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Talk » Sales » Discussing 'How did co-op boards get the power they have'

How did co-op boards get the power they have
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To reject a buyer without giving any reason? For rejecting a buyer for what the board feels is a low offer? How did they get to be so powerful and immune from any governance?

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Because they don't have to give any reason for rejecting a buyer.

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It's in Queens but what does it matter?

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Well, who overseas co-op boards? Who holds them accountable?

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I see your points. It is a corporation. Unfortunately, it seems that co-ops seem to be setting a market price for their units and buyers have paid out a lot of money to find out they can't live where they want to. It just seems grossly unfair to all concerned, including the realtors, to go through all the time and expense of being rejected without any indication of why.

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No different than a country club- can reject anyone as long as they follow antidiscrimination laws. Doesn't matter that it's a more onerous application process or that it's something more important like housing.

It seems to be it should matter, crescent22. Only in NYC!

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If you aren't given any reason how do you know it wasn't an illegal reason such as race, color or creed, by allowing a coop to reject for any reason and not state why is simply in my opinion another form of discrimination. Just my opinion, but same rules for condos should apply for coops in this so called fair world if the co-op doesn't want the person let them buy the unit themselves otherwise the reasons should be stated in the beginning example person must have a 950 credit score, person must make at least 1 billion per year and everyone must have 150 letters from current friends who work for the US government.

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Thank you, aalsberg, I agree completely. And greensdale, I'm a seller and not a desperate one, but I think the entire process is very questionable and I'm surprised it is allowed to continue.

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Everyone, I think my original question was who oversees co-op boards, if any government/legal entity does. Do they just have carte blanche to do what they want without any accountability?

Happy 4th of July!

A coop is a corporation. The are subject to the stock holders(existing owners) and must obey the law. So your beef is with New York State and your fellow cooperative owners. Don't like it, speak to your fellow owners and elect a new board or petition to have the law changed.

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I'm a HK resident, I just bought a condo but originally I want to buy another one but it's co-op, at first I don't know what's means of co-op but the broker explained to me and then I'm so surprised of this kind of arrangement, they said that it may take few months to get approval from the board and then they got the right to reject the tenant if want to lease out, so many limitation and also some co-op got rules I may lease out for one time and then need to live by myself for another years otherwise I can't lease out. So the oversea investors they must not buy co-op then it'll curb the demand as the oversea will go to buy condo without such limitation.

kaydee - it's interesting that you are a seller and not a buyer of a co op. I'm surprised that you bought in a co op considering how distasteful you find the process. People who hate co cops should never buy one. Buy a condo.

kaydee: It happened to me as a buyer. In 2011. we were turned down, ostensibly because the purchase was dependent on on the sale of our apartment (which was already in contract). But, we learned through our broker, who knew someone on the board, that the price was too low. Turns out this person had an eye on selling his/her place in the very near future and wanted to keep prices buoyant and comps high, even though the market was very soft and the apartment had been on the market for more than six months. We were told we could resubmit once we had closed on our sale, but that still left the issue of the price. It was fixer-upper and we, and the seller, thought our offer was a fair one. In the end, we walked away. We felt we wouldn't want to be part of a co-op that behaved in such a way. We felt badly for the seller. The apartment took almost another year to sell. We would not want to be in a similar position, as sellers, due to the actions of the board and the self-interest of one of the board members. As it turned out, it was all for the best, as these things often are. We bought a fixer-upper at a bargain price in a building we have always wanted to own in. It was a sponsor unit so we were happy to bypass the whole board approval process. Interestingly, we never heard directly from the board, all of the above was communicated through our broker, so I don't think it was a formal rejection but the sellers attorney had no qualms about returning our deposit. It was all very fishy and we were glad to be out of it... I have learned that, as a buyer, it is important to find out as much as you can about the way the co-op board operates so that the resale process is as smooth one when the time comes. I hope this helps, just a little!

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Matt's correct here, in fact brutally honest. Face it people look to coops because the want to join an exclusive club. And while one can debate the merits of joining a particular club , in the end people complain because the exclusive club decided they weren't fit for membership. Coops aren't perfect but the do have their strong points, such as superior protections to existing shareholders in the event an exiting stock holder becomes delinquent and defaults on payments owed on their mortgage or coop charges etc.

Coops are at a discount to condos for this very reason. You can pay 25 percent more and not deal with the interview. Why do people want a discount and not want to deal with the hassle which comes along with it?

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Do you some articles or data to prove your point?

It's difficult to o apples to oranges comparison. Often coops are older buildings. Of course in NYC we have some very expensive Central Park West and Fifth Avenue Coops that prove otherwise.

http://www.millersamuel.com/files/pdf-tank/1051930559WFulr.pdf
Page 32.
Since 2006, the premium has grown anecdotally due to foreign buyers.

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NYCMatt: That is your stock answer to every thread of this kind. Too bad you didn't take the time to read my post properly. WE walked away. They offered the opportunity to resubmit. We declined. I also object to your assumptions that we were bidding on an apartment that we couldn't afford and that we don't have good credit, employment history etc. You don't know anything about me. I find your tone on these threads unnecessarily confrontational and abrasive. in the end we, bought a more expensive apartment but not one at the top of our range.

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Well this thread got a little hostile. Kaydee to your original question, yes the co-op board can reject anyone and not provide a reason. Sometimes they do and in doing so can open up to legal issues if the buyer wishes to pursue. They are a private entity and so long as they are not violating any anti-discrimination/fair housing laws, they have the right to reject any buyer. Often it is because of the buyers financial situation, the suspected intended use of the apartment, the price being too low, etc. There is always talk in Albany, and I believe a current bill proposed, to mandate co-ops provide a reason for any buyer's rejection.

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I think the problem is that co-op boards are given too much leeway with too little structure. No person has a problem being rejected for a reason, its the fact that they can give you no reason and have no oversight. You have submitted very personal information you at least deserve a reason and if rejected your money back for the application.

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While there is no denying that there are difficult coop boards in certain locations: fifth avenue, Central Park and vicinity, the percentage of people who are rejected is small. Think the article mentions 5 percent or so. In most coops, unless otherwise stated typically in form of high downpayment, 30 percent down, two-three years of mortgage, maintenance and personal expenses ex 401k post closing in cash/ diversified stocks, ability to easily carry the apt from your average income of last three years, respectable job history and current job, no lawsuits, and good attitude towards the interview process will do it. If a substantial portion of your income is from bonuses, increase the liquidity post closing to 5 years and haircut bonus amount by 50 percent to calculate income.

I wonder what percentage of the 5% rejections feel there rejection had merit. My guess close to zero.

"On the surface, it appears as though buyers have an instinctive affinity to buildings where they are welcome - brokers say 95 percent of all applications are successful on the Upper East Side and a higher percentage in other parts of the city. But the relatively small number of board rejections and the handful of complaints received by the City Commission on Human Rights give no inkling of the scope of the discrimination. According to brokers and real-estate lawyers, it does say a lot about the amount of steering that goes on."

I agree riversider. For me, I will take the discount on the coop vs condo for a 5 % probability of rejection. In most cases, the selling broker will give you a good feel of what is needed.

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Well, thanks for all your comments although some of them were off topic and uncalled for. But I guess my major concern is that it seems a co-op can dictate a market price for an apartment which in some way seems illegal to me. If I as a seller am willing to accept a price, I don't understand how (I understand WHY) a coop can nix the deal.

Kaydee, Sorry that you have to deal with this. Coops have a good reason to reject unusually low price as it impacts the appraisals of the rest of the shareholders. However, unusually is the key word. As a buyer, I would hate the board as well as they are preventing a great deal.

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Kaydee---as 300_mercer correctly points out, if the price is loo low the shareholders will be adversely impacted. If your upstairs or downstairs neighbor that has the same apt as you sells it under market for 20-50k or more I guarantee you would be upset when you try and sell yours 1 month or 6 months later. No one will pay market price because your neighbor undervalued their unit. Especially now when buyers have at their fingertips almost as much comp info as brokers do they conduct their own research and "recently sold" in the building is the their #1 reference point. That said, there will be co-ops that inappropriately wield their power and create nightmares for their own shareholders. Co-op boards are comprised of members that are human, sometimes with their own personal agendas, but typically and most often, they have their building and neighbors best interest in hand because that is their assigned duty.

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kaydee I think you raise a good question about boards dictating prices. I have some thoughts on the matter which I posted in the discussions section under the heading, "Plaza 400 Board." If you are interested here is the link:

http://streeteasy.com/nyc/talk/discussion/35702-plaza-400-board

The posting I am referring to is the third posting I have on the page.

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