By Frederick Peters
Agents and clients frequently ask if the boards of co-operative apartment buildings relax their guidelines a bit when the market gets tougher. In reality, it's quite the contrary. Generally, co-op boards feel more apprehensive in tougher markets, when prices move downward and may bring less qualified candidates to their doors.
While this is both an intuitive and a counterintuitive response, it helps to understand it, especially in the context of today's unique environment with a highly elevated stock market running in tandem with a national decline in real estate prices. Below are a few things to keep in mind:
Today's stock values are unreliable. Boards always look particularly hard at liquid assets when assessing a prospective purchaser's financial capability. In the current environment, this scrutiny feels particularly important to many co-op boards. Since the directors of many buildings are finance professionals, they often feel more bearish than bullish about the future prospects of a hot stock market. Throughout much of this year, we've heard from board members that they're discounting stock values somewhat in assessing the net worth of applicants since they believe markets are due for a correction. This can prove particularly significant for "borderline" applicants.
Life and/or disability insurance matters. This is particularly true in the case when one member of the couple earns all the wages. Most co-op boards believe that their responsibility to the corporation includes anticipating unfortunate possibilities. If the wage earner becomes disabled, do the other assets provide enough certainty that the maintenance and any assessments can be paid? Although only the cash value of life insurance may be considered a current asset, the existence of a substantial policy can give the board comfort regarding the non-wage earner to maintain the property.
Provide all information, and extra comfort if you can. Buyers often ask me, "How much do I have to show to get into that building?" My answer is always, "How much have you got?" There's no formula for what buildings require; every board evaluation consists of personal and financial concerns. Since most board packages require buyers to divulge their tax returns, we advise full disclosure. That way, the buyer always puts his or her best foot forward and no confusion occurs as the board attempts to sync the tax return information with the assets which have been presented.
Increasingly, co-op boards request either a guarantee of maintenance or a couple of years' maintenance in escrow to allay any financial concerns. While buyers may feel offended by this (and they often do), they should try to remember that this same group of people will act with similar vigilance in protecting their investment once they reside in the building.
Age matters. Co-op boards cannot legally ask a buyer's age, but when a substantial portion of assets are held in retirement accounts, knowing the buyer's age can make a significant difference in whether the board can regard retirement assets as liquid or not. If the buyer has attained an age at which she can cash out her retirement assets without penalty, the board needs to have that information to assess the buyer's total financial picture accurately.
Many factors enter into any board's decision-making process about purchasers. While financial concerns usually predominate, other aspects of the application often have substantial weight, as well. Each building adheres to different criteria when looking at applicants. There's only one rule of thumb: Craft a great story out of all the elements of your financial and personal profile. Make sure it all adds up to a narrative which resonates as convincingly as possible. This remains the most difficult part of the co-op purchase process and it takes the expertise and focus of the agent and the buyer working together to create a successful result.
Frederick Peters entered the real estate business as a residential agent in 1980. After working as a sales director at Albert B. Ashforth for a number of years, he acquired and renamed the 95-year old firm in 1991. Since that time, Peters has expanded the company from 40 to 130 agents and from one to three locations.