A cooperative (abbreviation for "cooperative") means the apartments in which you purchase shares of a corporation that owns an immovable. When you buy a cooperative, you're in a particular apartment, but you're technically buying shares in a business.
Do I have to buy a co-operative in New York?
The decision to buy a cooperative in New York does not suit everybody.
as the process may be somewhat challenging compared to other types of apartment sales. But co-ops offer buyers certain advantages that condominiums don't. Let us examine the advantages and disadvantages of buying a co-operative.
Disadvantages of the Co-op Purchase
One of the main disadvantages of purchasing a co-op is the cumbersome board approval process. As a rule, co-op boards will require a considerable amount of documentation from prospective buyers. Also, there's not a lot of room to negotiate with the board, which means you're going to have to comply if you want approval.
Another disadvantage of purchasing a cooperative is the limits to subletting your apartment. Several co-op councils forbid residents to sublet their apartments or require board approval for each sublease. Often, shareholders must first reside in their cooperative for some time before they can sublet their housing.
Advantages of acquiring a cooperative.
Despite the often-difficult process of approving a cooperative, co-operatives provide substantial benefits to buyers, the most important being their lower prices. On average, co-ops cost between 20 and 30 percent less than condominiums.
Cooperatives are cheaper because of their stringent requirements that result in a smaller pool of buyers and transfer taxes. A rollover tax is a right that co-operative owners are required to pay to the real estate when they sell their apartment. While it may seem like a scam to own a cooperative, it is a benefit to long-term homeowners as it translates into lower maintenance costs.
Another important advantage of purchasing a cooperative in New York is its safety. As most co-op applications require background checks, you can rest assured that the residents of your building are in good standing.
Expenses for the maintenance of cooperatives.
In contrast to monthly condominium fees, co-op maintenance fees include property taxes and joint fees in a single amount. The common fee covers everything necessary to operate the building, from the payment of doormen to cleaning hallways, to garbage removal, and more.
What is a Performance Appraisal?
Each cooperative has a reserve fund that is used to cover daily expenses. However, there may not be enough money in the reserve fund to cover something that needs immediate repair, such as a roof leak. In this scenario, the board of directors implements a "valuation", which adds a surcharge to the monthly maintenance costs of each shareholder.
The process of approving the co-op's board of directors.
There are three steps to approval by a co-op board:
Satisfy the co-operative's financial requirements.
Complete the cooperative purchase application.
Meet with the co-op board.
Cooperative's financial requirements.
Co-operatives generally require a down payment of at least 20% and some will even require a cash purchase. However, even if you have the liquidity to buy the unit, you will require an acceptable debt-to-income ratio ("TDI").
The "IRD" is used to measure the ability of a prospective buyer to make monthly payments. To configure the “DTI”, they add up all your monthly payments and divide that by your monthly income. Typically, co-op boards require that the percentage be less than 30%. However, if your ITD is higher than this, some advice will allow you to pay a year or two in support upon closure.
The latest indicators used by cooperative boards to assess a potential buyer are "cash flow after loss" which corresponds to the number of payment months a buyer has in cash, shares, or other liquidity after closing. Usually, anything that can't be sold, like retirement savings, or that would be hard to sell, like real estate, is not taken into consideration. Most co-op boards in New York need 12 to 24 months of liquidity after closing.
Proposal for the purchase of a cooperative.
To be invited to meet with the co-op council, prospective buyers must fill out a co-op purchase application. Usually, applying to buy a co-op requires:
The purchase request is completed with the details of the transaction and the parties concerned:
A copy of the signed purchase agreement.
A complete financial statement with at least the most current statement for each account is provided.
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, bedbug, and sprinkler disclosures.
If financing, the loan application, commitment letter, and recognition agreements.
Checks for the application fee, move-in deposit, and other fees.
Interview with the co-operative's board of directors.
While interviews with co-ops' boards can be difficult for some, they are a good sign that you are about to be approved. If there are important questions about financial statements or the request of a prospective buyer, they are usually addressed prior to the interview. For the best possible interview with the co-op's board of directors, be sure to work with a real estate agent who has experience preparing clients for these interviews.
Although interviews with co-ops' boards of directors can be challenging for some,
they're a good sign that you're in the process of being approved. If there are important questions about financial statements or the request of a prospective buyer, they are usually addressed prior to the interview. To ensure the co-op board interview runs as smoothly as possible, be sure to work with a real estate agent who is experienced in preparing clients for these interviews.
Do I have to hire a realtor to buy a cooperative?
Even though it may be tempting to buy a cooperative without a real estate agent to avoid paying a commission, it's a good idea to have one on your side. The buyer's agent looks after your interests, bargains on your behalf, and improves your chances of getting co-op approval.
InRealEstate, our agents have a vast experience in cooperatives, which makes them the ideal spokesperson for you. We strive to provide our customers with the best conditions and prices during negotiations and make sure they get their dream co-op in New York. If you would like to work with an InRealEstate agent to find a cooperative in New York, please contact us.
In our previous post: "How Seller Concessions Can Help with Closing Costs"