The Differences Between NYC Condominiums & Co-operatives


As the Real Estate Salesperson in the New York City area, I know a few things about the home selling and buying process, especially as it pertains to condos and co-ops. After reading this, you will gain a new perspective of New York City Real Estate investing. You will also gain an appreciation for New York City Real Estate Agents. In this article, you will have a laymen's understanding of the different rights of, financing process(s), buying & selling process(s), and the pros & cons involved with ownership of each.

Homeownership Rights

The differences between the two is largely distinguished by its rights. In both cases, you will be buying the right(s) to live in the apartment units; but it trails off from there. 

With co-operatives, you will be issued units of stock (or shares) of the total outstanding shares of the co-operative building. After this, you will be granted a proprietary lease to reside in that particular apartment. With co-ops you will be responsible for paying the monthly common charges or maintenance fees. This usually comprises of real estate taxes and maintenance costs for the entire building disbursed between all unit holders equally. 

With condominiums, you will be issued a deed to the apartment. Real Estate taxes will be issued to each apartment separately, so you will bear the cost of that and common charges that may apply to the entire building. 

If Financing is used, both apartment types will require monthly mortgage or financing payments to pay off the entire sale price of the home. For co-operatives, financing loans will be used; while for condominiums, mortgage loans will be used. 

Financing Process(s)

Since you own shares in a co-op, you technically aren't buying real estate. So in this case you will be getting a financing loan in order to proceed with purchasing the apartment.

In the case of a condo, because you own the apartment with a deed, you will be getting a mortgage loan with the promissory note to pay the loan off, and the property being held as collateral. 

Selling & Buying Process(s)

Buying or selling a condo or co-op involves extensive processes. There are not only concessions or negotiations to worry about, but there is a preapproval process for both a loan and the board of directors as well.

Step 1: Submit an offer that proves you are serious

Sellers and their exclusive listing agents want to only receive and entertain offers from serious buyers who fit the building's criterias. In fact, a seller has to make sure that the buyer is serious by providing documentation that shows the buyer has more than enough liquid capital, has stable income history, and other such documents such as:

  • 10% to 25% down payment (sometimes more)
  • Reported Income (no more than 30% applied to housing costs)
  • Minimum Net Wealth
  • 2 Years worth of cash and cash equivalents of maintenance and projected loan costs (rule of thumb)
  • No more than 45% total liabilities for total debt servicing 
  • 2 years tax returns
  • 2 Recent pay stubs
  • 2 to 4 personal and business references
  • Mortgage commitment letter
  • Letter from bank verifying balances and how long you have had an account
  • Letter from employer verifying length of employment and salary
  • Documentation supporting represented financial condition 
The sellers broker and the buyers broker will then work together to form a term or deal sheet that lays out the skeletons of the deal. It is to be noted that despite everything seeming to check out, eventually a deal can be contingent on the co-op board's approval of the purchase, or in the condo's case a right-of-refusal process is normally required. Without these, a deal will be even farther out of reach.

Step 2: Contract process

In this step, hire attorneys. Both the seller and the buyer will have to hire attorneys. The seller will prepare the contract, whereas the buyer's attorney will review the building's prospectus and the last financial report of the building and other things such as minutes of the board meetings. Once the seller's attorney prepares the contract, the buyer then signs it and submits a check for 10% of the contract price as an earnest money deposit. The seller's attorney then places the deposit funds into an escrow account and arranges for the seller's signature. Once copies of all documents are given to all parties and signatures signed, there is now a bonafide contract. 

Step 3: Get the Mortgage

This is when the buyer begins the mortgage origination process. He then asks his or her own mortgage lender to process a loan for the property or shares in question. The loan professional will then begin that process and start the underwriting process. 

Step 4: Board Approval

After the board package has been made with the buyer and the buyer's broker, as outlined on the bullet points on step 1, an application is given to the seller's broker for review. The seller then submits the package to the board, and the board will either give the buyer a chance to interview with them or not. 

If an interview is given, that makes you closer to a deal than ever before. However, if in the interview, they deem you not fit for any reason, they may not decide to give you a waiver of its right of first refusal. This can be a huge impediment towards purchasing the property or apartment shares. 

Step 5: Closing the Deal

In this final step, all attorneys will be present, alongside a representative of the buyer's bank, representative for seller's loan bank, managing agent of the building, brokers, and sometimes the title insurance company in the case of a condo. 

At closing, the managing agent will issue to the buyer's bank a recognition letter permitting the bank to place a lien on shares and proprietary lease which recognizes the bank's right as a mortgagee. 

The buyer then signs the documents given by the bank to issue the loan. Then the bank will give the loan amount to the buyers attorney, and the attorney will transfer the funds to the seller's attorney. 

Then the buyer will provide a bank or certified check made payable to the seller for the balance due (purchase price minus the loan amount and the 10% initial deposit)

Then there will be a closing statement drafted which delineates receipt of all funds.

Then the buyer is handed the keys and the seller gets the money from the sale! 

Next Steps

Contact me to start your home buying or selling process! 

The Differences Between NYC Condominiums & Co-operatives The Differences Between NYC Condominiums & Co-operatives Reviewed by Alex Sung on September 27, 2020 Rating: 5

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