A GUIDE TO BUYING A COOPERATIVE OR CONDOMINIUM IN MANHATTAN

A GUIDE TO BUYING A COOPERATIVE OR CONDOMINIUM IN MANHATTAN

A GUIDE TO BUYING A COOPERATIVE OR CONDOMINIUM IN MANHATTAN

Sydney Harewood., lrsp.
LEVEL., LREB.
5 West 37th Street 12th Flr
New York, NY 10018
646-535-3819
www.NYCexclusiveApts.com

COOPERATIVES AND CONDOMINIUMS

CO-OPS Manhattan’s Primary Housing Style
Co-ops, short for “cooperatives,” are apartments owned by a corporation. Individual tenants do not own their apartments in exactly the same way that they would a condominium or a house. Instead, they actually own shares of stock in the corporation, with shares distributed based on the size and floor level of their particular apartment. Ownership is established by a stock certificate, occupancy is governed by a “proprietary lease” and the corporation pays all real estate taxes, maintenance expenses, and the underlying mortgage on the building. The co-op owner’s portion of these payments depends on the number of shares owned in the corporation.

Cooperative ownership is the most common form of apartment ownership in New York City. Since there are three times as many co-ops as there are condominiums in the Manhattan market, they are likely to be more affordable than similarly sized condominiums.

Basically, cooperative ownership offers the same advantages with a few extras:

1. The tenant-owners elect a Board of Directors, who meet, interview and “approve” or “disapprove” a prospective owner, generally protecting the present tenants interests by approving only qualified candidates.
2. Cooperative ownership offers a more stable community environment, as residents tend to stay for longer periods of time. Few co-ops allow extensive subletting, preferring a high owner-occupancy.
3. A large portion of the monthly maintenance fee is tax deductible, i.e. the tenant’s pro-rata share of the coop’s real estate taxes, as well as the building’s underlying mortgage payment.

There are some disadvantages, however, in purchasing and owning a coop:

1. The board often requires a larger cash down payment. Prospective purchasers are usually required to put 25% down, while some co-ops may require even more. Some of the most exclusive buildings permit no financing at all.
2. Since most co-ops prefer owners to be occupants, subleasing an apartment may be difficult. While each co-op board has its own set of rules, subletting will likely need to be approved by the board, and permission is usually granted for no more than two years. (Some co-ops are more flexible and are known as “easy boards.”)
3. Owners are normally not permitted to use their apartments for professional or business purposes.
4. Almost all renovations will have to be approved by the board.
5. Owners who wish to sell their apartments will need to have the new buyer approved by the board through the application process.

Despite the disadvantages, cooperative ownership is a very popular option for residential ownership in Manhattan. You can rely on your LEVEL salesperson to guide you through the purchasing process.

CONDOMINIUMS

Owning a condominium in Manhattan is the same as owning one anywhere else. It is a fee simple ownership, and the buyer receives a deed in a formal title transfer. Monthly payments to the condominium are called “common charges” and are used strictly for maintenance and upkeep of the jointly owned areas. The amount of interest on the owner’s personal mortgage is fully tax-deductible.

Fee simple ownership gives owners the right to rent their apartment, making it a better investment opportunity. If the buyer qualifies, mortgage amounts can be as high as 90% of the sales price and often there is no formal application process, so the time from contract signing to closing is usually shorter.

BUILDING TERMINOLOGY

BROWNSTONE

Built in the late 1800s and early 1900s as single-family homes, many were converted during World War II to create multiple apartments. With one to six floors, no doorman and only three to ten units per building, brownstones have “charm,” high ceilings, architectural detail and, often, wood burning fireplaces. Square footage is generally less than a similar room count would provide in a doorman building.

PREWAR BUILDING

Built 1900s to 1940s, these ten-to-16-floor buildings feature exterior and interior architectural detailing including high ceilings, hardwood floors, arched doorways or fireplaces. Most are co-ops. Doorman or non-doorman.

POSTWAR BUILDING

Built from 1946 through today, these white, red or brown brick buildings have long corridors, with many apartments per landing. Apartments are likely to have eight-foot ceilings, big closets and a small kitchen, with laundry facilities usually in the basement. Generally less expensive than prewar buildings. Doorman or non-doorman.

LUXURY DOORMAN

These postwar buildings are generally twenty to forty-plus floors and have a doorman on duty around the clock. The more luxurious buildings also have a concierge who provides services such as receiving laundry and packages; some also have a health club and/or swimming pool and a parking garage.

ELEVATOR BUILDING

Located mostly in the mid blocks, these usually six to nine stories are often found on side streets. While these are non-doorman buildings, some pre-wars have an elevator attendant on the premises, and many have intercom security and live-in supers.

LOFT APARTMENT

Former four to twelve-story commercial buildings converted to apartments. Featuring large open spaces, most are found in lower Manhattan in SoHo, Tribeca or Chelsea, and some have restrictions regarding tenancy, such as status as a certified artist. Most have an elevator (sometimes a freight elevator) but no doorman service.

WALK-UP BUILDING

Originally built as multi-family housing, this is one of the least expensive apartment options. In buildings with up to five floors, these apartments, sometimes called “railroad flats,” can be very charming compared to newer offerings. No elevator or doorman.

APARTMENT TERMINOLOGY

ALCOVE

An area adjoining the living room space which can be used for a dining area or be closed off to make a bedroom, den or office.

CONVERTIBLE OR FLEX

An apartment with a larger alcove off the living room which can be converted to another bedroom or used as a dining area. A “convertible two-bedroom” or “flex 2” is a one-bedroom apartment with a large alcove and one or two bathrooms.

JUNIOR

An apartment with a small alcove off the living room which can be converted to a small bedroom or used as a dining area. A “junior 4” would be a potential four-room apartment: living room, bedroom, kitchen and alcove area.

STUDIO

A studio is a two-room apartment (the kitchen is considered one room). An “alcove studio” is a studio with an alcove for dining or sleeping. A studio with a windowed alcove large enough to be a bedroom can be referred to as a “junior one-bedroom” or “junior 3” (three rooms).

ONE-BEDROOM

A one-bedroom is a three-room apartment (kitchen, living room and bedroom). A one-bedroom with a windowed alcove large enough to be a bedroom is called a “junior 4” (4 rooms), “flex 2” or “convertible 2” (convertible to two bedrooms).

TWO-BEDROOM

A two-bedroom can be a four, five or six-room apartment. A “flex 3” or “convertible 3” is a two-bedroom apartment with space for an additional room (third bedroom, dining room, den, maid’s room, etc.).

CLASSIC

A classic is an apartment in a pre-war building that has a formal dining room, one or two baths and, in a larger apartment, one or two maid’s rooms. A “classic 6,” for example, is a six-room apartment in a pre-war building that has a living room, formal dining room, two bedrooms, kitchen, maid’s room, and one or two bathrooms. Frequently, pre-war buildings have been gutted and “rehabbed,” but room counts and layouts will usually be listed according to their original configuration.

FURNISHED UNITS

Units that are fully equipped with furniture and amenities. Apartments are available for long and short-term use.

LOFT AREA

Sometimes found in apartments with high ceilings, an upper area built for storage or as an extra sleeping or living area.

HOW TO PURCHASE A COOP OR CONDO IN MANHATTAN

1. Start out with a neighborhood choice and a budget in mind.
2. Consult your mortgage broker and/or banker about a mortgage. (If you need to know how much you can afford, find out BEFORE looking.)
3. Select a real estate attorney who specializes in Manhattan co-ops and condos. Suburban lawyers or lawyers in other fields can spell trouble or delay.
4. Discuss a negotiating strategy with me and make an offer. I always make offers in writing because they are taken more seriously. Negotiations proceed back and forth over the telephone until all aspects of the sale have been agreed to price, amount to be financed, occupancy date, closing date, disposition of fixtures, etc.
5. Accepting the offer: There is no legal obligation between buyer and seller until a contract is signed. In a hot market, this process should move quickly.
6. Gather information about the building you’ve chosen: it’s financial and physical condition, its history as a coop, etc. Your agent and attorney will guide you in this process and your attorney will go through the “due diligence process.”
7. Going to contract: The seller’s attorney prepares the contract and forwards it by messenger to your attorney. Both attorneys consult and agree on all points.
8. Signing the contract: You sign it first, then it’s sent back to the seller’s attorney for the seller’s signature. At this point, a down payment is expected, usually a percentage of the contract price, to which is held in the seller’s attorneys escrow account.
9. Complete the mortgage application, if any.
10. The bank that is providing the mortgage will arrange to have the apartment appraised.
11. Prepare the board (or condo) application.

FOR A COOP:

1. Begin preparing the board application package. (See “How to Prepare a Board Package,” below.)
2. Submit your completed board papers, along with a mortgage commitment letter, to your lawyer for review.
3. The package is thoroughly reviewed by LEVEL managers.
4. The board package is submitted to the managing agent, who orders a credit check and forwards the application to the board members.
5. Some or all of the board members interview the buyers.
6. The Board grants approval

FOR BOTH CONDOMINIUMS AND CO-OPS:

1. Closing is arranged by the seller’s and buyer’s attorneys, in conjunction with the lender.
2. A move-in time is coordinated with the building’s superintendent.
3. The entire process can take between two-to-five months.

HOW TO PREPARE A BOARD PACKAGE

A major aspect of purchasing a co-op apartment is completing a purchase application and assembling the financial documents and references that make up what is known as the “Board Package.” First time co-op buyers are often shocked by the amount of confidential material required by co-op boards; just be assured that the information is kept strictly confidential.

The primary purpose of the Board Package is to assure the co-op board of your financial ability to carry the apartment (boards are tougher than banks) and to give them confidence that you will be a “cooperative” shareholder and a welcomed member of their community.

Each co-op has its own set of requirements and application form. Your LEVEL agent will obtain these for you from the building’s managing agent.

OUR TWO MAIN RECOMMENDATIONS ARE THESE:

Read the instructions on the cover page carefully and plan to provide ALL of the requested information. (Your agent can help “translate” some of the items for you.)

Be sure your application, references and supporting documents are neat and clear.

THE MOST COMMON ELEMENTS OF A BOARD PACKAGE ARE:

1. Purchase Application This should be typed. Fill in all of the blanks and answer all questions: name, address, social security number, name of attorney, schools attended, etc.
2. Credit Release Form This is your permission for the managing agent to obtain a credit check on each applicant. Sign it.
3. Contract of Sale A copy will be acceptable.
4. Financial Statement A blank form is usually provided in the package. Basically a statement of all assets and liabilities AND supporting documents, it is VERY important that all sums on the statement reconcile with the attached supporting documents. For instance, don’t list a checking account balance as of January 1 – and then include the February statement as backup. Every item on the statement (except for personal property) needs documentation.
5. Reference Letters A combination of personal and business references, It’s recommended that these letters be taken seriously. Please ask your friends and associates to be specific and glowing in their comments. These letters are an opportunity for the co-op board to “get to know you” and provide subjects for the interview discussion.
6. Tax Returns Many co-ops require the last one or two most recent Federal tax returns.
7. Landlord Reference These are intended to verify your past prompt payment of rent and/or maintenance charges.

BOARD INTERVIEW

Approximately two weeks after the completed Board Package has been submitted to the managing agent, you will be asked to come in for an interview. If your schedule has unusual constraints that would limit your availability, this will be noted in the cover letter for your board package.

CLOSING COSTS
CONDOMINIUM APARTMENTS

FOR THE SELLER:

Broker 6% (negotiable)
Attorney $1,500.00 and up
Managing Agent Fee $450.00
Move-out Deposit $500.00
New York City Transfer Tax 1% of purchase price up to
$500,000, and 1.425% of the
price over $500,000
New York State Transfer Tax $2.00 per $500 of price
Miscellaneous Title Co. Fees $100.00
Bank Attorney Fee $300.00

FOR THE PURCHASER:

Attorney $1,500.00 and up
Bank Fees (if applicable):
Points 0 to 3% of loan value
Application, credit check, etc. $500.00
Bank Attorney $450.00
Short Term Interest One Month
Tax Escrows 2-6 Months
Recording Fees $100.00
Mortgage Tax 1.75% of mortgage amount on loans
under $500,000, and 2.12% of
mortgage amount on higher loans
Title Insurance Fee for owner Approx. $675.00 per $100,000.00
Mortgage Title Insurance Fee for bank Approx. $500.00 per $100,000.00
Violation Search $170.00
Managing Agent Fee $250.00
Common Charge Adjustment One Month (prorated)
Real Estate Tax Adjustment One to Six Months (prorated)
Mansion Tax 1% where price exceeds $1,000,000

Some of the above fees are estimates and we recommend advice from legal counsel. All information is subject to errors, omissions and changes.

CLOSING COSTS
COOPERATIVE APARTMENTS

FOR THE SELLER:

Broker 6% (negotiable)
Attorney $1,500.00 and up
Co-op Attorney $450.00
Flip Tax 1% to 3% of price (if applicable)
Stock Transfer Tax $.05 per share
Move-out Deposit $500.00
New York City Transfer Tax 1% of price up to $500,000, plus
$25.00 recording fee, and 1.425% of price over $500,000.
New York State Transfer Tax $2.00 per $500.00 of share price
Bank Attorney Fee $300.00
UCC-3 Filing Fee $20.00

FOR THE PURCHASER:

Attorney $1,500.00 and up
Bank Fees (if applicable):
Points 0 to 3% of loan value
Application, credit check, etc. $400.00
Bank Attorney $450.00
UCC-1 Filing Fee $20.00
Short Term Interest One Month
Move-in Deposit $500.00
Recognition Agreement Fee $200.00
Lien Search $250.00
Maintenance Adjustment One Month
Mansion Tax 1% where price exceeds $1,000,000

Some of the above fees are estimates and we recommend advice from legal counsel. All information is subject to errors, omissions and changes