Co-op purchases can be a nightmare. Just kidding. NYC’s for-purchase housing pool is still about 75% co-op the last time we checked. There is no better value out there right now for buyers.
Like everything else in life, there is a spectrum ranging from great to nightmare and each co-op is taken on a case-by-case basis.
I can tell you that in the 100+ co-op deals we have done, at least once or twice a year, we find ourselves asking, “Why would you ever want to buy a co-op?” out loud while sticking pins in our managing agent voodoo dolls. Truth.
Unlike a condominium, co-ops can turn a buyer down for any reason at all and they do not have to disclose why. There are times when they do find some reason to do just that. No one applies to live in a co-op without having assessed their likelihood of being approved by the Board.
From debt to income to post-closing liquidity, these factors should all be evaluated by the broker when the offer is submitted.
Sometimes, it goes beyond the financials and it comes down to a overreaching Board.
We recently had a co-op sale where the acting Board President had his own apartment on the market at the same time as our sale. After submitting a textbook applicant to the Board, we found out the Board President didn’t appreciate our sale trading at a discount which, in theory, lowered the value of his own sale. So the Board started questioning the approval of our sale and delaying the Board interview. We had to stage an intervention by our seller and another shareholder. Two martinis later, it was sorted out and the application moved forward to approval. All true. These things happen.
Other times, you get the co-op Board President that actually believes they are the President (of the United States). The ironic thing about many of these “nightmare” co-ops is that some of the members purchased 25 years ago at $250 psf (compared to $1450 psf today). Many of these grandfathered shareholders would not even pass their own Board today.
The best analogy is that a co-op is like a fancy country club that you are applying to be a member of, and while having financial strength and being a good neighbor should really be the only focus of the Board, they sometimes overreach when determining who will become their partner in the corporation.
It is for this reason why when the market crashed in 2009, most co-ops were very stable. The sheer fact that they are not as fast-moving or as liquid as condominiums protected their shareholders’ investments and they held their value.
It is this high barrier of entry which makes them a very stable form of home ownership until, of course, it is time to sell and the Board doesn’t like the fact that the buyer is a Mormon with two wives.
Having a seasoned broker behind you who has been through hundreds of co-op Boards is mandatory if you are buying and selling a co-op. We have 30 years’ experience and on top of this, every board package we submit is reviewed page-by-page by a Corcoran Managing Director with 30+ years of experience. But at the end of the day, no matter how prepared you are and how charming you are, if you go into a board interview and ask the Board when they plan on renovating the lobby or tell the Board how to run their financial affairs, you will likely be turned down. True story.