Cooperatives (”co-ops”) are not a new concept for New Yorkers, but many first-time buyers and out-of-towners are unfamiliar with this type of ownership.
In New York City, about 75-80% of apartments available for purchase are in cooperative buildings, while 20-25% are in condominiums or townhouses. This means that there is more inventory to choose from if a buyer includes co-ops in the mix of properties in which they are interested.
Typically, prices are more favorable for cooperatives, due to the fact that they are generally older, have fewer amenities (typically), and may carry an underlying mortgage. Also, co-ops may often limit financing to 75% or even 50% of the purchase price.
Cooperative buildings are owned by an apartment corporation. Individual tenants do not actually “own” their apartments as they would in the case of “real” property. Tenants own “shares” in the corporation which entitles them to a long-term “proprietary lease.” The corporation pays the total amount of the building’s mortgage (a co-op may have an underlying mortgage on the entire building, whereas a condo must be owned outright), real estate taxes, employee salaries, and other expenses for the upkeep of the building.
The tenant-owner, or “shareholder,” pays a share of these expenses as determined by the number of shares the tenant owns in the corporation. Share amounts are usually dictated by apartment size and floor level – space on a higher floor will have more shares associated with it than its counterpart on a lower floor.
Important considerations when buying a co-op:
- Make sure that the quality of services and the security of the co-op in which you are interested meet your standards. They are unlikely to change for the better in the future.
- Each building has its own tax structure, but all New York co-ops offer tax advantages. Shareholders can typically deduct their portion of the building’s real estate taxes, portions of their monthly maintenance expense and the interest on the building’s underlying mortgage.
- Each New York cooperative determines the amount of money that may be used to finance a purchase. Some buildings require substantial down payments. Generally speaking, in Manhattan, buyers should be prepared to “put down” 20-50% of the purchase price.
- Subleasing a co-op must be approved by the Board of Directors of the co-op. Each corporation has its own rules, and they should be examined if a potential owner intends to sublet.
- Most cooperatives only accept buyers who intend to use the apartment as their primary residence. In New York City, co-ops are not for investors.
Don’t be frightened. Co-ops are the norm in New York City, not the exception.
Steps to purchasing an co-op in New York City
- Offers are made verbally in New York City. When you have found the right New York co-op, your agent will convey your offer to either the seller’s agent or to the seller directly.
- The seller may “counter” your offer thereby beginning the negotiation process in which both parties agree upon price, terms, and closing date.
- All deals for New York City co-ops require a real estate attorney. Your real estate agent can assist you in finding experienced attorneys. The seller’s attorney will begin preparing a contract of sale, during which time your attorney will begin to examine the financial condition of the building in which you wish to purchase.
- After concluding that the building’s financial condition is satisfactory, and the contract of sale and by-laws of the building are acceptable, your attorney will allow you to sign the contract. At that time you will typically be required to present a deposit of 10% of the purchase price. The contract plus the deposit will then be forwarded to the seller for signature. The deposit will be held in the seller’s attorney’s escrow account until closing. Until the contract has been delivered and signed by all parties, the seller can still entertain and accept other offers.
- If you are financing your purchase, you should move forward with your loan application. Your real estate agent can assist you in finding a mortgage broker. We advise our clients to pre-qualify for a mortgage at the outset of their housing search.
- By now, you will have received from your real estate agent the co-op board requirements and application materials. You will need to complete all of the required materials which typically include: an application, a financial statement signed by a CPA, all requisite support for your financial statement, three years of tax returns, bank statements, letters of personal and financial reference, letters of professional reference, the contract of sale, bank documents indicating that your loan is in place (if financing), etc.
- When your “package” is finished, your agent will forward it to the Managing Agent. Once the Managing Agent determines that your application is complete and all credit checks are approved, your package will be forwarded to the Board of Directors. Managing Agents will generally not accept applications unless the application is complete.
- If your application meets initial approval, you will be invited to be interviewed by the co-op Board or by an interviewing committee. This is a serious matter and should be treated as a formal business meeting. Your application will be reviewed, and if all required materials are included and in order, an approval is typically granted. The entire process for a New York City co-op cooperative process quite involved and may take much longer than 60 to 90 days.
- After Board approval, begin planning your closing.