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So What Is A Co-op, Anyway?

Co-op is short for a Co-operative building. The building and land are typically owned by a corporation whereby a buyer is buying shares in the corporation (the co-op) in order to buy in the building. The shares for the corporation are tied to individual apartments through a proprietary lease. Like with most corporations, the shares can be bought and sold. But as with many private corporations, the transaction is subject to approval by the Board of Directors.

The Board of Directors for most co-ops will screen the transaction. They will want the buyer to complete an application kit for the Co-op Board to review. The application will often require that the buyer provide financial information, a copy of the credit report, a copy of the appraisal, a copy of the mortgage application and a copy of the letter of approval from the mortgage company for financing the co-op. The Board will then review the documents and agree to meet the buyer for a formal interview, or the Board usually has the right to deny the application. The denial could be for a variety of reasons- the price is too low for the building and they want to maintain a certain threshold; it could be that the borrower’s debt-to-income is too high; it could be that the borrower’s employment record is spotty- to name a few things that I’ve witnessed.

If the Board agrees to meet with the borrower, the interview process can be intimidating, but with careful preparation a buyer can get a good sense for what to expect. After reviewing the application and documents, the Board will ask the buyers questions- sometimes they can be a bit intrusive, but the Board will want to make sure that the buyers will fit well within the building. As mentioned in a previous article I wrote, the buyer’s hobbies are sometimes scrutinized- are they checker players buying in a Chess Only building? Do they like to have Marching Band practice in the hallway at 2 a.m.? In some cases, the hobbies and interests of the buyer have no consequence to life in the building, and it will only be a point of interest or discussion. At other times, the Board may decide that the behavior would be intrusive for other people who live in the building. In any case, the Board often has an “Up and Down” vote after the interview is over- meaning that it’s a simple yes or no vote to the buyer’s application. The Board will then either approve or deny the buyer within a few days of the interview- and usually the decision is announced without any commentary.

In most cases, the real estate agents will help the buyers understand the building parameters and how to prepare for the transaction. They should be covering everything specific to the building- from allowable ratios to down payment requirements to reserve requirements, and more. At the same time, they should be trying to identify what scrutiny the buyer should be ready to go through with the application and interview process so that there are few surprises by the time the interview takes place.

It can be an intimidating process, but keep in mind that at one point it’s believed that nearly 70% of the housing in New York City was in the form of a co-op, so millions of people have already gone through the approval process!