Several months ago I posted a piece on TrueGotham asking whether or not co-op boards and their requirements could be contributing (not the sole cause of course) to a softening market.
The catalyst for the piece was a board rejection of a buyer who wanted to purchase my client’s property. The buyers were a sophisticated, financially qualified couple who were Russian immigrants. Absolutely lovely people. The contract price at the time was $1,080,000. The Board rejected these buyers and everyone was confused as to why.
It is imperative that I also state that in my 15 years in the industry, until this incident, I had only two previous board rejections. One of those came at the hands of this same building’s board about three-and-a-half years ago. At that time, everyone was equally puzzled. We heard through a reliable source that the Board was unhappy with the applicant’s age… can you say discrimination?
Wait, that’s not all! After the rejection of the buyers paying $1,080,000, we decided to lower the price of the property as the market had cooled a bit and began the process of procuring a buyer once again. We finally found another purchaser. Another perfect couple for the building (I know they were perfect because I have sold 20 or so apartments in this particular building and therefore have spent a lot of time there, and know a lot of people who live there), this time paying $975,000.
My seller had already lost $105,000. This 30-something couple were expectant parents, she in the medical field, and he an accomplished musician. They were not as financially qualified as the previous clients but they were mature, responsible individuals who were definitely not over-extending themselves and could easily afford the apartment and would be a positive addition to the building’s community.
Last Thursday, we received the call from the managing agent that the Board had rejected these applicants as well and would not entertain an interview. We were stunned for the second time. The managing agent then shared with us that the Board probably didn’t consider the wife’s income “because she is pregnant and won’t go back to work.” Can you say presumptuous?
Immediately upon receiving this news, the buyers prepared a letter from the wife as well as her employer stating not only her intention of immediately returning to work after her maternity leave, but that her projected income would likely be double her current income. Rejected again. Now this lovely couple with a one-week-old baby is scrambling to find a place to live. Fortunately they are working with a stellar broker who I know well and will do her very best to make this terrible situation as painless as possible. They will move on. My seller however, is still stuck with this empty apartment and after two board rejections and a significant financial loss he has filed a lawsuit against the board and the building.
What truly amazes me here is that the board doesn’t see how it is doing an absolute disservice to the building and its shareholders by hyper-scrutinizing applicants. By the way, this is not a Park Avenue or Fifth Avenue building either (for those who assume that those areas have the more “difficult” boards). Often times, they may have more stringent requirements but they also have more sophisticated Board members making decisions about prospective purchasers.
Now I could speculate as to what is going on in the building but truth be told, I have NO IDEA. Of seven members on the board, three seem to carry most of the weight in the decision-making process when it comes to applicants. I would be curious to see if any of these three would pass their own requirements, whatever they may be.
It’s all very puzzling and is a very unfortunate aspect of the co-op market. I do know however that the board has rejected five applications in the past six months. Of the few that were actually approved, two were purchasers for apartments owned by board members. I guess that makes sense since they know their own requirements better than anyone, but the guessing game that I and many of my colleagues are playing in trying to determine what they are seeking, is directly affecting the value of apartments in the building. Just last week I was having a conversation with a top agent (top 10 in the country!) who shared with me that she advises all of her clients to stay away from the building because “the board is insane and unpredictable.” Indeed a VIRAL reputation to have that is going to harm only those who are shareholders in the building.