by George Herrera, Realtor and Listing Specialist with the Queens Home Team at Keller Williams Realty.
We sell a lot of properties here in Queens, and being that we’re in New York City, a lot of them tend to be Coops. Whenever we meet with first time Coop sellers, we always let them know, selling a Coop in Queens NY is a whole different animal. There are so many intricacies and things you have to look out for that if you don’t know what you’re doing, you can very well end up with a management, board, or bank denial which then leaves you right back at square one. Trust us, we’ve learned this the hard way…
With that said, we’ve created a list of all the things you should know when selling a Coop in Queens NY. Most of this is not told to you when you buy, but extremely important if you want to sell and close in a reasonable amount of time.
Minimum Sale Prices
No one will tell you about this because it’s pretty much illegal. Nonetheless, it is very common when selling a Coop in Queens… Here’s what happens, a Coop’s management company or board might not want to see apts sell for less than a certain amount, and the reason can be because they themselves are shareholders and(or) they don’t want to see values go down in the building/development… Either way, it’s a big problem because essentially, these Coops are artificially inflating the prices in their development. The good news is that usually the minimum sale prices are realistic and attainable as long as your Coop is in good condition. The problem arises when you have a less than desirable unit, or if there is a lot of competition in your building/development… For example, we’ve had several situations where the Coop had a minimum sale price, however, ALL of the offers were coming in below that. So, we typically would have to work out some type of agreement whereby the owner agrees to offer a credit to the buyers at closing. This allows the contract to state the minimum sale price, when in reality, the actual sale price is less because the buyer is getting a credit at the closing… Moral of the story, find out if your Coop has a minimum sale price. Sometimes it’s not even a clear answer, but they may be looking for apts to sell in a certain price range… Do your digging because you don’t want to have a board rejection due to a price that was considered too low, trust us, we’ve learned this the hard way…
Management Company/Board Requirements
Most management Companies and(or) Boards have clear requirements that must be met in order to purchase in their developments. So, it’s important that you know what these requirements are before you decide to sell. Why? Because they may have changed since the time that you purchased, and if you don’t know what these requirements are, you can easily put somebody through that ends up getting rejected. Requirements can vary by Coop so you have to inquire with your own mgmt company and board. For example, some Coops require that debt to income ratio be below 36%, some 34%, some require 30%, and some even have a requirement as low as 26%. Some have set income requirements which can be a set amount or a specific formula like 3 years of monthly maintenance plus 12 months of mortgage pmts if buyer is obtaining financing… Some Coops have reserve requirements… Some have employment history requirements… Some don’t like to see that you own other properties, especially other Coops… Etc, etc, etc… Suffice to say, some Coops are more strict than others but you should always check to make sure you know what they’re looking for before you start selling. The last thing you ever want to do is accept an offer with just a pre-approval and think that’s all you need… Maybe with a house or condo, but not with Coops.
How Coop Values are Determined
When we meet with Coop owners/sellers to help them appraise their apt, it is sometimes a surprise how we come to our valuation. Usually Coop owners understand that the best comps are the ones in their development. This is 100% true for a few reasons… 1) A bank appraiser will always look for comps in the same building and those will always weigh the heaviest in an appraisal report. They really don’t like to use comps from outside the building so they will go even further back if they have to find something. 2) Buyers have all the same data as agents, sellers, etc. In other words, they (like you) can see all of the recent sales in your building when they’re on Trulia, Zillow, etc. so it’s very hard to justify a large difference in price for another comparable unit in the same building and which are typically very similar in size. Early in our careers, we tried to help Sellers get more money because apts nearby were selling for more than the ones in their building, however, we ended up learning a harsh lesson that Coop sales in the same development are always the clearest indicator of value.
Renovations Add Value, but not As Much as they do in Houses
When it comes to Coops, renovations & upgrades add value, but unfortunately, it is usually very limited. In our experience, renovations will not add more than $20-$30K (in most cases). In other words, when we comp out Coops, the sales usually range from the original condition units at one price, and the renovated units at another, typically $20K – $30K higher. As a rule of thumb, try to keep kitchen renovations under $15K and bathroom renovations under $5K, that will ensure that you at least recoup the money you spent.
To put this into perspective, let’s say you own a 1 BR Coop on the sixth floor of your building, and the highest sale price for a 1 BR in the building (within the last 6 months) is $190K, another 5 units sold from $165K – $185K. As in most cases, that sale probably had a renovated kitchen and renovated bath, that’s why they were able to fetch top dollar. Let’s say that unit was on the third floor (3 floors down), but aside from that, everything was pretty similar. Now, your apt is fully renovated, DIAMOND condition! Quartz counter tops, viking appliances, mirage hardwood floors, marble bath, spa shower, perfectly staged, etc… You spent about $50K to renovate that apt, and it looks amazing! The problem is, that the highest you can probably justify for that apt (in my opinion) is around $200K-$210K. The reason why you are limited to a “max sale price” is because you have to sell it to the bank too. In other words, the deal still has to appraise, otherwise you run into problems. With that said, put yourself in a bank appraiser’s shoes and imagine how hard it would be to justify $50K in added value from an apt that is in the same building and similar in size. The answer, it is very hard. Maybe you can get $10K-$15K for the kitchen and $5K-$10K for the bath, but anything over that may be a reach because appraisers typically classify the condition of properties as “poor”, “fair”, “good”, and “excellent”. There’s no section in an appraisal report for all of your personal preferences, high end materials, etc. Moral of the story, don’t go crazy with your renovations unless your okay with the possibility of not getting the dollar for dollar return. Trust us, we’ve met with owners who put up to $100K into a small apartment only to realize that there is no way they’re getting that back from a sale.
Certain things can Affect Financing in your Building/Development
Something important to know is the fact that Coop bank deals, like many Residential bank deals, follow certain Fannie Mae and Freddie Mac guidelines. I won’t pretend to be an expert in Coop financing, but I can tell you what issues we run into more frequently so that you can hopefully preempt and avoid them… One of the issues that can affect financing in your development is if more than 50% of the units are rent occupied… Another issue is if over 10% of the units are sponsor owned… And another common issue is if the Coops financials don’t look good. For example, if the financial stmts, reserves, budget, etc. don’t look healthy, banks may not be willing to lend there. These items are important to know because if your Coop is facing any of these issues, you may need to find a cash buyer which means your pricing will need to be more aggressive otherwise you may sit on the market for a while. And contrary to popular belief, cash buyers are not running out in drones to buy Coops. I would say 95% of the coops we sell are to buyers obtaining loans.
Some Things are out of your Control
We sell so many Coops that we unfortunately get to see a whole bunch of different situations which cannot be explained nor justified. For example, we sold an apt in one development where “supposedly” they didn’t want to sell to any single males because they had a problem with people in the past throwing parties and making too much noise. Then there was another one where we heard that the board wanted to change the demographic of the building so they were only selling to a certain demographic and denying all other applicants. We also had one where the board kept denying our buyers because the managing agent owned the apt upstairs from our unit and she wanted to buy it in order to convert it into a duplex. Another Coop supposedly wouldn’t sell to retirees. Moral of the story, when you sell a Coop you are unfortunately at the mercy of the board, and if there are any inner workings going on that you don’t know about, your buyer may get denied. In all honesty though, most Coops run a smooth and non-bias operation. However, there are some developments out there that are doing some shady, discriminatory, and sometimes even criminal activities. Obviously you can’t control that, but when you decide to sell, it’s not a bad idea to talk to some board members and get as much advice as possible before you hit the market. One thing that is always helpful is having a good relationship with a board member and the management company. We’ve seen these type of relationships help Coop owners in many ways during the selling process.
The Importance of your Original Stock Certificate
This is your proof of ownership and it is very important for you to have the original when you go to sell a Coop. If you have a current mortgage on the apt, than your lender will most likely have the original, however, we have seen cases where the loan was sold or transferred to another bank and then the stock certificate was lost in translation. That deal ended up falling apart because it took too long to track down the original stock certificate. Therefore, it’s a good idea to locate the stock certificate early because if you wait until you find a buyer, you may run into an issue that delays contracts which means risk of losing your buyer altogether…
Your Offering Plan and what Happens if you Don’t Have It
The offering plan for your building is the prospectus of the building when it was originally converted into Coops. In short, it’s that big book you received when you bought the apt. If you remember the book but didn’t keep it or don’t know where it is, you will need to purchase one because that, along with the last two years financials, are what most buyer attorneys will ask before going into contract with you. The only exception is if your development was originally built as a Coop in which case there would not have been an offering plan… Also good information to know 🙂
Well, we hope you find this information helpful. If you have any questions or would like some advice before selling your Coop, feel free to reach out anytime…
Blog & site courtesy of George and Abigail Herrera with the Queens Home Team at Keller Williams Realty Landmark II.
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