There was in interesting piece in the New York Times Real Estate section on December 23, 2012, that describes the board application process in connection with buying a co-op apartment in New York City. The article is titled \”The Formidable Co-op Approval Process\” and it is highly recommended reading for the first-time co-op buyer. You can find the article by following this link – http://www.nytimes.com/2012/12/23/realestate/getting-started-preparing-for-the-co-op-approval-process.html?smid=pl-share.
After reading the article, a few points came to mind. First, while buyers AND sellers (after all, when a Board rejects an application, the seller suffers at least equally as the rejected buyer) are quick to demonize co-op Boards and the approval process, it is important to remember that a co-op is a corporation. And like most corporations that are not publicly traded, the co-op has a considerable interest in controlling who can buy its shares.
Let me use an analogy. You and 9 of your friends start a business and form a corporation. The 10 of you write an agreement that says how the corporation will be governed and that same agreement limits or restricts if, when and to whom you can sell your shares, and usually the agreement also gives the other shareholders (or officers or directors) the ability to veto any proposed sale or transfer of shares. The reasons why businesses and shareholders enter into these agreements are many, but some reasons are to protect the value of the shares and to make sure that the non-selling shareholders are not required to continue in the business with people they do not know.
It\’s almost exactly the same for a co-op. In addition, since the co-op\’s shareholders also actually have to live together, there are even stronger reasons to regulate who may buy shares. The co-op\’s Board has a fiduciary obligation to act in the best interests of its shareholders.
Second, as the article suggests, by a wide margin the most important factor in the Board approval process is the applicant\’s financial information. Most buildings/Boards have defined financial criteria that prospective buyers must meet for approval. These criteria are not secret – if a broker has done a deal in the building before and, at the very least, the real estate broker representing the seller should know what the Board requires and should not even present an offer from an unqualified buyer.
Third and last, if you are a prospective buyer, get started early on compiling the information that is generally required by all buildings/Boards. Once your offer is accepted and the contract signed, you\’ll have to act expeditiously to get your application together and submitted. So don\’t wait until your offer is accepted to start putting together financial information and statements, and reference letters from employers, landlords, etc. Treat it like getting pre-approved for a mortgage – even though it\’s not possible to get pre-approved by a co-op Board, having the information readily available will relieve a lot of the stress of the process.