Are you thinking of buying an apartment in either a cooperative or a condominium building? Perhaps you’ve already visited your dream apartment and are ready to place an offer, or you’ve already placed that offer and now await the dreaded Board package to be sent in (and hopefully approved). Whatever stage you’re in, reviewing the items that I’ve listed below will help you steer clear of a problem building and minimize your chances for a rude awakening once you move in.

1. Walk Through All Common Areas: I remember when a friend asked me to come with him to a Great Neck, NY cooperative that he was looking into purchasing. The apartment itself was nice, but when we were walking through the top-floor hallway and then looked at the staircase to the roof, the walls and ceilings were in deplorable condition. Obviously, this wasn’t a part of the apartment that he would be purchasing, but the fact that the cooperative Board hadn’t taken care of their common property lead me to believe that when a Shareholder has an issue with a Cooperative-responsible item within the apartment (it will arise, eventually), the care, craftsmanship and high-priority that it should take may not be there. Thankfully, he passed on this apartment and went to a better maintained building.

2. What Is The Recent Bed Bugs History? In New York City, all apartments that change hands are required to include a Bed Bugs History form, alerting the new tenant of the apartment to any bed bugs in the building within the past year. You’ll learn if the building had them on the floor and if they were or weren’t treated. I take bed bugs so seriously that one of my more popular blog posts and videos on my website are on this topic. Granted, bed bugs are everywhere, but if there was a recent outbreak in the building, this should be a cause of concern.

Bed bugs spread very easily and can live for a year without feeding (in a multi-family building this will never happen as there is always a source of food – unlike a cabin in the woods that is unoccupied for months at a time). You want to make sure that if there was a recent outbreak, that building management took the preventative steps in order to both eradicate the infestation and then testing after the treatments to ensure that they were actually removed from the property.

3. Have Your Attorney Read The Building’s Minutes: I recommend to all clients that their meeting minutes should be as sparse as possible (they’re a legal document after all and shouldn’t be used as a word-for-word recap of the meeting), but that doesn’t mean that there won’t be valuable information located within them. If you’re looking to purchase a particular apartment, you can get a sense if there are any overriding issues within either your apartment, in your line of apartments or in the building, in general. You may even find some information about a possible problem-neighbor that you can avoid as well.

Minutes will also be a good source of learning about the financial condition of the building, the major upcoming projects (we want to see how they’ll be funded and if the Unit Owners or Shareholders can expect to be hit with an increase or with an assessment, etc.) and will also give you a window into how the Board / building operates. Purchasing is a two-way street. As much as the Board, in a Cooperative, is interviewing a prospective purchaser at the interview, the purchaser is doing the same thing; sizing up the Board and the way that they run their building.

4. How Responsive Is The Management Company During The Application Process? The application stage is a good reference point for any potential purchaser as to how the Management company will treat you once you get into the building. We have Boards that specifically ask in an interview how the Management company treated them during the process, so this is important on both ends. If you’re calling and e-mailing and you’re not getting any response from the Management company while you are in the process of purchasing, this is a sure sign that when you’re an actual Shareholder or Unit Owner, you may get the same treatment.

5. Review The Financial Statements Over Multiple Years: This item should go without saying. To make sure that the building you’re purchasing into is financially solvent, you’ll want to either review their Financials yourself, or have your attorney / accountant review for you. You’ll begin to see patterns on expenditures, get an insight into their current financing and will see if they’re burning a lot more than is coming in. Just like any business, if they’re spending more than they’re making, you want to make sure that the expenditures were for the right reasons and that there are sufficient reserves should they run out of operating cash.

There are so many questions and scenarios that as a purchaser you should be looking for. These five questions above are a good starting-point to start your internal conversation to negotiate with yourself, initially, if the building that you may potentially buy into is a good fit for you.

At your cooperative closing, if you are obtaining a mortgage to finance the purchase, you’ll notice that the managing agent hands over at least two original copies of a Recognition Agreement to the bank that is lending you the funds, and then an original is also kept by the building’s Property Manager. So, what is the Recognition Agreement and why do we need it?

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**DISCLAIMER** I am not an attorney and this is my opinion based on experience in the field of Property Management. For legal opinion on this and other related matters, it is in any person or Board’s interest to seek independent legal counsel.

In this video, Mark Levine of Excel Bradshaw Management Group tackles the issue of a Cooperative Board’s ability to not approve a sale due to the purchase price that they are presented with. This is a tricky situation, but one that requires diligence on the Board’s part to ensure that the decision they are making is based on market value and not on perceived value.

Before we get into the answer and noting how a Board can avoid running into an issue of wrongly turning down a sale for the purchase price, it is worth going over the protected classes in NYC and noting which factors are not to be considered when making a decision to allow a prospective purchaser pass through the board application process.

Presently in NYC, the protected classes (and these are groups of people who cannot be discriminated against or prevented from obtaining housing based on these factors) are: Age, Alien Status, Children (or childless state), Country of National Origin, Creed, Disability, Gender (including gender identity), Lawful Occupation, Marital Status, Military Status, Partnership Status, Race, Religion or Sexual Orientation.

Now that we have the factors that can’t be considered out of the way, we can talk about what can go into a decision to deny an applicant by a Cooperative Board. Financial instability is, of course, one of the main factors for not permitting a sale to go through. If the prospective purchaser is not able to carry the apartment’s mortgage + maintenance + other expenses, the Cooperative could be placing itself at risk for a default on maintenance and potentially creating a future of legal issues.

There is one other area that should be considered as well; purchase price. Some buildings will try and set an absolute floor, whereby they will alert all Shareholders that they will not accept any sales below a certain amount. This amount could be a per share amount, per square foot amount or if most apartments in the building are similar, they could create an absolute price. This will work only if the Board’s requirements are in line with the present market value of these apartments.

We have run into these situations before where a Board will deny based on a purchase price and the ruling is challenged by the outgoing Shareholder. To counteract this and to also avoid possible legal between the shareholder and the Board, we have taken the step to be proactive. We have advised our Boards that it is in their best interests to hire an independent appraiser to come into the apartment and work up a full appraisal on behalf of the Board so that they can get a sense of the real world market value of the apartment.

An example of how this will work out in the Board’s benefit is an apartment that is under contract for $200k and they feel that the apartment is worth $250k. An appraisal is ordered for the Board and it is actually shown to be $250k. We can then bring that back to the Shareholder to show that we have these findings and we can work it out with the Shareholder and prospective purchaser to raise their contracted price or they can back out of the sale as is if they both cannot meet the new parameters.

Although this approach sounds like the ideal solution, it can have the opposite effect as well, so Boards should be careful and use judgement when they are ordering these appraisals. The flip-side of the equation is that an apartment has the possibility of appraising for lower than the stated contractual price and in that case, the argument that the apartment was selling for below the market value would be thrown out in the courts should a sale be denied based on those factors and then challenged.

Cooperative Board of Directors have to be realistic when dealing with the sales within the building and this is a great tool that could be used on a case by case basis to ensure that the units in the building are being sold at market value and are helping to preserve the comps in the building. Of course, like any other issue in a Cooperative, a little leeway will have the be given from time to time and each board, while trying to preserve their value, should also be using common sense to not hamper the transactions in their building.

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