Insuring A Townhouse Is Expensive

[UPDATE: Our agent hadn’t put in the discount for being fully sprinklered, so I’ve updated the numbers to reflect that now that we know the true price…]

Since we’re coming to the end of construction as well as the one year mark on our Builders’ Risk policy we’re converting over to traditional homeowner’s insurance – and it’s a lot more expensive than I expected it to be. But admittedly I hadn’t researched insurance properly…

I had a little sticker shock when our insurance agent (David Bodansky –, 212-561-8990) told me the new homeowner’s policy was going to run $6,400 (with Chubb as the insurer). So I called GEICO (where we have auto insurance) and was told their policy was going to cost $5,800. It was a bit of an apples and oranges comparison but it seemed Chubb was just a little more expensive – but Chubb is Chubb – the best insurance company out there.

At the end of the day GEICO would insure the building for $1.087M (125% of $870K “base”) with $609K of coverage for personal property and $500K in liability coverage. Problem is, if it was a catastrophic loss, I don’t know that we could rebuild everything for $1.087M – it would be tight. That coverage cost $5,800/year with a $1,000 deductible and (I think) $5,400/year with a $2,500 deductible. They then would charge $400/year for another $1.5M of umbrella coverage for a total liability coverage of $2M. So GEICO’s total was roughly $5800/year with a $2,500 deductible.

I had our agent redo the Chubb quote with an umbrella policy and auto (so structured more like the GEICO quote). Chubb will insure the building for $1.4M – so plenty to cover a catastrophic loss. Liability coverage was quoted at $500K. The cost of that was $5,700 $5,050/year with a $2,500 deductible or $5,450 $4,800/year with a $5,000 deductible. So Chubb cost about $350/year more LESS than GEICO, but AND it had more coverage ($1.4M instead of $1.087M). But Chubb charges $700/year for a $2M umbrella (compared to $400/year for $1.5M with GEICO).

Needless to say, we’re going to go with Chubb even though it’s $600/year more expensive. It’s $50 less per year and we get $300+K more coverage on the building, $500K more liability coverage, and we get the Rolls Royce of insurance companies.

Our agent said he had done similar quotes for another client and Travelers also came out more expensive than Chubb. So it seems that townhouse insurance just runs a bit under $6K/year. I’m not happy it’s that high, but it is what it is… There might be cheaper insurers out there, but I can’t imagine fighting with cut rate insurance company over a million dollar claim.

The whole question of how much umbrella coverage to get was a big question… After researching it online I’m still not 100% certain $2.5M is sufficient – but it probably will be. One thing I do know is that we’ve been under insured for a while now. We should have gotten an umbrella policy a long time ago. Better late than never, I guess…

I should also mention that the Allstate insurance agent on 116th Street in East Harlem booked an appointment to sit down with me and only after I got there did she tell me that Allstate doesn’t write homeowner’s insurance in the 5 boroughs. If she had told me that upfront it would have saved me over an hour of traveling down and back to meet with her. (Grrrrrr…)

A Good Architect Makes A HUGE Difference

Three things in the past week drove home what Dan and I have known for a while… A good architect makes a huge difference.

A real estate client of mine is bidding on a gut-renovated house that’s been on the market for nearly 2 years. It hasn’t sold because, as my client describes it, the renovation is “competent” (solidly built), but it’s just a “step above rental grade”. When it went on the market it was priced up with the high end properties that are nearby. But those high end properties are in a desirable landmark district and often have over-the-top renovations. The bottom line with the house my client is biding on is that people aren’t making an emotional connection with the house in part because it’s “just OK”. Without that emotional connection people aren’t willing to bid anywhere near the asking price.

Similar to that experience I went through a place in South Harlem with another client. The neighborhood and block could support a $2.5M+ sale, but the person that renovated it did a Home Depot renovation – it was also competent and solidly built, but like the first house, there were a lot of odd architectural choices (actually it was worse than the first house). The use of space was pretty bad with lots of wasted square footage. The bottom like was that the place didn’t feel special – but they the asking price was nearly $2 million.

It hasn’t been all bad this week though. We sat down with some neighbors for brunch and they showed us the plans for the townhouse they bought almost a year ago. I think they were a bit scared to show us the plans because the first time the showed us plans months ago we didn’t have much of anything good to say about what we saw. The architect had small, oddly shaped rooms, an absurd amount of closet/storage space, and the architect wasted a lot of their square footage on hallways. They fired that architect (thank god), and have been working with another architect – Victor Ruiz. Victor is leaps and bounds above their first architect. His plans for their place are really pretty fascinating and wonderful.

The moral of the story is that there’s something to be said for houses that people make emotional connections with. We saw it in action when we sold our coop. When we renovated we had put in a rather expensive Poliform kitchen – complete with an integrated Sub Zero and a Wolf range. People loved that apartment and it sold fairly quickly and for a good price – despite the fact that the market had crashed just a year before. In fact our sale is still the high water mark in that coop for post-recession 2 bedroom sales.

But emotional connections like that don’t happen by accident – they take a lot of planning that starts with a great architect. I’d almost go as far as asking prospective architects for sales histories – post recession $$/sq. ft., and time on the market. You might spend a little more hiring a good architect, but the money you spend will come back to you several times over when you sell. Plus, you’ll have a great place to live in the meantime.

Don’t Trash Your Townhouse’s Original Details

old green door frameFriends are about to start renovations on their South Harlem brownstone. Their place is a total wreck and there aren’t enough original details to warrant a renovation with a traditional aesthetic. Still, there are some original details left and instead of just throwing them out they let Demolition Depot come in and rescue what could be rescued – mostly door and window moldings…

Demolition Depot is giving our friends a small store credit with which they hope to buy an “original” front door. Mind you, to actually use whats being rescued you’d need to strip 100 years of lead-based paint – so there’s a reason why the store credit isn’t all that large.

Below is one of the window frames Demolition Depot took out. It’s not all that special (I wonder why they wanted it), but some of the woodwork on the parlor floor was pretty cool and more interesting.

old green window frame

One item Demolition Depot discovered were pocket doors on the parlor floor that our friends didn’t realize were there. I was there when they were taking them out…

pocket doors being removed

Our friends are now thinking they may use those doors as their front doors…

So if you’re doing demolition, don’t just throw everything in a dumpster – if you let a salvage yard rescue what details you have left, it may come in really handy to one of your neighbors. For example we got our front doors from Demolition Depot, and we’ll probably get a bunch of stoop ironwork from them as well.

Our Cornice Is Now Restored

While it’s been a rough week with the two robberies and having to sleep at the house in the freezing cold to prevent more robberies, one thing did get completed this week and it looks great – the cornice.

Restored cornice on Harlem brownstone

As you can see, we went with black. Also, the portion of the top floor to the right has been painted – that’s the final version – it looks good, and the color Dan picked goes well with the window color. But we need to get the Bird-X spikes up there quickly before it’s covered in bird droppings.

It wasn’t easy for the guys to fix the cornice. Everything they touched just seemed to disintegrate when the touched it. Here’s what it looked like before…

Crumbling cornice on Harlem TownhouseIn the end it doesn’t look new – there are imperfections in it. But we like the imperfections – it looks like an original cornice that’s in decent shape, which is exactly how it should look…

There’s warm weather this coming week, so hopefully the façade will get done in the next few days. The stoop is getting a scratch and resurface rather than a painting. I think the goal is to get the scratch coat on this week.


Dan pointed out to me that the cornice isn’t actually black – it’s a dark bronze color that’s so dark it’s almost black. Here you can see it in comparison to the true black cornice two doors down.

cornicesI sorta like the almost black, but not quite, quality of it. You can see the difference a bit better in person – but even then it can fool you, like it did me the first time I saw it.

How SROs With No C of NHs Get Rehab Loans

The other day we went through an SRO-restricted townhouse which did not have a certificate of no harassment. In talking to the broker afterwards the broker insisted financing SROs without certificates of no harassment wasn’t a problem – that they did it all the time. She even cited two that were closed this year including one that was uninhabitable. When I pressed the broker on details the answer was vague but insistent (and even a little condescending).

So I called someone I know who’s a bit of an expert on financing townhouses and SROs and we talked through what might be happening. His take on it is exactly what I expected…

An naïve buyer shows up at one of the broker’s open houses, they’re told the house a legal 1 to 4 family, and hence mortgageable. [The paperwork I was given when I went through the SRO said it was a legal single family, but the broker had conveniently “forgotten” to put their logo on the document so misinformation couldn’t be traced back to them.] My mortgage expert and I suspect the following then happens… The buyer is gently guided through the process of buying the townhouse. The broker sends them to particular real estate lawyer, a particular architect, and a particular mortgage broker. The lawyer doesn’t tell the buyer the problems with the house or if he does he downplays them, the architect doesn’t mention potential problems with DOB, and the mortgage broker picks some unsuspecting bank in say the midwest who has no clue what an SRO is and what limitations that puts on the property. A 203(k) mortgage is then obtained, the sale is closed and everyone gets their commissions.

Unlike the loan we got, 203(k)s do not require approved plans at closing. After they’ve bought the place, the buyer goes to DOB to get their plans approved and is told they need a certificate of no harassment since their building is SRO restricted. The worst case scenario at that point is they have to wait 3 years to apply for the certificate, then construction takes another year. Meanwhile they have an uninhabitable building so they’re paying rent on top of say a $6,000 mortgage for a building they can’t use. They can’t afford the payments, so the bank forecloses and they lose the money they put into the building and their credit is ruined.

I’m not saying the worst case scenario is typical, but my mortgage expert friend has seen things like that happen. Banks who write a lot of rehab mortgages in the New York area insist on a certificate of no harassment to close the loan – they don’t want their loans going bad.

Unfortunately that’s typical of the dirty side of Harlem real estate and it doesn’t just hurt the buyers and the banks (and tax payers who’ve insured the loan). It hurts our neighborhoods since buildings don’t get fixed up – they sit there and deteriorate and reduce our quality of life and are a drag on our property values.

If you’re looking for a Harlem townhouse there are a few things you can do to protect yourself.

  1. Work with a buyer’s broker who has experience in the Harlem market – like me 😉
  2. Deal directly with a local bank who has lots of experience doing rehab loans in Harlem. If you can’t get the loan past them, you may be exposing yourself to risk.
  3. Get your own real estate lawyer and make sure they understand issues surrounding NYC SROs really well. Don’t do anything that your lawyer says you shouldn’t do.
  4. Check the SRO status even if the building is 1 to 4 family. Check with both DOB and HPD.
  5. Try to get approved plans before closing. At a minimum file the plans and see what DOB will require for approval.
  6. If at all possible, buy the building in cash. At least then if you have to hold the building while you wait for a C of NH, you won’t be making mortgage payments (and you can get a loan that doesn’t require PMI).

For an all cash buyer it can still make sense to buy an SROs without certificates of no harassment IF they buyer understands what they’re getting into and they’re prepared to wait for the certificate. OR if they’re able to bring the building to an acceptable point under “repairs and maintenance” and they can do those repairs all cash. In fact all cash buyers are the only people who should be buying these buildings.

There’s a lot of gray area between the worse case scenario and the best case scenario. The building could be rentable and the rents could cover the mortgage while the owner waits for the certificate. Or the building could be habitable and the owner could pay a handsome mortgage to live humbly while they wait for the certificate. But sometimes the worst really does happen. Rehabbing a townhouse is hard enough – you don’t need to add to the stress by picking the wrong building.

Every now and then I encounter a buyer who is cavalierly working directly with every listing broker they can find. They don’t seem to understand that parts of Harlem real estate are a still a bit like the wild west and bad things can happen to good people (even people who think they know what they’re doing). Things are much better than they were back in the day, but when you’re looking to buy in Harlem it helps to have a team of people watching your back.