Manhattan’s owned units are comprised of approximately 80% cooperatives, 20% condominiums with a smattering of condops (discussed in a later post). While the purchase of a New York condominium is conveyed via a real estate deed (like home ownership), coop buyers purchase shares of a corporation with a pro-rata interest and an underlying proprietary lease designating the right to occupy a particular unit. As an international marketplace, the demand for the flexibility of condo ownership outstrips that for coop ownership. Consequently, condos, with scarcer supply, sell at a premium with higher price per square foot as compared to coops. The more abundant coops can provide a good value to those owners who require lesser flexibility such as subletting and can meet coop boards’ financial (and other) requirements.
Coop building are governed by elected shareholders who set rules, policies and bylaws under which the coop is operated. The rules of a Coop Board are designed to approve prospective owners who “fit in” and the financial guidelines are established to mitigate risk of defaulting coop owners. No encumbent coop owner wants to carry the maintenance costs of a fellow coop owner unable to cover his share of coop expenses.
Coop board rules include financial and other requirements for prospective buyers. Financial requirements vary from coop to coop and generally pertain to:
* % downpayment required (or % financing allowed)
* Buyer’s salary as a multiple of housing expenses (i.e. maximum debt : income ratio)
* Buyer’s liquid assets after closing.
Most coops will require that the buyer earns in salary at least four times their housing expenses (maintenance plus mortgage expense). For example. If maintenance plus mortgage of the buyer’s prospective coop is $5000 per month, then $5000 x 4 = $20,000 / month x 12 months = $240,000 annual income. If the coop buyer owns more than one residence, then the buyer must earn four times the total amount of all housing expenses. If a coop buyer owns an apartment he or she intends to sell, the coop board will still look for 4X the total housing expenses until the other apartment is sold. A prospective buyer should present a signed contract for the existing home if possible.
When evaluating salary, coop boards may take into consideration a buyer’s financial prospects: is the buyer at the beginning of a lucrative career or he is near retirement age with salary likely to cease in a few years.
Since heretofore self employment was considered more risky than salaried employment, coops have traditionally looked more closely at the financials of self employed buyers and may require additional years of tax returns or additional liquidity.
Some coop boards will permit guarantors or co-signers for prospective coop purchasers. Nearly all coops require that the purchaser be employed, not of student status.
LIQUID ASSETS AFTER CLOSING
In addition to income, coop boards will assess a buyer’s liquid assets after downpayment and closing costs (e.g. mansion tax, flip tax, state and city transfer taxes if not paid by the seller, attorney fees, etc). On the liberal side, a coop board will want to see 12 months of housing costs in liquid assets — eg If a buyer’s housing costs are $5000/month, then $5000 x 12 = $60,000 in liquid assets after closing. It’s not unusual for a board to want three years of liquid assets. A tough board (many Fifth Avenue and Park Avenue coops) that requires all cash (no financing allowed) may require two to three times the purchase price in liquid assets. In general, the “tougher” a coop is with respect to cash downpayment required, the more that coop will expect to see in liquid assets.
* Liquid assets include:
* Money market accounts
* Stocks/mutual funds
* Short term Certificates of Deposit
Liquid assets do not include:
* Real estate holdings
* Retirement funds
OTHER COOP BOARD REQUIREMENTS
In addition to financial requirements, coop boards will require the board package to include:
* Employment letter or CPA letter if self employed
* Two to three most recent pay stubs
* Last two to three years of tax returns
* Bank and brokerage statements for all accounts
* Two to three business and personal reference letters.
* Contract of Sale for prospective coop
* Loan Commitment Letter & Aztec forms
* Certified Checks for coop processing, move in deposits, etc
Sellers want to ensure that their prospective buyers will pass the coop board, so it is standard practice for the seller’s listing broker to require buyers submit a signed Real Estate Board of New York (REBNY) Financial Statement along with their offer. The Financial Statement is a summary of the buyer’s income and net worth. Most sellers will not counter a buyer’s offer without a Financial Statement in hand.
Since they were built many years ago, coops are generally located in desirable locations near transportation and parks. Coops can represent a good value for money, but coop buyers should take care to present their best foot forward. First impressions count, both with respect to the presentation of financials, reference letters and board interview. There are no re-dos with coops.