What Co-op Boards Look For
A: In the world of Manhattan real estate, co-ops occupy about 75% of the city's building population. Because you are buying shares in a corporation and not real property (you have to buy a condo if you want real property), and the building is governed by elected shareholders who set rules and policies by which the building is run, the value is less than that of condos. When potential buyers think about a co-op board interview they usually think of something painful and irritating, like getting a root canal. Since I just had 2 root canals last week, let me be the first to tell you that it is NOT AS BAD AS YOU THINK! If you are considering buying a co-op in New York City, here is what the board will probably look for.
New York City Co-op boards differ from building to building making it very difficult for me to describe one formula for passing the review and interview. So, here are a few guidelines that you may want to check yourself against to see if you are at least a good candidate.
NOTE: The seller's broker is in charge of pre-qualifying prospective buyers for their client so that only passable buyers are negotiated with. This is why you are asked for a financial anaylsis when submitting a bid. The seller broker will contact the building's managing agent to find out exactly what the co-op board guidelines are, and what they like to see in new buyers. Therefore it is extremely important for you to ASK THE SELLER BROKER beforehand what the co-op board is looking for in 2 general financial categories: Salary & Liquid Assets After Closing
SALARY
OK, first off you pretty much have to have a job. If you are self-employed it gets a bit trickier as there is minimal or no job security (yet not impossible; you just might need to submit an extra year of tax returns and provide a letter from your accountant backing up your income).
Assuming your employed, most co-op boards are going to want to see that you are making at least 4X your total monthly expenses in annual salary keeping your debt/income ratio under 25%. A quick example would be if your total monthly expenses will be close to $4,000, then the board will want to see combined annual income close to $190,000 (4 x $4,000 = $16,000 x 12 = $192,000).
Now its not set in stone that you need to make this much as some co-op boards will allow up to 33% debt/income ratio which would mean that you need to make at least 3X your total monthly living costs per month; but its a good idea to be more financially able than less.
QUICK TIP: If you do not meet this salary requirement, find out if the co-op board will accept guarantors to help back you up. If not, then consider getting a tax-free gift from a family memeber, if possible. But make sure you get these funds into your account as soon as possible so that the deposit clears and produces a mailed statement that has the funds in your account but not the deposit listed. If deposit is listed, get an accountant gift letter to submit with the board package.
LIQUID ASSETS
Another requirement that is hard to generalize is how much liquid assets you will need AFTER CLOSING COSTS to satisfy the co-op board. Nobody cares how much liquid assets you have BEFORE you close. Rather, what you need to show is that you have money leftover in liquid accounts after you pay the down payment and closing costs to do this deal.
Liquid assets include:
IF YOU ARE SELLING & UPGRADING: If you are currently selling your property, yet found a place to buy first and want to use your existing home as an asset, fine. However, yor current mortgage will be considered a liability and many co-op boards will want to see a SIGNED CONTRACT for your existing home sent in with the board package so that they know the home is on its way to being sold, and the profit on its way to your bank account!
Generally speaking, the co-op board will want to see at least 12 Months of total living expenses in liquid assets AFTER closing. For example, using the same #'s as above with a $4,000 total monthly living expense, the board will want to see at least $48,000 (12 x $4,000) in liquid assets AFTER you pay your down payment and closing costs!
Some stricter co-op boards will use a percentage of the deal as a requirement for liquid assets expected after closing. For example, my current exclusive at 49 East 96th Street requires that the buyer have at least 25% of the purchase price in liquid assets after closing.
QUICK TIP: Check the MAX FINANCING requirement that is listed on the property webad as a quick guide to the building's co-op strictness. If the co-op requires MORE THAN 20% down, than chances are they are more strict in other requirements as well (salary & liquid assets). The more over 20% that is required, the more strict the co-op board probably is in their requirements for new shareholders. A co-op board that asks for 50% down will probably want to see a siginificant amount of liquid assets & salary to pass the board!
OTHER ITEMS YOU WILL NEED TO PROVIDE
The 2 most important requirements are your salary and liquid assets because the co-op board will want to see that you can actually afford the property you are trying to buy. If you are buying too much house, than you are a threat in defaulting on maintenance payments (which will result in the other shareholders picking up the tab on your behalf) and/or selling the property soonafter the purchase and with a time pressure (having the sale pressured means not getting top dollar making the rest of the units in the building less valuable for future marketing than they otherwise might be).
Besides these 2 big guys, the co-op board package will ask you to provide:
UrbanDigs Says: Buying a co-op will get you more bang for your buck, no question. But keep in mind that you will have a process to go through to buy it which means you will have to go through this same process when you go and resell the property. Also, you will be restricted on policies such as subletting, pied-e-terre's, parents buying for kids, etc..On the same token, if you buy in a strict co-op that requires 50% or more down and tons of liquid assets than don't be surprised if you experience longer time on market when you go to resell as your buyer pool you are marketing to will be limited. When buying in a co-op like this, you should go into the deal educated on these issues and buy for the long term that is a place you see yourself living in or raising a family in for some time!
Good Luck!
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Comments (6)
I guess it's harder to write about since they vary, but I'm surprised you didn't bring up the intangibles that boards are looking for. It depends on the neighborhood, but I've bought a couple places in the East Village and in addition to the financial aspects, they were often intensely interested in my overall outlook on the East Village and committment to it. As someone who loves the neighborhood, I had no problems but had I been someone less keen, I could have run into problems with these boards -- maybe even been tossed out as a buyer if I had been some bored Wall Street type or whatever. I suppose similar things happen on the UES where they may be looking for someone older, more staid,
Posted by Bing | November 20, 2006 10:30 AM
Beautiful post Noah! Incredibly informative and helpful for prospective co op buyers.
Posted by Douglas Heddings | November 20, 2006 11:04 AM
Bing - Great point! No I didnt include this in the post because I tried to cover only the things that 90%+ of co-ops will look for. Like you said, every board is different and varies depending on so many issues.
But should a board go this far and look that the new shareholder is interested in the outlook of the specific neighborhood, I think I, as a buyer, would be impressed and happy that the building I bought into has such a focused interest on bettering the location.
Douglas - Good to see you here and thanks for the comment!
Posted by Noah | November 20, 2006 2:03 PM
Thanks very much for your helpful commentary.
We are looking at 5th and Park Avenue coops in the ~$3M category, with 50% financing allowances. What kind of liquidity and salary allowances should we be expecting? With typically $3,500 in maintenance and 50% down, our total monthly cost would be ~$13,000.
Posted by Scott | January 15, 2007 5:49 PM
after 7 months of answering all that was asked of a coop board we became ill stress and just sick over what a board was requesting of us. i would love to speak to u about what a horrible experience i have been throu with a nyc board. please leave a# i can call linda
Posted by linda | April 25, 2007 9:36 AM
I ran into another interesting requirement. My parents are backing me up on the purchase as guarantors. I found out last minute, after the board package was complete that the board requires that both my parents and I must be on the mortgage note, although I was qualified by the bank and got a commitment letter with no issues. This is something to ask about before signing the contract.
Posted by freemaugli | March 3, 2008 6:15 PM