Proposition to Audit Co-op Boards

Suppose that New York City Co-op Boards and their Directors were subject to random or scheduled "audits" to insure that they maintained a pre-determined set of standards?  On Monday I blogged about The New York Times piece on whether or not Co-op Boards will have to disclose a reason for a rejection.  There is a great deal of opposition to a bill before the City Council that proposes to require Co-op Boards to give a reason for rejections of proposed applicants.

Now I have to say that my absolute favorite thing about blogging is that I am able to hear from some very intelligent readers who’s propositions are sometimes brilliant and often "outside the box" of those that have been discussed within the industry.  Such an instance occurred on Monday when a True Gotham reader opened a dialog of how the co-op market could be held accountable for it’s actions resulting in more transparency in the marketplace.  This forward thinking readers comments are worth posting twice:

From TG reader "newbie:" Doug, my thoughts are having a set of ‘standards’ for coop boards and establishing a group (either self-governing or through the city) to ‘audit’ boards and ensure they are meeting these standards. Much in the same way that public companies now have to have their auditors sign off on internal controls.

Such standards could include maintaining sufficient meeting minutes, whether all shareholders are required to have homeowner’s insurance (some boards actually don’t require this!), etc.

The ‘auditors’ wouldn’t necessarily opine about the coop’s management abilities but instead disclose whether coops are meeting these standards.

Kind of like a public health inspector…doesn’t matter what the food is like or how much they charge, but make sure the place is clean.

Of course there would be the cost of maintaining this process but it might be less than legal fees incurred as a result of the proposed law. And if done effectively you’d see the price gap btw condos & coops narrow.

And she goes on to elucidate later:

The idea is to have an objective party doing the evaluation.

The comparison with health inspectors is theoretical, but having worked for a financial regulator and as an auditor (and having witnessed the Enron & Worldcom scandals), I think there is a lot of value an ‘inspector/auditor/ whomever’ could add to the process. After all, you’re talking abt the largest financial investment many people have.

Because coops are companies that are accountable to their shareholders they should be treated as such. And this process would (hopefully!) encourage better management of coop boards and greater transparency within the building and the RE market as a whole.

I wonder if anyone else in the RE industry has considered this idea??

I’m not aware of anyone else in the real estate industry proposing such a solution to the current system but I believe this is an excellent compromise to the current legislation sitting before the City Council.

I’m curious to hear what other TG readers think about this proposition and the likelihood of some "objective" and independent auditing service "policing" Co-op Boards.  Newbie suggests that it may bring even more parity to the co-op/condo market and I tend to think she may be on to something here.

Thanks again newbie for intelligent and thought provoking dialog.

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