When you are looking at a co-op transaction in New York, you are technically not buying an apartment, you are becoming a corporate shareholder in a building where you will live. Consequently, buying a co-op will be a very different animal from buying a single-family home or even a condo. Depending on the co-op, it can have its own unique quirks that you should know about before you get involved.
Before you begin your search, you should seek out a buyer’s agent or an NYC real estate attorney with specific experience in co-ops. Your agent or attorney should be able to answer questions or find answers for you so you can make an informed decision that you won’t regret.
What Are the Board’s Financial Requirements?
When you are considering a co-op arrangement, you will appear before a board of directors who will have the authority to approve or deny you depending on their criteria and by-laws. A co-op board of directors can be as financially demanding as a mortgage lender.
Consequently, they may require an applicant to fill out a REBNY financial statement to prove their financial capability and may impose other financial requirements. Many co-ops will have strict debt-to-income requirements and want to see applicants with a minimum of a couple of years of mortgage and maintenance payments available to ensure financial liquidity.
What Does Coop Due Diligence Include?
When you are purchasing a coop unit in New York City, it is important to do thorough due diligence. Due diligence includes a review of the Offering Plan, house rules, Building by Laws, the last two years of building financials, and building board minutes. A knowledgeable and experienced real estate attorney can navigate you through due diligence findings and advise on the risks involved, so you can make an educated decision as a purchaser.
How Often Does the Board Reject Applicants?
Although it makes sense that a board will want to exercise care in who it approves, some boards are oppressive in the rules department. If there are indications that resales struggle in the building, you should consider that a red flag.
What Are Potential Reasons For A Co-op Board Rejection?
Practice shows that co-op boards do not usually give a reason when rejecting purchasers. However, there are several reasons, known to knowledgeable real estate attorneys and experienced real estate brokers. Among them: purchaser financial issues, liquidity, high debt to income ratio, bad credit, job history, Pied-a-Terre, guarantor, or a low purchase price.
How Often Do the Maintenance Fees Go Up?
As a shareholder, you will be paying a maintenance fee to help pay your proportionate share of the upkeep of the building. The board of directors should be financially savvy enough to ensure that the cost of maintenance is reasonable and has not continued to skyrocket.
What Kind of Sales Restrictions Does the Co-op Have?
As a buyer, you should always consider the future of any real estate transaction. Many co-ops are highly restrictive and rule-oriented. How easy will it be to sell the unit if and when you decide to move on? The more sales restrictions that a co-op has regarding how you can market it and who can buy a unit, the fewer options you will have if you want to sell it down the road.
Is There a Flip Tax?
Is there a flip tax that you may be subject to? While not all co-ops charge a flip tax, some charge various percentages of the purchase price, percentage of the gain, or a per-share amount. And, if you are not subject to one as a buyer, you should know if you will be subject to one as a seller should you decide to sell the unit at a future time.
What Is Their Sublet Policy?
Most co-ops have some form of sublet restrictions. While some can be very flexible, others can be extremely restrictive. Some may also charge a sublet fee, either monthly or annually. You will want this information in case you ever are in a position where you may have to let the unit out temporarily.
What Is The Pet Policy?
If you have a pet, you should have your attorney check on the building pet policy during the due diligence to find out if the building allows pets, or has restrictions on quantities and sizes.
What Is Coop Alteration Policy?
If you are purchasing your co-op with an idea to renovate or combine the units after closing or at a later date in the future, you should be prepared to meet with your building’s board members and building managers to negotiate the terms of the renovation and even the plans. You may need to have an architect or engineer involved. Most of the coops will not allow shareholders to install a washer and dryer in the unit or a jacuzzi bath. Some coops will not allow a combination of two units.
Is Coop Maintenance Tax Deductible?
Maintenance consists of the HOA fees to coop and a portion of Real Estate Tax. Have your real estate attorney confirm the % of the maintenance that is allocated to taxes, as this is a portion that you’ll be able to deduct on your income tax return together with any building assessment. The special assessment is tax-deductible if it was for maintenance and repairs.
What Is A Condop?
You may come across the coops with relaxed rules that do not have a Coop Board approval process and instead have a waiver of the right of first refusal similar to condo requirements.
What To Expect At The Coop Board Interview?
Just like a job interview, a coop board interview requires preparation. Your Coop board may ask you to appear with all the occupants for the Premisses, even if they are not a part of the Purchase application. If you have a pet, Your board will likely want to see your pet at the interview with you. As Covid-19 hit New York, Most of the Coop Board Interviews have been conducted remotely via zoom meetings. Purchasers shall also know that coop boards are notorious for asking really personal and intimidating questions or require you to explain some of your life decisions.
Getting Legal Assistance
Buying a unit in a co-op is quite different from buying other real estates, and you will want to have experienced assistance in order to make educated decisions. The NYC real estate lawyers at Sishodia PLLC have extensive experience with co-ops and their intricacies and can help you maneuver a co-op transaction that fits your needs and your lifestyle. Call us at (833) 616-4646 or schedule a consultation through our online contact form.