Everything You Need To Know About Buying A Co-Op in New York City
The New York City real estate market is known for its excitement and dynamism and part of the reason for this is its unique co-op market. Applying for and living in co-ops vary greatly from normal real estate transactions, making it a complex process.
As co-ops make up for 75% of New York City’s apartment buildings, its important that buyers understand how to navigate the co-op world. This article will cover everything you need to know about buying a co-op in New York City, from being approved to making an offer.
What is a co-op in New York City?
A co-op (short for ‘cooperative’) refers to apartments where you are actually buying shares in a corporation that owns a building. When you buy a co-op, you occupy one specific apartment, but you are technically purchasing shares in a company.
Should I buy a co-op in New York City?
Making the decision to buy a co-op in New York City is not for everyone, as the process can be a bit difficult in comparison to other types of apartment sales. However, co-ops do offer buyers some benefits that condos do not. Let’s go through the pros and cons of buying a co-op.
Cons of Buying A Co-Op
One of the major drawbacks of buying a co-op is the arduous board approval process. Typically co-op boards will require potential buyers to submit a substantial amount of paperwork. In addition, there really isn’t much room for negotiating with the board, meaning you’ll have to comply with their requests if you want to be approved.
Another downside of buying a co-op is the limitations on subletting your apartment. Many co-op boards prohibit residents from subletting their apartment or require board approval for each sublet. Often, shareholders must first reside in their co-op for a period of time and then are able to sublet their unit.
Pros of Buying A Co-Op
Despite the often difficult process of being approved for a co-op, co-ops do offer buyers substantial benefits, the most significant being their lower prices. On average, co-ops typically cost 20-30% less than condos.
Co-ops cost less due to their stringent requirements that result in a smaller buyer pool and their flip taxes. A flip tax is a fee that co-op owners are required to pay to the building when they sell their apartment. While this may sound like a con of owning a co-op, it is actually a plus for long-time co-op owners as it results in lower maintenance fees.
Another major benefit of buying a co-op in New York City is the security it offers. Because most co-op applications require a background check, you can be pretty certain that the residents of your building are upstanding.
Co-op Maintenance Fees
Different from condo monthly fees, a co-op’s maintenance fee includes both the property taxes and common charges in one amount. Common charges cover everything required to run the building, from paying the doormen, to cleaning the hallways, to taking out the garbage, and more.
What is an assessment?
Every co-op has a reserve fund that is used to pay daily expenses. However, sometimes there is not enough money in the reserve fund to cover something that needs to be immediately fixed, like a roof leak. In this scenario, the board implements an “assessment”, which adds an additional fee to each shareholder’s monthly maintenance fee.
The Co-op Board Approval Process
Being approved by a co-op board can be broken down into 3 steps:
- Meeting the co-op’s financial requirements
- Filling out the co-op’s purchase application
- Passing the co-op board interview
Co-op Financial Requirements
Typically, co-ops require at least a 20% down payment, and some will even require an all-cash purchase. However, even if you have the cash to purchase the unit, you will need an acceptable debt-to-income ratio (“DTI”).
The “DTI” is used to measure a potential buyer’s ability to make monthly payments. To configure the “DTI”, they add up all your monthly payments and divide that by your monthly income. Usually, co-op boards require that number to be below 30%. However, if your ‘DTI’ is higher than that, some boards will allow you to pay a year or two of maintenance payments at closing instead.
The last metric co-op boards use to evaluate a potential buyer is “post-closing liquidity”, which is the number of months of payment a buyer has in cash, stocks, or other liquid assets after closing. Typically, anything that can’t be sold, such as retirement savings, or would be difficult to sell, such as real estate, is not considered. Most co-op boards in New York City require 12-24 months of post-closing liquidity.
Co-op Purchase Application
In order to be asked to interview with the co-op board, potential buyers must complete a co-op purchase application. Typically, the co-op purchase application requires:
- The completed purchase application with details of the transaction and the parties involved
- A copy of the signed sales contract
- A comprehensive financial statement with at least the most recent statement for each account listed
- 2+ personal reference letters
- 2+ professional reference letters
- A landlord reference letter
- An employment verification letter
- The last two years of full federal income tax returns
- Authorization to run a credit and background check
- Acknowledgment of the house rules
- Lead paint, bed bug, and sprinkler disclosures
- If financing, the loan application, commitment letter, and recognition agreements
- Checks for the application fee, move-in deposit, and other fees
Co-op Board Interview
Although co-op board interviews can be nervewracking for some, they are actually a good sign that you are close to being approved. If there are any significant issues concerning a potential buyer’s financials or application, they are usually addressed before the interview. To make the co-op board interview go as smoothly as possible, be sure to work with a real estate agent that has experience preparing clients for these interviews.
Although co-op board interviews can be nervewracking for some, they are actually a good sign that you are close to being approved. If there are any significant issues concerning a potential buyer’s financials or application, they are usually addressed before the interview. To make the co-op board interview go as smoothly as possible, be sure to work with a real estate agent that has experience preparing clients for these interviews.
Should I use a real estate agent to purchase a co-op?
While it may be tempting to buy a co-op without a real estate agent to avoid paying commission, it is a good idea to have one on your side. A buyer’s agent looks out for your best interests, negotiates on your behalf, and improves your chances of being approved for the co-op.
At SPiRALNY, our agents have ample experience with co-ops, making them the perfect advocate to have on your side. We focus on getting our clients the best terms and price during negotiations and ensuring they land their dream co-op in New York City. If you’re interested in working with a SPiRALNY agent to find a co-op in New York City, be sure to reach out to us.
