I’ve been thinking of writing this post for awhile, and today I’m posting it in honor of a friend that has started to look at apartments and put her first offer in on Sunday! (FYI Another friend commended me the other day for having concise posts–just a heads up that this one will not be!)
What is a co-op?
NYC is among a few cities to have these strange things called co-ops (short for cooperatives). They became popular in the 1980s, when owners of rental apartment buildings wanted to sell the building, and sold it to the current tenants. The tenants then created a cooperative, which oversees the operation of the building.
Buying a co-op is not necessarily more difficult than buying a condo or a house, but it does have some differences. The biggest difference is that you do not own any property when you purchase a co-op. Instead, each apartment unit is assigned a number of shares (as specified in the cooperative offering plan), and your purchase of those shares entitles you to be the only one that lives in that unit. Because you’re not buying a piece of property, you don’t owe any city or state taxes when closing! This saved me a couple thousand dollars.
There are other buzz terms around co-ops. Even after the seller has accepted your bid, and you’ve both signed the contract, the co-op board will review your application. This includes all your financial information, as well as some reference letters. It culminates in an interview with the board, before receiving approval to close the deal. If you stumble upon a sponsor unit, that’s an apartment still owned by the building’s original owner, and is therefore exempt from the co-op board review. Finally, a co-op charges a monthly maintenance, which includes the salaries of the superintendent and doormen, the cost of the building’s mortgage and property taxes, as well as water and heat for each unit.
Cash Money Dollars
One of the first things to think about before buying a place is the money. Do you have enough to put down? How much will a bank lend to you? What monthly payment can you afford?
A simple check of my bank account was enough to figure out how much I could put down. Also, given the high cost of living in NYC, I thought it was worthwhile to borrow a little from my 401k to help get me over the 20% required down payment–a requirement a lot of co-ops (and banks) have. Another requirement that a lot of co-ops have is a minimum amount of money in the bank after closing. It varies from building to building how it’s calculated (ie. a year maintenance payments or two years of total mortgage and maintenance payments), and what money counts (some were ok with investment accounts, while others wanted it all in a savings account).
Applying for a loan dings your credit score slightly, so I chose a few days one week to apply to every bank I could find, starting with the banks where I currently have accounts. Many of them offered a slight discount if you had a savings or checking account with direct deposit or maintained a minimum account balance.
I’ve found that I’m very conservative with my money, so I did a “reverse budget” to figure out how much I was comfortable paying each month. Basically, I took my after tax income that is direct deposited into my checking accounts each month, subtracted out the expenses I have (like credit cards, electric, internet, travel, retirement contributions, savings, etc–anything that I’d like to spend money on in a month), which left me with a monthly payment amount to use for my mortgage and maintenance payments. Luckily, my down payment lined up with my monthly payment and mortgage loan amounts, and left me with a very comfortable range of list prices to start looking at apartments!
In a market like NYC, an apartment will sell quickly if it’s listed for the right price. Therefore, working with your broker (a real estate agent) to see apartments right away, as well as having them be engaged with the seller’s broker is very important. My broker was great, and put up with me driving my own search and asking endless amounts of questions. His approach was to look at any apartment that I might be slightly interested in, so I spent most Sundays in the spring and early summer going from open house to open house. Some apartments I knew from the beginning weren’t for me, and others stuck around in my mind long after I passed on them. But then one day I saw a new apartment pop up on StreetEasy.com (the go-to real estate site for NYC rentals and sales), and I could tell it was special!
Offers upon Offers
If the upside to living in NYC is that there’s an endless amount of apartments, the downside is that there’s an endless amount of buyers. And some of these buyers will have more income, and some are able to make all cash offers. It’s very common to lose out on the first handful of offers you make. My broker said that a lot of his clients put in offers on four or five different apartments before they finally get one.
The first time I put in an offer was in May, and I had seen the apartment twice–once during the week, and again a few days later on a Sunday afternoon. The offer process for that apartment was very organized. We were told that the seller’s broker would send the seller all the offers on Sunday night. He did, and then a few days later we were faced with a second round of offers. We knew that the leading offer was all cash, and $50k over asking! I couldn’t compete with that, but I liked the apartment, so I submitted an offer just $25k over asking. Unsurprisingly, I didn’t get the apartment.
I spent more time visiting open houses until the apartment that would become mine was listed in the middle of July. I went to the open house on Friday, and saw it again the following Monday, when I put in an offer a couple thousand over asking. This time, the offer process wasn’t as well organized, and there was a lot of back and forth with higher and higher offers. Again, there was an all cash offer, but because I ended up going higher, the seller still picked me!
It’s recommended that you have a lawyer, and I had contacted one when I put in my first offer. He also answered a lot of questions for me, but more importantly, he compiled the contract, and made sure the co-op wasn’t having any issues that should give me pause to buy. The contract deposit was half of the down payment, and the lawyer fee was a couple thousand.
The Waiting Game
Once we were under contract, there were some loose ends to tie up. I had a lot of paperwork to finish with my mortgage company, and they did an appraisal of the unit. It’s not common to have an inspection, so I didn’t have one either.
I also had to prepare the board package (the binder full of financial and other documents that the board reads before deciding to extend an interview). I was nervous that they wouldn’t like some of my financials, since I wouldn’t have twenty-some thousand dollars in a savings account after closing.
Fortunately, they were ok with my financials and extended an interview! A week before Thanksgiving, I went to the building and met with the co-op board. Yup, it was over three months since my offer was accepted, but it’s common to wait three to four months before closing in NYC. It took the co-op board almost two weeks to get back to me–this is unusual, as it usually only takes a day or two before getting the board’s approval after meeting.
Then comes the best part: closing! It took another week or two before everyone was able to spend a few hours at the co-op’s lawyer’s office signing all the documents for closing. I think there were at least ten people at the table: me, my broker, lawyer, and mortgage agent; the seller and her husband, her broker, and lawyer; the building’s lawyer; and the deed insurance company, since the seller couldn’t find the original co-op share certificate (which is now safely in the co-op lawyer’s office). And the majority of them were Jewish–only in New York!
It took about an hour for everyone to arrive and all the paperwork to be signed and copied, but then it was done! I was handed a few sets of keys, and sent on my way. My broker took me out for a beer to celebrate, and then I spent a few minutes alone in my new apartment, before returning to my old apartment to finish packing up.
Because once you buy your place, you want to move in! So I scheduled movers for the day after I closed.
And she lived happily ever after 🙂
PS. The pictures in this post are the listing photos for my apartment! Would you fall in love with it like I did?