Coop Sales Statistics May Be Inflated

David Goldsmith

All Powerful Moderator
Staff member
With more of these deals being recorded with off-contract terms/discounts/givebacks the statistics we're seeing based on recorded sales prices may not accurately reflect the market.
https://therealdeal.com/

That co-op sale price may be fake: Scheme emerges as market cools​

Dollar figures inflated so boards won’t reject deals
What should have been an easy sale on the Upper East Side has turned into a year-long ordeal for a veteran Corcoran broker.
The broker, who requested anonymity for fear of retribution from the building’s co-op board, had a unit at Emery Towers in contract within a month of its listing last spring, only for the buyer to be rejected by the co-op board despite good financials and being well-liked by the board.

The broker relisted the unit and soon landed another buyer, only to have the same thing happen.
Months of confusion finally came to an end when the explanation came trickling through the grapevine: The co-op board deemed the price too low.

“Now we’re going back at it, and we’re pretty much being up front with the buyers,” said the broker. “We’re probably going to have to gross up the price a little bit to satisfy all the owners.”
Co-op boards can veto buyers without having to provide a shred of reasoning, and sometimes do so when they feel a pending sale would devalue the building.
As buyers’ interest in co-ops wanes, what happened at Emery Towers appears to be a growing problem, residential agents say.

Compass’ Vickey Barron (Compass)
“People on the board don’t like when sales go really low in a building because they own shares in a corporation, so it’s like lowering the stock,” said Compass broker Vickey Barron. “If a stock goes really low, every member who owns the stock is getting hurt.”

But some boards use a work-around to show the world a higher price than the buyer actually pays.
It works like this: The board makes its expected sale price known, and if buyers are not willing to pay it, the seller offers various credits to make up the difference. Aside from the lender, if there is one, nobody outside the deal knows concessions were given, let alone what they were worth.
Offering hidden concessions to close a deal isn’t necessarily unethical, but according to brokers and attorneys, the devil is in the details.
A seller covering closing costs or paying the transfer tax, as condominium developers often do, is widely seen as acceptable. But when co-op boards compel the use of rebates or credits that reach a certain level — particularly when they exceed 3 percent of the price — attorneys and brokers get squeamish.
Critics say excessive credits throw off future comps, leading buyers to overpay based on the listed price of past sales in a building.

Let’s start with the fact that this is fundamentally dishonest.

FREDERICK WARBURG PETERS
The practice also adds another layer of complexity for brokers navigating an already lengthy and opaque co-op application process.
“There are certain lawyers that say you can’t do it, or shouldn’t do it,” said Shaun Pappas, a real estate attorney at Starr Associates. “Certain lawyers say 3 to 5 percent wiggle room, some lawyers say you can do more than that. I haven’t seen much authority written on it either way.”
Tax issues also come into play. Transfer taxes, capital gains taxes and flip taxes are all based on the sticker price, not the actual price, so agreeing to a higher price in exchange for concessions can have unexpected consequences for buyers when they later sell.
Beyond that, some notable names in the industry oppose the practice on moral grounds.

“In theory, we were all raised to do business in an above-board manner,” said Frederick Warburg Peters, president of the brokerage Coldwell Banker Warburg. “Let’s start with the fact that this is fundamentally dishonest.”
Peters said he knows of deals where concessions exceeded 10 percent of the sale price, though he declined to provide specific examples.
“It’s almost always in the hundreds of thousands of dollars,” said Peters. “It’s phantom money.”

The broker in the Emery Towers transaction perceives no choice but to inflate the price to get a deal done.
“We’re basically remarketing the property after a second turn-down, but we know whatever price we settle at, we’re going to be adding 6 percent to it,” the broker said.
That will most likely be more than $100,000, considering the price mandated by the board.
Tracing the history, frequency and scope of the practice is all but impossible. The New York Times wrote about it in 2012. Peters said he noted an uptick when the market cooled recently and also in early 2020, when the pandemic hit.
The practice appears relatively common, though by all accounts it occurs in a minority of deals.

“We’ve all had that experience, but it’s never put in writing, ever,” said Barron, the Compass broker.
Boards that engage in the practice include those at The Sovereign at 425 East 58th Street and The Imperial at 55 East 76th Street, according to agents who work in those buildings. One with a history of business at The Sovereign said its board will stretch a price, but not beyond a certain point.
“I know it exists but I know for a fact the board doesn’t like it,” said the broker. “They don’t like the way it looks.”
Some see concessions as a clever way to close deals in a tough market.
“To me it’s just another weapon in your toolbelt when it comes to negotiations,” said Mike Fabbri, a Nest Seekers broker.

The Real Estate Board of New York declined to weigh in. “REBNY does not regulate co-op pricing and negotiations,” a spokesperson said.
Co-op boards’ ability to set minimum prices stems from their unchecked authority to reject buyers — a power that has come under fire in recent years. Bills were introduced in the City Council in February and in Albany two years ago that would require boards to provide a rationale for rejections. Past attempts have been defeated by co-op boards and their lobbyists.
The issue riled up attendees at the recent annual meeting of the Council of New York Cooperatives and Condominiums, an advocacy group for building board members.
“We’ve been battling this stuff for 40 years but it doesn’t let up. They’re out to get us,” said group president Marc Luxemburg, who accused brokers of conspiring against co-op boards to boost sales. “I’m sorry, it’s a fact: The principal interest group that’s pushing all of this is the real estate brokers, but it doesn’t come out in the public debate. That’s what it’s really all about.”

 

David Goldsmith

All Powerful Moderator
Staff member
It certainly doesn't seem like it's the brokers.

“Held hostage” by “price-fixing,” owners sue their co-op​

Couple alleges buyers were rejected because board deemed sale price too low

Two residents allege they’re being “held hostage” in their Lower East Side co-op by a “price fixing” scheme.
Eleanor Stromberg and Douglas Price, 22-year residents of 577 Grand Street, twice had sales of their unit fall through. Now they have filed a lawsuit against their co-op, co-op board and board vice president Shulie Wollman, alleging the board is demanding the couple get an unreasonably high price.

The elderly couple want to move somewhere where Price’s health care needs can be more readily met, according to their lawyer, Lee Bergstein, but the board has “eradicated” the market for their home.
“What’s happening in the building, it’s just not right,” said Bergstein.

A first buyer offered $520,000 for Stromberg’s unit, in line with comparable sales, which ranged from $514,500 to $528,000, and the unit’s $525,000 appraisal.
The lawsuit claims the board rejected the application without following its bylaws and told Stromberg’s broker the deal had been rejected because of the “low” purchase price.
The buyer agreed to a second contract for $540,000, only for the board to allegedly deny the deal again, at which point the broker was informed the board wouldn’t accept anything under $600,000 — 15 percent more than the appraised value.
When Stromberg and Price asked Wollman about the denial, he allegedly told them they should be happy about the policy because they would get more money for their apartment.
But the unit languished on the market for a year after the second rejection, leading the owners to believe they wouldn’t be able to find a buyer at $600,000.

In April, they found a buyer willing to pay $620,000 in exchange for $100,000 in sellers’ concessions, according to Bergstein.
The board rejected that deal too, which Bergstein said appears to be retaliation against his clients for suing — and that the board won’t approve any deal until the complaint is dropped.
Wollman, who is also an executive for the company that manages the building, did not return a request for comment.
Sellers’ concessions are a tool brokers use to close deals when co-op boards set above-market minimum prices, a common practice in New York City to support higher pricing for future sales in a building. To compensate buyers for paying an inflated sticker price, sellers give rebates and credits or assume tax burdens they otherwise wouldn’t pay.

The puffed-up price is then recorded in city records.

“This is not a multimillion dollar lawsuit but we feel it’s an important one.”
LEE BERGSTEIN, ATTORNEY
Critics say the practice unduly burdens sellers and throws off future comps at a time when interest in co-ops is waning to begin with.
The chicanery is possible because co-op boards can deny buyers for any reason without explanation. Brokers say boards are usually coy when they make it known the rejection was because of the price.
“We’ve all had that experience, but it’s never put in writing, ever,” Compass broker Vickey Barron previously told The Real Deal.
According to the lawsuit, the board at 577 Grand Street made that very mistake.

Besides telling Stromberg and Price why the board rejected their first two contracts, the board has told several other shareholders in the building a similar story about their rejections, including in denial emails in which they cited the “proposed sale price of the apartment,” the lawsuit claims.
“The board has rejected seven packages based on numbers. …It’s not being rejected based on the person, it’s based on the numbers,” Wollman allegedly told a different shareholder, according to the complaint.
Elliot Caplan, assistant general manager and manager of sales for the management firm, told the same shareholder that “the board decided at its last meeting that it’s no longer going to accept the lower prices on the apartments, despite what the market says. … They decided that they want to hold out and they’re going to … push and insist on the prices being higher,” according to the suit.
Bergstein said he’s optimistic about the lawsuit’s chances, citing previous case rulings in New York that found that setting a minimum price for a unit is an unreasonable restraint on shareholders.
“This is not a multimillion dollar lawsuit but we feel it’s an important one,” said Bergstein. “Our hope is this suit will be productive for other shareholders in the building facing similar situations.”

 

nicolebeauchamp

Well-known member

Is anyone else finding more and more of the "credits" ...as we navigate the murky waters (see above, not sharing because I'm quoted...but this also came up in our most recent NYRS Halftime Roundtable as well)....

Nikki
 

David Goldsmith

All Powerful Moderator
Staff member
I think that in a market where many are in denial about the state of the market, this is to be expected. Unfortunately, it clouds the actual state of the market and leads to further denial of reality. And just like RESPA, which came about because a Senator's daughter didn't understand their closing statement, I feel there should be some accountability to disclose reality rather than the smoke and mirrors status quo.
 

nicolebeauchamp

Well-known member
This goes far beyond denial about the state of the market...
 
Top