Find Your Dream Co-Op
We specialize in representing buyers in pursuit of New York City Co-ops for Sale through-out Manhattan and Brooklyn. From beautiful village studios to the most beautiful Park Avenue residences, we cover it all.
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 to 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. Picture that, and you have a pretty good idea of what it’s like to live in a cooperative building in Manhattan. Because New York City co-ops are hybrids that combine private and group ownership, residing 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 condos 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. However, they do not enjoy some privileges of ownership than other types of property do not afford.
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 co-op apartment. For instance, there are such minute things as the percentage of carpeting required in the co-op apartment.
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 full 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 an idea of why they turned you down. Makes rejection all the more baffling if you do receive one. As far as running the building goes, the co-op also has 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.
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Buying a Co-op in New York City
Table of Contents
What is a Co-op?
Typically, if a building is older (built pre-1980s), it’s usually a co-op. These buildings make up approximately 80% of the non-rental apartment stock. Unlike a condo, cooperatives are owned by a corporation, which means you are not buying real property when buying an apartment in a co-op building (as you would in a condo). Instead, you’ll be buying shares in the corporation. These shares entitle you to a proprietary lease, which makes your relationship in the building closer to that of an investor. The larger the apartment, the more significant the number of shares allocated. However, purchasing a co-op apartment is not a simple process. Cooperative boards don’t just take on anyone.
Buyers have to pass a lengthy board application review along with a co-op board interview. Until then, you’re not even near to closing. It’s an ordeal that drives many people away. But with the right knowledge and an experienced real estate broker, you’ll be far more confident of success. This complete guide will take you through the entire process. By its end, you’ll know everything there is to know about the co-op purchasing process in NYC.
As was mentioned, co-op owners are not permitted to sell their units without board approval and paying a flip tax. This means 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 also face stringent rules governing the appearance of the building. For instance, there may be limits on the percentage of the unit that; is carpeted.
A board of directors controls New York City co-ops. The board determines how shares can be sold and who can buy them. Co-op boards enjoy sweeping authority to accept or reject applicants and 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 full 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.
What do I need to qualify for a Co-op?
To be approved by a co-op board, you’re going to have to supply excruciatingly detailed personal and financial information. As it is referred to, the board package includes two years’ worth of tax returns with W-2 forms, 1099s, and K-1 forms, delineating all partnership income. The package should be reviewed by an accountant or financial advisor and consist of required financial statement details, including assets and liabilities.
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’ll 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 prospective owners’ financial requirements. Experts say this is because boards feel they would instead protect their residents than make real estate sales.
What is a Co-op board interview?
The final hurdle to obtaining a co-op is the interview with the co-op board selection committee. During this interview, be prepared to answer any questions about your personal and financial life. If you have 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.
Checklist for Buying a Co-op
Before you can start looking for your dream apartment, there are a few things you need to sort out. The first thing is your savings and finances. Down payments on co-ops can be as high as 30%. You should also know your credit score. Unless you’ve got a substantial amount of savings, you’re going to need a mortgage loan to purchase your first co-op in NYC. Your credit score will determine whether banks will lend to you or not. As such, you’ll need to raise it as high as possible and keep it there.
You should also research everything related to buying an apartment in NYC. This means completing a REBNY financial statement so that you have a clear understanding of your financial picture. You’ll also need to look at your debt-to-income ratio, how many liquid assets you’ll need to cover the down payment, closing costs, and satisfy the co-ops post-closing financial requirements.
Understanding the costs associated
You’ll also need a good understanding of the NYC real estate taxes you’ll be facing when buying, owning, and selling an apartment in NYC. Lastly, you should research what the most common co-op buyer mistakes in NYC are. Learning from the experience of others will make you far savvier when the real search begins.
When searching for an apartment in NYC, it doesn’t take long to realize how much more affordable co-ops are to condos. There are good reasons for this, such as a higher inventory and the troublesome board approval process. So the next question is – what are the general financial requirements for buying a co-op in NYC? We cover just that. By the end, you’ll understand the need to purchase a co-op and be able to start planning.
Each co-op has its own rules and regulations, but you can expect the required down payment to be 20% in general. However, that said, you can also find co-ops that require 25%, 35%, or even 50% to guarantee the purchase.
Liquid assets and other reserves
Just because you have enough money for the down payment and closing costs does not mean you’re in the game yet. Another crucial aspect is the amount of post-closing liquid assets to your name after closing. Once again, every co-op has its requirements, but the average demand is 1-2 years. Liquid assets are preferred as they’re a better guarantee, but other reserves can also be used, such as cash, mutual funds, or anything that can be quickly converted to cash.
Retirement funds and real estate are excluded. In some cases, co-ops will make exceptions to this if you have limited assets but a high salary, or a low salary but substantial assets. These cash reserves ensure that you can pay your mortgage and maintenance costs for at least two years after closing.
Your post-closing liquidity is calculated by dividing the sum of your liquid assets through your monthly co-op carrying costs. For example, let’s say you have a monthly mortgage payment of $7,500 and a maintenance fee of $2,400 with liquid assets of $200,000. Your post-closing liquidity would be $200,000/$9,900 = 20.20. This gives you about 1.5 years of post-closing liquidity.
To ensure that the co-op remains sustainable, the board requires that all buyers keep up with payments. This makes your debt-to-income rate ratio just as important in calculating your finances. The typical rate ratio required by most co-ops is between 25-30%. There will be exceptions to this, as mentioned above, if you have a lot of liquid assets. Board members will also take into account your employment record and multi-year income history. They like to see a record of consistent employment and a steadily increasing income.
This can be a problem if you’re self-employed. In that case, you’ll most likely need at least three years of tax returns along with a notarized letter from your account for the board to see whether your income has gone up or down in that time. Coop boards may also take into account your earning potential. If your current income does not match the board’s requirements or your assets aren’t enough, but you can demonstrate the increased income’s potential, they may make an exception. Keep in mind that you might be asked for a year’s maintenance to be held in escrow in such cases.
Calculating the debt-to-income ratio
To calculate your debt-to-income ratio, you must compute your total income and find the percentage your debts are total. For example, if you have a monthly income of $6,000 and monthly bills of $2,200, your debt-to-income ratio is 36%, as $2,200 is 36% of $6,000. Working out the financial requirements for buying a co-op can often be tricky. Hiring a qualified buyer’s agent can make things more comfortable and faster, but even with that, expect the buying process to take some time.
Guide to Buying a Co-op in New York City
It’s no secret that buying a Co-op in New York City can be a long and daunting process. New York is a city comprised almost entirely of cooperatives and condominiums and a smaller selection of townhouses.
Below is a comprehensive guide on everything you need to know if you’re considering or have already decided to purchase a co-op.
What Makes Buying a Co-op Attractive?
As mentioned, New York’s housing market is mostly comprised of condos and co-ops. Which one you choose depends entirely on your personal and financial circumstances, your lifestyle preferences, and experience. For many buyers, it’s the price difference that pulls them in. Co-op apartments typically sell for 10-40% cheaper than condos of similar size and quality. Part of the reason for this is that co-op buildings tend to be older, with fewer bells and whistles seen in the thousands of condos going up in the past decade.
Many new condos also tend to have far higher closing costs if you’re taking out a mortgage. Another reason co-ops are less expensive is that buyers have to be approved by a board. Along with the hassle and chance of rejection, you’ll also be opening your financial records to folks you’ll be sharing the elevator with for years to come.
Because of this, prices are often lower to entice buyers. Another significant difference between co-ops to be aware of is the strict rules and regulations. The co-ops shareholders elect a volunteer co-op board that oversees the care and maintenance of the building.
The board creates and enforces laws about everything. Whether pets of any kind are allowed inside, what sort of renovations are permitted, and restrictions on noise levels at certain times. Unlike condo boards, they have the power to evict an extremely disruptive shareholder and force them to sell. In summary, what makes a co-op an attractive choice is the lower price tag and more space. Buyers who don’t want to deal with hour-long commutes from out of the city will find co-ops the best choice.
Once you’ve done your research and enlisted the services of an experienced buyer’s agent, then it’s time to start looking for your perfect apartment. This part doesn’t differ much from the condo search process. You’ll still need to attend open houses, and if you’re new to the city, you should do it often. This is more considerate of your broker’s time as its hard for them to help you if you don’t know where you want to live, what exactly you’re looking for, or what your price range is. When you are signing in for an open house, make sure to write your buyer agent’s contact info. That way, the listing agent can follow up with them instead of harassing you with newsletters and offers.
When you have a better sense of what you’re looking for, let your buyer’s agent know, and they can begin sending you some property suggestions. Try to be reasonable with your demands as the inventory in New York is not exactly overflowing.
Co-op wish list
Stick with simple criteria such as price and number of bedrooms. Would you prefer a doorman building or one with no door attendant and less monthly expenses? Do you have a dog or cat and therefore need a building that allows pets? Most purchase contracts in NYC stipulate that the apartment’s condition must not have changed substantially since the contract’s signing.
The only way to prove that is to take a lot of photographs. Since properties in NY are sold as-is, there is no way to show otherwise if anything has changed when you close the contract. So when you’ve found a place, or several, that you’re interested in, arrange a private viewing and take those photos.
Making and Negotiating an Offer
Now that you’ve found the perfect apartment, it’s time to make an offer. If you’ve signed up with an experienced buyer’s broker, they will guide you through the whole process. They’ll explain everything about the closing process and what happens between offer, acceptance, and closing. You’ll be happy to know that once your broker has received an accepted offer, they will introduce you to an experienced real estate attorney.
They’ll take it from there and handle the review and negotiations on your behalf. They will also conduct legal and financial due diligence, including reviewing the initial offer, co-op financial statements, board minutes, and the co-op lien search. Any offer; on a co-op should include, at a minimum, the following:
- Offer amount
- Address of the property you are making an offer on
- Amount of financing or the down payment amount
- Any contingencies
- Bank approval letter if you are financing
- Proof of funds if you are purchasing all cash
- Completed REBNY Financial Statement
- A short biography or home buyer offer letter
- Attorney contact information
The above will be sufficient for the vast majority of co-op listing agents. However, a small minority may require a signed Submit Offer form also. Your broker will negotiate the offer with the listing agent on your behalf. If the offer has been accepted or a counteroffer has been made, you’ll be informed immediately.
Dealing with multiple offers
If there are multiple competing offers, you may end up in a best and final offer situation. In this case, all bidders will make their best offer by a final deadline, with the best offer being accepted. Keep in mind that real estate offers in NYC are not binding. Even if it is in writing, nothing becomes legally binding until both parties have signed the purchase contract. You could sign your purchase contract when submitting, to show that you are serious about closing. But it won’t become binding until they sign as well and return it to your attorney.
Offer Accepted Now Deal Sheet
Once you have an accepted offer, the seller’s broker will circulate a deal sheet to your attorney, the seller’s attorney, and both brokers. The purpose of this is to put the two attorneys in touch so they can state the basic terms. After your attorney has negotiated the purchase contract, you meet to review everything before signing on the dotted line. Once done, you’ll also hand over a check for a 10% contract deposit.
Your attorney will then deliver all this to the seller’s attorney for counter-signing. What follows is a tense day or two for a response. If the seller is good to go, you should have a fully executed contract within that time. However, there are cases where the seller shops a buyer’s offer and goes with a better offer. If that happens, there’s nothing more the buyer can do if there is no contract signed by both parties.
Completing the Board Application Process
If you’ve made it this far, you are now “in a contract.” Neither side can now back out without legal penalties. The one exception to this is if the co-op board rejects the application. If that happens, then you can exit without penalty. Once you have a fully executed contract, you should immediately start putting together your co-op broad application. As soon as you have a signed contract, you can begin soliciting friends and co-workers for personal and professional reference letters. Typically, these take the longest time to collect, so the sooner you start, the better.
Ensure that everything on the board application is filled in. If something doesn’t apply to you, write “N/A” instead of leaving it blank. Your buyer’s agent will help you with this and guide through the whole process. You must follow all instructions on the co-op board application to the letter and submit all requested documents.
If you are taking out a mortgage for the purchase, you’ll need a loan commitment letter and an Aztec Recognition Letter, both of which your broker or bank can help you.
Preparing the co-op board application
You should take your board application very seriously as any mistakes or un-submitted paperwork could cause delays or even lead to the complete purchase falling through. You should also have it neatly organized with a table of contents and page dividers. By the end, you’ll have a lot of paperwork, so it should be well ordered and presented when you deliver it to the listing agent for review.
If you are uncertain of anything or want to know how strict or liberal the co-op board is, have your buyer’s agent discuss with the management company.
Passing the Board Interview
Now we come to what is, for many buyers, the most nerve-wracking part of the co-op buying process. The co-op board interview in NYC has a pretty bad reputation for being intrusive and unpleasant. That said, it’s rarely as bad as many people make it out to be. Remember to keep it short, sweet, and polite.
Answer any questions they ask and stay on topic. Often, they’ve already approved your application from seeing that you are financially qualified. They want to meet you in person to know what you’re like and make sure you would make a good neighbor. Still, you should be well prepared for it and read up on how best to pass the interview. Your broker can tell you what to expect from this particular board and their biggest concerns with potential neighbors.
Closing your Purchase
If everything has gone well, you’ll receive notice from the managing agent that you’ve passed the board interview within one or two business days. If you’re lucky, you may even get an informal indication that you’ve given after the board interview. Once the co-op board approves, you’ll need an all-clear to close the bank.
From there, your attorney will work with the seller’s attorney and your bank to coordinate a closing date and process for the sale that works for all parties. Keep in mind that a commitment letter will be needed from your lender for the purchase application submission. To ensure that your lender is right to go once you receive board approval.
Your buyer’s agent will schedule a final walk-through of the apartment, usually the day before closing or even on the same day. Use this opportunity to take one final look at the property before the close and make sure it hasn’t substantially changed since you last saw it (remember to take those photos!).
Check that all the appliances, toilets, showers, sinks, lights, and electrical outlets are in working order. You should also check for any damage that may have been caused by the movers when they moved out of the seller’s furniture.
The closing process
Most closing days occur at either the managing agent’s office or the seller’s attorney’s office. Usually present will be the seller and buyer, attorneys representing the banks, along with a closing coordinator to guide everyone through the closing process. The buyer and seller will also usually be present unless they have given their attorneys the power to act in their stead. Typically, the brokers are not present at the closing and often pick up the commission checks at a more convenient time.
There you go! You are now the proud owner of your own NYC co-op apartment. When looked at in isolation, the whole process can seem long and complicated, but it is straightforward. When laid out like this in a competent seller’s agent will make the process run much smoother because, as you can see, there are many steps to a co-op purchase. Educate yourself about every level of it and stay well organized. When done right, co-op purchases can be a walk in the park.
Co-op Purchasing Process, Step By Step
Calculating Your Budget
Time estimate: 1 – 3 days
Before you start searching for the perfect home, you need to calculate how much your weekly or monthly salary you can spend on a mortgage payment. Once you have a figure in mind, you need to estimate how much it will cost to maintain an apartment, including monthly standard charges, repairs, taxes, and utilities. Then, you have to factor in closing costs and your down payment, which can run from 10 percent to as much as 20 percent. Co-ops often ask for more money down than condos.
Brainstorming – Time estimate
Time estimate: 1 – 2 days
After you’ve decided how much you can afford for monthly expenses and down payment, you need to make a list of your priorities, preferences, and needs.
- How large should your apartment be?
- How many bedrooms do you need?
- What amenities do you need?
- Where would you like to live?
This list will help you determine how much your new apartment will cost. If you’re using an Elika agent, your representative can take this list into account while matching you up with as many of the better apartments as possible that fit your budget and priorities.
The Pre-Qualification Process
Time estimate: 1-3 Days
The next step in the real estate purchasing process is to contact a mortgage broker or banker. It’s now time for you to get yourself pre-qualified for a loan. To prove that you’re a serious buyer, get a pre-qualification letter to show your financial standing. This will prepare you to start searching in earnest. At this point, you’ll be ready to submit an offer once you find the perfect apartment. Sellers take suggestions from pre-qualified buyers more seriously than offers from prospective buyers who haven’t been pre-qualified. Acquiring a pre-qualification letter is a simple service that banks, or mortgage brokers, provide for free.
Searching and Viewing the Apartment
Time estimate: 1- 6 Months
The length of your apartment search can take days, weeks, or even months. It depends on how selective you are and how stringent your preferences may be. Most buyers will see 15 to 20 apartments before making an offer. An Elika buyers’ broker would be happy to represent you in your search if you don’t have the time yourself. The agent can visit the apartments or set appointments for you to visit them. This can save you hours of searching through newspapers or online advertisements to find the perfect place.
If an Elika agent is searching for you, ask for a shortlist of the most promising apartments. You or your representative should visit as many properties as possible. Don’t be fooled by advertisements. You absolutely must see the apartments firsthand before making an offer.
Offers & Negotiation
Time estimate: 2 Days – 2 Weeks
In New York City, an offer can be made verbally or in writing. When you find your ideal apartment, it’s time to place your offer through your Elika agent. Your agent will submit your bid to the seller’s agent or directly to the seller.
However, the seller might think your offer is too low. In that case, you might receive a counteroffer. This negotiation can lead to a mutually agreeable price, terms, and a closing date. Negotiations are affected by market conditions. If the market is crowded with available apartments, negotiating is easier. If there aren’t as many apartments for sale, negotiations might not work. An Elika agent can help you with negotiations by generating a comparable market analysis report so that you understand the property’s value and the likelihood of negotiating.
Most New York apartments are sold as-is by the sellers. That means what you see is what you get. If you want the furniture in the co-op apartment; or different fixtures, you need to negotiate for them before the sale. Once you finalize the price, your agent will put together a deal sheet that lists the sales price and the agreed-upon contract terms. Remember that nothing is guaranteed, and the seller may still entertain additional offers. Until a contract has been counter-signed by the seller, nothing is set in stone. This is so even when a price has already been negotiated.
Hiring an Attorney
Time estimate: 1-3 Days
In New York City, attorneys must represent both buyers and sellers. The seller’s attorney will put together a sales contract. Your attorney will review the building’s financials, bylaws, and legal structure to assure that you can accept the terms. An Elika broker can help you find a real estate attorney who has experience in Manhattan.
Time estimate: 3 – 8 Weeks
When you and your attorney have approved the sales contract, it must be signed and returned with a deposit check. This deposit will usually be around 10% of the purchase price. However, this is only a guideline. The seller may have different terms. The seller’s attorney will deposit the check into escrow until the closing. When the seller signs the contract, the deal is considered fully executable and binding. The process can take up to three weeks, depending on the terms and how quickly the seller’s attorney performs the due diligence required to seal the deal.
At this point, you need to proceed with your loan application if you are receiving financing. Your Elika agent can help you find a mortgage broker. If you pre-qualified already, you’d likely use the company that pre-qualified you. You will need to provide these documents:
- An application
- A financial statement signed by a CPA
- All supporting documentation for your REBNY financial statement
- Three years of tax returns
- Bank statements
- Professional and personal reference letters
- The contract of sale
- Any necessary bank documents showing your loan is in place.
Board Application and Interview Resales Only
Time estimate: 2 to 3 Weeks
Board application submission and approval in the case of a Condo or Co-op board interview request.
Time estimate: 30 minutes to 1 hour
When purchasing a resale property, you must apply to the co-op or condo board of directors. If buying in a New Development, you will not need Board approval. The documents are the same for a condo and cooperative, but their review is different. The application includes these documents:
- Application forms
- Financial statements
- Tax returns for two years
- Bank statements
- Reference letters
- Loan commitment letter, other bank documents
Incomplete applications can be denied, so be sure to include everything. If you’re buying into a coop, the next step is an interview with the board of directors. Treat this like a business meeting. You’ll receive a decision within 48 to 72 hours. Your Elika broker can help you prepare for the interview.
Time estimate: 30 to 60 minutes on the day before or of closing
It is essential to inspect the property before closing. Verify that the appliances, faucets, light fixtures, plumbing, and outlets are all working. Make sure the seller has left or is preparing to move. Your Elika agent can help you complete the walk-through.
Time estimate: 1 to 2 weeks after board approval
The buyer, seller, and their attorneys must gather to sign the remaining documents for the closing. The title is transferred, and the buyer is given the deed when the seller receives the check for the balance. The entire real estate purchasing process can take anywhere from two months to one year.