The Manhattan real estate transaction is indeed a chain of players and events that is often successful in spite of its weakest link. You’re probably asking what the heck is he talking about. Well I will tell you what I’m talking about. But first let’s examine the "chain" that is the Manhattan Co-op real estate transaction:
The Players (in no particular order):
- Property Manager (from company that manages the building)
- Closing Agent (from company that manages the building)
- Attorney for Seller
- Attorney for Buyer
- Real Estate Agent for Seller
- Real Estate Agent for Buyer
- Mortgage Broker/Banker
- Bank Attorney
- Co-op Attorney
The Events (in order of occurrence):
- Seller calls real estate agents
- Seller chooses real estate agent
- Real estate agent comprises the following information from building managing agent to insure accurate and full disclosure to the brokerage community and the consumer:
- Current maintenance (any utilities included)
- Recent maintenance increase and assessment activity as well as reasons for such (recent capital improvements, any upcoming)
- Recent 2 years of financial statements for the Co-op (current reserve fund)
- Flip tax (is there one, how is it calculated, and who typically pays)
- % Financing allowed
- # of Sponsor Units
- # of Commercial Units
- % of owner occupied units
- Sublet policy specifics
- Policy regarding Guarantors (including parents buying with or for children)
- Pet policy
- Pied a terre policy (do they allow people to buy and not live there full time)
- Storage availability (including if it exists and whether it is a locked open room or private bins/cages as well as if a bike room exists)
- Other amenities current or planned (roof deck, laundry, play room, gym, etc)
- Open house procedures (are they allowed, is permission needed)
- Copy of Purchase/Board Application
- Real estate agent disseminates listing to brokerage community and public.
- Real estate agent assists seller with selection of buyer.
- Offer accepted.
- Real estate agent prepares deal summary of terms, conditions and parties involved in transaction and disseminates along with offering plan, amendments, and building financials to seller’s and buyer’s attorney and agent. Purchase application goes to buyer’s agent.
- Buyer simultaneously completes mortgage application as attorney completes due diligence in preparation for contract signing. (Attorney reviews minutes of Board meetings, financials, offering plan)
- Buyer signs contract and provides 10% deposit to be placed in seller’s attorney escrow account until closing.
- Seller signs contract.
- Appraiser contact’s seller’s agent to schedule appraisal.
- Buyer’s agent assists buyer with purchase application and securing loan documentation and mortgage commitment letter.
- Buyer’s agent submits above to seller’s agent for review.
- Buyer’s agent submits above to managing agent for their review.
- Managing agent does credit check and often background check and submits package to each member of Board of Directors often with a cover letter summarizing buyer financial as they apply to Board requirements.
- Co-op Board reviews package, discusses and determines whether or not to grant an interview.
- Co-op Board calls managing agent to ask them to schedule interview.
- Managing agent calls buyer’s agent to schedule interview.
- Buyer’s agent calls buyer to schedule interview.
- Co-op Board of Directors interviews prospective purchaser.
- Board discusses and determines whether buyer is approved to become shareholder.
- Co-op Board calls managing agent with decision.
- Managing agent calls buyer agent or seller agent with decision.
- Assuming purchaser is approved, closing agent for management is notified and attorney for buyer and seller coordinate closing date with bank attorney, closing agent, payoff bank, their own personal schedules, and lastly the buyer and seller’s agent.
- Property closes!
Holy cow! This was an interesting exercise for me to actually write this down and see all of the "links" that could be weak spots throughout the process. Which precisely is the reason for this post. Below is just one example of a "weak link" that can make the process terribly inefficient and could even cost a buyer or seller money and certainly time:
Managing Agents are OVER WORKED and UNDER PAID…here is what all too often happens when a seller or her/his agent tries to comprise accurate information about a property coming on the market:
The Original request was made for 2 page questionnaire to be completed.
Management replied with a generic information sheet that contained little useful information and almost none that we needed for example:
Are pied a terres allowed?
Maximum Financing allowable
When asked to do so, we re-sent the questionnaire (July 3rd) and they charged $100 to complete
On July 13th (they said they needed to clear the check first), they sent the questionnaire back incomplete and with inconsistencies from what the seller had remembered when he purchased just 1 year ago particularly that pied a terres were allowed. Management on this occasion said they were NOT allowed (they change their mind later).
We called the building manager to ask why the questionnaire wasn’t complete for $100. She replied “ I have spent the last hour working on this and you weren’t happy with the first questionnaire I gave you. This is not my job”. (So why are you charging me $100)
We asked her if she could please let us know what the sublet policy is- she said there is no sublet policy and they are-not allowed. I told her there were renters in the building. She said this is the only information that she has.
A few days later I decided to email another contact we have worked with at this particular management company. She forwarded my email to someone else who said said that there is a sublet policy as follows: You must occupy the apartment for one year and then you can sublet for one year. We then asked if there is a sublet fee? She said yes, there is. 15% of the annual maintenance and a $300 processing fee. In addition she said that pied a terres were NOT allowed and parents could by with/for children on a case by case basis.
We were still confused so we called the seller (who by the way hired us to have these answers)- we had a buyer who had a client who was a parent purchasing for child, and we wanted the seller to reach out to the Board president.
The seller decided to call management first. This is how they responded to him:
pied a terres are acceptable
sublets are allowed
parents can purchase for children
Imagine the frustration as we continuously received contradictory information all the while trying to accurately market this property. For $100 all we got was an incredible amount of aggravation and a great deal more work for everyone involved. As it stands, today we received 7 offers on this property all of which were over the asking price and fortunately the 2 top bidders have had all of their questions answered. So for this particular managing agent, YOU ARE THE WEAKEST LINK…GOODBYE!!!" Except that I unfortunately will have to deal with this managing agent throughout the course of this transaction and for the rest of my real estate career…YUCK!