In the best of circumstances, qualifying an applicant for a co-op or condominium purchase can be a challenging process. Market conditions play a part in a board's consideration of applicants, and recent fluctuations have changed the way both buyers and lenders are looking at real estate acquisitions.
In January, Manhattan-based appraiser Miller Samuel Inc. and brokerage firm Prudential Douglas Elliman released a joint fourth quarter 2011 sales report, and the news was mixed. The report noted that as a result of the European debt crisis, New York City sales fell 12 percent in the fourth quarter from the previous year. The report also stated that purchases of condominiums and co-ops declined to 2,011 from 2,295 in the fourth quarter of 2010. However, there was some good news as well, as the median price of units climbed 1.2 percent from the first quarter to $855,000.
When buyers are interested in purchasing, it’s usually the co-op board that holds the cards. They investigate prospective buyers and eventually either bet on the applicant or pass. Condominium boards don’t have as much power, but many are slowly moving toward the co-op board model in hopes of securing the best-financed owners. As a result, the approval process for each is different, from time tables to legal issues.
“From a theoretical starting point, the processes are completely different,” says Manhattan-based real estate attorney Ronald H. Gitter. “With a co-op, the board of directors has the ability to turn down a buyer, but a condo board can only either issue a waiver of its right of first refusal to purchase the unit, or purchase the apartment on the same terms provided in the contract of sale.” Needless to say, the latter scenario doesn't happen often.
Years ago, when it came to a condominium purchase, there was very little board oversight during the application process. Due to market shifts and the ongoing recession however, the approach is slowly changing—although Gitter notes that, “Even today, with new construction sales from a sponsor, there is no application; just the ability to close. Over time, a number of condo boards have tried to act more like co-ops by requiring extensive applications. If the buyers resist submitting all the documentation, the application can be deemed incomplete.” He jokingly refers to this strategy as a case of “co-op envy,” but warns that buyers should expect a comprehensive evaluation of their finances and references, regardless of what type of unit they're trying to purchase.