Through the recent years of incredibly high demand, many co-op boards have become more discerning than ever. By weeding out many of those who’d like to buy shares in their buildings–often without clearly stated reasons–I believe co-op boards are contributing to thinning the pool of buyers, thereby softening the market and ultimately making their apartments worth less money. And I am speaking as recent member of a co-op board.
Tightening of financial requirements such as the amount that a purchaser may finance, the amount required in liquid assets after purchase, the types of mortgages allowed, and greater income requirements have all combined with already high prices to make it increasingly difficult for the average buyer to purchase a co-op.
Take the following scenario (names have been changed to protect the innocent): Mr. and Mrs. Buyer made more than $500,000 last year and have over $1.5M in cash in the bank. They wanted to purchase an apartment for slightly more than $1M, and they were rejected by the building’s board of directors.
We can only speculate as to why they were rejected. Maybe it’s because the purchasers’ income was 70% bonus money–albeit a guaranteed bonus. Maybe it was because the buyers’ average income in the prior two years was less than $100,000 (although they made in excess of $1M three years prior). Maybe it was something else entirely. We’ll probably never know what the real reason was.
Co-op Boards do not have to give a reason for their rejections (legislation has been proposed recently to force co-ops to provide a reason for rejections) making it virtually impossible to address their concerns and negotiate a reversal.
Had I been a member of this particular board, I would have asked how likely it was that a couple with $1.5M in cash would default on their $1,000 maintenance… hmmmm… doesn’t seem likely. Not to mention, this particular couple is a perfect match for this building as they are friendly, hard-working, and financially sound individuals.
Ultimately, the board’s decision resulted in three months of lost marketing and the apartment for sale again in a softer market. This may result in less money for the seller and in turn, a decreased value for similar apartments in the building.
Call me naive but why isn’t it possible for real estate agents to develop professional relationships with co-op boards, to determine specific financial formulas and criteria that boards seek? Surely that could make the market more efficient for all.
Perhaps our litigious environment won’t allow it, or perhaps we are so deeply rooted in past precedent that no one wants to address the incredible inefficiency that is the co-op board process. As a real estate agent, I have mixed feelings about this process. Part of me is happy to particpate in such an inefficient process as it makes agents like me more essential. I think you can see from this post how the other part of me feels.
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