At the Core: The Jigsaw Puzzle of Real Estate

Being a real estate agent is a lot like solving jigsaw puzzles. Some puzzles have 15 pieces and others have 1,500. The puzzles with the most pieces take longer to complete, but on multiple levels they’re almost always the most rewarding.

It’s easiest for us to draw an analogy between our profession and solving a puzzle after we’ve completed a transaction, when we have the benefit of hindsight. It happens most often when we’re telling “war stories” about the most difficult transactions we’ve encountered. The conversation goes a lot like this:

“Remember that deal with the low appraisal, and the condo was declined by the bank, and our buyer wanted to close in June, but the seller didn’t want to close until September?”

“Oh yeah… wasn’t that the one with the seller’s broker that was almost impossible to deal with?”

“Yes. That one. But somehow, we still got it done!”

Putting the pieces together for our clients on deals like that is especially rewarding because there is a real sense of accomplishment and pride. We also learn the most from those deals and they help us get better at solving the puzzles we’re working on now and the ones we’ll tackle in the future. We’ll be ready for that 50,000 piece-jigsaw puzzle when it lands on our desk!

Starting with a Corner Piece

Before our clients are in contract, and before they even make a bid on a property, in real-time we’re helping them put the first pieces of their puzzle together.

In late June, Marie had one of our clients on speakerphone as they worked through all of his numbers. Would he have enough money in reserve to meet the co-op board’s requirements? Could he bid on the $3.7 Million property that he and his wife loved most, or would their budget dictate that they remain focused on the $3.2 Million property they saw with Jeff a few days before?

The phone call lasted 45 minutes. Back-n-forth, Marie and our client traded numbers until everyone was on exactly the same page. Ultimately, he knew how much money he’d need for both units. He knew what the payments and debt ratios would be in both scenarios, and whether he’d meet reserve requirements for the board. He had the information he needed to make highly informed decisions.

Reactive vs. Proactive

Solving puzzles is good for business but creating them can be even better.

Internally, we mostly measure our success through our clients’ experiences. We’re achieving at the highest levels when all of our clients are happy. But to the outside world, and to our future clients that have not met us yet, our success as real estate agents is measured in units, transactions and dollar volume. So, we always have to think about ways to identify or even create opportunities so that we exceed the standards for success within our industry. In effect, we have to create our own puzzles.

We like to think of New York City as a giant jigsaw puzzle, with invisible pieces scattered everywhere. The pieces can be questions or answers, or they can be people who have the answers to the questions. They can be buildings or banks or new laws or regulations or tax codes. They can be facts or figures or charts and graphs.

Separately, the pieces might not mean a lot. But when we understand how all of these pieces fit together, we’ve almost always identified opportunity. We connect the dots by reading articles and talking with experts and analyzing data. But mostly, we ask questions.

Toward the end of June, our team registered for a panel event where experts in the field told us about new laws governing developers who want to convert their buildings from rental to condo or co-op. As audience members, we asked a lot of questions and we got a lot of answers. And, we met people who undoubtedly would be able to provide us answers to questions we’ll have in the future.

We always want the members of the Espinal Adler Team to be critical thinkers, and that always starts with asking the right questions. Each member of our team should always ask:

  • How can I identify an opportunity to grow my business?
  • How can I create an opportunity for the team?
  • Most of all, how can I identify opportunity for our clients?

Every time we find an answer to these questions, we’re a stop closer to solving a puzzle and creating opportunity.


At the Core: A Tale of Two Cities

A Tale of Two Cities

Technology is shrinking the world. The other side of the planet is less mysterious than it used to be. Social media has had a figurative Pangea effect on the planet, pulling every nation and every continent closer to one another one YouTube video at a time.

The effect has the same hold over the business world. Our office is in the heart of Manhattan, but our clients are from all over the globe. They come to New York for a day, or a week, or a month, or even for years at a time, or forever. They love the city, but they still want to know that their investment in it was a wise one. Not only compared to the other properties in a building or in the surrounding neighborhood, but also compared to other properties in Europe or Asia.

As the world shrinks, our responsibility as real estate agents grows exponentially. We are number-crunching conveyors of information. And with so much good information ready to be collect and so many tools to help collect it, really there’s no excuse for us not to offer valuable real estate information about any plot on the planet.

One of our clients recently told us he was leaning toward a new investment in London rather than buying in New York. It was safer, he thought, and many others in his family had done so in the past. He asked us to create a comparison of costs and market trends between the two cities.

Here’s what we found:

The Cost of Buying a Condominium (London vs. New York):

Taxes paid at closing to the U.K. government are significantly higher in London compared to the taxes paid at closing to the city and state of New York. New York saw a recent bump to their mansion tax, while the U.K government is pondering an additional Stamp Duty Land Tax paid by non-residents of the U.K.

 (A Comparison) New York Mortgage Tax and Mansion Tax vs. London Stamp Duty Land Tax

New York

New York State Mortgage Tax (in New York City) — Buyers in New York that obtain mortgage financing are required to pay a mortgage tax based on the size of the loan (not the price of the unit). The amount of the tax is dependent upon the county where the subject property is located. In all five New York City boroughs, a mortgage borrower would pay 1.8% of their loan amount on mortgage balances of $500,000 or less, or 1.925% of their loan amount on mortgage balances greater than $500,000.

New York State Mansion TaxPrior to June 2019, there was a flat 1% Mansion Tax levied against all properties sold at a purchase price of $1 Million or more. There was a lot of buzz about creating an onerous Pied-a-Terre Tax. Instead though, lawmakers altered the mansion tax rule and created a tiered structure that charges a higher percentage to people who buy higher-priced properties. The tax is against the full purchase price.

$1 Million – $1,999,999 = 1%

$2 Million – $2,999,999 = 1.25%

$3 Million – $4,999,999 = 1.5%

$5 Million – $9,999,999 = 2.25%

$10 Million – $14,999,999 = 3.25%

$15 Million – $19,999,999 = 3.5%

$20 Million – $24,999,999 = 3.75%

$25 Million + = 3.9%

London

Stamp Duty Land Tax (SDLT) – -Most homebuyers in England and Northern Ireland pay a Stamp Duty Land Tax. It’s a tiered tax, based on purchase price and whether or not it’s your primary residence. The tax is against the full purchase price.

When Purchasing Your Primary Residence

£125,001 – £250,000 = 2%

£250,001 – £925,000 = 5%

£925,001 – £1,500,000 = 10%

£1,500,001 + = 12%

When Purchasing Additional Property/Non-Primary Residence

£40,001 – £125,000 = 3%

£125,001 – £250,000 = 5%

£250,001 – £925,000 = 8%

£925,001 – £1,500,000 = 13%

£1,500,001 + = 15%

** First-time homebuyers avoid an SDLT on any home with a purchase price under £300,000

*** The U.K. government is considering a new 1% Stamp Duty Land Tax for non-residents of the U.K. who by homes in England and Northern Ireland. This would be in addition to the existing SDLT fees. The surcharge would apply to homeowners that spend fewer than 183 days in the U.K. during the 12 months prior to the date of a property transaction.

Other Closing Costs to Consider

Aside from government taxes, there are other fees to consider when purchasing a property in New York or in the U.K. mostly due to the American practice of obtaining an expensive title insurance policy when purchasing real property, the typical non-tax closing fees in New York are higher than they are in London, but not nearly enough to account for the massive difference between Mortgage/Mansion Tax and SDLT. Ten, twenty, or even $30,000 in title fees isn’t out of the ordinary in New York, whereas in London a buyer might pay a conveyance fee of less than £2000.

Mortgage Rates

Mortgage rates in London were generally about 1% lower than what we see in New York right now.

Lenders in London advertised Adjustable rate mortgages almost exclusively, whereas in New York, we often see 30-year fixed rates advertised just as often.

The State of the Market in London

London had 3,703 annual Transactions in 2018. That number is down in Prime Central London by 15% compared to 2017 and down 45% compared to 2014. For greater London the numbers are down 4% compared to 2017 and 26% lower compared to 2016.

Prices were increasing by about 20% per year from around 2008 – 2014. But in 2018, Prime Central London prices dropped 2.9%. Prices dropped .2% in Great London.

The average price of a home in London was $266,999 in 2008. That average jumped to $473,609 last year. Prices in London were down though by .5% in 2017 and by .8% in 2018.

New construction is typically priced 15-20% above market.

The average home price in London is now 16 times the average salary in the U.K.

High-end transactions are down 25% in London compared to a year ago.

 Brexit Conversation Dominates the News

Uncertainty and hesitation are likely the most common words spoken in any conversation that relates to the London housing market. A lot of buyers and sellers are waiting out a Brexit resolution with a current deadline set for Octobert 31st.

The Bank of England’s Mark Carney said an extreme “no-deal,” hard Brexit scenario could bring spiraling interest rates and a drop in house prices of up to 35% over the course of the next three years. Other forecasts were much less extreme though. Most analysts thought there would be some downward movement no matter what the outcome.

 Taxation of non-resident investors in U.K. real estate (Major Changes made April 2019)

Non-residents had an advantage over U.K. residents when it comes to the taxation of U.K. real estate. But the British government is attempting to level the playing field.

As of April 6, a uniform tax code applies to sales of both residential and commercial real estate and includes non-residents. The tax charges will apply to gains on direct sales of U.K. real estate as well as indirect disposals of U.K. “property rich” interests.

Non-resident companies would be taxed 19%. Non-resident individuals would be taxed up to 20% on gains from commercial properties and up to 28% on gains in the case of residential property.

 

 


Our Real Estate Finance Specialist Talks about First Months on the Job

In this space The Apple, Peeled usually features an expert that has made their mark on our industry. We’re constantly looking out for guest experts that our team and our readers can learn from. And in so many instances, our subjects have become our trusted resources and guides in their areas of expertise.

We always choose someone from outside of Douglas Elliman. Certainly, it’s someone from beyond the walls of our own office. But for this month’s edition, we decided we’d try something different. Early this year, our team created a position that seems quite unique to our industry. We added our own “Real Estate Finance Specialist,” a role designed to provide our clients unlimited access to an unbiased, unaffiliated mortgage expert.

How It Happened

Almost 6 months ago, Matthew Jablonski made one of the scariest decisions of his life. He was a mortgage originator for 15 years, entrenched in the industry, consistently placing in the top 1% of loan officer in the country every year.

But then he quit! And he joined our team.

Matt told us that the mortgage industry changed, the people he was surrounded by changed, and just about everything else in his life was changing, so the timing was spot-on to change careers too.

“I decided it would be better to change everything all at once,” he said. “I needed a shot of adrenaline. Something more dynamic with more possibilities. Something that was new on a daily basis.”

During the train ride from his house, Jablonski opened his notebook and double-clicked his mechanical pencil. On his way into the city to see our team at our weekly meeting, he got all of his ideas down on paper, and then he created an outline and a specific job description.

A few times before that morning he thought, “What if I quit my job and got my real estate license and I joined Marie and Jeff’s team?” he said. “I had absolutely ZERO days experience as a real estate agent, but I played a role in over 2,000 real estate transactions during the course of the last 15 years. Surely, I thought, I brought something to the table.”

On a page inside his composition notebook, not lost inside all of his other thoughts, there’s a bullet-point list that says:

  • I’d be completely unaffiliated with a mortgage lender or a bank, so the clients might be more at ease if I gave them mortgage advice.
  • I’d use my experience to help these clients find the mortgage program that best suits them.
  • I’d be able to hold lenders accountable, both in the efficiency of their process and with all the numbers.
  • I could translate things that may not have been made clear by a loan officer.
  • I could help a client understand how to negotiate for the best terms.
  • I could vet pre-approvals for anyone that makes an offer on one of the team’s listings.

Even though he was confident in the idea, and he thought it was a completely unique position that could give our team a leg-up on the competition, Matt later told us that he was really afraid to pitch the job to us.

“What if (Marie and Jeff) weren’t interested,” he said. “Over the years, (the Espinal Adler team) referred a ton of business to me. As soon as I pitched the job, everyone would be completely aware that I wasn’t completely happy with being a loan officer. That could have been bad for business.”

The Beginnings

Nearly a dozen years ago, Matt and Marie sat next to each other at a Manhattan closing. Matt helped the buyer with her mortgage, and Marie listed the property for the seller. Marie and Matt spoke very briefly once or twice during the process. But while their clients were signing the massive pile of documents on the closing table, they discussed strategies for refinancing Marie’s personal home.

Soon after that, Matt closed the refi for Marie and her husband. Then the team started referring a lot of our clients to him because he was such a good hand-holder. We’ve worked on a lot of complex transactions over the years, and all of our buyers that worked with Matt made it to the finish line and he always gave them all the time they needed. And he always kept us in the loop too.

“At every bank or mortgage company I’ve ever worked at, there’s always been a manager around to remind me to go to my closings,” Matt said. “Face-to-face time is always good for business. It’s kind of crazy what can happen if you put everything aside and show up to your closings! Luckily, I showed up that day.”

In an interesting twist, the Espinal Adler team very recently helped a client close on the sale of her property and on the purchase of a new, bigger and better unit. The client was the same one who Matt helped get a mortgage when she was buying Marie’s client’s apartment. The stars were aligned.

Pitching the Job

Despite his fears, Matt pitched his idea because he said getting referrals from us would force him to stay in the mortgage industry longer. Logic dictated that he share his idea.

Marie’s jaw dropped.

“I was kind of in shock because the same idea was sitting and stewing in my brain for at least a year,” Marie said. “I thought it would be great if Matt could run a ‘Mortgage Desk’ for our team. But I always dismissed the idea because I didn’t think he’d want to leave.”

In theory, we were on the same page as Matt, but there was still so much to work out. He still wasn’t licensed. We still had to further define his role and figure out if we could make it work financially. And Matt had to be 100% sure he was ready to take a leap of faith.

“I had to overcome the fear of failure and the fear of leaving behind a job that provided for my family for so many years,” Matt said. “And, the hardest part was leaving behind an amazing colleague that worked alongside me and helped me achieve amazing success over the last couple of years.”

We kept an open line of communication. All of the pieces started to fit. Matt took his real estate courses, passed his tests, and joined the team when he got his license shortly after the new year.

Typical Client Interaction

The very first client that Matt assisted in his new role comes with a success story that will be difficult to duplicate.

Our client Sachin, who is a busy executive at a well-known accounting firm, already called three different lenders before he spoke with Matt for the first time. He chose a loan officer that he was completely comfortable with, whose bank offered a very low interest rate.

Sachin and Matt spoke several times while his mortgage application was ongoing. discussed loan program options and about the city and state taxes that Sachin would ultimately be responsible for at closing. The application process was running smoothly and Sachin received a commitment well in advance of the contingency date written into his contract. But when Matt reviewed the commitment letter, he noticed that the low rate came with a sizable origination fee approaching $30,000.

Sachin let Matt know that he wasn’t aware of the fee. So, Matt called the loan officer to find out if there was an error or miscommunication. There was no error. The only hope to eliminate the fee was to obtain a loan estimate from a competing lender the documented they were offering the same rate without the origination fee. Armed with that information, Sachin’s loan officer could request a pricing exception to reduce or eliminate the fee.

“I called all of my contacts within the industry to see where they would “price-out” the loan,” Matt said. “Sure enough, one of them was able to offer the identical rate without charging the extra fee. Sachin could have switched gears and applied with this new lender. But instead, he passed along the competitive data I helped him to obtain.”

Sachin’s loan officer’s request for a pricing exception was granted. The fee was eliminated and the deal closed right on-time, without the fee.

“Matt’s insight into financing options and their implications, given my unique deal structure and circumstances were invaluable,” Sachin said. “I secured the right product for my needs at an optimal rate and cost and managed the timeline to a timely close.”

Getting Creative

Our client Rick is a self-employed resident of California who was in search of a Manhattan apartment that he could use as a second home when he was in New York on business, or if he was in town to watch a St. John’s basketball game (he’s a huge fan).

We connected him with Matt before he flew in with his wife Anita to look at properties. Apparently, Rick did his homework on the team and he notice that Matt was a St. John’s alum and he covered the basketball team when he was Sports Editor and Editor-in-Chief for the student newspaper. They had an instant connection.

Shortly after they made contact, Rick sent to Matt a very complex set of corporate tax returns and they reviewed them over the phone. Matt told Rick that because he was self-employed, the way his income was calculated would be open to interpretation, and unless they obtained specific clarification from Rick’s accountant, an underwriter might use less qualifying income than what he deserved.

Matt and Rick decided that the best course of action would be to submit an official mortgage application and seek an official approval in lieu of a pre-approval, even before a specific property was identified. That way, we would know exactly how much income the mortgage underwriter would give him credit for. Having a commitment letter would put Rick and Anita in better bargaining position, but just as importantly, the proactive measures would provide our clients with additional peace of mind.

About 10 days after they applied, they were issued a commitment letter. Rick and Anita had no preference between condo or coop, but Matt and Rick spoke at length about how a coop board is even more strict than a lender — A board would insist that his debt-to-income ratio be significantly lower than what a lender called for, and the board might not calculate his income exactly the way the underwriter at the bank did.

During a trip to New York, we helped Rick and his wife find an Upper-West-side co-op that they loved. The monthly maintenance was higher than the estimates the bank used to obtain the mortgage commitment. We were all concerned that a co-op board might balk at Rick and Anita’s application if they didn’t take the time to properly analyze the corporate returns.

Matt walked Rick through all the numbers. He saw that if Rick and Anita refinanced their California property, they could take advantage of better, more flexible terms compared to what was in place. Ultimately, it would result in numbers that even the strictest co-op board would love to see. An action plan was implemented and Rick and Anita applied simultaneously to refinance their California home while they applied for the mortgage for the New York property. During the first week of June, the co-op board approved their application.

“The Espinal Adler team afforded us advantages not available in other real estate offices,” Rick said. “There is little doubt that we would not have been successful in our Manhattan Co-op search and ultimate purchase had we been with another brokerage team.  The Espinal Adler team is truly unique in having Matt Jablonski, a real estate finance specialist, as an integral part of the team. Matt shepherded us through the process, minimizing our time commitment as our particular situation was quite complex.  Moreover, as Matt’s loyalty is to the Espinal Adler client, not to a particular bank or lender, he was able to arrange the best financing options for us. Having Matt as part of our purchase team, we believe, was one reason we were successful in our co-op purchase.”


At The Core: Knowledge is Power

We’re preparing for an upcoming business trip. It’s been in the works for months or even longer, but its finally almost upon us.

An audience on the other side of the globe waits for us to deliver our expertise. That’s a massive responsibility, one that we embrace and take very seriously. But It doesn’t matter who or where the audience is, being called an expert in any profession is an immense responsibility.

A trip like this one has a way of forcing us to dig a little deeper and work a little bit harder to ensure that we exceed expectations. For weeks now, we’ve been gathering information along with other members of the Espinal Adler team. We’re creating reports to help tell the story of our current marketplace and the opportunities that exist within it.

It’s true that we’re gathering this information for an audience far away. But the effort and energy we invest preparing and further educating ourselves, and the willingness to push beyond an antiquated idea of our own comfort zone is going to make us better at our jobs – and that’s a good thing for all of our clients, even the ones right around the corner. Because of that, no matter how successful we are based on traditional business standards, this trip represents another massive step in our careers.

We believe that knowledge, and the effort put forth to gain it, and the desire to deliver it genuinely to others, is what separates an ordinary real estate agent from an expert.

Since well before the itinerary for our trip was finalized, we’ve been surrounding ourselves with the best, most respected, and most knowledgeable people in our industry. Learning from them is part of our job — part of our responsibility – it’s part of being a true professional. We meet every week with experts from different niches within our industry, doing what we can to pry from them whatever knowledge they’re willing to share so that we can deliver it to our clients.

In the first few months of 2019 alone, we’ve met with:

  • An attorney that specializes in representing foreign nationals.
  • One of the most talented interior designers in New York.
  • The CEO of a company whose expertise in compliance is sought out by virtually every condo developer in the region.
  • Perhaps the most respected appraiser in all 5 boroughs.
  • The president of one of the most widely used NYC property search engines.
  • More than a dozen lenders to find out exactly what each of them might offer our clients.

During the last year, our team has promoted a marketing expert, added a mortgage expert, and we hired another multi-lingual agent. All of those actions fit within the same mantra of bringing to our clients the most knowledge and expertise available.

Knowledge is Power

In our personal lives we interact with professionals who work in fields that we know very little about. We expect those professionals to guide us appropriately, especially when we’re making a purchase. But if we have no history or established relationship with the person offering their guidance, it’s not easy to put our complete and total trust in the advice they are giving.

One of the members of our team told us he went to a “big box” hardware store last week to gather information about a flooring project he was working on.

He expected the sales person would be able to provide the price per square foot – after all, it’s written right on the display. He expected that the salesperson would be able to tell how long it takes to order a product and to have it delivered and installed.

But our team member was caught off-guard and pleasantly surprised when the salesperson provided details about the tax benefits of specific capital improvements made to a primary residence, including the installation of new floors. It was obvious that the salesperson took pride in his profession. His knowledge exceeded expectations and provided instant credibility.

The same principles can and should be applied in real estate. An agent has to be so much more than a scheduler and a door opener – That is the least amount of value we can possibly provide. Every day, we have to work on our craft. We have to surround ourselves with and learn from other experts in our field so that we can live up to the responsibility of being called a professional and an expert.