We're Different Around Here
I don't think I would get much of an argument when I suggest that New York City is a world unto itself. That's particularly true when it comes to buying a co-op or condo. With board approval, tight credit, full financial disclosure, the pressure to get deals done quickly, and a myriad of other hoops to jump through, getting to the closing table presents a unique set of challenges. In order to minimize what can be a painful process, here are my five key traps for buyers to avoid:
Don't Fudge Your Financials
With few exceptions, the entire planet has been downsized. Accordingly, satisfying the financial requirements for a co-op purchase is more difficult than ever. Despite the fact that accurate financial information, including complete tax returns, has to be submitted along with sufficient back up, there is a tendency, shall we say, to stretch reality in order to put your financial picture in the best light. Exaggerating your net worth or overstating your income on a purchase application is a very bad idea. Cooking the books can result in losing your deposit (or at least fighting to get it back), if it turns out your purchase application was made in bad faith. Stretching is a good thing when it comes to yoga, but not when it comes buying a co-op.
Avoid Out-of-State Banks
You probably have a great banking relationship back home, but if you are seeking financing for the purchase of an apartment, unless your bank is in the business of regularly making co-op and condo loans in New York, it is often a mistake to use an out-of-state bank. Non-local lenders have trouble digesting how co-ops and condos operate in New York and can often impose conditions that either the buyer or the building cannot satisfy. In today's banking environment, even banks active in the co-op and condo market can be overly cautious when it comes to underwriting apartment loans. For the sake of the transaction and your sanity, use a lending institution that is a significant player in the residential lending market in New York.
Always Think About Resale
Once you get past the incredible view, the stainless steel appliances and the roof top pool, there's a new amenity that's taking center stage: value. A co-op or condo buyer is in the best position in a generation to buy an apartment at a greatly reduced price. Whether the apartment is new construction or an old New York war horse, one important way to judge value is to calculate the cost per square foot for monthly maintenance (in the case of a co-op) or the monthly common charges and real estate taxes (when it comes to a condo). Although each building is different, as suggested to me by Noah Rosenblatt of Urbandigs.com, monthly carrying charges for a full service building in Manhattan should range from $1.30 to $1.70 per square foot. No matter how emotionally attached you are to your potential new home, once you get significantly above the top end of that range, make sure there is a reasonable explanation for what appears to be high carrying costs. Even if you don't do the math, your buyer will when you want or need to sell the apartment sometime down the road.
Think of a Co-op as a Vertical Country Club
Although Groucho didn't want to belong to any club that would have him as a member, in Manhattan, the opposite is true: there are co-ops out there that don't want you even though you want them. Board approval often complicates the apartment purchasing process and always ratchets up the anxiety level. And co-op boards are as uncompromising as ever, possibly more so, as a result of the economic roller coaster ride we've taken over the past two years. Even if your financials are up to snuff and your liquidity far exceeds what the co-op might require, if you have had serious economic or personal issues over the past ten years, getting approved by a co-op board may not be realistic. Here's a good rule of thumb: when thinking about buying a co-op, Google yourself. If you don't like what you see, think condo...
Beware of Sponsor Closing Costs
One of the unique features of purchasing a new construction condo is that the developer (known in New York as the sponsor), "requires" the purchaser to pay New York City and New York State transfer taxes as well as the sponsor's legal fees. On a $1,000,000.00 purchase, those transfer tax costs exceed $18,000 and the sponsor attorney's fee often runs as much as $2,500. In the old days, the sponsor would not even consider picking up these costs, and the burden of the transfer taxes and sponsor's legal fee would be foisted on the buyer. In many cases today, these costs are items of negotiation. With sponsors holding so much inventory, a deal won't necessarily be lost because a buyer does not want to pay the transfer taxes or attorney's fees. You may not always get the sponsor to go along, but under current financial conditions, it would be foolish not to ask. So remember one of the essential commandments of real estate transactions: "If You Don't Ask, You Don't Get."
Buying a co-op or condo is the ultimate initiation rite to becoming a true New Yorker. But do your homework and crunch the numbers before you sign on the dotted line. There's a carpentry expression that works well when it comes to buying real estate: measure twice, cut once.