What's a Non-Conforming Coop?

You're searching the Internet for your new home to buy.  You find a property - a coop unit - that looks really, really good. You read through the description and you are loving the way it sounds. The photos look great too. Then you see at the bottom of the listing "Non-conforming building - cash offers only (or preferred)." Huh. What does that mean?

You Google the term "nonconforming building". The returns define it to be a building that doesn't conform to existing zoning laws. But in New York City, it's more likely to mean that the building's financials and/or owner occupancy do not conform to guidelines set by Fannie Mae (FNMA) and her compatriot, Freddie Mac (FHLMC), the two entities that purchase loans on the secondary market from the banks that originate them.

So you Google "nonconforming loans".  This search just gives you a lot of information about jumbo loans, which are a type of nonconforming loan, because the amount of the loan is higher than Fannie Mae conforming limits.

But this property is asking less than the published conforming loan limits. Are there other issues that can put a property into nonconforming territory?

Answer: yes there are. One of the big ones is owner occupancy. This refers to the number of units in the coop that have been sold by the sponsor to individual owners and are occupied by those owners and their families. Units that are owned by individuals but sublet to renters do not count, but individually-owned vacant units do. Sponsor-owned units also are not considered owner-occupied (a sponsor unit is one that continues to be owned by the original landlord of the building who created the coop, or their successor).

FNMA/FHLMC requires 51% of cooperative units to be "owner occupied". Not 50%, but 51%. This was a big issue back in the 1980s and 1990s when sponsors owned more than 50% of units in many coops that had just been converted. The sponsor ownership is less of a problem these days, but smaller coops (under 40 units) can still slip into this nonconforming status if they have a significant percentage of sponsor ownership (ie, 25-40%) and if the coop allows too many owners to sublet in addition. When that happens, the coop falls into non-conforming status.

In the olden days, it was possible to get something called a "waiver" on nonconforming buildings. This literally meant that the owner occupancy issue could be waived, and a bank could get you a conforming loan. Since 2008, however, that is practically impossible, according to mortgage lenders that I have considered. Whereas waivers were practically a given before the mortgage crisis (for a small fee), now each application for a waiver is scrutinized and takes weeks to process. Few are granted.

So that leaves us back to this beautiful coop in your price range. You don't have cash, but you see it's a bargain. What can be done?

First, realize that while many mortgage programs are not going to be available for that particular unit, some loans might be. These loans are called portfolio loans, and they may be given by banks or mortgage lenders.  A portfolio loan is a loan that a bank cannot sell to FNMA/FHLMC. The bank has limited choices - either the loan must be held and collected by the bank until the end of the term, or the loan can be sold to an investor who will deal in nonconforming loans.

Unfortunately, that translates to a slightly higher interest rate for the borrower.
But such a property may present an opportunity. Remember, every coop is different. Some may be primarily investor-owned, while others may simply be one unit from conforming.  Ask your agent what the situation is.  If the situation is just one unit, then you might have an opportunity to get a little pop in value when that one unit does finally turn the owner occupancy ratio over 51%. You have the option of refinancing into a conforming loan once the building is conforming as well.

So, all in all, don't leave those gems in the dust. Nonconforming coops can present an opportunity to the person looking for a below market opportunity for a long term primary residence.

Plastic Bag Law Not So Bad - Says My Dad

Last month I went down to visit my father and stepmother who live in the District of Columbia. My first morning there, I headed around the corner to get my morning tea at the Starbucks and a quick stop at the convenience store to pick up a few things I'd forgotten to bring with me (and some donuts for Dad).

At the 7-Eleven, I stared blankly at the screen as the cashier rang up my purchases. Then my eyes focused on one thing: a bag charge of ten cents. I hadn't even thought twice when she'd asked me if I wanted a bag. "Huh," I commented (did I mention I am NOT a morning person - even a late morning person?). "How long has this bag charge been around?"

"About three years," said the cashier.

I headed over to Starbucks and got my coffee, a breakfast sandwich and the pound of ground coffee beans my stepmother asked for. The barista asked if I wanted a bag. "No thanks," I said, and tucked it all into the bag I'd gotten from the 7-Eleven. One bag saved.

Back at the ranch, I told my Dad about my discovery of the bag charge. "Oh yeah," he said, "that's been around a while now. I didn't realize you didn't know about it."

"How are you handling it?" I asked curiously. Dad is in great shape, but senior citizens aren't known for their desire for change or inconvenience, and being charged for bags that used to be free isn't something that seems convenient OR like the status quo.

"You know, I like it," Dad said.

"Really?"

"Yeah. We drive around (because despite the Metro, DC is very much a driving city) with a couple of these reusable bags that the grocery store gave us in the trunk of each car, and it's not a big deal. Plus, it's really cut down on plastic bag litter. And if I have to, I can always pay the ten cents. But I usually don't have to."

What struck me most was my father's comment about the lack of plastic bag litter. I think we've all seen plastic bags stuffed into planters, flying around in the wind and caught in trees. Bags that benignly end up preserved forever in our landfills or more worse: that end up in our waste water ( potentially clogging up rain sewers); can get into our rivers and wash up on the shores; or worst, get out into the ocean where larger sea life can eat or get stuck in them and die. Free-ranging plastic bags journey to join one of the several oceanic gyres of plastic waste that have congregated with the currents in many parts of the world.

In economic terms, litter is an externality. That is the term we use for something that affects many people as a result of actions created by a few. In this case, plastic bags which are given for free to shoppers end up affecting many more people as litter in our public places. It's sad but many people - for reasons of convenience, spite, or accident - fail to properly dispose of plastic bags. And everyone, polluter and non-polluter alike, pays the cost of cleanup (sanitation, parks & recreation staff, supplemental cleanup such as the Doe Fund, and countless hours of building superintendants, plus volunteer hours of generous citizens).


Moreover, for the moment, more than 99% of plastic bags used in New York City are going to landfills. Aside from being able to bring plastic bags to certain grocery stores and retail stores as mandated by state law, there is nowhere to recycle plastic bags. The city specifically says not to put them in the curbside recycling (though I do). And who wants to hoard them at home to shlep them to the grocery store anyway?

I speculate that flimsy plastic bags do not recycle well and therefore recycling companies do not see profit in accepting them. That means plastic bags are an end product that - even if reused once or twice - have no resurrection factor. The free market is a long way away from bringing them back into the resource chain.

Plastic bags - plastic grocery-type bags in particular - have no long term value. They have a maximum of two uses - to ferry a set of groceries from your local store to your house, and maybe to pick up some dog poop. Ironically, dog poop would return safely to the earth if we put it in a compost pile but because we put it in a non-biodegradable plastic bag and toss it into a landfill, it will probably not biodegrade for decades. Or - another irony - you could use the plastic bag to stuff full of paper (yes I have done this, when I've run out of Whole Foods paper grocery bags) to put in the curbside recycling!

Enter the idea of just not using plastic bags in New York City. If you use them, you have to pay towards the cost of cleaning them up. Easy as that.

Naturally there are people who will oppose this for monetary reasons. The most obvious group will be manufacturers of plastic bags for grocery and retail stores, who will see their revenues fall when shoppers opt not to take a plastic bag, leading stores to cut their orders of these bags. To them I say: sorry. Figure out how to make a widely available recycling program and we'll talk.

I expect regular people to object too. I expect their reason will be something along the lines of: "You're taking away another thing I used to get for free!" To them I say: the bags were never free. You pay for them twice: once when you bought something at a store and again when you pay taxes to have them cleaned up off the streets and out of parks. You pay for them in the time you spend volunteering to clean up your favorite parks and beaches. Plastic bags are convenient, but what price should we pay for that convenience? Should it be the oceans, and our public parks and streets? Our landfills which, once filled, cannot be used for decades? Should it be loss of the ingredients of those plastic bags - which could have made up something much more useful - like school desks or chairs? Just so we could carry something around for an hour?

I carry a lot on my back as I move about the city, but starting tomorrow I am putting another thing in my backpack - a reusable bag that packs down into a corner of itself. It was a promotional item from a seminar at Google. When it wears out I have another just like it ready to go. I won't always be able to avoid using plastic bags, but I'll try. And when (not if - I'm pretty sure this bag charge will pass) we have to pay for our plastic bags, I'll do it when I need to. And then - sorry, Department of Sanitation, consider it a civil protest - I'm putting it my curbside recycling.

Sellers Reappear, Buyers Can Take a Breath.

Nice article on DNAinfo.com says more condos are now on the market after a few months where lack of inventory was causing bidding wars. This is good, because, according to the article, Manhattan condo prices are already back to and surpassing their peak value in 2007.

This article illustrates what I consider to be Phase 3 of the housing market.  In Phase 1, lack of buyers caused prices to fall. Sellers who had to sell at that time did so for much less than they could have just a few months before. But the sellers who didn't have to held onto their properties.  Sure, there was inconvenience for more than a few. Some had outgrown their space, while others needed to relocate for jobs or personal reasons. The ones who could hold on in their spaces did, while others managed to find renters to cover their expenses while they moved on with their lives. The result: eventually the equilibrium between available buyers and available sellers returned, but at a lower price point (econ 101, as some of you may recognize).

Phase 2: The buyers return. In this case, an easing of lending criteria (not by much, but you no longer had to be Bruce Wayne in order to qualify for a mortgage), an overall sense of more security that people weren't going to lose their jobs, and the resumption of the march upward in Manhattan (and Brooklyn) rents made them interested in buying again. People started looking around.... and didn't find all that much on the market. In the course of about 3 months over fall 2012-winter 2013, the lingering properties were swooped off the market.  That lead to a shortage in apartments, which means prices go up!  So, yes, there were stories of bidding wars earlier this year.

Now we are hearing signs of Phase 3. Phase 3 is - you guessed it - when the sellers return to the market. Not just any sellers, but what I would call "optional" sellers. These are people who would like to get rid of their apartment but have a little flexibility in when to do it. The owner who's renting after relocating to another city, or someone with a pied a terre that they don't use as much but can afford to keep. Or even the growing family who's a bit cramped but making do. 

Suddenly, selling seems more convenient to them now, and they are starting to put their properties on the market. The result: buyers have more to choose from, and a little more time to look. Prices probably won't drop, though. The market isn't loose enough for that. The bargain hunter days are pretty much over. Sellers may not all get the delight of having multiple sellers willing to jump through hoops for their property, but you can only sell to one person anyway. So price well (ask your real estate agent for help with that), and you'll still feel the love.

Is there a Phase 4? Yes, but it's not pretty.  It's the crazy market that existed 2003-2005 and again briefly 2006-2007 before the weakness finally caught up to NYC. Bidding wars, lack of contingency clauses, and lots of heartbreak. It's painful to be a broker during those times, even if I'm the listing agent, because I meet a lot of nice people and a lot of them end up heartbroken because they lost out on a bid. So I'm hoping Phase 3 - where buyers meet sellers in a healthy market - is here to stay for a while.

Do Your Neighbors a Snowy Solid

We in NYC had our first real snow storm of the season - about 8 inches with about 12 inches in some places. Right away I remembered the really annoying part of snow in NYC. It's not the roads and it's not the unshoveled sidewalks - that's actually the second most annoying thing about NYC snow storms.

No, the most annoying thing starts 1-3 days later, when the snow inevitably starts melting, and icy slush puddles accumulate at nearly every sidewalk corner where you have to cross the street. Suddenly, what is usually second nature to me becomes a major hassle. Does that look like virgin snow or is it more like an icy marsh, waiting to suck me down and flow into my boots, guaranteeing me an uncomfortable rest of the day (which may be quite young when the incident occurs).
The worst part of this is at night when the temperature is far below freezing (for instance, last night it was around 18 degrees after a day around 33 degrees), and those two-foot-wide puddles become two-foot-wide ice rinks, often uneven ice rinks because the slushy icebergs have become the peaks and valleys of your own Antarctic ice shelf. Talk about dangerous.

If you want the pedestrians that pass your house or store to throw grateful smiles instead of cursing your fortunes, please consider doing the following:

1) If your property is on the corner, instead of just clearing the sidewalk, also clear a pathway from the curb into the street. Yes, I know this isn't your responsibility, it's the City's, but can't we all get along?

2) If there is a rain gutter in front of your property, please try to clear a little channel from the gutter to the corner.  Just a small channel of 3 inches will help the melting snow clear out a little faster and will keep icy pools from forming so widely at the corners.

Please consider doing your NYC neighbors these snowy solids and we will thank you, in our hearts, if not as we pass by and see you doing your bit to help us all out.  Be safe everyone!

Where Does the Sidewalk End?

Kind of laughed when I read this article "Herds on the Street" talking about crowded sidewalks. Made me think of the children's poem:


"We shall walk with a walk that is measured and slow,
And watch where the chalk-white arrows go
To the place where the sidewalk ends."

- Shel Silverstein "Where the Sidewalk Ends"

The sidewalks have always been crowded. So crowded that the Dept of Transportation has made pedestrian malls out of major "squares" in the city - near the Flatiron building, Herald Square and Times Square - so people can walk in the streets legally.  Back in the early part of the 20th Century, some streets were so choked with push carts selling everything from clothing to knife sharpening, that the mayor built the Essex Street Market to get them all out of the way!

Some places, like Times Square, I don't mind the crowds. I almost (ALMOST!) like them, because it lends an air of excitement. For some reason, the crowds on 34th street outside Macy's (and down the street between Fifth and Sixth Aves) make me angry, probably because I need to go somewhere whenever I'm in the area. And the Rockefeller Center crowds don't endear themselves to me either. I avoid Prospect Park - just 2 blocks from my house - on three-day weekends. 

The Crains article actually talks about how much commerce is now conducted on the sidewalks of New York. I say, look at how much sidewalk space garbage takes up first. Then we can talk about the sidewalk vendors, food trucks and bus loading zones.

Oh, the Weather Outside is Perfect...!

Today and yesterday have been pitch-perfect in their temperature - near 70 - perfect weather for chinos and a top and no need for those extra linings. I am planning to spend a little time on the High Line appreciating the weather.

What really makes me happy is the delightful new renderings for the 3rd part of the High Line - the part that goes above 30th street and over to the West. The amphitheater is ingenious and I love that part of the stretch will be left - temporarily at least - au naturel with the life that seeded itself there when the High Line was abandoned.

I've been so grateful the winter was so mild but I'm a little fearful the summer will blaze in compensation. So I'm going to head out and enjoy this weather while I've got it!

Last 5 Days To Vote for NYC's Best App!

Only 5 days are left to vote on the most useful apps submitted in the New York City Big Apps 3.0 competition. A summary and video demonstration of the app is posted to the Big Apps 3.0 website. This year there are over 350 apps vying for the top. I found a couple very interesting real estate - related apps. Zoner, for instance, helps you figure out how much buildable area is available on a particular lot - this app has already been built and is available for download. I am looking forward to using it to double check my calculations for clients. StableRenters is a pretty comprehensive app aimed at showing public record activity such as violations that a landlord collects. Admirably it aggregates information from all of the landlord's buildings to give the landlord a sort of "responsibility rating". Definitely a tool that could benefit many renters and help get some apartments in NYC their needed updates. Another real estate app I thought stood out is New York City Datascape. This app uses census and other information to create a 3D map of New York City based on what you think is most important (parks, cafes, schools, even average square foot rents so you can stay within budget). It's a great way to figure out which neighborhoods you want to explore if you are looking at moving to a new neighborhood. I thought Phoundit was really clever. If you have Foursquare, then you might receive a ping if you check in at a location where a fellow Phoundit user has lost something. Many of the apps are fairly simple, but useful. Apps for finding parking garages or recycling centers or nearby city parks. Guestlist NYC seems like a must have for clubbers (a scene from which NYC Real Estate Goddess has mostly retired). A lot of work and imagination went into these apps, and winning or placing highly means a lot to these developers. Go to the Big Apps 3.0 website and vote on an app you think is interesting before March 8! You can vote once each day, so keep coming back. You might find your next can't-live-without app there.

Bedbug Scare Not So Bad This Year

You can't help but read anything about bedbugs without starting to itch a little... and then running to burn your sheets.  But Crain's brings good news!

http://www.crainsnewyork.com/article/20120101/HEALTH_CARE/301019970/1020

Yes it seems that all our vigilance is paying off - thank goodness! But just as with other scourges, bedbugs never were completely gone, and they are still out there, as the article says, particularly in hotels. So please, keep taking precautions, and we will all sleep a little better at night.