Co-Op Mortgage Payoff/Maintenance Reduction

There is no rule of thumb since there are a lot of factors that go into valuation, but one way to look at it is as a simple function of a buyer's purchasing power – think of it in terms of how much additional mortgage principal a buyer can borrow. If that 20% reduction in maintenance equates to $500/month less than a buyer would otherwise have to pay, that's around $100K in additional purchasing power that the buyer has at today’s mortgage interest rates. So, if your unit was worth $1M before that reduction in maintenance, then it would be worth around $1.1M after, all else being equal.

Dan Gotlieb
Digs Realty Group
www.digsrealtynyc.com

Thanks Dan! That makes sense and was along the lines of what I was thinking.

The $500.00 a month less is not a fixed amount. As interest rates rise the cost of money goes up , and therefore the purchasing power equation goes down. In other words right now it's $100K, but as interest rates rise it will definitely go down.

Check out my blog post "What is high maintenance anyway?"
https://www.linkedin.com/pulse/what-high-maintenance-danielle-nazinitsky

Maintenance is a hot topic in pop-culture. But for NYC real estate, maintenance is even more relevant! Average monthly maintenance fees for co-op's are $1.94 per square foot, and condos (taxes & common charges) are $2.06 per square foot.

That means that on average, a 1,000 square foot apartment's monthly maintenance would be $1,940 (co-op) or $2,060 (condo). Is a 1,000 square foot co-op with $900 maintenance "low" or a 1,000 square foot condo with $3,000 maintenance "high"?

Like the quotes above, just because we say something is a certain way doesn't make it true. The answer lies in the details of the building financials. Over the course of my real estate career, I have found many agents are nervous to discuss building financials.

This is a particular area where my Master's Degree in Accounting & previous work experience has provided real value to my clients. To assist in facilitating a sale or purchase, I perform an in-depth analysis for any property I'm selling or any property a client is interested in making an offer on. I truly believe transparency enables a smoother sale.

Here are the top ten areas I focus on:

Property Taxes
Share Allocation
Underlying Mortgage Details
Management & Ownership
Utilities Provided By The Building - Heat, Hot Water, Gas, Electric
Service Level - Staff, Elevators, Landscaping
Reserve Fund
Capital Projects Planned
Previous Sales In The Building & Neighborhood
Legal Risks
If you are interested in learning about how your maintenance might affect your apartment's sales value or interested in an apartment to purchase and looking for input, please don't hesitate to reach out.

In general people don't do a conscious adjustment for maintenance. However, they are very conscious if the maintenance falls outside of whatever they consider to be a "normal" range. A very long time ago (decades) when interest rates were much higher, Olshan did a study on maintenance vs. price and what they found that the discounting done for higher than expected maintenance was progressive: if maintenance was $100 "to high" there was a $10,000 discount; if maintenance was $200 too high there was an additional $20,000 discount (i.e. $30,000 total); if maintenance was $300 too high there was an additional $30,000 discount (i.e. $60,000 total). But remember with the higher interest rates at that time $100/month represented $10,000 worth of mortgage payments. With lower interest rates one would expect the discounting to be higher for each $100 of maintenance.

People may not do conscious adjustments for maintenance but I find that in bringing it to their attention it helps the buyer understand his costs. I find this very helpful in selling a property. And by the way if a co-op has no mortgage they can op to turn it into condominium ownership. Condos are usually higher priced than co-ops.
Ellen Silverman
Licensed Real Estate Broker since 1987
Licensed Mortgage Broker since 1990NMLS#60631
esfundingco@aol.com