Well, our real estate broker (Barak Realty) has been busy and managed to get our apartment listed as a “house of the week” in the NY Post. Thing is, they had to stretch the truth a bit and they said Dan and I were both interior designers. Still, it’s great press!

I just saw that one of the townhouses we’ve been through is having an open house - 42 Hamilton Terrace. After everything we’ve seen I can honestly say that owner (or broker) is absolutely crazy for the price they’re asking - $995K (it was up at $1.1M when we saw it earlier this year). Let me explain why that’s a crazy price…

To be fair the upside to the property is that it’s a decent width and on a great block - Hamilton Terrace. It also has some incredible original details in it - mostly the fireplaces and baseboards on the ground floor. But there’s so much wrong with the place it’s not even funny - at least when you consider they’re asking a million dollars for it.

The big issue is that it’s falling down. Literally. The extension in the rear where the kitchen used to be is just walls - the floor in the extension has fallen into the floor below. The rest of the building is falling down as well. When we went through it was raining inside the building because snow was melting on the roof. If you know anything about buildings you know the building goes downhill very quickly if the roof is no good. I was literally scared to walk through the building. They have plywood down in some areas ’cause they’re worried people will fall through those parts of the floor. Personally I don’t think it’s safe to go inside that building. If anyone gets hurt I’ll feel really guilty ’cause I was tempted to call 311 and report it as unsafe (but I didn’t).

It’s not the first Harlem townhouse that’s fallen down and it won’t be the last. But right now, in this market, you just don’t pay a million dollars for something that’s falling down.

• 48 Hamilton Terrace a few doors down needs some work, but it’s completely livable and mortgageable and it’s going for $1.25M.
• There’s a place on Stiver’s Row (236 W 139th) that apparently sold for around $425K a few months ago and now they’re trying to flip and asking $699K. Someone started a renovation and didn’t finish, but it’s completely solid and it’s on Striver’s Row.
• Then there’s 506 West 142nd Street, which is a fully renovated, income producing property in move-in condition and it’s asking the same price as 42 Hamilton - $995K. Mind you, the renovation is soulless, the back yard is dark and small, and the block isn’t nearly as good, but compared to one that’s about to fall down on a better block it’s price to sell and 42 Hamilton clearly isn’t.
• And 470 West 148th was just reduced to $999K - it’s perfectly nice 12′ wide townhouse that’s move-in ready, but will need renovation in the not-too-distant future.

Personally I think 42 Hamilton should have a price drop of about a third - to $699K. With a $500K renovation that would put the total cost around $1.2M and it would be in better condition than 48 Hamilton which would compensate the buyer for the hassle of the renovation.

The other townhouse where people seem like they’re stuck two years back in a time warp is 532 West 148th Street. The pictures are amazing, but when you go through the house you realize how little substantive renovation has been done. It’s “shabby chic” in the ’80s sense of the word (before the term referred to a store) when people didn’t have money for renovations so they just make things that were falling apart look pretty. The floors aren’t redone - they’re just whitewashed and varnished. The ceilings aren’t redone - they’re ripped out and there’s exposed beams. Same with the walls - ripped out. What you have left is a shabby chic 3 story loft that’s one big open space plus a work space in the basement - a total bachelor pad. There are almost no walls, no privacy - some of the bathrooms are literally in the middle of the floor with no walls around them. It would have been hot 20 years ago, but now people are looking for genuine renovations - skim coated walls, recessed lighting, floors that are in good condition. The other thing about that property is that it’s 1/2 block off Broadway - not on a prime block.

All of that would be fine if they weren’t asking nearly $2M for the place ($1.895M to be precise). I think the comp for it is 48 Hamilton Terrace @ $1.25M - so they need to drop the price by a third to be in line with their competition. Both 48 Hamilton and 532 W 148 are in similar condition in terms of infrastructure. 48 Hamilton is on a MUCH better block and is landmarked. 532 W 148 has better interior design, but you’re buying the building, not the furnishings. Plus 48 Hamilton has walls and rooms, which most townhouse buyers want, so it’s more desirable.

I did like going through the place though - it showed how much you can do to a townhouse at a reasonable price. If you really don’t want to do expensive structural changes, you can still have a place that’s stylish (though to me shabby chic is pretty dated).

The Harlem real estate market has always been pretty speculative, but luckily much of the market is pretty realistic about how prices are dropping. There are some incredible bargains out there and a lot of people are quite flexible. We saw one property where the broker (whom we really liked) told us they were about to drop another 17% - and that’s after a price reduction not all that long ago.

But some people are afraid to be realistic. There are a few that are dropping the prices too far ’cause they’re desperate to sell in a bad market. But the problem is that when you drop really low people start thinking that’s what all the prices should be and then prices  really tumble. Hell, we’re sorta playing that game - hoping we can sell our place before that mentality takes hold in our neighborhood and after it takes hold in Harlem.

I’m not saying that most of the places that are livable and mortgageable should drop that much further, but the reality is construction loans are hard to get these days and people who buy places that need construction loans (like 42 Hamilton) should get rock bottom prices to compensate them for doing something that’s pretty risky in a falling market… At least we’re hoping a seller will see it that way when we go to buy a place. I’ve got my eye on a place and as far as I can tell it’s practically a shell. It also needs a one-third price reduction… Hopefully we’ll be able to sell our place and hopefully the seller will be flexible by then… We’ll see. First step is to sell our place…

In defense of the people who’ve over-priced is the fact that the market is rapidly changing and there’s not a lot of data to make informed decisions on. Things were dropping before the stock market went down in September, then only 2 townhouses had deals in Q4 of 2008. That didn’t give people a good idea of what they should be doing. In Q1 they say 10 townhouses have closed, but even that data isn’t all in yet. But the issue is how far do you have to drop in order to be “priced to sell” when almost nothing is selling?

With our apartment now on the market we’ve been thinking a lot about real estate lately - both selling and buying. Back when it was a seller’s market it wasn’t that hard to sell your place for a decent amount. But now things are different and the broker you choose can make an enormous difference.

Case and point someone in our neighborhood listed their place with a downtown broker for $799K last July. It’s 1.5 bathrooms and two small bedrooms. Simply put that apartment was never worth that, but the downtown broker didn’t have the experience in our neighborhood to know that. As a result the apartment didn’t sell. Had it been priced right and sold quickly it could have been in contract before the financial disaster on Wall St, but that huge opportunity was lost. The owner (and agent) now appear desperate to sell and it’s priced at $399K - half the price of the original listing price! The problem is the property became stale because it was on the market too long at the wrong price. To me the whole thing shows gross incompetence on the part of the agent. Unfortunately, in this market, if you don’t pick the right agent a similar situation can happen to you and it can be a very expensive mistake.

To avoid financial disaster selling your apartment I’d recommend using the following criteria to pick your real estate agent:

• Pick a agent that lives or works very close to your property. You want to make sure showing your place it’s difficult. If it is, they may not show it as often. I was on the subway the other day and a real estate agent was telling friends how he just came from showing an apartment and the buyer’s probably won’t buy, but it took 2 hours out of his day to show with all the travel time.
• Pick the agent that’s going to work the hardest. Some agents are just “hungrier” for listings than others. Give all the agents a list of things you want to hear in their proposals and see how hard each one works to answer those questions. If they can’t work to get your listing, they’re not going to work hard once they have it.
• Pick the one with the best marketing plan - both comprehensive and targeted marketing. These days it’s all about getting your property exposure and having it stand out. But it’s also about getting the right people to see it, so look for a marketing plan that’s specifically targeted to the features of your property.
• Don’t give any weight to “personality” brokers that are marketing themselves, not your property. We had some agents who talked about how much they were in the press, but it was unclear whether that meant any real exposure for our apartment.
• Pick the agent that understands your neighborhood the best. There’s nothing quite like local knowledge. Don’t pick someone who isn’t intimately familiar with the neighborhood.
• Pick the agent that understands your property the best. If your property is pretty average this isn’t such a big deal. But if you have unique renovations make sure the agent inherently understands them and knows how to talk about them to buyers.
• Pick an agent who’s a home owner. Definitely give credit to whether the person owns their home or not. If they own a home in your neighborhood or building that’s a big plus.
• Don’t give extra weight to friends and family. While you may want to give the listing to a friend or family member it’s often not the right choice. If they are the best agent they’ll stand out in all the points above. At most a friend or family member should just win a tie if there are two best agents and you can’t figure out which to go with.

Even with a great broker it’s not always easy to sell in this market. Be careful with your choice!

There’s a reason why I named this blog “beating upwind” - it’s because beating upwind is the hard and somewhat dangerous sailing practice of trying to sail into the wind. If you have a good boat you can do it. If you have a crappy boat you might as well anchor and wait for things to change or pull down your sails and motor. To say the least real estate is dicey right now, but we’ve decided we want to take the opportunity and upgrade to something significantly bigger which feels like sailing into the prevailing real estate winds.

We’re lucky to have bought into a building that’s now considered “stable”. The prime apartments in our building (of which ours is one) have gone down about 10% from the peak, which is pretty good considering the market. Meanwhile what we want to move up to - a townhouse in Harlem - has done done about 50%. So if we’re ever going to do it, now is the time to get off the crest of our wave onto the trough of the bigger townhouse wave.

Harlem townhouses have been particularly hard hit in the downturn because they were always rather speculative. I remember years ago looking at them and realizing that it was the same price for a run down, but habitable townhouse as it was for a façade where everything had falled down inside. They peaked about 2 years ago and have gone down about 50% since then -at least at the lower end, which is where we’d be looking.

On top of that nothing is selling. We haven’t confirmed it, but one broker told us only 2 Harlem townhouses have closed since the stock market went down in late September. People who need to sell are getting desperate and there’s one townhouse that sold for $1.5M in July of 2007 that’s now asking $350K in a short sale. That’s 75% off, and the purchase price will probably be even lower. [That property does have "issues" in that it's a fully occupied SRO with a stop work order issued against it, just to name a couple of its problems.]

The problem is everything in our price range needs $500K in renovation. Nearly all the townhouses in Harlem were built around the turn of the century. Electricity was a new thing back then, so they’ve got crappy 100+ year old plumbing and electrical all of which needs to be replaced. Completely replacing all the plumbing and electrical means ripping out a lot of walls, ceilings and possibly floors. On top of that many of the ones in our price range became SRO’s (rooming houses) which mean heavy use. It’s actually amazing how many of the details survived, but to bring things up to “upper middle class” standards requires pretty much a full gut renovation, which is why everything needs $500K in renovation.

While everything needs a $500K renovation you pretty much can’t get a construction loan to do the renovations given the crisis in the banking industry. But we still have a few options…

Buy something all cash

A while back I didn’t think buying something all cash was even an option, but recently the townhouse you see to the right went on the market asking $350K in a short sale. We’d actually be able to buy that all cash and have enough left over to do basic fix ups, though not a proper renovation.

The thing is, properties like that come with a lot of strings. This is the one I was referring to earlier that is a fully occupied SRO (4 SRO units, 2 regular apartments), and has a stop work order on the building, and a ton of building code violations. Given the number of building code violations it would seem the tenants are mad and making life miserable for the owner by calling the City and reporting problems with the building. That’s not a great situation to get ourselves into.

It also comes with a pile of legal issues since we can’t just cancel people’s leases. SRO tenants are pretty well protected in New York since they tend to be the poorest of the poor. So we’d have to work with a lawyer and pay people to leave the building. But at $300K it may be worth the trouble.

If we bought something all cash it means we’d have to fix it up over time. That’s easier said than done since we go back to the fact that they all seem to need new electrical and plumbing and that rips the building apart when it’s done.

Have the current owner hold a mortgage

To get a mortgage on a building it has to be “mortgageable” which means no building code violations, working kitchen(s), working bathroom(s), etc. Quite a few of the place we see listed have been partly demo’d and then the owners ran out of funds and didn’t complete the renovations. We can’t touch buildings like that because there’s no way to finance them.

Since we’ll need a construction loan for many of these places, but can’t get one, one option is to go with a place where the current owner will hold the mortgage. This option is sorta win-win for us and the seller since it gets the seller out of a money losing proposition, they sell at a price that’s not the bottom of the market, and they get regular income. The townhouse to the right is one of the townhouses where this is an option, though it’s probably just out of our price range at the moment.

The way it would work is we’d put down 20% ($150K+) and then we’d have enough cash left over for a very minimal renovation. Some things just wouldn’t get finished. We might rough in bathrooms and then leave them essentially as closets until we have the money to finish them since we won’t have a full $500K left over once we’ve done a down payment.

If I had to guess I’d guess this is the route we’ll take. But for a lot of townhouses it’s not an option since the current owner often has a rather substantial mortgage on the building.

Buy one that doesn’t need immediate renovation

The problem with buying one that doesn’t need renovation is that they’re currently a bit above our price range. We can go up a little over $1M, maybe $1.1M. The one to the right is a good example - it needs some work, but much of it can be deferred and it’s going for $1.25M. I think it’s safe to assume prices will go down this fall, so this is still an option for us since we don’t want to buy until fall or winter…

Still, the one to the right is a good example of how everything really needs a $500K renovation. That one has had some of the plumbing issues resolved and the electrical was “upgraded” by running conduits on the outside of the walls, which is hardly aesthetically pleasing. The owner put in new windows, but they’re cheap pine windows that won’t last all that long. The rear exterior of the building looks like a mess and probably needs a lot of work. The floors have a thin parquet veneer on them that will be destroyed the next time they’re sanded which means it needs new floors in many places as well. And the renovations that have been done were done cheaply - and that’s just what I can see with a naked eye.

The bottom line is that if we can get one like that one it still needs a big renovation. Sure it’s mortgageable, but the long-term cost of the place is really high.

Wrap Up

There’s a lot more I could say about all this, but I’ll leave it for another post… By putting our place on the market we’re sorta taking a leap of faith and hoping that there will be something we like that we can afford when it comes time to buy. Our back up plan is to look at other parts of Harlem (we’re only looking in Hamilton Heights and Sugar Hill right now since we want to be near the 145th Street stop on the ABCD trains), and then there’s always Brooklyn. A couple months ago we went and saw open houses in Brooklyn and saw enough to know we can always find something there that will suit our needs and be in our price range. But we’d really prefer to be in Manhattan…

In a previous post I bemoaned how hard it was to find a good realtor. Well, we picked one and are quite happy with our choice so far… We went with Barak Realty but it was more a matter of choosing agents rather than an agency. For starters they came in as a team of two agents (Maria McCallister and Francisco Menéndez) both of whom live in our coop, so they know the building better than anyone else. Francisco seemed to really understand our particular apartment, and Maria has a analytical side to her that compliments Francisco’s skills really well.

Another big selling point for us was that they were aggressive in what they planned to do, but not to the point of being tacky or inappropriate. Simply put, they were “hungry” for the listing. We had some other brokers give impressive presentations, but Francisco and Maria’s presentation beat them all - mostly through sheer hard work and preparation. Furthermore they were more creative in having marketing strategies that were particularly well targeted for our apartment. We figured if they worked that hard to get the listing they’d work equally hard to sell the the place once they had the listing. Some other agencies just wanted another listing to add to the long list of apartments they were selling - it wasn’t clear we’d get much special attention.

One agent from another firm even referred to Barak as “cockroaches”, but the comment backfired on them since what is better able to adapt after a disaster than a cockroach? Selling real estate in this market after the financial disasters of last year is much like a cockroach scrounging for food. It takes someone who thinks like a cockroach to really prosper in an environment like this.

Their first step was to have photographs, floorplans and virtual tours done by Digit-Tec. Here are the pics they took (click on the pics to see a larger version)…

The pictures are good. The camera distorts things a bit since it had a fish eye lens, but that’s typical for real estate photos. The colors are a bit distorted in some of the pics - they made things lighter and brighter than they are, but again that’s typical for the industry. All in all good photos…

They also did virtual tours which are a bit freaky to watch since there’s so much distortion, but that’s true of all virtual tours. Personally I don’t like virtual tours, but other people like them…

But the real question is whether their efforts and plans are getting results. We had the first open house this past weekend and 21 people signed the signin sheet! That’s actually incredible - it was so far over expectations they ran out of listing sheets for people to take with them. They said about 5 were curious neighbors, but 3 seemed like real prospective buyers which is good as well. On top of that they’ve got a private showing set up for Thursday evening with one of their buyers, and another one late Friday afternoon with a client from another agency. Private showings are good since they tend to be more serious buyers.

A lot of brokers are taking this weekend off since it’s Passover and Easter. Instead Maria and Francisco are dedicated to doing open houses every weekend until there’s an accepted offer and this weekend they’re timing it so maybe they can get people coming from church (there’s one across the street from our building).

It’s been on the market less than a week, but we’re feeling if Maria and Francisco can’t sell it, no one can… They really are giving it their all… Hopefully we’ll get a good offer soon!