Elika specializes in assisting buyer’s in pursuit of co-op properties through-out Manhattan for all budgets from charming village studios to the finest lavish Park avenue co-ops. We begin by assessing your specific needs, finding the ideal co-op, performing a comparable market analysis, negotiating on your behalf, consulting you through the board application and finally preparing you for your board interview. Below you will find a helpful guide in understanding the intricacies of co-ops and what you may face when pursuing your purchase.
Picture a large, unruly family all living under one roof with the members potentially disagreeing on everything from how to decorate to how to improve their home, and you pretty much have an idea of what it’s like to live in a co-operative building in Manhattan.
Because New York City co-ops are hybrids which combine private and group ownership, living in this type of property can pose unique challenges. Here are some things to keep in mind when looking into New York City co-ops. Co-ops differ from condominiums in that instead of owning the deed to your individual property, you own shares in a corporate entity which in turn owns the property. With a lease, co-op owners gain the right to occupy their units, but they do not enjoy some other privileges of ownership that buying other types of property affords.
One major drawback is that co-op owners cannot turn around and sell their units to whomever they please at whatever price they can get. There are also restrictions on subletting or altering the unit, as well as such minute things as what percentage of a unit has to be carpeted.
When it comes to New York City co-ops, the board of directors controls how and to whom its shares are sold. The board of directors has sweeping authority to accept or reject anyone who wants to buy in a co-op in the building, and can turn you down for any reason other than sexual, religious or racial discrimination. Further, co-op boards are not required to give you a reason why they turned you down, making a rejection all the more baffling. As far as running the building, co-op boards also have broad powers. As long as they are found to be operating in the building’s best interest, their decisions are impossible to overturn, even in court.
What You Need to Get In
In order to be approved by a co-op board, you are going to have supply excruciatingly detailed personal and financial information. The board package, as it is referred to, includes two years worth of tax returns with W-2 forms, 1099s and K-1 forms, delineating all partnership income. The package should be prepared by an accountant or financial expert and should also consist of a detailed financial statement, including a listing of your assets.
If you have any investments, the co-op board will also ask for copies of statements documenting each. For instance, if you own a rental property, you will be required to furnish a market analysis of the property and copies of leases. A comprehensive board package should also include a commitment from a lender for any proposed financing. Boards will usually also ask for three to four letters of personal reference.
While sales of New York City co-ops have slowed over the last few years due to a soft economy, many co-op boards have become even more stringent in their financial requirements for prospective owners. Experts say that this is because boards feel they would rather protect their residents than make real estate sales.
The final hurdle to obtaining a co-op is the interview with the co-op boards selection committee. During this interview you should be prepared to answer any and all questions pertaining to your personal and/or financial life. If you are a family, you may even be required to bring your children to the interview to see if everyone is up to snuff.
With unemployment high, many co-op boards are casting a more skeptical eye on prospective buyers, and often now require down payments of 50 percent or more, or six months' to two years' worth of maintenance in an escrow account. In some of the more lavish buildings on Fifth and Park Avenues and Central Park West, boards have required all-cash purchases or have given preferential treatment to buyers who have obtained fixed rate mortgages.
The Advantages and Disadvantages of Owning a Co-op
The advantage of owning a co-op is that you get to choose your neighbors. Most boards focus on whether the prospective buyer will be a considerate neighbor and be able to pay their maintenance on time. The disadvantages are that the co-op board will basically control your life, including everything from what color you paint your door to what you keep on your balcony. Most people either love or hate co-op arrangements, and you should decide in advance into which camp you fall.
Experts say that maintenance fee increases and how monies are to be spent is the main cause of friction between co-op neighbors, followed by decoration issues like design plans for a new lobby. The divisions generally occur between those owners who want to keep costs down and those who do not want to sacrifice quality or services.
The laws that cover co-op issues are always evolving. Most recently, the courts have ruled that a co-op board's decision cannot be questioned in court, that co-ops generally do not have to provide a reason why a prospective owner was turned down and that in certain circumstances a co-op can evict a disruptive neighbor. The courts have also ruled that a co-op board can enforce flip taxes on the sale of a unit, if that is permitted by the co-op's bylaws.
Since the end of 2009, the co-op market in Manhattan seems to have rebounded somewhat from sluggish sales in 2007 and 2008. About 60 percent of the new listings in Manhattan after Labor Day 2009 were co-ops. With median prices declining over the past three years, this may be the perfect time to investigate purchasing NYC co-ops.
When performing your due-diligence prior to making a coop purchase or when the annual board meeting of your co-op is approaching, you get a rather thick document. This is your co-op financial statement. While you may be tempted to dump it in the trash, it is actually a pretty important document. It lets you know where your investment is, and that should be a priority to you, especially with how much money New Yorker’s invest in their apartments. If you are looking for a new home, you can use this information to analyze whether or not the co-op would be a sound investment. There are several things that you need to look for.
First, look at the page that shows results for the past two years. There should be two columns, one for this year and one for the previous year. Compare the two columns carefully. If there are any significant changes that you can’t explain, this could be a concern.
Next take a look at the profit and loss statement. Obviously, you want to see the co-op make a profit. This means that they have a balanced budget, and income is meeting expenses. If you see a loss, be concerned unless you know of some justification for it. If you see a loss year after year, you definitely need to consider getting some different board members that will balance the budget. Find in the statements the pages that should show assessments. Assessments are used to pay for capital improvements or expenses for which the co-op is unprepared, such as replacing a boiler unit. Try to see what the assessments are being used for, if it is something responsible and necessary. You should also know how long the assessment continues, and if it is to be repaid in a lump sum or in smaller payments.
The next thing you want to look at is the mortgage statements. The size of the mortgage is not necessarily a concern, because the goal is not to pay off the mortgage like with other types of real estate. If that were to happen, current shareholders would be paying for the benefit of future shareholders. But the interest rate and date of maturity is important to note. When looking at the interest rate, take the current economy into consideration. If we are in a low interest economy, you should worry if the mortgage has a high interest rate that cannot be refinanced. You should also know about the maturity date, because this can effect your payments. If the mortgage is about to mature, it could mean legal fees and other expenses related to refinancing. However, refinancing at a lower interest rate could also mean a lowering in your payments. Another thing that is important to note is the reserve fund. The reserve fund is used to pay for capital expenses like a new roof or other improvements that need to be made to the co-op. If the reserve fund is too low, it could mean more assessments down the road. On the other hand, some co-ops use a line of credit to pay for those expenses, so you should take that into consideration.
Finally, you want to look at the footnotes. The footnotes hold some very important information, and should not be skipped over because it is the fine print. Footnotes may tell you some valuable information, such as if the co-op is paying legal fees for some reason. It may also tell you if there is a tax abatement that is going to expire soon, making your payments higher. You’ll also learn here whether the real estate and land is owned or leased for the co-op building, and you’ll find more details about the mortgage and assessments.
There should, at the last, be a page that describes the person who prepared the financial statements, and whether or not the statements have been audited. It should also state whether or not the real estate documents were audited according to current practices and standards. Smaller co-ops may not have audited statements because they cost more to prepare. Regardless, your treasurer or the accountant who prepared the documents should be available at the annual meeting to answer any questions you may have about the real estate statements.
Contact an experienced and knowledgeable buyer agent for a free consultation.