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New York City co-ops are unique hybrids that combine features of both public and private ownership. Living in a co-op presents many distinct challenges. When you’re looking into New York City co-ops, it’s important to consider how life here will differ from what you’re used to.
As we’ve already mentioned, co-op owners are not permitted to sell their units without board approval and paying a flip tax, so you cannot flip a co-op property the way you could a house or condo. There are restrictions on subletting or renovating the unit as well. Co-op residents may face very strict rules governing the appearance of the building, such as limits on the percentage of the unit that is carpeted.
New York City co-ops are controlled by a board of directors. The board determines how shares are sold and who can buy them. Co-op boards enjoy sweeping authority to accept or reject applicants, and can turn down individuals for anything other than sexual, religious, or racial discrimination. Rejections are often baffling, as the board isn’t required to provide a reason if they turn you down.
Co-op boards also have broad control of the running of the building. Their decisions are nearly impossible to overturn, so long as they can argue that they’re operating in the building’s best interest.
by Wally Gobetz on Flickr
What You Need to Get Into a Co-Op
You must supply detailed personal and financial information to get approval from the co-op’s board of directors. Applicants must fill out a “board package” that includes two years of tax returns with W-2 forms, 1099s, and K-1 forms delineating all partnership income. You must also provide a detailed financial statement and list of your assets.
If you have any investments, the co-op board will need documentation for each one. For example, you would need to provide a market analysis and copy of the lease for any rental property you own. A comprehensive board package will also include a commitment from a lender for any proposed financing. An accountant or financial expert can help you assemble this part of your package.
In addition to your financial information, your board package usually will require a minimum of three letters of personal reference. After submitting your completed package, you must submit to an interview with the co-op board’s selection committee. Families are often asked to bring children along so the board can meet all the prospective residents. These interviews can include both personal and financial questions.
While sales of New York City co-ops slowed during the collapse of subprime loans and the global financial crisis they have since roared back, many co-op boards have become increasingly stringent with their financial requirements for prospective owners. Experts believe this is because boards would rather protect their current residents than make potentially risky real estate sales.
by Aurelien Guichard on Flickr
The Advantages and Disadvantages of Owning a Co-op
Though the application process is rigorous, there are many advantages to owning a co-op. Co-op boards are very strict about choosing buyers who will be considerate neighbors and take care of their maintenance issues promptly. This creates a high-quality living environment for everyone in the building.
Unfortunately, the same rules that keep your neighbors in line can feel very controlling if you want to make certain cosmetic changes to your living space. If you bristle at the idea of having restrictions on your paint colors or balcony decorations, co-op living may not be for you.
Disagreements between co-op neighbors typically center on the spending of monies and what decorations are allowed. Experts say there’s usually a division between owners who want to keep costs down and those who are willing to pay more to ensure quality.
The laws that govern co-op issues are always evolving. Most recently, courts have ruled that a co-op board’s decision cannot be questioned in court, that it does not have to provide a reason for turning down prospective owners, and that it can evict disruptive neighbors. Co-op boards may also enforce “flip taxes” on the sale of a unit if permitted by the co-op’s bylaws.
Since the end of 2009, the co-op market in Manhattan has rebounded from the sluggish economy of 2007 and 2008. In the second quarter of 2014, Manhattan co-ops saw average price gains (17%) and increases in the average price per square foot (16%). The average price per square foot rose to $1,019 — for the first time surpassing $1,000 per square foot. The quarter median price also rose 8% over the previous year.