But, in all reality, you don’t cross that finish line until you are at the closing table. At this point, you rely heavily on the buyer, their broker, and the co-op or condo board to get you there.
The power of the boards
A majority of the responsibility — the tough and time-consuming work — begins with the buyer after they sign the contract. With the help of their real estate broker, in the case of a co-op purchase, they will need to complete the board package and prepare for an in-person interview with the board. For a condo buyer, they will need to complete the condo board purchase application but will not be required to have an in-person interview.
Unlike the sale of a house in the suburbs, where you simply decide to sell and have complete control over the sale and closing process, NYC condo and co-op boards require an additional layer of approval. And, whether you like it or not, their sign-off is required for you to go from contract signing to closing.
These boards have an immense and growing amount of control over your sale. It is important to understand the requirements of your particular board and its purchase application. Not taking the application and the process seriously will result in a delayed or derailed closing.
For both the condo sales purchase application and the co-op board package, the seller is required to sign a variety of forms and even pay a few fees.
For the co-op seller, there is almost always a “flip tax.” This tax, which is not really a tax, but a “transfer fee” – can be anywhere from 1 percent to 3 percent of the sales price (sometimes more) and it goes toward funding the co-op’s working fund. Co-ops rely on this tax, in addition to shareholder’s maintenance fees, to fund capital improvements such as a new boiler, roof or renovations to the lobby. Unfortunately for sellers, they will never reap the benefits of their flip tax. That is, unless the sellers negotiates with the buyer to cover this cost.
Condo boards will rarely ask for a similar tax.
Additionally, the seller can expect to pay another $1K or so in closing costs, applied by the building’s managing agent, also known as the property manager or the condo board itself. Move-out fees, application processing fees or document fees are just another way for them to boost revenue.
Most of the time, the fees are broken down by buyer and seller. Sometimes they are not specified. Be sure to red flag any fees and make sure you are clear who is responsible. The seller, at closing, also pays the real estate broker’s commission.
The co-op board package and approval process
Once a co-op buyer has arranged for financing, they will submit their co-op purchase application to the building’s managing agent, who takes a first pass. If any information is missing, any errors or inconsistencies, it will be sent back, which can delay the process.
Some managing agents have sent back applications because the buyer didn’t fill in a date, missed one initial or provided a non-original signature on a recommendation letter. Be careful to submit an application that has been proofed, reviewed and triple-checked by all parties. The lion’s share of a good broker’s responsibility rests on submitting the perfect package.
Once the package is submitted and reviewed by each member of the board and if they are interested in moving forward with your buyer, they will ask for an in-person meeting, known as the formal board interview. If the buyer makes it this far, barring any unforeseen personal or political or if the buyer majorly flubs the in-person interview, this should simply be a box to check.
Even if you think you have chosen the best buyer, it’s of utmost importance to prepare them for the meeting with brokers from both sides.
If the board sees an issue or has a concern, resulting in a discussion at the interview and the buyer is not prepared, they could face a board turndown. Sellers need the co-op board to approve the buyer, in writing, to set up the closing.
The condo board’s waiver of the right of first refusal
While the condo board does not have the right to approve or deny your buyer, they do have the right of first refusal to purchase the apartment. It’s rare for a condo board to exercise this right, given the cost they would incur to purchase the unit. And, most condo by-laws provide the board only 30 days to exercise the right, not a good amount of time to get the proper approvals, pull together cash or financing and close. But, you can’t count on the board to use this right as leverage, to fully vet each buyer that comes through.
In order to grant the waiver, also necessary in writing, they want to review each buyer’s financials and background, in almost as much detail as the co-op board. If the board has an issue with the buyer or their application, they can ask for more information and set the 30-day clock back. Even if you have a cash buyer who wants to close in 15 days, you have no choice but to wait for the board to issue their waiver.
The closing table cometh
Once the co-op board has approved the buyer or the condo board has issued their waiver, all parties are cleared to close within two to three weeks. On the day of or the day before the closing, the buyer will do a walk-through of the apartment to be certain that all is in working order and that nothing changed since signing the contract.
The closing normally takes place at the office of the seller’s attorney. Present, in addition to the buyer and seller, are attorneys, brokers, a bank attorney, the title company closer and sometimes a representative of the office of the managing agent. As a seller, you will receive an estimated closing statement from your attorney within a few days of the closing. If there are proceeds, you will be issued a bank check. Sellers must bring a government-issued ID to the closing in order for their signature to be notarized, to sign over the deed to the buyer.
The majority of the work and responsibility for the closing rests on the shoulders of the attorneys. If the buyer obtains financing, the closing will take longer. At last, you hand the keys over to the buyer and all is done.
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