We have an accepted offer on a co-op which included a seller's concession. The seller's broker was the one to suggest this rebate in order to help cover the cost of needed renovations on the unit. Now that we're sending the contract to our attorney for review, he tells us that there's no way to do this legally and suggested they reduce the price by the same amount. The seller's broker is on the... [more]
We have an accepted offer on a co-op which included a seller's concession. The seller's broker was the one to suggest this rebate in order to help cover the cost of needed renovations on the unit. Now that we're sending the contract to our attorney for review, he tells us that there's no way to do this legally and suggested they reduce the price by the same amount. The seller's broker is on the co-op board and it sounds like they may reject any lowering of the purchase price because of possibly "devaluing the line". Other units in this line have sold for much more but they were all renovated to some degree. This one has not been updated in decades. Our closing costs would be relatively low - much less than the proposed rebate was for. Does anyone have any experience with ways to do this kind of transaction or is our only option to try to make the seller (and board) accept the lower price?
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Response by lovetocook
over 13 years ago
Posts: 171
Member since: Sep 2010
Don't know if it works for a co op but when we sold our house, there were concessions after inspection. We agreed on the price, signed and closed on that price. But for the concession, I wrote the buyers a separate check to cover cost for work resulting from the inspection.
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Response by ab_11218
over 13 years ago
Posts: 2017
Member since: May 2009
create a rider to the contract. if the seller is concerned about the rider being approved by the board, then do not submit to the board. the issue is that the seller's broker is on the board, so not showing the rider will be a problem. there should be a way for you to get the concession, but it seems like it will be an "out of the box" kind of contract work.
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Response by NYC411
over 13 years ago
Posts: 56
Member since: Oct 2009
if you're an all cash buyer, there is no issue as far as i can see - other than the coop being a bit snarky about what their units are fetching.
if you are getting a mortgage, the bank may not like the fact that you are borrowing more than what you're actually paying - even though it was indeed a practice during the bubble (lending more than 100pct of the price of the unit in order to fund renovations and other activities), it's not so much the case anymore.
if you came clean with your bank, they also may not take too kindly to the snarky behavior of the coop - since the valuation of your unit is going to be based on building and area comps. your building comps are now called into question.
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Response by caphan
over 13 years ago
Posts: 3
Member since: Jun 2009
Additional Info: I don't think the building has an issue with the rebate. I think it's known that the apartment needs renovation so I gather they'd be ok with it since the money will go straight back into the unit. We are getting a mortgage. The building requires 35% down, then we'll finance the rest.
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Response by gcondo
over 13 years ago
Posts: 1111
Member since: Feb 2009
the sellers broker is on the board?
l.o.l.
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Response by ab_11218
over 13 years ago
Posts: 2017
Member since: May 2009
you need to find out what the banks will allow as a concession without getting into a difficult underwriting process. if you are doing a 3-5%, you will be safe, most likely, anything above that and you have a headache on your hands.
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Response by sammy300
over 13 years ago
Posts: 208
Member since: Mar 2012
I just got a contract back from the seller & the concession is reflected in the lower purchase price. That's how all parties told me to do it: their lawyer, my lawyer, their agent, my broker...
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Response by jsw363
over 13 years ago
Posts: 235
Member since: Dec 2008
Ia gree with gcondo that this seems like a terrible conflict of interest.
That said, the seller's broker may have ideas for alternate structures if this has been common in the building in the past.
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Response by inonada
over 13 years ago
Posts: 7969
Member since: Oct 2008
The broker / coop board is essentially asking you to engage in shady behavior. While not necessarily fraudulent, I am guessing you'll be encouraged to do that too when the time comes. E.g., what is reported to the coop officially, what is reported for the mortgage, whether the concession is recorded to the city, etc.
This should be a red flag for you: understand that this is the sort of shenanigans the board engages in, and understand that it can cause problems for you.
Need to renovate? Woops, board won't approve unless you use the president's cousin to do X: he knows the building, we can't approve someone who doesn't. Need to sell? Woops, board won't approve unless you use the broker on the board. Nothing will be explicit. Your application to sell will be rejected. Then, you will be told "Well, maybe if you used broker X who is on the board, he would know how to prepare the application properly".
Don't know if it works for a co op but when we sold our house, there were concessions after inspection. We agreed on the price, signed and closed on that price. But for the concession, I wrote the buyers a separate check to cover cost for work resulting from the inspection.
create a rider to the contract. if the seller is concerned about the rider being approved by the board, then do not submit to the board. the issue is that the seller's broker is on the board, so not showing the rider will be a problem. there should be a way for you to get the concession, but it seems like it will be an "out of the box" kind of contract work.
if you're an all cash buyer, there is no issue as far as i can see - other than the coop being a bit snarky about what their units are fetching.
if you are getting a mortgage, the bank may not like the fact that you are borrowing more than what you're actually paying - even though it was indeed a practice during the bubble (lending more than 100pct of the price of the unit in order to fund renovations and other activities), it's not so much the case anymore.
if you came clean with your bank, they also may not take too kindly to the snarky behavior of the coop - since the valuation of your unit is going to be based on building and area comps. your building comps are now called into question.
Additional Info: I don't think the building has an issue with the rebate. I think it's known that the apartment needs renovation so I gather they'd be ok with it since the money will go straight back into the unit. We are getting a mortgage. The building requires 35% down, then we'll finance the rest.
the sellers broker is on the board?
l.o.l.
you need to find out what the banks will allow as a concession without getting into a difficult underwriting process. if you are doing a 3-5%, you will be safe, most likely, anything above that and you have a headache on your hands.
I just got a contract back from the seller & the concession is reflected in the lower purchase price. That's how all parties told me to do it: their lawyer, my lawyer, their agent, my broker...
Ia gree with gcondo that this seems like a terrible conflict of interest.
That said, the seller's broker may have ideas for alternate structures if this has been common in the building in the past.
The broker / coop board is essentially asking you to engage in shady behavior. While not necessarily fraudulent, I am guessing you'll be encouraged to do that too when the time comes. E.g., what is reported to the coop officially, what is reported for the mortgage, whether the concession is recorded to the city, etc.
This should be a red flag for you: understand that this is the sort of shenanigans the board engages in, and understand that it can cause problems for you.
Need to renovate? Woops, board won't approve unless you use the president's cousin to do X: he knows the building, we can't approve someone who doesn't. Need to sell? Woops, board won't approve unless you use the broker on the board. Nothing will be explicit. Your application to sell will be rejected. Then, you will be told "Well, maybe if you used broker X who is on the board, he would know how to prepare the application properly".
inododo is our morals police on streeteasy.