Market • May 10, 2024

What Does $330,000 Buy in Patterson, NY?

by J. Philip Faranda

You can still buy a nice 3 bedroom home in Putnam County for under $350,000 like the one our buyer client closed on last week. It is a fully renovated 1100 square foot 3 bedroom, 2 bath bungalow on a level lot with parking for at least 4 cars. The siding, roof, HVAC, walls, kitchen, and baths are all new. It is in the Putnam Lake community, so the property has lake rights- as a matter of fact the water is only about 500 feet from the front door. Putnam Lake (or “Put Lake,” as the locals and agents affectionately refer to it) is a woodsy, sleepy community of tidy homes that tend to be on the smaller side, so it is a great place for starter homes for anyone who likes lake living. There is shopping and food nearby, and the area is served by the Brewster school district.

The house is quite turnkey, and the rear yard is fenced off which is great for anyone who has pets. This one is gone, but my team can help you find one like it. Hit me up by call or text at 914-450-8883 and we will hook you up!

Buying • Real Estate Tips • Selling • May 10, 2024

Square Footage

by J. Philip Faranda

Decades ago when I was tending bar, we always knew to avoid any discussion of politics or religion because it was a powder keg. In real estate, that would also include any discussion involving Zillow, dual agency, and square footage.

Ah…square footage.

Where do I start? Broadly stated, residential square footage typically includes finished living space. If we want to get more specific, it is finished living space at or above grade. A finished basement can be included in square footage if it has a certificate of occupancy, but it is easier to justify including basement area that is above grade, for example a walkout basement with a slope to the rear yard that doesn’t require stairs as part of the egress. Appraisers have a harder line on this than agents, but in general if there is a CO for the finished living area, we include it in the square footage.

Measuring the SF can also result in variations. For example, a builder will measure the area from corner to corner of the structure, whereas some people will measure the interior dimensions of the rooms, which will exclude the area inhabited by walls, closets, stairways, and so forth.

Raised ranches always include the lower level or basement, and because they are so commonplace they are all an apples to apples comparison.

This is important, and I want it to be the final takeaway: the final authority on verifying square footage is always the municipality building department. In other words, when I am doing my due diligence as either a listing agent or buyer agent on a property, I will go the the building department in Ossining, White Plains, Scarsdale, or wherever else the property is and get the property card. Whatever the building department has on record is the official square footage of the home.

Appraisers and agents can field measure a home. Tax assessors often have square footage on record for taxing purposes, but they are NOT where you go to verify square footage, and there are two huge reasons why that is so.

The assessors office may not have the exact same information as the building department. That may be because they didn’t confirm that finished area was legalized, but they tax on it anyway, or
Some assessors only tax on the above ground living area for assessment purposes and exclude legalized, finished area in the basement.

Simply put, you verify the true property tax with the assessor and the correct legal square footage with the building department. It is analogous to going to a dentist for your teeth and a proctologist for your caboose. They will both tell you not to put things in there that don’t belong, but beyond that they have different roles.

The building department will also be where you verify bedroom and bathroom count, the legality of improvements like decks, pools, and finished basement, and all other physical characteristics of the home, even violations filed.

Why am I so fired up about square footage? Well, aside from the aforementioned passions it inspires in industry discussions as it is, I have recently discovered that agents don’t understand this basic underpinning of due diligence. Recently, a transaction died an untimely death because an agent advised her client to verify the square footage themselves with the assessor. Let’s put aside the fact that the agent should be doing this, not their client. The assessor only quoted the person the square footage they assess on, excluding the finished, legal walkout basement that made up more than 600 square feet. Not realizing the rationale for the exclusion, the prospective buyer flipped out and walked from the deal.

The seller was disappointed, but it was really that buyer who lost out, all because their agent didn’t do their job. Just remember this: for all things taxes, it’s the assessor. For square footage, get thee to the building department.

Buying • Commentary • Selling • April 30, 2024

Escalation Clauses in Offers to Purchase: a Double Edge Sword

by J. Philip Faranda

Escalation clauses are sometimes included in offers that essentially state that if the offer being presented is outbid by another competing offer that the buyer will raise their number by a set amount over the higher competing bid. Sometimes they are clever due to the confidential nature of closed bids in New York real estate, but they are not the cure all that some agents think they are.

The first escalation offer I can recall was a sale I made in 2012. The house was a rare offering and the market was, at long last, recovering, and the winning bid promised to be $2500 higher than any superior offer. The listing was sold for about $40,000 over asking, and that clause made the difference for the buyer who ended up getting the house. That buyer was paying cash, so it was a particularly strong proposal in the terms category as well as price.

When the market heated up around 2020, escalation clauses became far more common. Not many listing agents understood them well enough to properly convey the message to their seller clients as effectively as they could have, but by 2021 most agents grasped the mechanics.

Unfortunately, some agents know them a little too well. Yes, escalation clauses are no longer viewed as obscure or a gimmick, but they aren’t always the answer. Here are a few scenarios where they just don’t work the way the presenting agent thinks they will:

Multiple escalation clauses. If a property has multiple offers and more than one has an escalation clause, it can create too much noise for the seller. Yes, one escalation clause can promise $10,000 more than the competition whereas others are $2500 or $5,000, but that does not negate other terms. Speaking of other terms…
When other terms like down payment are not competitive. If the seller of an $800,000 house has a $825,000 cash offer and a competing offer has an escalation clause of $10,000 over best but their down payment is only 5 or 10%, that bump up may not help because the certainty of a cash buyer is superior to that of a highly leveraged loan contingency. To say nothing of…
The house may not appraise. And if the buyer is cash poor, they may want the seller to eat the difference if the appraised value come back low. The lower the down payment, the less punch the escalation clause will pack.

It has gotten to the point where some listings will state that no escalations will be entertained. We recently had a multiple offer situation on a listing where the winning bid was chosen because it had a high down payment and waived the appraisal contingency. An offer with a VA mortgage came in with an escalation clause, but VA mortgages are 100% financing, or 0 down. That might have gotten the seller an additional $5,000, but the risk of going to contract with a buyer with no cash to cover an under appraisal was not palatable for the seller. The buyer agent was unhappy about this, and I do appreciate the uphill battle VA buyers face, but that agent did not have an answer for the possibility of an appraisal problem.

Escalations can indeed make a difference. But they aren’t the panacea that some think they are because of the law of unintended consequences connected to other terms, and agents need to educate their clients that the clause isn’t a magic wand.

Buying • Commentary • Selling • April 22, 2024

What Everyone Should Understand About In-Law Apartments

by J. Philip Faranda

The term “in law apartment” or “in-law space” has become misunderstood lately by both agents and consumers, so I’d like to clear up what should be fairly straightforward.

First, if a home is a single family house, it is just that: a single housing unit. It is not a multi-unit building. If it has a “in law” attached, that space is designated for non-commercial purposes so that extended family can live in the same house, but more or less separately, and not for market rent. There is no true legal definition of an in-law space in my research, but overall it is visually like a second apartment in what would have been a single family home. It often has its own kitchen and for all intents and purposes appears to convert the structure into a 2 family, and other times it is a separate space with its own entrance that may not have its own kitchen.

“Separate but close” is, in my experience and what I have read elsewhere, the biggest distinction. It could be a living area above a garage, an out building like a cottage, a basement living area with it’s own entrance, or any number of other setups. But what all in law spaces also have in common is that they are not for rental income. Now, to be clear, you might have family in an in law apartment or area who contributes to your mortgage every month. That’s one thing. But if the people who live there and pay you rent monthly came from Craigslist and not from your genome, you are out of compliance.

Recently, we had an accepted offer on a home with a separate space with it’s own entrance that we suggested could be a home office or an in law space. The prospective buyer was sent by his agent to the municipality’s building department to ask if the space could be rented out. They were obviously told that they couldn’t. They withdrew their offer and the agent suggested that the wording in the listing was inaccurate.

I have two thoughts on this:

The consumer clearly misunderstood what an in-law space is.
That agent should have accompanied their client to the building department for obvious reasons. If a client has to do the due diligence, what use is their agent?

In-law spaces cannot be rented out to the public. No building department would sanction this. Moreover, if one decided to get clever and rent out an in law space on the down low, they would be tempting fate. If anything happened on the premises that required an insurance claim like a fire or accident, the insurance company would likely deny their claim because most policies mandate legal use.

Think about that. If you buy a home with an in law space with the intention of renting it out to the public instead of having family live there and the place burned down, you might not have coverage for the loss.

Real estate has lots of catch-22s: Someone might skip getting a permit on an improvement because they are afraid of an increase in their property taxes, but when the time came to sell, they’d have to legalize the work later at great expense to their wallet and they could lose a buyer or two in the process, affecting their sales price. A self employed person might hide taxable income to avoid income tax, but they end up having a harder time qualifying for a mortgage or having to pay a higher rate. In both cases, the short term savings is often washed away in the long run.

It is the same thing with misuse of in-law spaces. Skirting the rules could turn a short term profit into a long term headache (or worse). If you are on septic and rent out the space to a small family instead of having your aged uncle live there, it could overwhelm the system. You could cause a parking problem. You might have a neighbor complain , especially if your tenant doesn’t behave themselves. I’ve already mentioned the liability issues. Anyone who thinks that “in law” is a dog whistle for a multi unit home in the traditional sense is inviting future headaches, and could cost themselves dearly. Just like most real in-laws, proceed with care.

Market • April 6, 2024

Here’s What $439,000 Buys in Highland, NY

by J. Philip Faranda

I LOVE THIS HOUSE!

The dollar goes just a bit further in Ulster County than it does in Westchester, and this decked out cape that my clients closed on this week are ecstatic about their purchase. The prior owner did a marvelous renovation, and in addition to the wood burning fireplace and nearly an acre of level land, they will enjoy some wonderful modern upgrades.

It has a huge renovated eat-in kitchen, a formal dining area off the living room, 4 bedrooms, 3 baths, and some seriously awesome mechanicals: solar power, an ultra modern water filtration system, a backup generator, and ductless central air conditioning. It also offers a dynamite lifestyle, with a huge back yard that looks out at wilderness, a large patio, a turnaround driveway, and maintenance free siding. Just about everything is updated, from the septic system to the roof.

The team can help you find your own piece of paradise, all you need to do is call 914-450-8883 and we will see to it. We wish our clients many happy, healthy years in their new castle.

Buying • Mortgages • Real Estate Tips • Selling • April 4, 2024

Smart Agents Will Excel at Assumable Mortgages

by J. Philip Faranda

If I were asked by a seller what separates me from other agents to get them the best price for their home, I’d answer their question with a question of my own.

What type of mortgage do you have on the house now?

If the answer were an FHA, VA, or USDA mortgage, I’d then ask what rate they are paying.

If their rate were below 6%, for example 4.75% as millions of loans have now, I’d explain how I’d market their home to the buying public as an opportunity to buy a home in 2024 with a mortgage rate of 4.75%.

What sorcery is this? What gimmick? It’s the age old practice of assuming a mortgage.

Right now in the US there are millions of homes with mortgages that are assumable (with bank approval, which is not a significant obstacle for anyone who was buying with a mortgage at the current rates anyway), and a huge number of them have relatively high mortgage balances because those loans didn’t require a large down payment originally. Many buyers are fully prepared to put $100, $200, or $300 thousand down on their next home purchase. And if they have that kind of money down, they can assume an existing home loan with it’s original rate.

Marketing a home in today’s market with the verbiage that “mortgage is assumable at a rate of 4.75%” would attract even higher demand and should command a premium, especially since the fear of under appraisal would be virtually nonexistent. Assuming mortgages is a lost art, and all government insured loans like FHA and VA are assumable with lender approval. And for the average buyer, getting approved at 4.75% for example is far easier than getting approved at 7%.

I’ll draw out a scenario to illustrate the difference.

The home being sold is $700,000.

Right now, if a person were to buy that home with a mortgage of $500,000 at 7%, their principal and interest payment would be $3327. Now let’s suppose they instead found my prospective listing as illustrated above with a mortgage balance of $525,000 and the interest rate is 4.75%. There are 25 years left on the mortgage.

In both scenarios, the buyer puts $200,000 down. If they didn’t assume the mortgage, their principle and interest payments would be $3327. If they assume the existing mortgage, their principle and interest payments are $2608. That’s a $700 difference, which might shrink a bit if you add mortgage insurance required on FHA loans. But it gets even better.

The assumed mortgage only has 25 years left, which means the buyer is saving 72 mortgage payments. 72 x $2608 = $187,776.00. Moreover, they have paid the balance down by $25,000, which will take even more years off the life of the loan. And if they sell in the near future themselves, their buyer may also be able to assume the mortgage!

This is not a new gimmick or something that pushes the envelope of creativity. The HUD Website has an excellent page on the practice. My parents assumed the mortgage of the house I grew up in when they bought it in 1957. I’ve sold assumable transactions many times myself. It’s a forgotten art, mainly because tech has driven the industry away from the basics and into a preoccupation with digital everything.

Obviously, an experienced real estate attorney is crucial to make sure the seller has the release of liability for the original loan, which shouldn’t be hard to do. And of course the buyer should also have their attorney making sure their interests are covered as well.

There are millions of these mortgage out there, so they aren’t unicorns. Smart agents who understand this transaction will have lucky clients if the opportunity arises.

Commentary • Selling • April 1, 2024

Bedroom Count and Septic Systems

by J. Philip Faranda

Westchester County has a population of about 1 million residents. Most of those folks who inhabit the 914 area code live in homes that are connected to public sewers, but there are a hefty number of properties, especially in the northern part of the county, that are on septic systems. I’ve said before that there’s no practical difference between the two types of waste management for most people, in that you go, you flush, you live your life. But one aspect of properties on septic that is often misunderstood yet under discussed is the impact on bedroom count.

In general, the number of legal bedrooms for homes on septic is not based on the number of rooms, but on the capacity of the septic system. I once had a listing with what appeared to be 4 bedrooms that was well over 3000 square feet that was considered a 2 bedroom home. We couldn’t call it a 4 bedroom because the septic system was a 2 bedroom septic. There’s a fantastic article on the official requirements here.

The reason for the bedroom count being tied to the septic capacity and not the actual room count is the presumed use for those living in the home. It stands to reason that a 2 bedroom home will have far fewer inhabitants-and therefore use far less water- than a 4 bedroom home.

I said all that to say this: If you have a home that presents itself like a 4 bedroom house but the official septic capacity is for 3 bedrooms, I cannot list it as a a 4 bedroom. You might have the thirstiest septic system in the county. You might have raised a family of 12 in the house with no issues whatsoever. It doesn’t matter. We have to list properties by their official characteristics. Even if I tried to fudge it and sell a 3 bedroom home as a 4 bedroom, the buyer’s due diligence would find the discrepancy and they could attempt to negotiate or, worse, get spooked about the misrepresentation and walk away. I could also be liable for an ethics grievance for not rendering a true picture of the facts on the home. It simply isn’t worth it.

What I can do is refer to the 4th room as a possible 4th quarters or say that the home lives like a 4 bedroom. But I cannot, in the official bedroom count, dissent from what the building department and certificate of occupancy say. The certificate of occupancy, or CO in the biz, should specify the bedroom count, and if it doesn’t, then the building department should have an official bedroom count. What your municipality says is the final authority.

Commentary • March 27, 2024

Solving the Catch-22 on New Development: Build 55 and Over Housing

by J. Philip Faranda

I posted not long ago that one of the reasons why inventory is so low is that we are not building new homes at a rate needed to meet our housing needs. It is estimated that we need another 7 million units to solve this, and that won’t happen overnight. What’s worse is that in many communities like my own home town of Ossining, NY, there is considerable resistance to new development. In reading local community group postings, online, the chief reason for opposing the construction of new housing is the strain it potentially adds on the traffic and schools. The Northeast as a whole does have older infrastructure, and not much wiggle room to widen roads and build new schools, and we already have the highest taxes in the universe.

There is a proposal to build a new school, but the opposition to that will be significant. The last year a new school was built was around 1963, give or take. The population of the town was just over 26,000 according to the 1960 census. The current population stands at over 40,000 residents. Many of the existing schools have been expanded, but that’s been more of a bandage than a long term solution. Something does have to give; we can’t ignore the dwindling housing supply.

Looking back, I’m mindful of just how much times have changed. I recall as a youth in the 1970s that the district actually closed two schools due to the lower birth rate of the time, and new construction went from over 1000 new units in the 1960s to fewer than 250 in the 1970s. But the 1980s saw a resurgence in new development, mostly townhomes and condominiums, and eventually Roosevelt School, which had been closed and converted to offices in the early 70s, was reopened to accommodate the growing student body.

According to my search of public records, building declined in the 90s to 600 units, then mid 200s in the 2000s to only 31 from 2010-2019. That last one was probably due in large part to the Great Recession, but standing here in 2024 housing costs are nuts and any proposed new development always has vocal opposition.

Looking at the big picture of what is sustainable and works best in the long run, my vote would be to break ground on more 55 and over housing. The population is aging (I include my 56 year old self in that statement), and for many of us who are looking at empty nests and eventual retirement the options for downsizing are relatively sparse. There is a large population shift to the sunbelt and more affordable regions out of state, but that doesn’t do much for us locally. Denser townhome or condo style housing devoted to 55 and over should assuage the concerns about building. There would be far less strain on the schools, it broadens the tax base, and it gives more housing options to first time buyers when older folks transition to the new units. I certainly don’t think the commerce enjoyed from the new development would hurt either.

I don’t have a magic wand or housing emperor scepter, but if I did this would happen.

Buying • Real Estate Tips • March 21, 2024

What Buyers Must Know About Buying a Foreclosure in Westchester County

by J. Philip Faranda

Ever since I got in to real estate in the 90s, the public has had a bit of a preoccupation with buying foreclosures. The perception that a bank owned property is a bargain is hard to argue with, but it’s not always a simple or straightforward process. Having specialized in distressed properties for decades, I’ll share some things that buyers really need to know before they purchase something around these parts, because New York is a different animal, and Westchester and the surrounding counties are not like upstate either.

The decision maker is an asset manager at the foreclosing lender. Asset managers have quotas, deadlines, no small amount of pressure to dispense with non-performing loans, and are not touchy-feely. You will never be able to call the asset manager on the phone and talk to them.
The terms of the contract are not open to discussion like other contracts. In a regular transaction, the lawyers often “mark up” proposed contracts until a consensus is reached and the buyer attorney meets with the clients to sign. Sometimes it can take a week. In a bank owned transaction, the attorney for the seller will not remove a comma. This is particularly true in times like we are seeing now where the seller has multiple offers and can just go to the next buyer if the current purchaser’s attorney attempts any pushback.
The home is devoid of the history that would otherwise be available when buying from a seller that has, for example, lived there for 20 years. If a wall appears to once have a doorway, no one can explain what happened. If there is a water mark on the ceiling, you can inspect all you want, but there is no current occupant to share that the source of the leak was remedied. More of a concern is what may not be visible to the naked eye; I have seen instances where the former owner sabotaged the property in some way that’s not visible, like damaged pipes behind walls or some foreign object in the chimney. Inspections are paramount.
Typically the bank will allow you 10 days from contract signing to perform your inspections. These are typically “as is” sales for many reasons, but if there is a serious health or safety issue the lender may be open to addressing it with either a small price adjustment or documented work. But do understand that the vast majority of your findings will simply be on the to do list for when you take ownership.
Deadlines are rigid. The bank attorney might grant a mortgage or closing extension if they have good communication, but even then there could be a per diem charge. I have seen deals get cancelled for missed deadlines.
You will pay the state or municipal transfer tax that the seller would typically pay in a regular transaction. The state transfer tax is $4 per thousand in price, so a $500,000 house would have a transfer tax expense to the buyer of $2,000.

This should go without saying, and I would never impugn the good name of any listing agent on a foreclosure, but you should always use a good buyer agent in a transaction like this. The listing agent works for the seller, and the amount of advocacy needed in a distressed property is much higher than a typical property. A purchase of this magnitude should never be a do it yourself project.

Industry News • March 20, 2024

What Home Sellers Really Need to Know About the Commission Lawsuits

by J. Philip Faranda

When I went to pick my son up from baseball practice earlier this week, a friend came up an smiled at me. “Sorry about your pay cut!” I knew what she was referring to, and as I peruse the news reports on the recent NAR commission settlement, I share many other Americans’ frustration at the failure of our journalism to accurately report on the matter. I know racy headlines get clicks and sell papers, but accuracy in reporting is still important.

There are a few things that home sellers need to understand about what changes they can expect, and please understand that these are my opinions, and not the official stance of my brokerage.

The settlement is still a proposal that still has to be approved by the courts. The wording and meaning of the verbiage may still change.
While the (proposed) settlement may put a rest to the issue where NAR is concerned, almost 100 larger companies with enormous market share are not included. Moreover, Berkshire Hathaway has not settled and continues to litigate. If they prevail, that could change things dramatically.
Contrary to the reports, commissions to brokerages aren’t going away, and may not even go down. What will occur is that the commission the seller pays to their listing agent will be unbundled from the buyer agent’s compensation. Since most buyers cannot pay a commission separately, they will elect to roll it into their proceeds of the sale, meaning the net to the seller will be structured virtually identically to how it is currently. We will just see more paperwork to get there.
This is not a slam dunk win for consumers, especially buyers, under the current proposal. Most buyers, especially first time home buyers don’t have the funds to pay their commission out of pocket, and while many transactions can absorb the financing of the commission not unlike it is done now, the most vulnerable of buyers, namely VA (Veterans Administration) and FHA will not have the cash or equity to pay their agent. They will then face buying without an agent in the largest transaction of most of their lives, or figure out how to come up with extra cash.
The proposed settlement will require buyers to sign an exclusive representation agreement with their buyer agent in order to tour homes and make offers. Now think about that sentence you just read. Every prospective buyer who just wants to check out a house is going to have to become contractually committed to their agent they use just to see the property. That contract will stipulate what the buyer brokerage will be paid in commission . That is a gift to the brokerage community, because we all prefer a consultation at the office first instead of meeting stranger alone in empty homes.
Anyone who thinks that buyers will be fine just dealing with the listing agents don’t understand that they work for the seller’s best interests. Divided loyalty is not good for either party, and buyers dealing with a listing agent will not have an advocate, just a facilitator whose loyalty is to the seller client. Listing agents will not be eager (nor should they be) to have twice the work for the same commission either.
Offers of compensation to buyer brokers will not go away. They will simply not be published in the MLS. I think it is still wise for sellers to offer buyer agent compensation, because it is misleading to think that the buyer broker will be able to collect their fee separately. That should still factor into the seller’s math. Any seller that truly thinks their entire proceeds will be a smaller commission to one agent is ignoring the reality that most buyers don’t have the capital to pay their agent separately.
This will not make housing costs go down. The only thing I have ever seen that causes declines in property values is a national financial collapse like the S and L crisis in the 80s and the sub prime bomb in 2008 that caused the Great Recession. Housing is subject to the same economic forces as any other asset, such as the law of supply and demand. Right now, we are millions of housing units short of what we need. Short supply means high prices.
Commission costs in total will likely not go down either. Making compulsory buyer brokerage contracts the law will give agents a silver platter showcase of their value proposition, and most consumers know that it is folly to make a home purchase a do it yourself project. Good buyer brokers will flourish in this environment, and mediocre ones will leave the industry. That’s good for consumers, and not good for lousy agents. But I can’t see commissions going down in total.
The law of Unintended Consequences will make the journalism on this embarrassing for the media. I’ve already explained that property values and overall commissions will not decrease, but also that cash poor buyers will take it on the chin with this. If it harms the most vulnerable, first time homebuyers who are the backbone of the industry, then I don’t see a win for those consumers.

To sum up, home sellers should not expect some great savings here. The lawyers who are spiking the football over their “win” are the only clear winners here in my view. Savvy buyers will not stop the decades old practice of having their own representation in the largest transaction of their lives, and the best professionals will not work for less in any industry, including real estate.

This will separate the wheat from the chaff as less effective agents leave the industry and the scores of side gig, part time agents will diminish dramatically. The consumers should expect that they’ll get more for their money. In that respect, we all win.

What Does $330,000 Buy in Patterson, NY?

Square Footage

Escalation Clauses in Offers to Purchase: a Double Edge Sword

What Everyone Should Understand About In-Law Apartments

Here’s What $439,000 Buys in Highland, NY

Smart Agents Will Excel at Assumable Mortgages

Bedroom Count and Septic Systems

Solving the Catch-22 on New Development: Build 55 and Over Housing

What Buyers Must Know About Buying a Foreclosure in Westchester County

What Home Sellers Really Need to Know About the Commission Lawsuits

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