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| 1. |
What is a Co-op? |
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A Co-op or Co-operative is a type of corporation
used for ownership of multi-unit apartment buildings, mostly in New
York City. 85% of all apartments available for sale in New York City
and 100% of the exclusive Pre-War buildings on Park Avenue, Fifth
Avenue and Central Park West are Co-ops.
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| 2. |
What is the difference between a Co-op and a Condo?
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When you buy a Co-op you are buying
shares in a corporation, for which you receive a stock certificate.
When you buy a Condo you are buying real property, for which you
receive a deed. As a Co-op shareholder you are entitled to a “proprietary
lease” for the apartment in which you live. The larger your
apartment the more shares in the corporation you own.
The most important practical distinction
between a Co-op and a Condo is that almost anyone with the means
can buy a Condo, but a buyer of a Co-op must meet a long list of
requirements and obtain permission to live in the building from
the Co-op board.
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| 3. |
What is a Co-op Board? |
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Like most corporations, a Co-op has a board-of-directors,
commonly know as the Co-op board. A Co-op board is comprised of a
group of apartment owners (shareholders) that are elected each year
by all the resident shareholders of the building. The Co-op board
is responsible for protecting and enhancing the value of the shareholders’
assets (their apartments) through managing the overall operations,
finances and upkeep of the building. One of the most important, and
controversial, functions of a Co-op board, however, is to be the building’s
gatekeeper, deciding who can and cannot live in the building.
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| 4. |
What are the benefits of buying in a Co-op? |
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Because Co-op boards rigorously screen every buyer and reject
“marginal” applicants, it is much more likely you will
end up with respectful neighbors and less likely that you will end
up with problematic neighbors. This not only protects your most valuable
asset, but also provides for a better living environment. Furthermore,
because Co-ops represent 85% of the apartments available for sale
in New York they cost 15% to 25% less than Condos, on average.
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| 5. |
Does the Co-op board really decide who can and cannot
live in the building? |
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Yes, the Co-op board has full discretion as to who can and
cannot live in the building. Everyone and anyone who wants to buy
a Co-op apartment in New York City must first be approved by the Co-op
board. In order to “pass the board” a buyer must meet
a list of requirements put forth by the board to ensure that only
a certain caliber of people get into the building. Buyers must complete
a thorough application or “Board Package” that reveals
the most intimate details of their personal and professional lives,
including an exhaustive look into their finances. Most Co-op boards
also require buyers to interview with the board. This entire board
approval process takes six to twelve weeks. This “initiation”
process is why Co-ops are likened to private and/or exclusive clubs.
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| 6. |
Can a Co-op board really turn anyone down for any reason? |
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Yes, a Co-op board can reject any buyer
for any reason, as long as it does not discriminate against New York’s
protected classes, which include race, color, creed, national origin,
age, disability, religion, gender, sexual orientation, professional
occupation, and marital status. Please consult an attorney if you
have additional questions or concerns regarding discrimination.
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| 7. |
Does a Co-op board have to disclose the reason it rejects
a buyer? |
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No, a Co-op board is not legally obligated
to disclose the reason it rejects a buyer, and most Co-op boards never
do.
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| 8. |
Are Co-op board turndowns common? |
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Along with apartment prices, Co-op board
turndowns are at an all time high in New York and are becoming more
common every day.
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| 9. |
What does a Co-op board require? |
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It takes a lot more than money to pass a co-op board. Co-op
board requirements differ somewhat with each board, however some of
the common requirements are: A certain amount of liquid assets (cash,
stock, bonds, etc.) after the purchase. Liquid assets are usually
represented as a multiple of the buyers’ monthly mortgage and
maintenance payments - 18 to 24 months is typical - or a multiple
of the price of the apartment, which can be one to several times the
price of the apartment for more exclusive Co-ops. Most Co-op boards
expect a buyer to be employed, regardless of their net worth and even
if the apartment is bought with cash. At a minimum, most Co-ops insist
monthly maintenance and mortgage payments not exceed 28% to 32% of
a buyer’s gross income, but many Co-ops require more than the
minimum. Furthermore, Co-op boards do not generally consider income
from self-employed buyers or buyers who derive the majority of their
income from bonuses unless the income has been consistent for several
years. Co-ops typically require a buyer to submit bank and other asset
statements, tax returns, several letters of recommendation from business
references, personal references, as well as employer and bank references.
Co-ops also take into consideration the company for which a buyer
is employed, the length of employment, and position in the company.
Most Co-op boards also have restrictions on guarantors (co-signers),
pied-a-terres, parents buying for children, using a ”gift”
toward the down payment, financing, pets, and subletting.
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| 10. |
Do Co-op boards publish their list of requirements? |
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No, the vast majority of Co-op boards
do not publish their requirements for fear of being sued for discrimination.
In fact, this is one of the major problems that WallFly was created
to resolve. Until now, buyers, sellers and even real estate brokers
learn about Co-op board requirements through a hodge-podge of sources,
each of which knows one or two pieces of the puzzle. This trickle-down-the-lane
effect has led to a great deal of misinformation, which has been a
significant factor behind the dramatic increase in Co-op board turndowns.
WallFly was created to act as a knowledgebase for people to learn
about Co-ops and Co-op board requirements from the “insiders”.
Insider are those most intimately familiar with the Co-op boards,
such as apartment owners, real estate brokers and even Co-op boards
them selves, all of whom can publish the Co-op requirements on WallFly
under an assumed name without fear of retribution or legal liability.
If the Co-op board is the gatekeeper then WallFly’s goal is
to become the key master.
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| 11. |
Do I really have to disclose ALL of my financials to
the Co-op board? |
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Yes, Co-op boards insist that you disclose 100% of your
assets when buying an apartment in their building, regardless of whether
you are worth $100k or $100M. If a Co-op discovers in its due-diligence
that a buyer omitted assets in their board application it is cause
for an immediate board turndown.
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| 12. |
What are the do’s and don’t of a Co-op board
interview? |
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It is a very good sign when the board
grants you an interview after reviewing your board package. The board
interview is usually brief and held in a board members’ apartment
or the Co-op conference room before or after work hours. Know the
information in your Co-op board package well. If necessary, bring
a copy with you to the interview. Most importantly, remember that
this is an opportunity for the board to ask you questions, not the
other way around. Make your answers short and to the point. Do not
be evasive, but do not do not offer any more information than is asked
of you. If you must ask questions, stick to lighthearted questions
like “what is your favorite thing about the building”
or any other casual question that will provoke a positive response
to break the ice. Do not ask questions like “is the lobby going
to be renovated” as you might offend the board member responsible
for the last renovation or your might give the board the idea that
you are an evangelist for change. The best board interviews are the
shortest ones.
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| 13. |
How much of a down payment do I need with a Co-op? |
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Most Co-ops require a minimum down payment of 20% of the
purchase price, limiting the maximum financing to the remaining 80%.
Some Co-ops, however, require larger down payments of 25%, 50% or
75% of the purchase price. Many exclusive Co-ops on Park Avenue, Fifth
Avenue and Central Park West, for example, require buyers to pay up
to 100% of the price of the apartment in cash. Furthermore, all Co-op
boards require a buyer to have a significant amount of liquid assets
(cash, stocks, bonds etc) after the purchase of the apartment to prove
financial stability. The required down payment for each building can
be found in the “Details” section in each building review
page of WallFly.com.
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| 14. |
What does the monthly “Maintenance Fee” in
a Co-op include? |
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The maintenance fee in a Co-op
covers the overall building expenses, such as staff (doormen, super,
etc.) salaries, heat and hot water, insurance, repairs and maintenance,
the underlying mortgage of the building, as well as real estate taxes.
Portions of the monthly maintenance fees are tax deductible due to
the building’s underlying mortgage interest. Also, shareholders
can deduct their portion of the building’s real estate taxes.
The percentage of monthly maintenance that is tax deductible can be
found in the “Details” section in each building review
page of WallFly.com.
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| 15. |
What is a Flip Tax and who pays it? |
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A flip tax, unique to Co-ops, is not actually a tax, but
an “exit fee” imposed by the Co-op board to make the building
more financially stable. The flip tax goes into the building’s
“common fund” along with maintenance fees to cover building
expenses. The flip tax is paid by the apartment buyer or seller at
the closing. Not all Co-ops have a flip tax.
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| 16. |
Can I rent or sublet my Co-op apartment? |
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Subletting an apartment in a Co-op can be very difficult.
Most Co-op boards are not “investor friendly”, meaning
they forbid investors from buying apartments to rent for investment
income. Co-ops ideally want 100% owner-occupied apartments in the
building, believing that owners take better care of their apartment
and the building than do renters. Some Co-ops permit subletting under
special circumstances, such as if an apartment owner is under “duress”.
An example of duress is being relocated out of the state or country
by your employer. Even under duress most Co-ops will only allow owners
to sublet for a limited time, usually two or three years, after which
time the owner must move back in or sell the apartment. Each Co-op
has a different sublet policy that should be reviewed carefully.
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