It’s become apparent that some co-op boards in NYC may be rejecting sales due to purchase prices that the boards deem to be too low. This practice is not only potentially illegal but can also be very damaging to an already battered real estate market. Co-op boards who engage in such practice may be damaging the very shareholders they are trying to protect by further eroding the shareholder’s diminishing equity.
Consider the following scenario: a Co-op owner lists an apartment for sale for $200,000. The apartment is fully exposed to the open market through extensive advertising and the use of a Multiple Listing Service. After 6 months of being on the market, being extensively shown to prospective buyers, and after rejecting several low bids, the highest offer received is $160,000. The seller accepts the offer. The co-op board reviews the application and determines that the price is too low and rejects the sale. The board’s rationale is that such a sale would reduce the value of the rest of the co-op. The seller must now put the apartment back on the market and start from scratch. The problem is, however, that the apartment is now worth less than it was before. Procuring another offer higher than $160,000 is now unlikely.
Both co-op boards and sellers alike must avoid making the costly mistake of attempting to dictate to the market. Emphasis in a free market must be placed on advertising, marketing, competition, and good old fashioned sales. This allows for the the highest offer to be procured by the laws of the free market as opposed to price fixing and manipulation. Intervention by co-op boards to attempt to raise or maintain the value of their shares by fixing prices is futile and will only cause everyone to take additional losses.
To NYC co-op boards: Stop attempting to fix prices and let the market take it’s course!