You found a beautiful pre-war co-op with ample closet space and a subway-tiled bathroom. Your offer was accepted. So it's a green light to move in, right? No quite. In a co-op, you become a shareholder in a corporation that owns the property, so as such, you must surmount one final hurdle: an interview with the co-op board of directors.
Co-op boards can and do reject potential buyers for all kinds of reasons, and they're not always obvious. So we asked veteran co-op Realtor Ogden Starr and Dale Degenshein, a lawyer with more than 25 years experience in condo and co-op matters, to share some of the more surprising reasons potential buyers may not pass muster.
Reason No. 1: Your co-op is a bargain
An under-market price can hinge on a number of reasons: a seller in financial straits, family problems, or even an offer with no financing contingency. Normally that negotiation is between the buyer and the seller, and it's nobody else's business. But when you are relying on approval from the board, it has to take the entire building's well-being into consideration.
If "a low number is an aberration" in respect to other recent comparables for the co-op, the board may "turn the buyer down," says Starr.
So, can the applicant just offer more money? Nope.
"If you're turned down, that's it, and they have no obligation to tell you why," says Starr. So check with your Realtor on whether the agreed-upon price might set off any alarm bells. Then adjust your offer accordingly so it's still a deal, but not a clunker that will sink the whole transaction.
Reason No. 2: You don't give to charity
Boards may consider turning down someone "if it doesn't appear that the person is charitable, either financially or in giving of their time," says Degenshein. She has had boards question this, "especially in smaller buildings where people are living in a community."
Typically in co-ops, she explains, everyone works together with various shareholders donating their time to an aspect of the building such as the courtyard or lobby. So if a potential buyer has the time or the money to volunteer and doesn't, that person may not appear to be a good co-op neighbor. While Degenshein wouldn't suggest applicants volunteer when they otherwise would not, if "one participates in charitable activities, they may want the board to have that information, even if not called for by the application itself."
Reason No. 3: You're rarely there
This may seem like a good thing. Less usage of the building, more available washers and dryers in the laundry room for your neighbors, right? Wrong
People get "turned down for this reason a lot" since many boards "don't want people who really aren't going to be living there full-time," Starr says. The fear is that if an owner isn't there, the apartment will "be used as a hotel for guests, friends, and children." So if you travel a ton and are looking for an occasional pied--terre, you may not want to volunteer this info.
Reason No. 4: You've been to court
"I actually have a lot of buildings that do litigation searches," says Degenshein. "If somebody is litigious in business, most boards understand it. But if somebody has commenced a number of litigations personally? That is something a board will look at and consider."
A co-op, and even the board itself, is vulnerable to costly lawsuits, so it follows that it would want to protect the corporation from a trial-happy tenant. But if there are lawsuits in one's past, an applicant can include a letter explaining the litigations; this can help allay any concerns.
Reason No. 5: Your boss/friend wrote a recommendation
"Another thing boards actually do look at is reference letters," says Degenshein. "When [a potential buyer] submits a reference letter from somebody who is clearly a business associate yet it's a personal reference letter, boards notice it."
A business associate might appear to have a vested interest in writing glowing things and therefore the letter becomes a conflict of interest. Another letter that Degenshein says should be returned to sender? "Reference letters that say, 'I have known so-and-so's parents for 40 years.' Well, then we know they don't really know the [buyers] other than being children of friends. Boards question it." Degenshein suggests that if there is a "cross-over, i.e., someone the applicant knows who is both a friend and a business associate, perhaps that letter can be an extra once the personal and business references are in place."