There are many reasons that buyers choose to buy into a co-op, and there are many reasons that a person chooses to sell. Regardless of which side you are on, figuring out how to get a co-op board’s approval for the purchase or sale can be confusing.
Though the stringent co-op board screening process was originally created to maintain social exclusivity, today it is used to increase a building’s financial future – and it seems to work. New York has fewer foreclosures compared to other markets, and many believe it is because co-ops do not accept buyers who cannot afford the apartment they are applying for.
The difference between condo boards and co-op boards
On the surface, the application process for a condo and a co-op may seem similar but there is one big difference: the right of refusal. While condos have the right of first refusal to purchase, they cannot actually reject a buyer. The best they can do is to stall by reviewing an application slowly and continuing to ask for more information in an effort to hold up the process.
On the other hand, a co-op requires each potential buyer to be approved by the board. As a result, when an offer is accepted the buyer and seller should work together to create an application package that is most likely to get the candidate approved.
Submitting an application to a co-op board
Once the seller accepts a preliminary offer from a buyer, the seller’s broker should provide a copy of the board’s purchase application with detailed information about what is required. Although there are some differences in the bylaws of each co-op, the following documents are typically required:
- Credit release form
- Contract of sale
- Recent tax returns
- Landlord references
- Bank references
- Financial documents
- Personal references
Include a cover letter – but only if allowed
The rules for a co-op application can be stringent and must be followed precisely. Some do not allow a cover letter but if one is optional then it is wise to submit one. It should include specific reasons why the applicant wants to live in the building. Writing the letter with a personal touch – without including too much information – is a way to humanize what would otherwise be nothing but a stack of lifeless documents.
The financial statement is key
Every part of your co-op application is important but at the end of the day, it is likely to come down to your finances. Your financial statement should include assets, liabilities, income, and expenses. Everything should be included:
- Bank accounts
- Brokerage accounts
- Car loans
- Salary information
- Bonus information
- Value of art collections
- Tuition costs
- Child support
- Life insurance
- Two to three years tax returns
Reference letter dos and don’ts
It is common for both personal and professional references to be required. Personal references should discuss the fact that you are a good neighbor and they should include details about your family life. These should be somewhat personal and give the board the impression that you know the referrers well. Avoid using someone you knew in college but have only kept up with over social media.
Business references should come from your employer and anyone else you do business with. This could be, for example, an accountant, portfolio manager, bank representative, colleague, or business partner. They have likely been asked for similar references in the past and should know what to include.
How to get ready for the background check
The board is going to research each applicant. This will likely include credit and criminal background checks but in today’s world it’s also likely to include a social media check. It is wise for an applicant to include any red flags themselves so that there will be no surprises. Do a social media check on yourself and delete anything that you would not want to be seen.
Getting ready for a co-op board interview
Not everyone gets to the interview process. If you do, then it is likely a good sign that your finances and background check have passed muster. Following a few basic guidelines can turn the interview process into no more than a simple formality.
Think of your co-op interview in the same way you would think of a job interview. You should expect that there will be between three and five co-op board members there. Dress nicely. Be ready to answer the most common questions such as:
- Will the co-op be your primarily residence?
- Who will be living in the unit?
- Do you play a musical instrument?
- How often do you entertain?
- What renovations do you have planned?
- Do you have pets?
- Are you willing to serve on the co-op board?
Boards cannot legally ask about certain things such as:
- Marital status
- Sexual orientation
There are a few things to avoid on your interviews such as:
- Showing up late
- Asking questions you already know the answer to
- Talking about significant renovations you want to do
- Offering suggestions on how to better manage the building
- Offering more information than what is requested
- Acting frustrated by a question
If the co-op board ends by asking if you have any questions, do not ask tough ones. Instead, use this time to ask them about their favorite restaurants in the neighborhood, or what they like about living in the building.
The bottom line: Be honest and be prepared
Until approval is final, it is never a sure thing. That said, your chances will be best if you take the process seriously by being prepared and honest all the way through.