But, even with your best intentions and preparation, boards have been known to reject buyers without any specific reason. Here are some suggestions how a smart seller and a smart listing agent can take charge and take some of the uncertainty and stress out of the selling process.
The power of the co-op board
Unique to NYC real estate, co-op owners can’t simply sell their apartment to just any person for the negotiated price – the co-op board’s stamp of approval is also required. This additional layer makes transactions more uncertain and a lot more stressful for the seller – you!
While 99% of the time a co-op board is only concerned about a buyer who has impeccable financials, there can be instances in which a seller gets a great offer for above asking price from a well-qualified buyer only to have the co-op board — six weeks later — reject this buyer. Time has been squandered, a deal lost. This is what you want to avoid, because then you are forced to put your home back on the market, where you may never see that same offer again.
That’s why it’s so important to know how to recognize the most-qualified buyer for your residence, which might be different from the buyer who offers the most money. And while price is important and a big part of the equation, there are other things that could foil the deal.
Get your co-op board application early
Before you list your apartment, have your broker request a copy of the board’s purchase application package. As you likely know from buying the unit, the purchase application in its very first pages lays out all requirements for applying and approval.
This list includes, but is not limited to:
- Rules surrounding down payment requirement
- Subletting or pied-à-terre rules
- Flip tax, building fees and application fees
If there are any fees that don’t specify whether they are buyer or seller fees, this is the time to find out. Flag everything up front to avoid trouble when negotiations are down to the wire. Knowing what your board requires is the first step to understanding who your best buyer will be.
Call the co-op board president or member of the board
You may not know the members of your co-op board personally, but that doesn’t matter. Talking to a board member will go a long way towards understanding the type of buyer your board looks for and which kind of buyer could raise a red flag.
As a shareholder and member of the corporation, you are entitled to communicate with the board members. Most of the information about the building and co-op is accessible to all shareholders via yearly financials or regular updates.
Place a call to a board member or two and alert them that you intend to sell. Ask the board members what they look for in buyers today. While most boards are simply interested in the financial strength of a potential shareholder, ask them if there are any major red flags you should be aware of. It will likely help clarify key information.
Review the buyer's financial disclosure statement
Co-op buyers understand that the board will scrutinize their finances as a part of the approval process. But the scrutiny starts even earlier. In addition to any lender preapproval letter or proof of funds, brokers typically ask buyers to submit the REBNY Financial Disclosure Statement with any offer to purchase. This boilerplate document, developed by the Real Estate Board of New York, details the buyer’s income, debt, assets, and background. The buyer will have to produce copies of each line item as well (i.e., pay stubs, tax info, etc.).
Listing agents and sellers use the REBNY form to immediately vet buyers. If your agent submits an offer to you without a REBNY form, you should ask for it immediately. For a co-op board, the strength of a buyer’s financials is almost solely the reason to either move ahead or to reject a buyer.
In addition to the buyer’s financials, the board will ask for letters of recommendation – likely three from business associates and three personal letters. Make sure your agent puts this process in motion, too.
Key issues for a co-op board to reject a buyer
The difficulty of dealing with a co-op board is that it can reject a buyer for any reason and not reveal why. Here are some things to look out for.
No seller wants to leave money on the table, but from time to time, a quick sale needs to happen. Be mindful that this won’t sit well with the board, who are also homeowners with a vested interest in keeping sale prices high. In the case of a seller in distress, if the board feels like you’re doing a “fire sale,” they will let you know by rejecting the buyer.
Down payment requirement
If your board requires 20 percent down, don’t waste an ounce of energy putting a buyer through if they don’t have it. They will get rejected before they even meet in person with the board. Learn what the co-op’s down payment requirements are and find a buyer who can meet them.
Money in reserve
A co-op board wants to be certain that the future shareholder can make the monthly maintenance payments. A buyer with little money in reserve, after their down payment and closing costs, isn’t a great candidate. Boards can ask for a six-month reserve or as much as a one-year reserve.
Six months of maintenance
After the credit crisis and economic downturn, some boards — forced to deal with delinquent shareholders — started to require buyers to put aside six month’s maintenance at the time of purchase. If your board has this type of requirement and your buyer doesn’t have that kind of asset liquidity, they are not the best buyer.
While it is illegal for you or your broker to discriminate on any basis, it’s helpful to know what your board looks for in future shareholders. If your board does not want owners using units as pied-à-terres, or they are not interested in investors buying units as non-primary residences, they will be rejected.
In selling your co-op, you will need to know more about your buyers than perhaps in other transactions, so you have to ask lots of questions and read between the lines:
- Where do they live currently?
- Do they rent or own?
- Where is their job physically located?
- Where are they from originally?
While seemingly intrusive, agents are used to asking these tough questions and buyers must prepare for the worst.
It’s not uncommon for a parent to buy an apartment in NYC for their son or daughter. However, college-aged children occupying the apartment may not fly with the co-op board. The same goes for corporations purchasing an apartment for their executives to use when they are in town. Most co-op boards look for full-time owner occupants who have a solid financial portfolio. Do your best to get that person to the board.
In prepping for the co-op board interview, agents tell buyers not to mention anything about renovations. Agents fear that a potential buyer with ambitious renovation plans, while technically allowed, may be a turn-off to a co-op board that may not want someone coming in and “rocking the boat.”
If what you are selling is in its original condition (known as “estate condition”), you have to believe that the buyer will improve it. Otherwise, steer clear of the buyer who intends to gut the place and haul in a fleet of contractors before the ink is dry on the purchase contract.
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