, Massachusetts and Rhode Island who had taken out subprime loans in 2006 or 2007. At that point, none of them were in foreclosure. 16% of them got one of those two questions wrong, and the answers were consistent across education and income levels.

21% of respondents with math abilities in the lowest quarter of the survey have gone into foreclosure. Only 7% in the top quarter have. So what does Meier think? “Maybe start adding math tests to the process, and screen them away,” he says. Unlikely. But it does imply that basic math may have something to do with handling your finances.

“There are a lot of financial decisions you have to make as a homeowner, but some of the more difficult decisions have to do with how to rebudget if you’re hit by an income shock, which a lot of people had to do during the recession.” – Stephan Meier

While there are computers that work out the math when figuring projections on a mortgage, there is something to be said for basic budgeting, and for knowing that the survey answers are 1) 150 and 2) 100.

Eileen Anderson, a senior vice president of the Community Development Corporation of Long Island, a nonprofit housing organization that counsels borrowers who are struggling through foreclosure-avoidance, says that no one is exempt.

As Anderson says, “People say they’re doctors, so they don’t really need it. So what? We see doctors who took out loans they didn’t understand, and who are in foreclosure now.”

Photo Credit: Sarunas B.

1031 Exchanges

If you own one or more investment properties, you probably know about Section 1031 of the Internal Revenue Code. If you dont know abot 1031 exchanges,  it allows an owner of an investment property to defers the tax consequences around a property sale. Basically, it allows you to roll over the proceeds so you can buy anther investment property.  To quote directly from a recent AppleSeed.com article, here are the conditions for using the 1031 exchange:

• The property sold must be an investment property not a primary home.
• The new property needs to be “like-kind” and of equal or greater value to gain the full benefit.
• The new property must be identified within 45 days of closing on the existing property.
• The new purchase must be made within 180 days of the said sale.
• All of the sale proceeds (held in escrow until the time of the new purchase) must be used towards the purchase of the new property.
• The initial sales contract must designate the property sold as a 1031 tax exchange candidate.

Many believe that the use of 1031 exchanges will increase in the next year or so. Their rationale is that current long-term capital gains tax will rise from 15% to 20% by next year, and that there are rumors that President Obama will push for it to go up to 24% or higher in the coming years. Section 1031 is already used by many investors to defer tax payments and instead leverage those funds to purchase another property, in turn raising the return potential.

If you are dealing with investment properties in the current market, educate yourself about Section 1031 and give me a call. I’m happy to help.

Photo Credit: andrew mace–

Replacing A Wood Floor

If you live somewhere with wood floors for long enough, sooner or later it comes time to do something about the ground you walk on. If it’s that one nail creeping out or the extra wear on that section there, it may just need to be refinished. As they say, most wood floors can be refinished at least 5 times and can often go 15 or 20 years in between.

But if it’s time to replace rather than refinish, maybe you put it off longer than you should because it seems like such a project and who’s got the time? Brick Underground offers a great step-by-step guide about what to consider and where to start.

Here are some highlights to think about:

1. Prefinished vs. unfinished:

They recommend choosing unfinished to avoid the glossy factory finish. But if you do choose to go with pre-finished, as the materials and installation can be less expensive, they point you toward getting solid wood as floors with just a wood veneer on top can’t be sanded so you’ll have to buy a new wood floor much sooner.

2. Cost:

Replacing an unfinished wood will cost anywhere from $12 to $30 per square foot, depending on the type of wood, grade (quarter sawn or plain sawn), length and width, and any other special design elements. Prefinished solid woods start at a lower price point.

3. Timing:

Whenever you choose to do the replacement, you will have to move out all of your furniture and essentially move out. The entire process will take 10 days to 3 weeks. If replacing your floor is part of a larger renovation, it will typically happen before new baseboard installation but after new walls are up.

4. Type of wood:

Penny Fallmann May, the author and an architect, recommends quarter-sawn oak, quarter-sawn maple, or Brazilian cherry. No matter your choice, she emphasizes that the wood should be hard. One of the key issues in selecting wood flooring is that the wood be hard.

5. Board size:

They recommend wider boards for a more elegant look, but to keep it under 3 1/2” to avoid the ends of the boards curving up. For length, choose something over 3’ – otherwise you end up with a floor that looks like leftover wood.

6. Special touches:

Patterns or special borders are a great option to make the change noticeable and unique.

7. Soundproofing:

Replacing a wood floor offers the ideal time to install sound-proofing as well. They recommend a rubber-like material similar to felt, but talk to your contractor about the options.

8. Finishes, stains, contractors and clean-up:

For a detailed idea of what you should look for in the finishing process, read Penny’s article from earlier this month.

Photo Credit: Jeff Trojan

The “shadow inventory” of condos and apartments is starting to come into the light. Projects that were placed on hold in 2008 to wait out the recession are going back on the market for a variety of reasons. Condo sales are beginning to pick up again overall, banks are making loans to developers again, and some developments that were taken over by banks are looking for a return.

Manhattan's 6,500 shadow units in the first quarter.

As Crain’s points out, there is reason for hope: 75% of the 120 units at Warehouse 11 that went back on the market earlier this year in Williamsburg are sold or under contract. The Dillon, a 83-unit Hell’s Kitchen condo from SDS Procida, which first suspended their plans and then lost funding, went back on the market 3 weeks ago. They have 11 contracts out for signatures already.

Some experts are worried that the current trickle of shadow inventory coming onto the market will turn into a flood though, possibly in the second half of this year. If the entire reservoir of shadow units, estimated at around 6,500 units in the first quarter, were put on the market it would increase the Manhattan condo supply by 70%. While sales numbers for the first quarter were up, median prices are still 11% below 2009 values.

Many Manhattan buildings in Manhattan, including 1 Rector Square, a 174-unit condo conversion in Battery Park City; 34 Leonard, a 16-unit TriBeCa co-op conversion; and 245 10th Ave., a new 22-unit development in Chelsea, and +Art, a 91-unit condo at 540 W. 28th St. in Chelsea are resuming sales this year.

Across the bridge an 87-unit Olive Park in Williamsburg that was renting for the past two years will go on the market for sale; sales at the 264-unit Be@Schermerhorn in downtown Brooklyn have also resumed.

If it remains a slow release, it could mean good things for Manhattan’s condo market and for prices, but if everyone tries to jump in at the same time, it could start to feel eerily like last year’s market.

Photo Credit: atomicshark