The Board of Directors (BOD) can continuously turn down the potential buyer for any reason they can conjure up. If you price your apartment too low, the board will not be happy and deny the applicant. Another reason for rejection can be employment history. The BODs want buyers with job stability and it is not uncommon for prospective buyers with sufficient assets to be turned down because they changed jobs every few years. Have a good income and many assets but a poor credit history? The BOD is unlikely to accept your application. A good broker will examine a client’s financial history to make sure there are no red flags that attract a rejection by the BOD.
Some BODs will accept a pied-a-terre while others look at the concept on a case-by-case basis; some BODs will not consider the idea for a New York minute. The broker should have a clear understanding of the rules of a prospective building before moving forward with an offer from the buyer.
If the potential buyer requires a guarantor, it is iffy that the BOD will accept the arrangement and the BODs are likely to require a few years of tax returns as well as verification of income and assets. Some coops will accept high-profile public figures, while others do not want attention given to their building and are concerned with shareholders who may disturb their peace, quiet and security.
Most BODs no longer object to shareholders who work in their apartments, as long as their occupations do not involve a revolving door of clients, creating traffic in the lobbies and backyard barbecues.
A writer might be OK, a psychotherapist may be rejected and a recording artist will definitely not find acceptance. The building may not be pet friendly; even if pets are permitted, there are likely to be limitations on the size, the number of dogs, or the breed. In some building, Pit Bulls, Mastiffs and Rottweilers are not permitted while others will not permit a dog over 50 pounds.
Although the Board package may be complete, and an interview scheduled, the BOD may continue to request documents for clarification, a preconditioned escrow deposit, or a change in the mortgage product. If the buyer is unable or unwilling to agree to the supplementary demands it is likely the BOD will reject the applicant.
A frequent request by BODs is one to three years of maintenance in escrow. If the board believes that the prospective buyer does not have sufficiently strong financials, the board may decide to approve the purchase only if the buyer agrees to the demand for maintenance to be placed into an escrow account. After the resident has a history of meeting financial obligations, the escrow account will be dissolved and the funds returned. If the maintenance request is not agreed to, the individual will be rejected.
The buyer could be rejected for interviewing poorly. Perhaps the applicant was late or dresses inappropriately or asked questions to the board they considered inappropriate (i.e., subletting policy, installing a children’s playroom). Requests for changes should wait until the applicant is comfortably living in their new home.
When a buyer is finally approved, be prepared to pay a flip tax to the BOD. This is a fee paid to the building when you sell and cannot be avoided. Every time someone sells, the flip tax gets deposited into the building’s bank account and shareholders partially own that account. Flip tax incomes may assist in the lowering of maintenance fees. A common flip tax is 2 percent of the sale price.
© Dr. Elinor Garely. This copyright article, including photos, may not be reproduced without written permission from the author.
The Series:
Part 1. New York City: Nice place to visit but… Really want to live here?
Part 2. Co-ops in Crises
Part 3. SELLING A CO-OP? GOOD LUCK!
Coming up:
Part 4. WHERE YOUR MONEY GOES
Part 5. BEFORE DIGGING THE MONEY PIT
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