Guidance for a very nervous first-time coop buyer in NYC

October 8, 2023 3:42 PM

My offer was accepted on a co-op in Brooklyn. Yay! It is a sponsor unit and for reasons I need to move forward without a realtor. As a first-time buyer and a novice in real estate dealings, I’m feeling a bit lost and I am looking for guidance.

As a sponsor unit, I do not need to get board approval. I should also note that I do have a lawyer who is very responsive to my questions/concerns, but who I don’t feel is entirely clear and up front about next steps. What I know is that he has a contract and a deposit is needed, and that I understand it should be signed this week.

Without a realtor, I just don’t know what questions I need to be asking about the unit and building and how the whole process should unfold so I am protected. I think I’m ok with the mortgage and financial parts, since I’m getting help from financially savvy friends and family.

Here are some example questions I have:

* The closing is currently dated to January 15 which seems far away. It seems to me advantageous to move up the date if possible, right? I understand that the seller can always extend this date. Is that right?

*The offer was accepted on Tuesday and the contract was sent Thursday or Friday. The lawyer says we should sign by this Friday. Does that timeline sound right?

* The deposit is 10% which someone told me was high. Should I negotiate a lower deposit?

* I have not seen the by-laws. Do I need to personally look at them before signing the contract? If I do, what should I look for? I already got the low-down on renovations, flip-tax, subletting, etc. from my friend

* The lawyer doesn’t recommend an inspector, but since this is a non-renovated unit that was lived in for decades, I think it might be prudent. If the signing needs to happen by Friday, and it's a holiday tomorrow, am I screwed on getting an inspector in?

* What else do I need to consider before signing this contract and handing my deposit over?

* If I had a realtor, what other sorts of questions would we be asking? What guidance would they tell me?

TIA!!

posted by cardamom to Home & Garden (10 answers total)

Response by poster: I'd like to add that it's not quite right that the lawyer isn't up front about next steps, but that I think he expects I have more knowledge of the process than I do. He is incredibly generous with his time answering my questions. I just don't know if I have all the right questions!
posted by cardamom at 3:51 PM on October 8, 2023

You should review the by-laws for surprises. The board or its property manager should provide these; also financial statements and budget for this year at least. How much money is there in reserves? Have they had special assessments lately, or do they plan any?

I'm baffled by not requiring an inspection. Maybe this is part of the market these days, but even if you can't make passing inspection a requirement, for your own information you should know what state the unit is in.
posted by zompist at 4:11 PM on October 8, 2023 [1 favorite]

First of all, congratulations!

Second, consider connecting with a real estate agent you trust (recommended by friends etc.) and paying them essentially to act as a one-off consultant for you on this. Like, pay them for a couple of hours of their time and ask them all the questions you have. I would do this in your position. I would have been completely confused without my real estate agent when I was buying (and then selling) a Brooklyn coop.

To answer your questions to be best of my knowledge, in order (IANAREA, IANYREA, etc.):

* The closing is currently dated to January 15 which seems far away. It seems to me advantageous to move up the date if possible, right? I understand that the seller can always extend this date. Is that right?

What is your financing like? Are you getting a mortgage? In that case it is generally to your advantage to schedule the closing before your lock rate expires. (Do you have a mortgage broker? Have they talked to you about what kind of rate lock they can get for you? They are usually for 30 days or 45 day or 60 days, depending).

Is the sale date somehow connected to the sellers' needs? Do they not want to move out till Jan 1st? Are they buying another place? How much do you know about their situation?

In general 3 months is a standard aspirational timeline for coop purchase in NYC.

In any case, closing date can be negotiated and moved (mine was moved like 3 times) and whether or not it is to your advantage depends on a bunch of things I have no way of knowing.

*The offer was accepted on Tuesday and the contract was sent Thursday or Friday. The lawyer says we should sign by this Friday. Does that timeline sound right?

Yes, that does sound right. Or at least it does not sound wrong. But not if an inspection has not happened (see below).

* The deposit is 10% which someone told me was high. Should I negotiate a lower deposit?

You are talking about earnest money that goes in the escrow? 10% is standard and normative in NYC. You should not negotiate a lower deposit, it could look like a red flag. Why would you want to do that? That money is part of what you will pay in general, it's not extra money out of your pocket.

* I have not seen the by-laws. Do I need to personally look at them before signing the contract? If I do, what should I look for? I already got the low-down on renovations, flip-tax, subletting, etc. from my friend

Your lawyer needs to look through them carefully and flag any issues. Your lawyer also needs to look at the financials of the building. Is that happening?

* The lawyer doesn’t recommend an inspector, but since this is a non-renovated unit that was lived in for decades, I think it might be prudent. If the signing needs to happen by Friday, and it's a holiday tomorrow, am I screwed on getting an inspector in?

Why does the lawyer not recommend an inspector? You should absolutely get an inspector. I know that when there is a really tough buyers' market people sometimes forego inspection. I would never do that. Without knowing why your lawyer is suggesting this, that actually makes me concerned about your lawyer. You can probably get an inspector before Friday but it takes them time to write a report, and that is not likely to happen before Friday. In my case it took 4 days to get the report back. And then of course your lawyer needs time to read it in case they need to add any riders based on issues identified in the report.

* What else do I need to consider before signing this contract and handing my deposit over?

The lawyer needs to review the by-laws and the financial. You need to be clear on things like assets to liabilities ratio, reserve/rainy day fund, cash flow, history of major repairs like roof or elevator, and whether HoA increases for those repair periods and by how much.

I would personally make sure that if there was any bedbug infestation history in the building it was disclosed. It is often voluntarily disclosed if there is anything to disclose, but I would verify because I am very paranoid about bedbugs. Bedbug disclosure act entitles you to this information.

* If I had a realtor, what other sorts of questions would we be asking? What guidance would they tell me?

I had lots of specific questions about the specific process involving my purchase (which was more complex than yours sounds like it will be -- mine was not a sponsored unit, so required board approval hoops, and it was also an estate sale -- the owners had passed and their sons were selling it, which added an extra layer of paperwork). Again, if not using a broker, I would see if you can pay a broker for their time for some limited consulting.
posted by virve at 4:21 PM on October 8, 2023 [17 favorites]

Everything in this thread is good advice so far. I’ll add that in my experience, inspections are not standard on Co-Ops in NYC. If you’re getting a mortgage, your bank should do due diligence on the building. You should also look through the board minutes for any evidence of serious issues in the building, or upcoming capital projects that might require an assessment. Do not take your friend’s word for it on rules and bylaws. Review them yourself.

Also, consider inserting a clause in the contract that lets you out if you don’t close before a certain reasonable date.
posted by soy_renfield at 4:33 PM on October 8, 2023 [3 favorites]

vivre has a lot of good advice that matches my experiences

My other main piece of advice is to not take any advice from anyone outside of NYC with regards to how real estate purchases work. NYC is very different, even compared to other hot markets, because of the coop/condo financial health considerations for older buildings, coop-specific mortgage issues, NYC-specific taxes, and the role of real estate lawyers in the transactions. The Brownstoner has a bunch of NYC-specific advice like this intro to buying a coop that might be a good resource.

On edit: Also, congrats!
posted by A Blue Moon at 7:23 PM on October 8, 2023 [3 favorites]

10% is standard and if you put down less, you'll have to pay mortgage insurance (PMI.) There's no advantage in negotiating a lower down payment unless you are simply not able to pay 10% in which case you may be buying too much apartment.
posted by less-of-course at 7:42 PM on October 8, 2023

Correcting the comment above this one: the 10% deposit here isn't the mortgage down-payment, which I'm pretty sure ultimately needs to be above 20% to avoid PMI, anyway), but rather the earnest money that gets put into escrow between contract signing and closing, and which would be forfeited if the buyer walks away from the sale for any reason not specified in the contract. This standard-in-NYC 10% deposit generally gets supplemented by whatever cash you're adding at closing to comprise your actual full down-payment. (Confusingly, I think sometimes this deposit also gets called a down-payment, but all the PMI rule cares about is the final total at closing.)

To the original questions: it's not unusual (by NYC standards, at least) to end up buying an apartment without your own real estate agent -- using just the seller's agent and your lawyer to get everything done. But it is a little unusual for your lawyer not to have mentioned that s/he'd be getting the proprietary lease / bylaws / financials within the next few days, and to have you come in to look over anything s/he felt was worth flagging. Maybe the assumption is that'll happen on Friday, right before you sign the contract and put the deposit into escrow? (But you should also have a chance to look over the whole thing yourself by that point. I'd expect a scanned copy to be emailed to you.) Your lawyer is meant to be the more trustworthy party than your real estate agent, anyway, even when you have your own agent, since they're not looking at a windfall if and only if the sale goes through.

As for the inspection, as mentioned by others above, I think especially with coop purchases, where all the structural stuff is outside of your individual responsibility, it's really not uncommon to skip that. There's not that much for an inspector to find, and I'm not sure in this context if they ever, like, check the roof and the furnace to try and predict when they'll need to be next replaced, anyway. (But you should be able to find out when the roof and the furnace were last replaced, and use that to predict roughly when the next big building outlay will be, and compare that to the current reserves once you have a copy of the finances, etc.) Ideally your lawyer probably would have explained this is why s/he was recommending against an inspection in the first place.

Last piece of advice: don't hesitate to ask your lawyer anything, nor to say that you're feeling anxious because you don't know what you don't know. They've (probably) done hundreds of these, so if nothing else they're perfectly positioned to tell you if anything looks outside of the norm.
posted by nobody at 8:40 PM on October 8, 2023 [3 favorites]

One thing that may be misunderstood: the inspection is of the unit to be purchased, not the building per se. The inspector might take a glance at the roof and the boiler, but a lot of that stuff should be obtained through your attorney’s due diligence (e,g., when was the last time the roof was redone & are there any recent leaks, how old are the boiler and elevator & when are they expected to need replacement & how much $ needs to be spent annually on maintenance/repair, etc.—your attorney should know to get all this info and more).

And yes, do want the unit to be inspected. Especially if it’s an unrenovated sponsor unit that probably hasn’t been touched in 30 years, although that may make less difference if you plan on doing extensive renovations. But you’re going to want to know what shape the electrical is in, whether the floors are sound, whether all the plumbing works and whether there might be any issues of concern, whether there are insect/rodent issues, water damage, etc. In fact, it’s standard to do two inspections: one prior to finalizing the contract and a walkthrough a few days prior to the closing date. Memail me for a referral to a great NYC inspector who did the inspections on the condo we bought in summer 2021.
posted by slkinsey at 6:38 AM on October 9, 2023

Oh, one more thing you might not realize: the contract they want you to sign by Friday isn't set in stone! You and your attorney can theoretically ask to add anything you want to it (for example, additional reasons you might be able to get out of the deal prior to closing without losing your deposit), but you'll probably need to rely on your attorney's judgment about what is or isn't reasonable to try to negotiate there.
posted by nobody at 7:02 AM on October 9, 2023

Re: inspection, I don’t know what the norms are re: co-ops in NYC but when we were buying our place (not in NYC, in case that wasn’t clear), as buyers, we wanted an inspection but the sellers wanted to move quickly. We agreed to quickly do an inspection that would be mostly informational; if we found something that would be an ordeal to fix, we’d take it up with the sellers but otherwise, as buyers, we’d plan to just deal with it.

If possible, I’d encourage you to get an inspection because it’s valuable information to have about your investment. When we got a condo, the inspector was pretty pleased with the property overall and only had superficial comments to make (minor electrical wiring issues, for example; he said if we ever had an electrician come in for unrelated reasons, that would be a good opportunity to fix it but there was no need to act more quickly). Re: the building overall, he pointed out it would likely need a new roof soon which was the case. His assessment gave me confidence that we’d made a good decision and that the sellers were honest.
posted by kat518 at 7:05 AM on October 9, 2023