The last few months, I have had an inordinate amount of inquiries from prospective purchasers of co-ops and condos, as to what the management as well as the co-op boards are looking for in income, credit scores and most important debt/income ratios (all your debts over your income, provides a ratio, that many or most boards will take into consideration in the approval process).
Usually, condos don’t have a formal approval process, but a cursory process and application, but generally do not turn buyers down; otherwise many times the right of first refusal, provides the condo to purchase the unit, but they generally do not and waive their right of first refusal.
Also, condos are considered real property and co-ops are stock ownership and are not truly owned, but the purchaser is issued stock certificates that are held by the lender until their mortgage is fully paid off or if the prospective buyer pays outright for their purchase, then they will hold their stock certificates in a safety deposit box or in an extremely safe place, where they will be able to retrieve it, when they sell again in the future.
However, the Co-op approval process tends to have more paperwork involved and much more personal financial and background disclosure than when buying a condo.
However, the price of a typical one bedroom condo can run $125,000-200,000 or more for similar space. But there is much more luxury, lobbies tend to be fancier with a doorman, who will, many times announce your arrival by calling up to your apartment as well as having indoor parking and attendants washing your car.
Elevators are pretty much standard in condos; whereby co-ops are a mix of elevators and walkups, which I feel is great exercise for those who can and need to stretch those legs and get free exercise; but I know, I hear it all the time, “Phil, I am getting older and walking up the stairs may become difficult.”
But I say to everyone, age is just a number and if you don’t use it, you will lose it! Free exercise is Free and walking up staircases is great cardio, for those who can and if you have children and packages, or if you have physical ailments, I get it, an elevator is a G_D send, so I there are always exceptions.
But we all need to do our best to stay in excellent physical and mental condition for the later years, so we can all enjoy and reap the benefits of our free time and money, if you have save enough!
Yes, I can get off on a tangent. But, back to co-ops and their approval process. I am a member of the condo and co-op Council, which was started by (Stuart Hochron, many years ago, who has since retired to Florida) because I am the manager of the Bond Plaza Condominiums Inc. at 7 Bond St. in Great Neck.
I have learned some extremely pertinent and valuable information over the years by being part of this valuable organization, which really helps all of us board members navigate all the intricacies of managing and maintaining our buildings and keeping the cost of repairs and managing within a reasonable level.
By managing a building properly and watching all the costs and being proactive in keeping the physical infrastructure in top notch condition, this in turn increases everyone’s value, especially in today’s, hot, hot real estate market.
Anyone, who is part of a co-op or condo that would want to join, may call me to answer any of your questions or for an application to join this great group of concerned and caring individuals, who volunteer their time to add to the quality of life in their prospective buildings and developments.
However, I have thought hard and long about a few things that I would like to share with my readers, especially those that are on the boards, to potentially aid in making the buying process more simplified and seamless and not discourage those that have the qualifications or concerns when buying co-ops.
Unfortunately, the general perception and what the crowd has been conditioned to believe and put out there, either from bad experiences or from other false and misleading information, that the coop process is tedious and difficult and that you really don’t own the property.
Yes, you do own the stock, (not the physical property, like a Condo or home) once your mortgage is satisfied, no different than owning stock in a company and of course you can generally sell whenever you want without penalty. However, some co-ops do have flip taxes or what I call “replenishments” of the general reserve fund, to keep their bank accounts healthy, in the event of a major issue or capital improvement.
These include lobby and floors renovation, window, roof, elevator replacements, driveway resurfacing, heating or electrical, etc.
However, like I have done several times, we do assessments, or one time increases to pay for whatever, we need to have done, without raising the monthly Common or maintenance charges.
Our building has not had a common charge increase since I have been managing it going on 11 years.
However, we do have a small percentage charged based on the sale price of any Condo unit, paid by the seller that goes into the reserve account for those “rainy day” emergencies and a $350 application fee to the purchaser or renter.
We have found this to be a very fair system and everyone has benefited, because our common charges have been stable for so many years, while we are saving for the future. Many buyers are always asking me, why are there so many fees charged by so many co-ops; where I have seen $1,000 application fees to the public, which I feel is a lot, but then again, I do not know all the details, but each management company and their boards are the determiners of what charges are conveyed to the potential purchasers.
But more important, are the methods that boards use to approve or disapprove a buyer or buyer(s), which is information that is not generally provided to the buyers.
However, a lot of time would be saved, if the management in conjunction with their boards, had a consistent and simplified system, that we as brokers and salespeople as well as the public could go by, like they do in Queens and New York City, where you know how many times the maintenance plus a percentage of the mortgage will equal the minimum weekly or monthly income required.
Some have a minimum of $50,000 for a one bedroom, $75,000 for a 2 bedroom and debt to income ratios cannot exceed more than 33 percent, but then again some buildings may have a more strict policy and have a debt/income ratio as low as 27 percent.
This is more restrictive, but at least the public and us, as brokers and agents, won’t waste our time and effort with those that are not qualified in meeting the specific requirements of each co-op development.
When everyone is on the same page, the process can be made so much easier and potentially streamlined and seamless. This in turn will save a lot of time, with turn downs, lost management and co-op board time.
It will also eliminate those that are borderline buyers and not waste their time and money on trying to get past the coop boards; but allow them to work on increasing their credit scores, lower their debt/income ratios and save more for their down payment, as needed. Also, I feel quite comfortable with maximum 80 percent financing, but 90 percent should be allowed, depending on the income and debt/income ratios. Under the new tax law, a maximum of $10,000 total (real estate, local sales and state taxes) are deductible, which most coops appear to be within.
The higher end market is taking the greatest hit, whether a home, townhome or condo or co-op whose homeowner association, condo or co-op fees that are deductible exceed the limit.
Transparency in this situation, could be a real positive and in the long run putting a more positive face on purchasing co-ops; a win/win environment for everyone involved in the transaction.
Co-op boards should work on a solid plan and involve us realtors to assist them, so more individuals and couples will have a better idea of what is expected to pass the co-op approval process and in turn eliminate those that don’t, right in the beginning, without filling out a single piece of paper or spend money foolishly.
If you have an opinion on this, please feel free to send an op-ed to the editor or drop me an email or a call.
Phil Raices is the owner/broker of Turn Key Real Estate at 7 Bond St. in Great Neck. He has earned the designations as a graduate of the Realtor Institute and is a certified international property specialist. He can be reached by email:Phil@TurnKeyRealEstate.Com or by cell (516) 647-4289 to answer any of your questions or article suggestions or provide you a free comparative market analysis on your property.
