New Yorkers consider themselves among the savviest and nerviest consumers in the world. But when it comes to buying real estate, what they forget to ask is startling.
Absorbed by big-picture issues like location, light, air and the number of rooms, they neglect to inquire about seemingly mundane matters that can turn out to have a big impact.
"New York is a world financial capital that revolves around macroeconomics, not microeconomics," said Anthony vanEyck Miller, a vice president of Bellmarc Realty. "So you can have buyers who buy and sell companies, but the minutiae of an individual building's financial statement eludes them."
Perhaps because they are bored, reluctant to look for trouble or simply ill-equipped to understand the nuances of a financial statement, many buyers stick to rote inquiries that only skim the surface.
"Everybody asks the same questions: 'When was the last maintenance increase? Are there any assessments? Has the roof been done?' " said Michele Kleier, the president and chairman of Gumley Haft Kleier. But without enough context, the answers to such questions can be nearly meaningless.
A diligent lawyer can go where ignorance forgets to tread, but some care is in order, because too many questions can annoy sellers and brokers.
"I look at current assets and current liabilities to see whether or not there's enough money to pay current expenses," said Steven R. Wagner, a real estate lawyer at Wagner Davis in Manhattan.
"I look to see whether there are sufficient reserves so that the maintenance or common charges won't be drastically affected by emergency work. Where the financial statement compares more than one year -- and very often they do -- I like to see that expenses are consistent from year to year, which is a hallmark of good management. And I look at the cash-flow statement to see that the building is spending money doing repairs and upgrades."
The absence of upkeep (including big-ticket items like facade maintenance, which can cost hundreds of thousands of dollars) can foreshadow a pileup of expenses.
And even though well-run buildings foresee these expenditures (check the board's minutes for a five-year plan), the plan may call for bumping up maintenance fees, a stiff assessment or a bit of both.
"Also," Wagner said, "look at the financial statement and the minutes for 'contingent liabilities' -- lawsuits. Usually the lawsuits are covered by insurance so they're not that big a deal, but you want to know whether it's a litigious board."
Beyond poring over financial statements, a nearly Talmudic reading of a board's minutes (the notes taken at each board meeting) going back two or more years is an essential but, unfortunately for buyers, sometimes neglected aspect of their lawyer's job.
Wagner said he had exhumed countless skeletons -- from bad neighbors to financial sinkholes -- by reading the minutes.
"They can show whether there are problems with the building like mold and big fights over dogs," he said.
"We've found litigation in one apartment between the seller and the neighbor over music at late hours. We've found upcoming assessments for capital work, elevators, facade work and in one case, deadly black mold in a prewar downtown apartment building.
"It told me there were leaks from somewhere. The buyers were a young couple expecting to have children, and I told the wife, 'I know you love this apartment, but I would not allow my newborn child to live here.' "
The couple chose not to buy in the building.
Aspiring renovators should check the building's alteration policy.