Which Would YOU Choose?
Each year, the price per square foot difference between new condominium and prewar co-operative apartments continues to grow. Co-ops now sell for almost 20% less than their condominium cousins. While some of this value difference can be attributed to the move-in readiness of the condos, an increasingly significant issue is the ease of buying and renovating which condos provide. At the heart of this issue sits the often irresponsible behavior of the Boards of Directors which govern life within co-op buildings. Many of these co-op Board rules grow more Draconian with the passing years, at precisely the time when, to maintain shareholder value, they should become more flexible. Resolving this dilemma involves answering two simple questions:
1. What are the parameters within which Boards should determine the suitability of prospective purchasers and their renovation plans, and
2. What is the time frame for making these decisions?
Several recent experiences within my own office shed light on the details which can illuminate these issues. In several recent instances, buyers have waited months after the submission of their Board package to be called for an interview. Even when the Board has no additional questions about the package, they can claim that it took that long to get the group together. And for us as agents, there is no expediting the process. In cases like this, the delays may cause the seller to lose a home they wish to purchase, or the buyer to lose their mortgage commitment or rate lock. Assembling an interview Committee meeting just need not be a 60 or 75 day process!
Another time, the Board of a Park Avenue building turned down one of our buyers not because he had inadequate income, or inadequate assets, or poor social references, but because the Board thought the investments made by the prospective buyer, who was a professional investor with a long history of success, were “inappropriately risky for a man his age.” Really?
I hate to even mention the interview at which one of the Board members asked the buyers if they were “the sort of Jews who walk upstairs on Saturdays” before turning them down. (Many Board members are not aware that, even though co-ops are private organizations, they are still subject to Fair Housing laws.) Or the time a Board member threw away the buyer’s tax returns in a cheap garbage bag which ripped and sent his tax returns cascading down the street. Or the restrictive rules which can make doing renovations in a co-op a nightmare, with extremely limited hours (10-3 is not unusual), summer work rules, and enormous penalties as high as $3500 per diem if the work extends past the building’s 4 or 6 month limit.
I understand, as a former Board President for my own co-op, that the Board, when considering both prospective purchasers and renovation applications, must contemplate both the well being of the entire building and the needs of the shareholder whose property is being offered for sale. But I do believe that, in the interests of fairness and transparency to all parties, some guidelines for Boards in making these decisions are in order. Here are some which I would suggest:
• Set a limit of two weeks for Board package review. Make only one subsequent request, if necessary, for any additional information required. Then allow one more week after the delivery of the additional material before either setting a meeting date or declining the purchaser’s application
• Only ask for the needed information. Every Board member does not need to receive three years of complete tax returns. Many will never look beyond the first two pages
• Make a judgement about the buyer’s financial suitability based on a realistic assessment of her ability to make the purchase and support the monthly payments. Avoid prejudice against inherited rather than earned wealth (yes, it’s not unusual) or investment vehicles which, while perfectly sound, the Board members might not themselves select.
• Since most prewar co-ops contain larger apartments, make allowances which permit solid young families to move in. That’s who these homes were built to accommodate.
• Create Alteration Agreements which are fair to both the other residents of the building and the tenant shareholder doing the renovation. Renovated properties are good for the building; they both upgrade the infrastructure and increase property values. Concern from buyers about renovation issues in co-ops is one of the primary buyer concerns which driving co-op values lower.
• No seller lets his apartment go for less than the highest price he can achieve in a particular market. To have a Board decline a sale under these circumstances because they feel a price is too low is unseemly. If the Board is concerned about value, let the Board retain an independent appraiser to offer a value. If the appraiser determines that the price is way too low, then let the seller know and ask him to pay for the appraisal. Otherwise, accept that the market might not support the values the Board hopes for, approve the deal, and move on.
These may seem like aggressive suggestions. However I, like many of my colleagues, feel concerned about the decreasing values and lengthening times on market which overly aggressive Board policies can inflict on co-op sales. A re-examination of these policies is in order.