It’s no secret that buying a home in NYC can be a long and daunting process – and for those looking to buy a co-op, the process can be even more intense. New York is a city comprised almost entirely of cooperatives and condominiums along with a smaller selection of private apartments.
Typically, if a building is older (built pre-1980’s), it’s usually a co-op. These buildings make up approximately 80% of the non-rental apartment stock. Unlike a condo, co-ops are owned by a corporation. Meaning that when you buy an apartment in a co-op building, you are not buying real property (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 to the building closer to that of an investor. The larger the apartment, the larger the number of shares allocated.
However, purchasing a co-op apartment is not a simple process. Cooperative boards don’t 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 buying process in NYC.
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 of the bells and whistles that are seen in the thousands of condos that have been 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 with 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 rules 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.
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-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. 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.
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 brokers 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. Stick with simple criteria such as price and number of bedrooms. Would you prefer a doorman building or one with no doorman 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 condition of the apartment must not have changed substantially since the signing of the contract. 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 prove 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 on a Co-op
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 which involves reviewing the original offer, co-op financial statements, board minutes and the co-op lien search.
Any offer on an NYC apartment should include, at a minimum, the following:
- Offer amount in USD
- 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 if a counter-offer has been made you’ll be informed immediately. 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 contact 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.
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 signed a contract and goes with a better offer. If that happens, there’s nothing more the buyer can do.
Completing the Co-op Purchase
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 an accepted 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. It is vital that you follow all instructions on the co-op board application to the letter and that you 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 with.
You should take your board application very seriously as any mistakes, or un-submitted paperwork could cause delays or even lead to the whole 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 lenient the co-op board is you should ask your buyer’s agent for advice.
Passing the Co-op Board Interview
Now we come to what is, for a lot of 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 see 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 what their biggest concerns with potential neighbors are.
Closing your Co-op Apartment 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 passed after the board interview.
Once the co-op board approves, you’ll simply 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 good 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 the seller’s furniture.
Most closing days take place 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 power to their attorneys to act in their stead. Typically, the brokers are not present at the closing and will 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. The whole process, when looked at in isolation, make seem long and complicated, but when laid out like this you can see how straightforward it is. Hiring a good 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 step of it and stay well organized. When done right, co-op purchases can be a walk in the park.