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Tom Sinclair and Liz Roberts, a married couple who owned a co-op on the Upper West Side of Manhattan, felt like they’ve been sandbagged. They brought a buyer for their apartment to the board and expected an easy approval. “She had submitted what seemed like pounds of paperwork, showing how strong her financial picture was, along with sterling character references,” Sinclair recalls. “I had heard how tough some co-op boards were, but neither Liz nor I expected any trouble. After all, my wife had been a long-time model resident [in the years before our marriage] and our potential buyer seemed perfect.”
They waited … and waited … and waited for the board’s decision. Finally, some four months later, they were told that their buyer had been rejected. “No further explanation was forthcoming, and neither the head of the co-op board nor the managing agent had the courtesy to return our calls. My wife tried everything to get in touch with the board president – calling, writing, putting a message in the co-op board complaint box, even going to her door. But she received no answer or communication from her whatsoever.”
Sinclair’s story is not uncommon, and what that board may have needed was a schedule, or a timeline, to keep them on track.
The Buyer Gets the Package
The admissions process seems like it should be a straightforward affair. The seller gives the admission package to the buyer, the buyer completes it, management vets it, the board reviews it, and then says “yea” or “nay.” Yet even the simplest procedure can become complicated where co-op boards are concerned. (Condo admissions are another story, since condo boards have little power to reject new buyers, short of buying the unit for the association.) That’s why boards may want to follow a schedule.
The first point on any admissions timeline is, in fact, the least important to the board – and in which it has very little involvement. That is getting the package out to the buyer. The seller or broker will present the building’s admissions package to the would-be buyer. Depending on the contract between the buyer and the seller, the buyer can have anywhere from three weeks to three months to complete it. The applicant fills out the forms, provides financial statements and reference letters, and offers financing documents from a lender, including the essential commitment letter.
Vanda Jamison, president of a two-building, 44-unit cooperative in Harlem, says that her board won’t even review a package without a commitment letter. “We’ve learned not to act prematurely,” she says. “When we did in the past, we wasted a lot of time [because the loan fell through].”
According to Annaise Valerio, a transfer agent in the closing department of Rudd Realty, a management firm, this material is then reviewed by the manager. That should take a week, she says. If that review finds that the package needs more – tax returns are missing, financial statements have gaps in them, references are obviously form letters – add more time. The manager returns the package and requests it be returned within another week to ten days.
Until this point, the board has very little involvement in the timeline, although if you hope to encourage sales within your building, you may want to review the status of sales applications with your manager.
One broker says that such a review might reveal that some processing delays are being caused by your agent. If your co-op has a great number of shareholders who are refinancing, then your manager – who usually acts as the transfer agent in refinancings as well as sales – could get backed up, warns broker Bruce Robertson, a senior associate with the Corcoran Group who has also been a board member at his co-op. “Those refinancings are clogging up the system,” Robertson observes. “A broker can put together the loan package and get it to the manager. But then they wait. As a broker, I may send an e-mail to the manager, reminding him of the deadline. But he usually says, ‘I’ll get to it later. I’ll get it back to you next week.’ That’s where the bottleneck is. You rush it to the board and it’s really ‘hurry up and wait.’”
Delays are where boards get bad reputations in the broker community, says broker Jerry Minsky, a senior vice president at Douglas Elliman Real Estate. Ideally, the manager should turn the package around – from buyer to manager to the board within two weeks (nonetheless, many managers include a disclaimer with their package, saying that the review may take up to 30 days).
Once the package has been greenlighted by the manager’s transfer department, it is delivered to the co-op admissions committee and, absent that, the board itself. (In self-managed buildings, it is up to the seller to manage all the logistics, including hiring a lawyer as transfer agent.) A copy of each package is distributed to every board member, with confidential information, such as the social security number, redacted. Some distribute this data electronically. The admissions committee should spend a week to ten days before giving their recommendation to the board.
The board review, says broker Miriam Sirota, a senior vice president with Brown Harris Stevens, should take about two weeks; however, some take up to three-and-a-half weeks. “I don’t think boards are being malicious [in delaying],” she notes. “They are, after all, volunteers and very busy. But board members need to understand that these are people’s lives they are dealing with, and some of the sellers are selling because of financial need, or buyers have to be out of their apartment by a certain day, or a loan commitment will expire. Boards don’t always think about these things, but they’ve got to make the review of the package a priority.”
“We try to make it clear to boards that delays can be fatal to a deal,” explains Fred Rudd, president of Rudd Realty. Boards should understand this and try to be reasonably accommodating to the buyer.
Such accommodation can lead to challenge, however. Robertson cites an example. “We had a closing yesterday in my building,” Robertson recalls. “We had a buyer who had to be out of his rental by December 31. It was rough, and we really had a lot of obstacles to overcome. We lost two weeks because of [Hurricane] Sandy – the managing agent had lost power for two weeks, so they were out of commission. Then there was Christmas and the holidays, which caused more delays. But we got some board members together and managed to pull it off. We approved them and they could move in on time and not have to pay two months extra rent on the apartment they were leaving.”
For all that, however, some boards don’t like to be rushed, saying that it is their duty to move with deliberate speed, insisting that would-be buyers get their applications in within a week of the regularly scheduled board meeting, so that the directors have time to review it and then discuss it. If the buyer misses that deadline, he or she has to wait – possibly a full month (or two, if it is the summer when meetings are less frequent) for the next meeting.
Whatever procedure they follow, boards can keep on track by creating a schedule and remembering what the whole process is about. At the end of the day, says broker Minsky, the savvy board understands that it should be conscientious but accommodating, and remember that this is, after all, about finding the right neighbor – and making a sale.
“Boards have to follow the rules,” he concludes. “They should be considerate of their buyers and remember that, through their actions, a real estate deal can fall apart at any time.”
Habitat, February 2013