The Formidable Co-op Approval Process
NO matter how wealthy you are, or how much money you spend on a co-op apartment in New York City, what you have to go through to get approved by the building’s board of directors is a level of scrutiny that no one is spared.
“I tell my clients that it’s the most gross invasion of your privacy you’ll ever experience,” said Douglas Heddings, the president of the Heddings Property Group. “But if you want to buy a co-op, there’s no getting around it.”
What began as a screening process to maintain social exclusivity is now justified as a way to ensure a building’s financial stability — and in fact, New York has had fewer foreclosures than other markets largely because co-ops will not accept buyers who bid on apartments they cannot afford.
Although many condominiums have a similar application process, the big difference is that co-ops can reject an applicant without giving a reason, forcing the seller to find someone else. If a condo rejects an applicant, the building must agree to buy the apartment on the same terms — an option that is seldom exercised, so the approval process is more of a formality.
Real estate agents and lawyers say rejections don’t happen often, because brokers generally vet buyers’ financial qualifications before submitting an offer and will advise buyers to avoid an application process that is unlikely to go well. But once you get to that stage, here’s what the typical board application package includes.
Application and Cover Letter
After your offer has been accepted, the building will send you an application asking for your current address and employment history as well as about your finances and any litigation you’ve been involved in. It will also list the documents you have to submit and include forms to sign, like a lead-based-paint disclosure form.
You’ll be expected to write a cover letter introducing yourself and explaining why you like the building. “Flattery will get you a long way,” Mr. Heddings said. “But it’s key not to be presumptuous. Present yourself as a prospective purchaser — don’t presume you’ll be approved.”
He also suggested organizing your package so that busy board members can quickly find the information they’re looking for.
The most important part of your application is a financial statement summarizing assets, liabilities, income and expenses. This means information on bank and brokerage accounts, car loans, any mortgages, your salary and bonuses, the value of your art collection, tuition payments, child support, life insurance and whatever else your agent or lawyer will advise you to include.
You’ll need supporting documents for everything on your financial statement — like copies of pay stubs, art appraisals and retirement account statements — and the numbers must match everything on your summary. Honesty really is the best policy here; boards will scrutinize these figures.
Or as Ron Gitter, a Manhattan real estate lawyer, put it, “Stretching is good for yoga, but not for co-op applications.”
Most buildings also require two to three years’ income tax returns, including all schedules, and a copy of your mortgage application and commitment letter if you’re financing the purchase.
Mr. Heddings suggests: two to four personal references vouching for your character as a friend and potential neighbor; two to four business references addressing your integrity in business dealings; and one to three financial references from an accountant, portfolio manager or bank representative vouching for your financial responsibility.
For the personal references, the writers should be encouraged to include details that give a sense of your interests and family life. “I like to have it somewhat personal — like, ‘We knew each other in college and were on the rowing team,’ or ‘We ski together every year,’ ” said Tim Desmond, a senior vice president of Stribling & Associates.
As often as possible, the references should talk about both people in a couple and be written by New Yorkers — as opposed to childhood friends in other cities. “If you’re living in New York and none of your letters are from New York,” Mr. Desmond said, “that sort of raises an eyebrow.”
Besides poring over your application package, boards do their own research to find out whether you’re hiding anything that might make you an undesirable neighbor. The research typically includes credit and criminal-background checks.
“Some of the higher-end buildings are spending $3,000 an applicant,” said Michael Wolfe, president of Midboro Management, a property manager in Manhattan, “and they’re using an agency to dig through your background with a fine-tooth comb.”
He recommends disclosing any red flag — like a criminal conviction, lawsuit or bankruptcy — and explaining what happened, before a board has a chance to discover it independently. “Once you hide it,” Mr. Wolfe said, “the board thinks it’s worse than it is.”
Another tip is to run a social media check on yourself before you submit any offers, and delete, if you can, any family member’s dodgy digital tracks.
“You should have cleaned up your Facebook page and your kids’ Facebook pages when you started looking for an apartment,” said Teri Karush Rogers, editorial director at BrickUnderground.com, a New York real estate guide.
Many buyers worry about meeting board members for an interview — the final stage of the application process — but getting to this point usually means you’ve gotten a green light.
“Very few boards ever interview anyone without the application being something they approve,” Mr. Wolfe said, adding that out of the roughly 350 transactions his company was involved in last year, fewer than 20 involved turndowns, and only one of those happened after a board interview.
Brokers say typical questions include: Will this be a primary residence? Who else will be living with you? Do you play any musical instruments? Do you entertain often? Do you plan on doing renovations? Do you have pets?
Ms. Rogers says that boards in most pet-friendly buildings don’t ask to meet pets, and that the best way to avoid this possibility is to submit reference letters for your pet, or a certificate from a class like the American Kennel Club’s Canine Good Citizen program.
Another commonly asked question is whether you are willing to serve on the co-op board. “If you’re applying to a very small co-op where they need active people,” Ms. Rogers said, unwillingness “could be a deal-breaker.”
Boards are not supposed to ask about marital status, race, religion or sexual orientation, which could open up a building to a discrimination lawsuit if you were turned down. Although there are ways that board members can sidle up to these topics, brokers and building managers say they are rarely employed.
“I find that over all, boards are very fair,” Mr. Wolfe said. “They’re not on a power trip. They want pleasant neighbors.”