"Deal Fell Through" or Discriminatory Board?

I imagine the Board would say , "sour grapes", in response

Making an allegation of discrimination is the typical excuse . . . . but I imagine there 's more than meets the eye

Guess we'll never know, since boards are accountable to no one.

One wonders why anyone would rush to the defense of a co-op board when they know nothing of the facts. "More than meets the eye?" Nothing has "met your eye." You have no idea what you're talking about.

"under circumstances strongly suggestive of illegal discrimination" provides no substantive facts to assess whether there might have been illegal actions. The fact of a sellers agent requesting some due diligence on potential buyers (it's a 50% financing building, with a hefty add'l assessment on top of currnet maintenance), implies a board that is going to want to see very strong financials over a period of time. A 400 page application implies that the buyer needed to document a lot of unstable income history, or has a business or investments that are hard to reliably value, and thus may not have been a good match. So what are the circumstances of the applicant that could lead to a claim of discrimination?

I work with a lot of co-op buyers, many of whom are in protected classes, and I'm trying to parse this.

It's two separate statements, right? The first is that the seller's broker pre-vetted the applicant's financials before moving the deal forward into contract (which, frankly, is part of seller's broker's job). The second seems to be that there was a turndown *after* that... so the package was submitted and then didn't move forward ... is that what you're saying?

ali r.
{upstairs realty}

400 page application does not mean unstable income or questionable investments. We had a 300+ page application and we only listed W2 income, no other properties and no funky investments. It usually just means a long list of application requirements + the seller and/or buyer broker insisted on unnecessary amount of detail + section dividers + multi-page reference letters + tax returns with ALL the pages etc.
The illegal discrimination by coops has to stop!
Also the 50% cash requirement is ridiculous!

soon there will be a broker posting "this is a disgruntle buyer, don't listen to him"

I think it is a bit ironic when fair housing laws suggest that a broker should not discuss schools, church locations etc. However housing that transfers through a corporate structure offers 0% transparency and a shield that's ripe for discrimination of all sorts.

Is a co-op a country club or housing?

Keith
TBG

Clearly, acting like a country club. Or one of those exclusive social clubs in Manhattan (most of which do not have any meaningful number of women members, not sure about the situation with other protected classes).

In employment law, if something is not a "business necessity", it is illegal to require it, because this type of unnecessary screen might be set up as a smoke screen to filter out applicants from protected groups (even if not on purpose). For example, a strength test would filter out most women, and unless it is directly related to job duties, and it is illegal to require it. A college degree is not necessary to answer phones, etc.

I think the same logic should apply to coops. One does not need to be sitting on mountains of cash to be able to get housing. Requiring wealth that for the most part could only come from being born into it results in discrimination against lots of people.

Well, I own both a co-op and a condo, so I see the strength of both systems, but I would truly mourn the loss of the co-op system's availability to screen neighbors. We have already seen with the rise of Airbnb the extent to which "other people" won't necessarily follow local laws, or even basic civility, unless they are forced with a cudgel to do so. If I wanted to run into random people I don't know (and don't necessarily feel my family is safe around) in my laundry room, I would rent.

So while I agree the requirements of some co-ops are ridiculous -- and certainly I agree with Krolik that asset requirements often have the effect of filtering out younger people -- I don't think that throwing out the system wholesale is the right solution either.

And yes of course illegal discrimination has to stop -- that's what a good half of my working life is about -- but I'm still not even sure what discrimination the OP is alleging here.

ali r.

My point is the law seems to discourage ' screening neighbors'. So let's add some accountability, transparency to the co-op process. If you are turning someone down for fear they are an investor, heavy metal guitarist, price is to low or some other non-protected class.... Tell us why it's a no. This way perhaps we can address your concerns, have a conversation and maybe it was all a misunderstanding. Perhaps you saw a Facebook post of someone doing something silly in college, let's talk about it. That may have happened 10 years ago.

With the current system, you are left in the dark wondering what the hell went wrong and you and your broker have to play inspector Clouseau.

This happened to us recently with an extremely qualified buyer. After some detective work we determined the board didn't like the price. I'm happy to say we should be closing in a week, after taking the initiative without any guidance, we resubmitted the board package with an amended price. Shazam!

Keith
TBG

Keith, in my experience it's often price, but you should have gotten guidance from the seller's side on that point.

@Keith - I agree and would love to see it

Arguably the push back will be intense as the things boards are really screening for are not legal, per-se if they were spelled out in transparent, objective writing.

Definitely screening for trust fund brats, profession, class/culture/politics/lifestyle, number of kids, etc.

Anyone with enough cash can get around loan/debt-to-income/liqudity and even income requirements one way or another.

Anyway, sunlight is a great disinfectant.

front _porch >>> If I wanted to run into random people I don't know (and don't necessarily feel my family is safe around) in my laundry room, I would rent.

A lot of people feel unsafe around people that look different, are immigrants, etc. That's a thought process that could keep people of color out of white neighborhoods. Housing should not be distributed based on who you know either, which would result in less well-connected people not getting best housing opportunities, and is a self-perpetuating problem. You can always get to know them later, after they move in.

@keith and steve123 - I completely agree.

Krolik, my work is so much about giving access and a voice to clients who might otherwise feel locked out of a "country-club" type system; it's not protected classes that scare me.

The point of a coop is to enable illegal discrimination - "all cash, all Christian." Don't even need to bother adding "all white". For people to whom this appeals, absolutely buy a coop. Personally I find such people to be the worst kind of NY obnoxious, and I'm glad they sequester themselves into coops so I need not live near them.

George, That is a bit extreme characterization. Depends on the coop. I know plenty of Jewish, Hispanic, Asian and brown people in expensive coops. Common element is plenty of money and board believing that the resident will be a good neighbor and abide by the rules. Imagine if some trust fund 30 year old pot smoking, hard partying, wanna be musician wanted to buy in a coop. Legally they should be allowed to buy as they can afford it but we would almost all prefer such person not to be living next to us as it is almost impossible to enforce noise rules.

That said, govt needs to do something to make the board approval process more transparent as a minimum so that there is less room for discrimination.

The whole point of Coops is to allow for discrimination. The only issue is which kinds of discrimination are "good" and which are "bad."

I'm probably 80% Team George on this one.
If you want to be free & clear of your neighbors, in peace&solitude, live in a house on an acre or two.
Otherwise accept that any communal housing has some inherent risks and that a well operated rental, coop or condo should have appropriate house rules with fines in place to mitigate.

A lot of people are trying to have it both ways "discrimination is bad and we need to have laws for transparency but.. I do like X form of discrimination".

@300
Re: "Imagine if some trust fund 30 year old pot smoking, hard partying, wanna be musician wanted to buy in a coop"
Our condo dealt with ours with transparent published house rules with escalating fines, enforced early and often.

What legal form of transparent pre-purchase screening would you propose to deny this person a home? Their age? Their career choice? Even a criminal record may not be legal to discriminate based on.

Further while the common thread of my housing neighbor issues have been with the trust fund youth, I have friends .. even in coops.. with crazy neighbor stories, mostly revoling around midlife divorcees.

One friend had a 50 something banker dude divorce and turn his 3BR home into a midlife crisis bachelor pad, bringing home a revolving cast of "dates" young enough to be his daughter.

Another friend had a homemaker mom turned divorcee empty nester filing frivolous noise complaints now that her family home was empty and she could hear the noise of neighbors upstairs she never noticed before. Next thing you know lawyers are involved...

Steve, I realize that you can't deny them legally.
"Legally they should be allowed to buy as they can afford it but we would almost all prefer such person not to be living next to us as it is almost impossible to enforce noise rules."

@300 - Misreading on my part, thanks.

We are still left with the problem that the Coop defenders seem to believe both that Coops should have to be transparent/law abiding in process but also enjoy the opaque/lawless process as it stands!

Only good part is that there are no new coops and new condos keep coming on the market. So people have far more housing choices than say 20 years back. And wise people stay away from 50 percent down coop as you know that even if you meet the financial criteria, they are likely to discriminate in some other way which is why they have board interview - and if you get in, you will have trouble selling.

That said I love my coop which is min 20 percent down and has never denied any one despite apartments being $2mm-5mm.

I’m never touching another co-op for as long as I live. And no, we didn’t have “funky” investments or anything else. The application requirements were just that obnoxious. And included nine—nine—letters of recommendation. And after going through all of that, the board had a question: “what is your marital status?” Which is illegal to even ask. Answered the question and got rejected the next day. Does that satisfy you Aaron2? Wasted weeks of my life and good money, not to mention the people who took the time to write letters for us. 30yrs said it best: the whole point of co-ops is to allow for discrimination, period.

Many Coop Boards already have competency issues. Adding potential liability triggers could easily exacerbate that. In addition to adding to the bourgeoning amount of Coop litigation.

I feel you. However, historically not all co-ops were created just to weed out the undesirables.

Don't forget many trade unions created co-ops for their workers to have affordable housing. And because of New York's rent stabilization laws, converting a building to a co-op was one path for a landlord to capitalize on the property where expenses may have been outpacing rents.

The “burgeoning amount of co-op litigation” is a symptom, not a problem. If boards stopped rejecting people for illegal reasons based on transparent and consistently-applied criteria, none of these lawsuits would survive a motion for summary judgement. These boards thrive on opacity, because it allows them to continue to illegally discriminate and it’s nearly impossible to prove. It’s a safe space for bigotry.

Coophell, Sorry for your coop board issues. Why not report the Board Question to the appropriate authorities? Coop boards are not untouchable.

https://www1.nyc.gov/site/fairhousing/contact-us/file-a-complaint.page

I absolutely have. I plan to take it as far as I can. And I’ve already bought a condo. Hope this dump burns down with the board inside it.

Love it!! Some has to rise up and take action when coop boards deny for non financial reasons. Don’t forget to name the individual who asked the question about marital status.

Love it!! Someone has to rise up and take action when coop boards deny for non financial reasons. Don’t forget to name the individual who asked the question about marital status.

Well of course I don’t know the name of the person who asked the question—the board hides behind the management company and funnels all of their questions through them (yet another way these people hide and conduct their sleazy business in obscurity). I’m sure they’ll blame the management company for the question. The sad part is that not everyone has the resources to fight these things. It is simply wrong that the system is stacked so heavily in favor of co-ops.

Good luck CoopHell and stick it to them.

Its mildly unbelievable that the management company was incompetent enough to pass along a clearly illegal request..
Then again, my dealings with management companies as a renter, owner and board member have all been pretty bad so I am not shocked.

I had issues with a Management company asking an illegal question on behalf of the board for a condo sale. Basically asking about buyers "we want to know where they are from as we have to live next to them" despite more than 200 page application which many (perhaps most) board members did not bother to read. I had to rip the bullying very wealthy CONDO Board President (who is a lawyer and developer) a new axxhole. Yes, it was indeed a Condo. Power gets to people's head.

Sorry you had to go through this, CoopHell. Sounds like a horrible experience.

In reading your initial post, it seemed the rejection happened because of an issue with your board package (ie finances failed to hit the mark) but the question about your marital status is for sure a no-no and the board was stupid to ask it. It is not uncommon for a board to ask how many additional occupants a prospective shareholder plans to have living in the apartment, and that question is perfectly legit. But what you report is certainly worth lodging a complaint with the appropriate venues.

CoopHell,
The vast majority of Coop litigation is not over the rejection of purchase applications.

Well then, 30yrs, co-op boards should have no reason to fear changing the law to add some transparency to the application process. But look up Senate Bill S2874, and the controversy around it. These people are scum. Fear of litigation is no problem if you’re not a bad actor.

300,
I find most of these Condo applications ridiculous because their only remedy is to buy the unit at the same price as the applicant, which they have zero intention of exercising. As with a lot of things I blame Coop/Condo attorneys and Managing Agents for indulging Board thinking that they can do absolutely anything they want with impunity.

@30yrs The brokers are often the ones indulging the boards!
Recently, a seller's agent refused to submit my relative's condo board application until it had section dividers inserted (along with other non-sense comments). WHY??? Would they decided exercise ROFR based on no section dividers? Actually ROFR was not even an option for the board since the building had zero cash reserves. To be clear, these were no such requirements stated in the application, he just felt like insisting on these things and delaying the process, probably based on his experience with coops. The broker caused several weeks of delays, so that a 90-day rate lock expired and my relative ended up having to pay ~$1500 in extension fees.

Condo applications are just stupid. They're just as lengthy as most co-op board applications, why!!??

@krolik for a condo application I absolutely agree with you, you simply submit everything they've asked for and leave it at that. Who cares about dividers.

With a co-op it's definitely a different story, since the co-op actually has power to reject you. And it only takes one board member that's petty enough to reject over a divider to ruin your week.

I would say the only good news here is that most boards are very reasonable filled with perfectly nice people. And once you get to the actual interview, it's more of a social occasion, than an interrogation. All the hard questions have already been asked.

Having done condo applications as part of renting condos, it seems to me that the application serves as a vetting tool for the owner. I don’t know how sales work, but that’s the only point in time that the owner sees my financial info w.r.t. credit, income, & assets. I imagine if any red flags show up (e.g., no / inadequate income verification letter, bad credit, etc.), the owner is going nix the deal rather than the condo board.

I also had the experience this time of the whole package being based online, which was particularly helpful.

I guess it's just when a condo application is as lengthy as a co-op application; a couple of years of complete tax returns, 3-6 months of complete financial statements for all brokerage and bank accounts. 6 to 12 business and personal reference letters, along with the completed application, just seems like a little bit of overkill.

Condo board applications (for renters and buyers) serve to pad slush funds for small expenses over the course of the year, more than anything else. When I was on a condo board we never even asked a followup question of any application, and the speed some of my co-members were approving did not imply a thorough reading.

The 10 renters & 5 buyers per year chipping in $500-1000 in application plus move-in fees was a material amount of cash though.

If coops existed for any purpose other than to engage in illegal discrimination, they would do the following:

1) Stop interviews and letters of recommendation. In many markets around the country, realtors are now banned or highly discouraged from allowing direct communication between buyers and sellers - even "love letters" are being banned because they enable discrimination.

2) Publish their financial requirements and file them with a government agency for public inspection and review. Unreasonable requirements (e.g. excessive cash down) should be banned.

3) Outsource the vetting of applicants to a neutral third party such as a public accounting firm. Give the CPA the financial and background requirements and tell the law firm to come back with an answer of "yes" or "no", and if it's a "no", provide the prospective buyer the list of reasons and give the buyer 30 days to appeal and provide additional evidence.

In short, if Boards really wanted not to engage in illegal discrimination, they would make sure that they receive no personally identifiable information on any applicant until the application has been decisioned. Otherwise, they are actively making themselves agents for discrimination.

Realtors in other parts of this country are on the front lines of battling discrimination, after decades where Realtors were actively supporting redlining, steering, and other racist policies. But in NYC, realtors defend coops' Jim Crow rules on the flimsy basis of "noisy neighbors".

Clarification - in #3, the firm doing the vetting could be a CPA, a law firm, or any similar neutral organization.

George, I agree with you about remedies. Even simpler is a law that the coops have to publish criteria for approval and explain what is not met if the applicant is rejected (I remember having a thread about it). Realtors are just trying to do the best for their clients in the existing system.

@CoopHell: Yes, that does answer my question, and it sounds like you have a strong case for a discrimination action. Go for it, and good luck!

@George - agreed, and what you propose as a remedy is straightforward and makes sense.
Which is why I think the coop-managementco-realtor industrial complex will never allow it to come to pass :-)
The simpler the rules, the harder to thwart, the less opportunity to make money off "expertise".

What expertise are you referring to? The process is relatively simple. Real estate is a service business. You excel when you're able to provide excellent service coupled with competent service. And I'll add 100% transparency.

However my thoughts on this business are more suitable to discuss over a coffee. In the past real estate agents did hold the keys to the kingdom, however the internet changed all that.

@Keith - I think you're the most honest guy in the business & love your business model, and as I've mentioned in another thread.. we've done business :-)

I mean more generally in terms of any large, deep pocketed industry with strong lobbyists to push back against regulations to introduce transparency and simplicity.

There's always more money to be made with complexity than there is with simplicity and industry has stronger lobbyists than consumers.

Look at what happened to the CFPB.

In the personal finance space look at some of the insane inverse, leveraged, active and other whacky ETF products you can buy now... from what originally started as a low cost way to own the S&P 500.

Agree with George's proposed remedies. The illegal discrimination has to stop!!!

@George your remedy is spot on. The silver lining is that this process made me realize I want nothing to do with co-ops and their anachronistic “not our kind” premise, before I ended up owning one and living among those awful people.

Managers are conducting interviews on behalf of boards? Is this a covid thing? I'm assuming all this happens on zoom(?).

Well, I disagree 180 degrees with Keith on the "expertise" point. A home is not a flight to Paris, or a bucket of stocks, or a cab ride, or any other "disrupted" example that you might want to cite where the consequences of being wrong are fairly low-stakes. You get a home purchase wrong, it takes a lot to unwind.

As a result, expertise is important. I'm a better broker now than I was five years ago, and that's through the accumulation of more expertise, on points from learning how to match a buyer to a place that they'll love (which can happen in a way that doesn't involve discriminatory practices) to figuring out how deals fail and how to avoid that, to understanding market pricing, just to name three.

ali r.
{upstairs realty}

@CoopHell Don't give them what they want! No need to limit your choices of apartment based on ownership structure. You can find another place and get accepted by another coop board!

Maybe there were just a few bad apples on this board, but rest of residents are probably fine. In any event, you would not be living "among" them, you would be only occasionally running into them in hallways, like you would in any condo or a rental building.

@Krolik what kind of masochist wants to go through this process twice!? Once was more than enough for me! And sure, other people in the building might be perfectly decent, but I’d never be able to wash the taste of this experience out of my mouth. I really want to love the place I live and that ship has sailed for this building. Walking by the place makes my skin crawl. Actually the whole upper east side makes my skin crawl now. I bought a condo in the Lower East Side. The restaurants are much better anyway.

Being able to discriminate potential buyers and existing shareholders are the biggest joy for some old racists residents in COOPs

@CoopHell I did! I got turned out by one building less than 12 months ago (probably because my partner/co-purchaser was brown, but maybe because we were not married), applied to another one, and now very happy in my new coop apartment. There is just not as much choice if you only look at condos. Definitely need to apply to a different building though, ideally one that asks for less than 30% down (those that ask for 30%+ down appear to be selecting for old money white people, so can use this as a racist board signal). I know what you are feeling - I feel furious every time I walk by the building that turned me down.

Congratulations on your new place! enjoy the food! I lived in LES for a while and loved everything except the commute.

Favoritism based on income

1 person makes $40,000
1 person makes $50,000

is the first person being discriminated upon based on jobs, income , not going to college to earn more money . . . .

No, Admin 2009.

Here is an example, and note that all actors have at least a 4-year degree:

She makes $250k working at BigThree Consulting Company
He makes $250k working in Equity Research at a BigBank
Total $500k income with no student or other debt, looking to buy a primary residence for $1M, put 30% down and have 2 years of mortgage and maintenance in liquid assets. They are white, married with no kids, and get approved by the board.

She makes $250k working as a 5th year Associate in BigLaw
He makes $250k working as a software engineer in BigTech
Total $500k income with no student or other debt, looking to buy a primary residence for $1M, put 30% down and have 2 years of mortgage and maintenance in liquid assets. They are not white, or from a "wrong" country of origin, or not married. They get denied by the board "based on income".

I am not seeing (or even anecdotally hearing) denials from boards based on income (although, side note, if you're a fifth-year associate in BigLaw and you're making only $250K, you're doing it wrong). I am anecdotally hearing about/getting info from listing brokers about denials based on assets -- there was a Downtown 2/2 that would have been perfect for clients of mine, but it was made perfectly clear that the board wanted to see seven figures of post-closing liquid assets. This effectively becomes age discrimination, because it's tough for anyone under forty to pull that off, but honestly I don't think this board would have had a problem with the marital status of co-purchasers (or their skin color, origin, etc.) if they had had the cash.

@front_porch
Well, they don't tell you the reason, but most of the time the brokers will speculate the reason was "financial" because what else are they going to say that is not illegal?

Regarding biglaw 5th year salaries, I googled them and while $250k this might be a tiny bit low, it is in the ballpark (the range seems to be $225k-$280k, though might be a bit higher now after COVID salary hikes). https://www.lawcrossing.com/article/900050075/2018-5th-Year-Salaries-and-Bonuses-of-the-Top-Law-Firms/
Like I said elsewhere, making over 300k in a salaried job is very, very difficult. Got to be in the right profession, at the right seniority level etc. It is not as common as brokers seem to think.

@front_porch agree with the correction that the problem is assets more than income. With homes being this expensive, it is not the monthly payment that makes them unaffordable, it is the down payment and post-closing liquidity requirements.

Krolik, $250K may be the salary but it's not the income. BigLaw bonuses ran hot last year, and should again this year, I think.

Front_porch, I think unlike finance, biglaw does not pay huge bonuses, most of the comp is in the base salary. Bonuses seem similar to those in bigtech or consulting.
Here is another site with law comp estimates https://www.biglawinvestor.com/biglaw-salary-scale/

Well, Krolik, I can't give too much detail about my clients' finances, because I run a boutique and so I don't have that many clients, and any disclosures would start to abut, if not invade, their privacy.

So let me instead go from the lens of "my friends who are law partners discussing their firms' need to retain talent" -- remember I'm of a certain age and so I have friends, not to mention clients, who are partners. And from that POV, I feel comfortable saying that the firms were awash in money, and no Fifth-Year worth their salt got a bonus of "only" $52K last year.

This takes us back to a common perspective on these boards -- buyers often think that can low-ball from X price because "no one else would want the property for X." But there's a lot of money in New York, and if a particular buyer is doing well (whether in terms of salary income, bonus income, or investment income) then their competition may be doing well too.

Y’all need to read the fine print:

>> note: The bonus column includes all bonuses announced year-to-date (for the current year) or all bonuses awarded during that year (for an historical year), including summer and special bonuses, if applicable.

2020 has it at $392,500 total comp for a 5th-year. Base is 9% higher in 2021, so that would extrapolate to $427,500 in 2021.

$427k cannot be used for coop application - they like to look back 1-2 years of tax returns for proof of income, as well as discount bonus compensation and focus a lot on base salaries (just like mortgage lenders) which are more predictable. So a 5th year associate might be presenting 4th year associate base salary. Purchases in 2020 were based on 2019 salaries, etc.

Do you want a neighbor who sues everyone in the building all the time ?
A neighbor who has declared bankruptcy multiple times ?
A neighbor who refuses to pay maintenance and sites Covid as the defense ?
A neighbor who buys a studio, and lists 8 people on the stock ?
A neighbor with a criminal record ?

"A neighbor who refuses to pay maintenance and sites Covid as the defense ? "

This is an interesting point. Co-op owners are renters (through their proprietary lease). The topic was brought up at my co-op's recent annual meeting by our independent accountant, during a discussion of the corporation's receivables. The accountant noted that our building's late receivables weren't material, but he implied that he had seen other buildings where this was a concern.

I think anyone that tries to defend coops and their obvious discriminatory practices is either choosing to be willfully negligent or just completely out of touch with reality. Pretty much everything about the process is discriminatory. There are historical antecedents that play powerfully into the equation, although they may be subliminal. Demanding an insane amount of downpayment , while on the surface seems just obnoxious, in reality, is a tactic that effectively weeds out an entire racial demographic.

It's no secret that most Black and Brown people don't boast of generational wealth, so they can't necessarily leverage trust funds or gifts from family members to meet those ridiculously high numbers. Essentially, without outrightly stating it, coops demanding high down payments impose a racial 'purity' test. Of course, people will argue against this because no one wants to own or admit that such a level of wickedness is possible or acceptable in 2021, but the stats bear witness.

If anyone is sincere and serious about eliminating housing discrimination, they really should be taking a long and hard look at coops. By design, they have historically been and continue to be the bastion of discrimination. The prices are not necessarily prohibitively high, but the many hurdles they place on the way ensure that only a certain type gets distilled into the mix.

@Joey42 Thank you for that. 100% agree with everything said. What is allowed to go on at NYC coops is completely ridiculous.

So Joey, what's the solution?

Here's a co-op situation I had a while ago: Tenant in co-op is a "model minority" -- the kind of person who came from nothing, to the point where their entire group basically pooled micro-finance to pay for their education. Educational accomplishments top-notch, comes to NYC and gets fancy job with fancy salary, passes rigorous co-op sublet application process with stellar recommendation letters. Then, eventually, the ability to sublet runs out.

So then tenant wants to buy the place, but doesn't have 20% down. Does the owner ask the board to waive the down payment requirement "just for this tenant?" That would be, arguably, a pretty clear violation of the Fair Housing Act.

What white/majority culture applicants do in this situation is borrow from family ... ITA with you that structural racism, and its effect of preventing minorities from accumulating capital, makes it tough for minorities to do that. So what do we do, set up a fund to "lend" money to co-op applicants, and somehow get the co-ops to buy into that idea?

Because you really don't want all the co-ops to become condos, either.

ali r.
{upstairs realty}

Why don’t we want all the coops to become condos? Most major North American cities do just fine with mostly all condos, Miami, LA, San Francisco, Toronto, etc, etc…all cities I have lived in and owned real estate. Nobody in these cities is screaming we need co-ops.

@ali r you're citing a very nuanced case. Indubitably, not everyone can afford the costs associated with home ownership at all points in time. That's why most people plan towards it.

I don't think anyone is arguing that 20% downpayment is a ridiculous requirement for purchase; anything above that though should raise an eyebrow. That being said, if we're sincere about equity, we should be looking at all the things that can potentially prove to be roadblocks for people who don't belong to the white/majority demographic.

Why is a 10% downpayment fine for all other forms of home purchases (even 3.5% with FHA funding) but not coops? Should people not be able to purchase homes because they don't come from a family that's shored up reserves through generations? This particular case you cited shows exactly what's wrong with the whole setup. If that tenant is able to present a 10% downpayment, why are they not eligible? No, I'm not asking that the coop rules should be changed just to accommodate them, I'm asking that the coop rules should be changed, period! People should have an opportunity to rewrite the trajectory of their lives. We can't honestly look at these things while ignoring all the history that's created the financial and economic inequity. Based on your posit, Black and Brown people will continue to be disenfranchised for generations to come, at the very least.

Home ownership should be tied to the subject's ability to meet their financial obligations. If we're creating rules that inadvertently require legacy investments, then we're enabling discrimination - consciously or unconsciously.

turbo, one of my "real estate" lines is that "I am familiar with both co-ops and condos; I own one of each" and indeed, I do, and for many clients, condos are better choices.

But personally, I disliked that would should have been "minor" neighbor problems (like the downstairs smoke alarm going off, or the upstairs bathroom leaking) became magnified by the anonymity of the condo structure into things that needed search-and-rescue and diplomatic negotiations to fix.

Ali,
While I believe govt should make some rules to address discrimination by coops (we had a few suggestions higher up in the thread), the "model minority" tenant/buyer example you chose is not a good one. If you do not have 20% down, you may not get financing for a condo too. Any you are a sucker for pain to consider applying for a coop.

Joey,
Remember, discrimination based on financial capabilities is legal. Otherwise, banks can't use credit scores and income etc for their credit analysis to make a loan. Of course, public housing, govt housing aid programs and FHA loan programs do not discriminate. There are plenty of poor people of all races who do not have money.

Ali's - is that sob story supposed to prove to the reader that coops are doing all they can to be fair, short of compromising some fair and reasonable down payment requirements? I am sure you realize that Joey and I would not object to 20% down? How about my 2021 real life examples instead:

1) A couple submitted an application for a 30% down coop and had over 2 years mortgage and maintenance in cash reserves in addition to the down payment, not including retirement accounts. The apartment price was less than 3x couple's gross income from prior year. The couple is turned down by the board without even an interview. (Side note for fun: this estate apartment goes into contract later in 2021 again, and back on the market again, apparently for the third time; I guess there are just soooo many unqualified buyers out there that the board just desperately needs to keep away from the building).

2) Same couple at a showing at another 30% down coop asks the seller broker about building requirements, and is told that they would need in addition to down payment a million dollars!!!! in liquid assets in order to buy a $1.1M apartment in the building. Couple would be short of a million after down payment, but has a good amount of funds (several years of mortgage and maintenance) and submits an offer on the apartment hoping the seller broker was just kidding. The offer is not accepted because the seller broker thinks that the board would not approve the couple, unless a rich relative can provide a guarantee. The couple cannot find a rich relative to offer a guarantee, because among the couple's extended families, the two of them are the two of the richest people who "made it in NYC". The coop apartment remains on the market for several more months and is later sold for a price slightly below what the couple was offering.

For reference: the couple consists of a first generation immigrant with no family money, and a brown second generation American, also with no family money. Both highly educated, with good jobs, saved up funds, zero other debts. How is that for a model couple?

3) Another tidbit just for fun: the couple goes to a condo showing with a buyer broker, but does not love the condo apartment. Suggests to buyer broker that they would like to see some coops that offer better value for money. The buyer broker is against the idea and suggests that the couple seem to him like "condo people".

PS After wasting tons of time and emotional energy, they eventually managed to buy a coop apartment in a building that appears to not discriminate and has a lot of immigrants and people of color among shareholders. This building has the strongest financials of any building they have seen, proving that the million dollar spare cash requirements are bogus.

By the way, "diplomatic negotiations" are needed to fix neighbor issues not only in condos, but in rental apartments and in coops. Rights of one party might impose restrictions on rights of another party, that's the fundamental nature of rights, and society finds some way to draw lines based on preferences of majority. There is no way to solve it based on property ownership structure, coop is not a universal solution. For example, one of my family lives in a condo that does not allow dogs and insists on interviewing cats. Another friend lives in a coop that allows pretty much everything down to AirBNB and gut renovations without building review and approval.

Ali: "one of my "real estate" lines is that "I am familiar with both co-ops and condos; I own one of each" and indeed, I do, and for many clients, condos are better choices."

According to NYC brokers, condos seem to be more expensive, but "better" choices for applicants who are perfectly qualified to buy a home, but are likely to be discriminated against by a coop board due to skin color, lack of dynasty wealth, or some other factor.

Quite a while ago I was brokering the sale of a condominium in Chelsea. After the deal was struck the Seller's attorney was incredulous that the price was "so low" and was grilling me about why they should sell it at such a low price. I tried to explain that the building had bad financials but the attorney pushed back with "Condos can't have bad financials." It took a while to get across that enough units were somewhere in the foreclosure process that 1 full years worth of operating expenses/common charges were in arrears, would be wiped out through foreclosures since first mortgages come before common charges, and that number was only going to grow over time as the foreclosure process takes a long time.

In both Coops and Condos everyone's financial fates are intertwined because of shared responsibility for running the building. If one shareholder/unit owner doesn't pay it falls on the others to pick up the slack. In this regard Coops hold 2 large advantages over Condominiums: 1) they get to set pretty much whatever rules they want in terms of financial discrimination in order to insure shareholders have the financial wherewithal to pay their share loans, maintenance and potential assessments, and 2) Coop maintenance is a first lien in front of any financing on shares (i.e. arrears get paid in case of foreclosures).

Note that even Coops with less than strict financial guidelines have run into issues in the past when large capital projects caused assessments that some shareholders couldn't shoulder. In addition even some Coops with reasonably strict guidelines have made themselves less marketable because of capital projects which shareholders didn't want to pay for through assessments so they debt financed them raising maintenance fees instead. Since the majority of Coop underlying mortgages are either 5 year interest only or "5 like 30" balloons, any rise in interest rates will result in further maintenance increases (in addition to the necessary ones from seemingly ever escalating rate increases in operating expenses).

Re: Condo vs Co-Op ownership preference
Honestly had an equal number of "crazy neighbor" stories from friends in co-ops and condos, with similar challenges resolving.
Sure in a co-op you could take them to court and revoke their proprietary lease, but that's a pretty high expensive hurdle that 90% of your typical neighbor disputes will not merit... and you need the board on your side.

I think, paradoxically, in my experience.. I'd pick a rental building for resolution of neighbor issues. You have a landlord who wants happy customers, are able to directly levy fees, and simply not renew bad tenants leases. If it is so bad, you are usually on average no more than 6 months away from your own renewal and can get packing.

Either form of "ownership" in NYC has far more of an illusion of control than most are willing to admit.

Re: discrimination factor
Clearly financial requirements are a proxy used for other forms of discrimination once you cross certain thresholds.
Few will argue a 20% down payment is unreasonable.

30+% & 2-year liquidity requirements post close are another thing entirely.
You quickly get into needing 40-50% of the value of the co-op to be able to purchase one.
Especially in an environment where a bank is happy to lend 30 year money at 3% against 10% down and 6 months payments in the bank..
If you filter down to the 1% you'll get a pretty obvious racial skew, and for the few that make it through.. it has often been said.. rich white people aren't racist against rich non-white people anyway.

Arguably co-ops trade at a discount because as the old saying goes, it's expensive to be "poor".
If you look at the quantity of under-$2M 2BRs in Manhattan, counting by co-op and condo you will see this skew.

Being a white HENRY who was not in the 1% at birth, even buying a condo with my spouse meant bringing more money to the closing table than the entire value of our parents homes. And our parents do pretty well / are the better off of their respective family, all things considered! The idea that we'd even borrow .. anything that would move the needle from family was laughable.

As I read the stories above of difficulty of getting approved in the coops and discrimination beyond reasonable financial requirements, I can't help but think that 20 years back there weren't as many condos as a percentage of housing stock. So people had no choice but to apply for a coop.

These days, why be a sucker for pain and apply, for example, to buy Sutton Place (not even a desirable area anymore) old-lady coop with high clearly stated minimum down payment of 30-50%? You know if they want 30%+ down, they are going to be difficult with other aspects. I must mention that there are plenty of coops (like the one Krolik bought) who are easy going and their financial requirements are not very onerous (I live in one). However, you wouldn't find them on Park Avenue and 5th Avenue on UES.

@300_mercer I don't know of ANY bank that will not favorably look at a loan application solely on the basis that an applicant has less than 20% of the downpayment. That's why there's PMI - they actually profit off of that.

Discrimination is never legal. Good faith requirements to gauge a person's level of financial responsibility can't possibly be lumped into the cauldron of discrimination. It's generally accepted that a person's credit history is an indication of their level of financial responsibility (we can of course argue the merits of this general assumption). No bank favors the size of a downpayment over credit history, all things being equal.

Also, let’s not ignore the fact that most long-term coop owners purchased their properties for peanuts. Most of them wouldn’t even be able to meet the 20% downpayment requirement if they were trying to purchase the coop today. Do we really think those older people who purchased their coops 40yrs ago for a few hundred dollars are able to cough up hundreds of thousands of dollars for a downpayment as well as showing proof of sufficient funds to cover 3 years of mortgage and maintenance at the current prices? And then they pass on the properties to their offsprings who never have to deal with the ridiculous financial requirements demanded from those looking to purchase. That way, the racial demographic stays the same. Again, these requirements have real social and cultural implications. Crazy high downpayments are in essence instruments of purity tests.

Because coops are better value. I am too poor for new construction condos. For my money, I need all the square feet I can get.

One of my junior colleagues recently bought an condo apartment in a fancy recent construction building with nice amenities. Comparable location and same size as mine, but about twice the price! He is only few years out of college, and said rich relatives helped with 1M "down payment". With other people's money, why not? Some of us are not as lucky and have no rich relatives.

300,
I would estimate that 30 years ago 5% of transactions were Condos and today it's close to 50/50.

How much do people think the condo premium is once you correct for age, quality, and kooky/discriminatory requirements? Does anyone have side-by-side comps?

Most condos are newer, but there must be some 60’s-era condos out there. And there must be some comparable coops out there with normal requirements that don’t suppress value (e.g., illiquidity discount because selling is a PITA). I’m not in the market for this sort of thing, so it’s totally unclear to me whether there is really a condo premium for the same product vs. differing preferences (e.g., double the space in older building preferred over half the space in newer building). I figure there must be some premium, just because even the normal coops are tainted with the PITA image (losing some potential buyers) not to mention a lack of the full buyer pool to begin with (investors, foreigners). But how big is it, really?

30, Thank you for that. That is a real increase in choice for home buyers in NYC. And it is reflected in stuffy coop prices on prime 5th and Park Ave. Downtown coops (except for perhaps some lower 5th ave coops) tend to be easier approval and hence they remain popular.

I asked myself this question, but tough to answer. The premium could be up to ~15-20% for similar product in midtown, and some of the lower valued condos I looked at had own idiosyncratic problems. The issue, as always with real estate, was finding a condo and a coop that are comparable in terms of amenities, location and financial health.

Let's say there is NOT much of a market-wide premium for old condos. There is not that much old condo inventory, and newer condo product is disproportionally in the "luxury" segment (based on per square foot prices). A non-luxury shopper is still effectively stuck with coops.

https://streeteasy.com/building/lex-54/9g
https://streeteasy.com/building/the-dorchester

Do you think these buildings are comparable?

Without having been to the buildings, I would say 54th is better as you will suffer from 57th street noise a fair bit on Dorchester. Both are similar vintage and likely 8 foot ceilings.

@Krolik: Superficially, you could roughly compare 9G with the Dorchester's 11A. Roughly the same vintage and size (unless you're going to obsess over every single square inch, in which case, no). 725k Ask vs. 545k sold. Maint: $1943 vs $1236 (not including the special assessment). Or similarly, compare 9G with something else in the 'hood: 118 E 60th, 11E: $685k Ask, Maint $1934. All 3 have roughly the same low level of amenities (no fancy gyms, wine cellars, kiddie rooms, etc.). Even within that, there's an awful lot of variability -- enough to determine the 'co-op discount'? Maybe not.

Aaron, In my mind 118 East 60th is a very different location vs 57th with a real neighborhood feel around it. Sure it is close to the bridge traffic.

I have been to both Lex 54 and Dorchester buildings and think they are similar, same vintage, ceiling height, small kitchens, just a few blocks away from each other, same school district and transport. The Dorchester recently added a tiny gym ("to attract more young people"), otherwise amenities are the same, but Dorchester is noisier, so this balances it out in my mind. Dorchester has commercial properties downstairs, and has cut deals for tenants during COVID, with the gap being covered by an assessment. If the commercial rents go down permanently (and they might in my view), the maintenance difference might be less going forward.

Lex 54
7G has maint = 935+901 = $1836/month
800 square foot apartment sold for $770k, or $963 per foot
6G sold for a similar amount, so this pricing seems consistent

Dorchester
Unit 11A maint 1236 +215 assessment = $1451 (I studied the financials and my assumption is they likely will need to increase maintenance by amount of assessment)
Sq ft not listed for this unit, but another A unit with the same floor plan was listed as 800 sq ft, so can assume the size is roughly the same as 7G/6G at Lex 54
Unit condition is similar to 7G/6G at Lex 54
Sold for $545k, or $681 per foot
3F and 15A sold for similar amounts, so pricing seems consistent for 1brs in the building.

Conclusion: the Dorchester is about 30% cheaper per foot than Lex 54, despite carrying costs at the Dorchester being 15-20% lower thanks to commercial tenants. Dorchester requires 30% down and loads of post-closing liquidity, plus I believe all residents are white/white Jewish or Asian, so a racial purity test may be applied as well. I bid on 17D at some point and my offer did NOT get accepted because seller thought I did not have enough liquid assets to pass the board; after another 9 months on the market 17D found a wealthier buyer, went into contract, only to come back to market few months later due to a board turndown.

At Lex 54 you can put just 10% down and be any color.

Also, don't remember about Lex 54, but noticed that at the Dorchester and few other 30%+ coops I looked at there were always a few shareholders in arrears (despite their really high assets requirements). I think the assets test is pushing up the average shareholder age, and these coops usually have a high proportion of retired residents (with lower incomes).

How much premium for reno of 7G going by Kitchen and Bathroom pictures? $125-150k including $25-$50k trouble to renovate?

That's a good point, though here is another unit in the building that seems much more dated, and the price difference is minor
https://streeteasy.com/building/lex-54/11g

Thanks, Krolik. Blending the purchase price and maintenance, those two compare at 25% less for the coop. On the flip side:

- The coop is in a significantly worse location. I don't think a gym like that really makes up for being on a major cross-street with its bus traffic, etc.
- The coop is less liquid, per down payment and post-liquidity requirements.
- The coop has a board that seems to make it even less liquid than that, per your impression of downturns.
- The coop seems to have trouble attracting buyers long-term ("to attract more young people").
- Despite "requirements", the coop may not be great at managing itself w.r.t. shareholders in arrears. Said "requirements" may be part of the financial problems.

I guess I'm not surprised the coop trades at a discount. But these don't seem comparable to me, really.

Well, yes, the question was "how much discount in exchange for board process and illiquidity and random exclusion of buyers that comes with it".

My personal opinion the coop location at 57 and Park is same or better than 54 and Lex, though I seem to be in the minority on this. 57 street is closer to the Central Park and to a number of subway stations. Extremely convenient location. I visited both buildings several times and thought they were highly comparable inside as well. Having a gym is a better than not having a gym.

A lot of activity since I was last here, so let me do a bunch of things at once:

1) Topline -- you should be able to be ANY color at ANY building.
2) Antiracism work is important work, and, by discussing possible racist tropes and barriers, we're all doing a piece of that work. So thanks to everybody on this thread.
3) Housing in Manhattan is very very expensive, and as a result, pretty much none of us have the housing we want/need/think we deserve, and I realize that makes these discussions pretty loaded.
4) The housing stock throughout much of New York City is very very old, and it costs a sheer fortune just to keep it standing up. Both the co-op and the condo I own are pre-war, and are way past anything that their builders imagined would be their useful life. Let's pick on a different building here -- the Century at 25 Central Park West. It was built in six months. Do you think that the builders had any idea that, ninety years later, someone would say "that's a nice building in a nice location, I wish I could afford to live in it?"
5) From my own life experience, I can see both sides of the amassed capital issue. I was the beneficiary of a fancy private education (I'm an Ivy grad) but I also have never received family help of any kind to buy an apartment, ever. I will gently suggest here, though, that if the standard becomes "income-only" then you're shifting the racist effect to high-paying professions which do not themselves reflect the diversity of our fair city.
6) One way out of the "I win- you lose" problem would be to build far greater quantities of housing, which is a solution that San Francisco, say, needs to adopt immediately, because @turbo, I don't know anyone who wants to live there, pretty much including all my friends who already live there. This solution would have the added benefit of helping with global warming or climate justice or resilience problems or whatever our phrasing is now.

So then, okay, specific points:
Joey, I think 20% down is too low, probably. I'll lean on some of the posts that 30 years has made above. The residential buildings -- which are also asked to pull all sorts of weight in terms of keeping the city running; let's cite the tremendous extent to which taxes are property taxes and to which property taxes are a residential burden, here -- need more money. I don't know what's "too much" though. I did put a client in Astor Court, and 35% down and 35% post-close liquidity did seem onerous.

Krolik -- are those all the salient points about your model couple? Would a board with a long history of running buildings and watching defaults be, perhaps, hesitant about the lack of a long career/compensation history of one or both partners? You don't want people to be turned down just because they're young, but OTOH what if someone in a career that is somewhat new to them washes out and takes their income with them?
Also, while I prefer not to live in a condo, I'm not going to take the bait that that makes them more expensive, second-class housing. As a group, condominiums tend to have nicer finishes than co-ops as a group, if only because they were built/converted more recently and/or positioned for the luxury market. And the ease of rental is a right that the marketplace, properly, asks a premium for.

Nada, no one has really run the stats on the condo premium because no one in real estate really runs disinterested stats on anything. Throw in another problem that condos are measured differently than co-ops -- so a 600 sf co-op is going to be larger than a 600 sf condo -- and another, another problem that a lot of condos are built/converted using tax abatements, which distort the markets in their own way.

Steve, excellent point on the rentals! That would be the best situation. However, it's currently an expensive one, especially if one is looking for a 2-BR with a bit of space on, say, the UWS.

oh, and @joey again -- peanuts, certainly -- but OTOH, New York was *horrible.* Let's reference the Mad Men bit where Peggy is on Central Park West and people are getting shot outside her building. I have friends whose parents bought in the epicenter of the Upper East Side during the garbage strike -- whereas garbage is not piling up now but many squeaky wheels are making quite a show of heading off to Florida because taxes are too onerous, or some other quality of life problem is too in their face. And again, I get it, it's a very tough time for this city, I live here, and it's a lot of work... but I can commit to digging in in a way that I don't think I would have been brave enough to in the 70s. (Especially if Scarsdale was relatively so much cheaper). And then those stakeholders paid taxes and fixed up their buildings and their neighborhoods, and made NYC better for those of us who came after. So in some ways I don't begrudge those people for having done well.

ali r.

My question was this:

>> How much do people think the condo premium is once you correct for age, quality, and kooky/discriminatory requirements? Does anyone have side-by-side comps?

I think there are coops out there with lower financial requirements and more reasonable boards. I was asking about those, not ones that require 30% down + high post-close liquidity and/or seem to reject buyers "randomly".

Granting your opinion on the comparability of the two, your example put 25% between an "unreasonable" coop and a condo. I'm wondering what the distance is between a "reasonable" coop and a condo. In my mind, 20% down + 2 yrs maintenance w/ no reasons for rejection beyond financial is "reasonable". So what you are missing is the ability to rent freely, and the ability to purchase w/ shaky financials (despite what the bank/govt is willing to lend). What's the differential on just that component?