For 15 years, I have sold my neighbors.
Well, not exactly my neighbors, but their apartments. As a real estate broker living in a co-op building, I’m often asked, “How’s the market?” and “What’s my apartment worth?” Sometimes neighbors and their families who have also become friends over the years have asked me to give advice about situations that affect their future. They know and trust me to remain objective and provide the best advice I can based on the marketplace dynamics at that time. As with any customer contemplating selling or leasing what is usually their most valuable asset, I provide as much information as I can and explore every possible option with them.
Take my neighbor Sam, for example. A senior, he recently approached me about selling his very large three-bedroom apartment where he and his family had lived for more than 40 years. Sadly, Sam’s wife passed away several years ago and his son and daughter are grown, and living in other states. Maintaining such a large residence alone was exhausting and becoming more challenging and expensive on several levels. The loss of his wife’s Social Security and pension benefits diminished Sam’s monthly cash flow. He thought he should downsize and buy a smaller apartment that would be easier to care for and would reduce his monthly housing outlay. His children had their own lives, and although both of them were in frequent communication and visited on a regular basis, neither was interested in moving back to New York City.
Sound familiar? It’s a life passage that we’ll all face sooner or later in one way or another.
We guided Sam through a rather intense financial exercise to evaluate a potential sale, working backwards to determine his net profit after closing. First, we worked on estimating the asking price for his apartment. This was challenging given that his apartment in a 100-year-old building hadn’t been renovated as long as he could remember. It needed painting and repairing, at the very least.
We went through the de-cluttering drill to educate Sam about getting his home ready to become a “product” to sell on the open market. We described how his many beautiful objects d’art, hundreds of books, dozens of paintings, and way-too-much furniture needed to be culled as much as possible. He needed to move out his children’s early school desks and a piano that was no longer being played. His kitchen was an original with wonderful glass-fronted cabinetry, but what showed through the glass was a hodgepodge of unmatched dishes and tchotchkes. The bathrooms were original and needed polishing, scrubbing, and grout work.
We discussed sorting, saving, donating, and other options to remove 30-plus years of family heirlooms, and we drafted a checklist of action items and recommendations.
Sam was resistant at first even though he understood what we were recommending. We even spent the better part of two days working with him on uncluttering his entrance hall. He quickly became exhausted at the thought of the remaining ordeal.
Addressing Sam’s financial situation was another matter. He hadn’t thought of the costs associated with selling, only the anticipated windfall profit from having bought very low more than 40 years ago and selling in the current “hot” real estate marketplace. The neighborhood was experiencing a renaissance, and apartments in his building were much desired – and the selling prices reflected the demand. After so many years, his unit’s appreciation would be astronomical.
We informed him there were the various expenses involved in a sale – brokerage commissions, attorney’s fees for both sale and purchase transactions, and moving costs. And then there was his building’s flip or transfer tax – a percentage amount based on the net profit of his sale after deducting his original purchase price and capital improvement costs he had incurred over the years. Building improvements like new elevators, windows, roof, renovations of common spaces, etc. had been paid for without having to increase maintenance substantially, thanks to the flip tax. So, while Sam benefited from years of relatively low maintenance charges and few assessments, a sale would be “payback time.” His deductions for capital improvements were minimal and we projected a flip tax well over $200,000, based on an conservative selling price.
On the buying side, Sam had been doing his due diligence – attending open houses and viewing apartments he thought he could afford in neighborhoods he thought he would enjoy. He realized early on that he had been priced out of his current neighborhood even though he was searching for a smaller-sized apartment to call home – a hard way to learn the lesson that you can’t “sell high and buy low” in the same area. He abruptly encountered what many hopeful buyers have been experiencing the past few years – low inventory and higher prices, especially in the one- or two-bedroom category. Some tell us they’ve experienced “price fatigue” and just stayed put.
No matter how many different variations on crunching the numbers we tried, it brought us all to the realization that it didn’t make sense for Sam to sell his current apartment and buy or rent something else, if he could better manage current finances.
We told him the news and his only comment as he flopped down on his couch was: “This is depressing.” We told him we understood. It’s a daunting undertaking but we’d help him get through it, step-by-step-by-step.
After some serious discussions with his children, a decision was made. It would be better for him to remain in his home and, with some assistance from them, work out financial support for Sam to live comfortably for the foreseeable future.
We lost a potential sale but kept a good neighbor. All in a day’s brokerage.