BUYING A CO-OP

Congratulations. You are about to buy an apartment. Now what? This purchase is both exciting and anxiety creating. Let's look at what needs to be done.

The first question you must ask is – how much can you afford? This is easier to answer than you might think. Get in touch with a mortgage broker who will pre-qualify you based on your income, assets and debt. Then the hunt is on. Should you try to buy an apartment without a real estate broker? Most apartments are listed with brokers. So if you don’t work with a broker you are missing out on prime properties. But from a financial point of view – a seller who is working without a broker is not necessarily reducing the price because there is no broker. In my experience, prices for properties with and without brokers are virtually identical. Just as you may try to buy without a broker to save money so too is the seller so you generally wind up paying the same. The bigger issue is that in my experience as an attorney, the deals that break apart are always the deals without brokers.

How do you know what you should offer? The market will tell you that. You will look at 5-10 properties (sometimes more) and get a good feel for the market. We say in our office “There are no stupid sellers and there are no stupid buyers.” People know what they should pay for an apartment. Make your offer based on what you think you should pay for it. Let’s say the apartment is listed for $350,000. You have looked around and feel it should be no more than $300,000. Make the offer. All the seller can do is say no but usually there is a counter-offer. Sometimes if your offer is so below what the seller wants then there will be no counter-offer but that is very rare. Buyers are often afraid of insulting the seller. Nonsense. This is a major purchase and you don’t have to be best friends with the seller. You just have to pay what you can afford; what the apartment is worth and the numbers you can agree upon.

One thing I have suggested many times to buyers – speak to the neighbors to ask whether the building is maintained well; is there sufficient heat in the winter; is there anything bad about the building. Just be a little discreet as you may be asking one of the members of the Board of Directors who will ultimately have to pass on your application. If you are buying on the top floor – ask about leaks and about a hot apartment in the summer. You might also speak to the super or the doorman. Don’t be shy but don’t be too aggressive. You are asking for information – it is not an inquisition.

What apartment should you buy? You should buy the apartment that when you walk in the door you say “This is it.” You should not try to convince yourself that it is acceptable. You are spending too much money for that. Let it sing to you and you will happy with it.

If you have only seen the apartment at night then go during the day also. Check out the neighborhood.

Now you have made the offer; it has been accepted and you need to do certain things. Get an attorney.

There are some fundamentals in buying a new apartment including having your attorney review the financial statements of the building, the offering plan and the minutes of the Board of Directors. The minutes of the meetings of the Board of Directors are always reviewed in Manhattan co-ops and rarely reviewed in Riverdale or Kingsbridge. Some buildings do not allow non-shareholders to review the minutes. Having your attorney review the last two years of the financials of the building is very important as you may find out that the building has no reserve fund and an increase in maintenance or an assessment is in the future. That may not dissuade you from buying but it is worthwhile knowing. Or more you may find that the building is in great shape and that will give you comfort about going forward with the purchase.

Generally, unlike a house, the buyer usually does not have and engineering inspection done but you might want to test for lead in the water –particularly if it is an old building. When looking at an apartment, check under the carpet to be sure the floors are in good condition or if not that you know what you are buying. This will annoy any seller so it should only be done when you are really serious about purchasing that unit.

If you don’t have an attorney, whose recommendations should you take? Although we at Koppell River Realty have recommendations, we still suggest that you get your own attorney. Why? It is important that these professionals are working ONLY for you and not in the hope of getting other referrals. If, however, you don’t really know anyone then when you make the appointment just don’t say that the broker recommended you.

Upon signing the contract you are expected to give a down payment of ten percent of the purchase price in an uncertified check made payable to seller's attorney. This money is held until the closing and generally only returned to you if the mortgage is refused or if the Board of Directors rejects your application for admission to the co-op. Until both parties have signed the contract there is no enforceable deal and either party can walk away.

Should you go to a bank or a mortgage broker? Years ago I would have told you to go to the bank because the brokers charged more. But now the brokers and banks charge the same (by all means confirm this with your broker) and the advantage of using a mortgage broker is that s/he can shop your loan around for the best rate.

Once a contract is signed you must apply for a mortgage immediately. Note the date in the contract by which you have to get a mortgage. Call your attorney up one or two days before the date expires in the event you have not received notification from the bank that your loan is approved. Although all mortgage people say it will take 3 weeks - it always takes a minimum of 5 weeks.

The process of applying for a mortgage is laborious. Just when you think the last item has been given in - up pops another request. Don't be upset.

Several weeks after applying for a mortgage, your broker or banker will tell you that things look good or maybe even that the mortgage is in underwriting. This is a good sign. It is at this time that your attorney will likely order a lien search. The cost of a lien search is about $400 and you need to make a decision on whether you want title insurance. If you are taking the apartment through a foreclosure then title insurance may be especially important.

DON’T FORGET TO PUT IN YOUR APPLICATION TO THE BOARD OF DIRECTORS TIMELY. LOOK AT THE CONTRACT OR SPEAK TO YOUR ATTORNEY FOR WHAT IS TIMELY. Most contracts say you must put in your application soon after contract signing when the reality is that the building will not accept your application until your mortgage is approved. A good broker will review your board application prior to your submitting it to red flag any problems. Once the application is submitted it can take 2 -4 weeks to get an interview. Wear business attire for the interview. DO NOT bring up anything negative about the building at this interview (that should have been done prior to contract signing). Your approach should be that you are very excited about moving to such a good building; looking forward to meeting more of your neighbors and want to contribute to the building as much as is reasonable (don’t go too overboard about this or they will view you as a meddler). At many interviews you will get a strong feeling about whether the interview has gone well or not. Sometimes feelings and reality don’t mesh. Sometimes you think it went badly and your application is approved and vice versa. What happens if the Board is taking a long time to set up your interview? Well, unfortunately there is not too much you can do about this. They do have an obligation of good faith but a delay of 4 weeks is not unheard of – don’t order the mover just yet. What happens if you get turned down? If you are not a member of a protected class (i.e. a minority or disabled) then you have virtually no recourse. A Board of Directors, operating in good faith, can use its business judgment to decide to admit you or not. If you are a member of a protected class and get turned down for no good reason then you can sue.

Before closing on an apartment, you must do a "walk-through." This is done either the day of or the day before the closing. Contact the real estate broker to arrange for this. The walk-through is where you make sure that everything is in working order; that the appliances work; that the faucets work; that the electricity works and that everything that you think you are buying as part of the purchase is there. Check the heat and air conditioning. Lift the windows - look at the ceiling and check the basement for leaks. The apartment should be in the same condition as when you went to contract. If not, let your broker and attorney know. You will be anxious at the walk through because you will assume that there will be problems. Rest easy. The apartment is almost always as you expect it to be. If possible, maintain a good relationship with the seller during this process as the seller can be very gracious and leave the apartment very clean and perhaps leave that piece of furniture you admired or the seller can be a pain.

Between 24 and 48 hours prior to closing your attorney will be given figures from your bank and will tell you how various certified checks need to be cut. More notice would be nice but sometimes the notice doesn’t occur until the day of closing. If you want an estimate about the closing costs, please look at the loan disclosure statement. It is fairly accurate. The major expenses are the loan application fee - $450; points - 1 or 2% of the loan (most loans now have no points but you can reduce your mortgage rate by paying one point for each ¼ point reduction in rate); bank’s attorney’s fees - $675; credit report - $75.00 and many incidental fees that amount to about $500.

Before the closing, you should consider obtaining insurance for co-op owners. Check 2 or 3 insurance agents for costs.

The closing usually takes about 2 hours. It can be very easy if the parties have been friendly or it will be a continuation of an unpleasant buying process where everyone has to have the final "gotcha." My advice is to remember that you are starting on one of the happiest times of your life - the purchase of an apartment and the flavor of the closing will stay with you a long time.

So as you embark on this new purchase - know it is filled with bumps in the road until closing and then you have your dream apartment.

Right before the closing please do two things - get enough SMOKE ALARMS and HI-TECH CARBON MONOXIDE DETECTORS. A small investment of money saves lives and pain.

Please give us a call when you are ready to start looking as we have lots of properties to show both our own and with other brokers.

Lorraine Coyle
Attorney at Law
Licensed Real Estate Broker

RESOURCES

Engineers: Tauscher Cronacher – (914) 376-2033
or Evan Grugett & Assoc. Inc. (914) 723-5795
or Allspect, Inc. (201) 445-1404 or (845) 362-0220

Mortgage Brokers – Kenneth Osborn – (718) 549-LOAN (5626)
(631) 288-5626
or
Stacie Handwerker, Esq. - (212) 634-9474

Termite: Exterminall Pest Control Company
1613 Second Avenue
New York, New York
(212) 472-3861
or
1938 Williamsbridge Road
The Bronx, New York 10461
(718) 863-2172

Radon: Professional Radon Systems
306 Dartmouth Court
Paramus, New Jersey 07652
(800) 235-8842
(201) 265-4001

Lead in water: YML Environmental Services
321 Ear Street
Yorktown Heights, New York
(914) 245-2800

Lead in air and paint - I have no recommendation.

The following are tradesmen who I have used. They are excellent and reasonably priced (no, I do not get a referral fee from them or the above people).

Moving company – CeePee Moving Systems – Stephen Coughlin (914) 377-0536
or cell (914) 760-3736
Painter: Danny Nelson (718) 798-9312
Telephone Installation: (718) 796-5454
Appliance Service Connection - (800) 436-7634 (repair appliances)

© 2004