Deciding to buy your first co-op in New York City can be overwhelming and scary. Seeking advice from other wannabe co-op buyers may induce even more anxiety when discussing their own bad experiences and frustrations. More often than not it isn’t you causing the complications it’s the real estate system itself. Below are 11 common key mistakes you should avoid in order to have a more successful co-op purchasing experience.
Mistake #1: Apartment hunting without the help of a broker.
As a buyer, you pay your broker nothing to represent your interest. Yes, nothing! When apartments in Manhattan are sold the seller pays the broker for a job well done in finding a willing and able buyer. The seller pays a 5 to 6 percent commission, half of which goes to your broker.
Not having your own broker would require you to work directly with the seller’s broker. The seller’s broker has a responsibility to do everything they legally can to twist the deal in favor of the seller and against you.
A buyer’s broker will help you navigate through the complicated process of buying a co-op while protecting you from the other mistakes listed below.
The only time your broker may be at a cost to you is if the co-op is For Sale By Owner or listings where the brokerage doesn’t take buyer’s commissions. It is better to be without a broker in these cases.
Mistake #2: Failure to notify the seller’s broker that you have your own broker.
Okay, now you have your broker to assist and protect you. The next step to keep in mind is to have your broker schedule all of your viewing appointments. At open houses clearly indicate that you have a broker on sign-in sheets. Failure to do this could easily lead to you losing professional representation.
Mistake #3: Inadequate mortgage pre-approval letter.
To be taken seriously by any prospective seller you need a mortgage pre-approval letter. The mistake to avoid here is getting a pre-approval letter based on your budget. Make sure your letter is based on the maximum amount the bank will lend you.
Mistake #4: Believing it’s possible to lose a bidding war.
Believing it is possible to lose a bidding war is a false assumption. You will never lose a bidding war if you offer the maximum price that you are comfortable paying. This way if you’re outbid, then the apartment was too expensive for you; if your bid wins, you’ve paid a price you feel was appropriate for the apartment.
Low-balling never works in the most competitive real estate market in the world, New York City.
Mistake #5: Overestimating your financial strength.
Co-op boards don’t only want to see that you are pre-approved for a mortgage. They need more assurance that you can still pay monthly maintenance even if you lose your job. You need to have enough liquid assets post-closing for 24 months of mortgage and maintenance expenses. If this isn’t possible you may have to be more realistic about your maximum purchase price.
Mistake #6: You’re told your offer is accepted. You believe it.
Your offer isn’t officially accepted until the sales contract is executed. Without this contract executed the seller’s broker could still show the apartment searching for a better offer. Make sure you and your broker do everything you can to accelerate the execution of the sales contract.
Mistake #7: Choosing a friend or relative to be your real estate attorney.
The only time this is appropriate is if your friend or relative specializes in New York City real estate. No exceptions.
Mistake #8: Failing to ensure that the co-op is on your mortgage provider’s approved list.
Once the sales contract is executed you will have 30 days to obtain a mortgage commitment letter. If the co-op isn’t on the mortgage institution’s approval list you may not receive the mortgage.
In the case that you for some reason sign a contract that is non-mortgage contingent, you will be in breach of contract if you can’t find a willing mortgage lender. You could lose your deposit under these circumstances.
Mistake #9: Assuming the co-op board will accept your perfect board application.
You could have perfect credit, solid financials, and impressive letters of support and still be rejected without a board interview. Reasons for this could be:
- They may not be investor friendly and believe that you’re trying to rent out the apartment.
- They may be concerned that your purchase price is low enough to reduce property value.
- They may not allow pied-à-terre, gifting, or co-purchases financed by family members.
To avoid this do your best to find out the board’s limitations before making an offer. Once rejected there isn’t much you can do but collect your deposit and move on.
Mistake #10: Failure to check if there is a lien against the unit.
A lien is a right someone may have to keep possession of the property belonging to the seller until he/she pays a debt owed to the them. In this situation, the lien holder has to be notified of the closing. This can lead to delays. These delays can lead to higher mortgage rates if the mortgage lock expires in that time frame.
Mistake #11: Buying an apartment to generate rental income.
This works great in California and Arizona, but not in New York City with co-ops. Once you pay your mortgage and maintenance you’ll be lucky to make 4% a year on your investment. Professional renovators may do better. But passive investors will just gain stress at best, a money pit at worst.
It may be shocking and overwhelming to discover how complicated and difficult it is to buy an apartment in New York. Keeping these 11 mistakes in mind should help make the process a lot smoother.
All Area Realty Services is New York City’s leading real estate management company specializing in full-service professional property management for cooperative and condominium boards in the Manhattan area