Buying a Coop: Be Prepared and Qualified

By
Real Estate Agent with Compass

Buying a Co-op

 

Being Prepared to Fulfill the Requirements of the Board

 

Manhattan Co-op ownership differs from that of Condominiums in that you own shares in a Corporation instead of holding Title to a piece of property.  The Corporation is governed by a Board of Directors.  It is this Board that establishes what the requirements are in order to purchase an apartment in their building.


San Remo Apartments photo©Mitchell Hall

Unlike condominiums a purchaser can be rejected by the coop board. In a Manhattan condominium the board only has first right of refusal and must buy the apartment for the same terms offered. The only way a condo can reject a buyer is to exercize their right of refusal and buy the apartment. 


All a buyer needs to qualify for a condo is a down payment, a mortgage and/or enough cash for the balance of the purchase. Condos are very easy to purchase and are much easier transactions for the purchaser, seller and broker.


Many Manhattan condos are trying to be more like coops but legally they can not. Manhattan's most prestigeous pre-war buildings are coops.

 

Please note that the objective of the Coop Board is simply to Maintain and to Raise the value of the property and the building.

 

There are three major areas in which the Board addresses this:

 

The amount of financing allowed by the Board.

Liquidity of the buyer after the purchase has closed.

The cash flow of the buyer.

 

The amount of financing a Board will allow to purchase in the co-op can range from 80% to no financing at all.  The average amount for most co-ops is 75%. Negative amortization and Interest only loans are usually not allowed.

 

After the closing of a purchase the Board will expect the prospective purchaser to have, in Liquid Assets, three to five years of their debt service.  Debt Service is the mortgage, maintenance, and any other financial obligations the purchaser may have.  This includes car leases or loans, school loans, other mortgages, home equity loans, credit cards and such. The amount of this requirement varies from Co-op to Co-op and should be verified by your broker.  In the more affluent areas such as Central Park West, Fifth Avenue, and Park Avenue the liquidity required may be as much as several times purchase price.  The majority of Boards require two to five years of debt service depending on the building. This also should be verified by the brokers.

 

Lastly, the monthly carrying cost of the apartment should be approximately 25% of the gross income of the purchaser(s.)  The total debt service of the purchaser should be in the range of 28 to 30% of the Gross Income.

 

Because of these requirements, when an offer is submitted to purchase, you will be asked to disclose your basic financial profile.  Unless the owner is confident that the prospective purchaser will pass the Board requirements they will not entertain the offer. In a coop the highest offer may not be the best offer. The best offer is the highest offer from the most qualified purchaser.

 

You will be asked to submit a complete financial statement with an application to purchase once there is a fully executed contract of sale for an apartment in a co-op.

 

There are exceptions to the numbers above therefore it is very important to discuss your particular financial situation with your Broker.  An experienced coop broker can advise you best in these situations. Many agents, particularly newer agents that started in the business during the new construction condo boom have little experience with coop boards and presenting meticulous board packages so they prefer the easy sales in condos.  I always enjoy the challenge of getting a client approved by a difficult coop board in an established full service coop.


courtesy of:

Mitchell Hall, Associate Broker, The Corcoran Gro

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All content/images, unless noted, are the property of Mitchell Hall & may not be used without permission. 

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Rainmaker
435,238
Gina Tufano
Ask Gina & Company with Pearson Smith Realty - Sterling, VA
Ask Gina & Company, Northern Virginia Real Estate

Excellent article outlining the details of a co-op purchase.  Very informative!  Stay warm in the NYC snow!

Oct 29, 2011 08:20 AM #1
Ambassador
1,905,527
Hannah Williams
Re/Max Eastern inc. - Philadelphia, PA
Expertise NE Philadelphia & Bucks 215-953-8818

Mitchell  We don't have them in the Philly area ..It is an interesting concept

HelpfulHannah

Oct 29, 2011 08:37 AM #2
Rainmaker
1,059,800
Margaret Goss
Baird & Warner Real Estate - Winnetka, IL
Chicago's North Shore & Winnetka Real Estate

It's important to be informed about co-ops - especially in New York where there are so many of them.  I currently have a coop listing and there is often a lot of expaining to do because in this area (Winnetka,Wilmette) there are only a few buildings that are co-ops.

Oct 29, 2011 09:29 AM #3
Ambassador
1,015,598
Robert and Lisa Hammerstein -201-315-8618
Keller Williams Valley Realty - Hillsdale, NJ
Bergen County NJ Real Estate

Mitchell - Yes Coops are qutie different. We have had many experiences here on the other side of the Hudson with the COOP's in Ft. Lee. Good information to pass along to everyone. Best of luck and succes to you.

Oct 29, 2011 09:37 AM #4
Rainer
178,712
Rosalie Evans
Meritus Group Real Estate - Sioux Falls, SD
The Evans Group, Sioux Falls, SD Homes For Sale

I am not sure if we have any coops around my area! So is buying a coop just as difficult as buying a condo? 

Oct 29, 2011 10:03 AM #5
Rainmaker
597,216
Mitchell J Hall
Compass - Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Hi Gina, Thanks, I was out this afternoon showing, it was a a real winter storm in October. Not just a little flurry.

Hannah, You're lucky. lol. Coops can be tough but they make up the majority of our housing inventory. Some of the finest buildings in Manhatan are coops.

Margaret, Thanks, they are a unique type of home ownership. Interesting that you have a coop listing in Winnetka, Wilmette, good luck, I hope you sell it soon to a well qualified buyer.

Lisa, Thank you, Yes, Fort Lee has many coops too.

Rosalie, Buying a coop is more difficult to buy than a condo. The coop board really scrutinizes the buyer's financials and can reject the buyer for any reason or no reason.

Oct 29, 2011 11:45 AM #6
Rainmaker
505,608
Robert L. Brown
www.mrbrownsellsgr.com - Grand Rapids, MI
Grand Rapids Real Estate Bellabay Realty, West Mic

Wow they want to know everything about the buyer. Their entire financial picture is laid bare for all to see.

Oct 29, 2011 12:08 PM #7
Rainmaker
596,498
Nancy Laswick
United Real Estate - Phoenix, AZ
Your REALTOR® For The Valley Of The Sun

Mitchell - I'm not really sure how I missed this post back in October. You did an excellent job explaining the process of buying a coop. I'm sure this post is going to be on the front page of a lot of search engines for a long time.

Jan 22, 2013 07:22 AM #8
Rainmaker
518,665
Lisa Friedman
Great American Dream Realty - Essex, VT
29 Years of Real Estate Experience!

Mitchell, since moving to Vermont five years ago, I have not found one co-op community yet. I know they are common in New York.

Jun 28, 2013 10:17 AM #9
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Mitchell J Hall

Lic Associate RE Broker - Manhattan & Brooklyn
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