Months of fruitless, frustrating searching had finally come to an end. The young woman had found her dream apartment. She made an agreement with the seller, worked out a financing package with the bank, and now had to get the approval of the co-op board. On paper, she was an ideal candidate. She was a professional earning a good income, was already a co-op owner, and came with sterling references. Yet she was worried. The seller's broker had said, "This is one tough board."
Tough? Perhaps. Certainly the board put the potential buyer through a kind of hell. She completed and submitted the package, with references, financial statements, and other requested data, by the deadline. She was told the board meeting would be held in two weeks and that the board would probably want to interview her then. So she waited. The day before the meeting, she was still anxiously awaiting a call. The day after, she still hadn't heard.
Finally, the broker called, informing her that the meeting had been postponed. A later call told her that it was canceled and that it would be another month before the next board session when the directors would "probably" interview her. The next date came and went, this time with a phone call five days before the meeting, asking the young woman and her father, a cosignatory on the mortgage agreement, to be ready to come in for an interview. The father rescheduled a meeting he had for that night. But it was in vain. No call came. This time, the board simply had too much on its agenda to interview the prospective tenants. Maybe we can see you at a special meeting soon, the directors said through the manager...
One woman's dream apartment had become a nightmare. "People began asking me why I wanted to live in a place where the board treated people like that," she recalls. "I began wondering that myself."
Why indeed? In the world of co-op resales, tough boards are almost a cliché of the brokerage trade. Yet talk to David Welz, board president at The Vermont, a 100-unit co-op in Queens, and you get a different picture. "As soon as we have the complete application package, we review it and schedule an interview," he explains. "If we get it in November, they are scheduled for a December meeting. If there is an application in the summer, when we don't meet, we'll schedule a special meeting. The screening is done properly and professionally."
To an anxious buyer, one man's professionalism may seem like another's power play, one's tough standards like another's unreasonable rules. The result could be confusion, chaos, and ill will among potential owners. "There's a lot of legitimacy to those complaints," admits Arthur Davis, a co-op consultant. What is the best way to approach the ramp-up to the interview process? How - and why - should your building avoid the worst extremes of the "tough board syndrome"?
ON WITH THE DANCE
The first step is to look at your own interview procedures and see if they work as smoothly as they should. At Welz's building, for example, things used to be very casual. He recalls that sellers would call him up and say, "David, I've got a buyer. Can you see him next week?" The board would subsequently scramble to assemble members for an interview and often look at a more-or-less-complete application package. "It was very helter-skelter and it was a strain on me," the director admits.
Former board president Ana Samin's 420-unit Yonkers co-op faced similar problems. Before Samin revised the process, the board would assemble anyone who was available for an interview, while the review process itself was haphazard. "I felt it wasn't very fair," she says. "It needed to be overhauled."
What Welz and Samin realized was that fairness counts. For, in the resale process, boards such as theirs have two constituents: those who live at the property and those who want to live there. In the course of protecting one group, boards can inadvertently abuse the other. Indeed: many boards that come across as tough may just be inept. As Welz and Samin eventually discovered, there are ways to streamline the system.
Doing that means understanding where the potential problems can occur. The initial area to consider is "the package," the information required by the cooperative to determine the suitability of the proposed buyer for the building. In addition to the application to buy shares in the cooperative corporation, the following information is normally required from the buyer: a copy of the executed sale contract; a financial statement; an employer's reference letter, stating the length of employment and annual salary; a loan application, bank commitment, three Aztech forms; and, if there is financing, recognition agreements signed by the lender.
Also necessary: bank reference letters, indicating type of account (savings/checking) and balance amount; three personal and three business reference letters; current landlord or manager reference letter; and two years of tax returns and W-2 forms.
A typical letter from a management firm to a potential buyer (this one from Lawrence Properties) says: "Please submit the original and nine (9) copies of the application and all required documents in complete, collated sets... Only complete applications will be forwarded to the Board of Directors..." The applicant must also pay application, processing, and credit check fees, usually to the co-op and the management firm.
"There are many legitimate reasons why the process takes a while," notes Donald H. Levy, director of management at Lawrence Properties. "Boards also don't like to be rushed. They have a fiduciary responsibility to fulfill."
NEED TO KNOW
Beyond these basics, the boards should decide on what set of standards they want to apply. How much information do they need? How much do they want? At Samin's co-op, for example, the board goes beyond the paperwork and requires a visit to the potential buyer's current home. "We wanted to check out quality-of-life issues," she explains. "In some instances, they said they didn't have a dog or cat - at the time, we had a no pet policy - and we'd check that out."
Some Park and Fifth Avenue boards require "$200,000 to $300,000 in equity before they'll even consider the application," says Francine Goldstone, an associate broker at Susan E. Goldy. Others insist on "blue blood" reference letters - and never references from controversial celebrities like Madonna. Both requirements can stem from legitimate concerns about finances and/or "celebrity traffic" in their properties.
Other boards, however, exercise clear abuses of power for misguided reasons. Professionals report that some directors feel it's their duty to reject people to make their co-op more desirable, as though it were an exclusive country club. "The board members may see themselves as playing hard to get and increasing the desirability of the building," observes Herb Cooper-Levy, a former housing consultant. "In the long haul, it does dampen interest in the marketplace. If the co-op is doing it purposely, it is just taking solid aim at its own feet."
The managing agent should be the initial gatekeeper and "screening committee." There is a large cast of characters who need to be dealt with in preparing the package: the mortgage broker, the attorneys (from both the buyer and seller sides), the brokers, the reference letter writers. "Those people need to be coordinated," says Steve Greenbaum, director of management at Mark Greenberg Real Estate. "The manager, or a good broker, must act as a gatekeeper to keep on top of what's needed." Indeed, most outsiders do not realize how time-consuming the process is and how many people are involved in each resale application.
Nonetheless, David Kuperberg, president of Cooper Square Realty, says paperwork should flow quickly from the manager. He and other agents agree that the screening process, from submission of the completed package to scheduling of the interview, should take two to three weeks, at most.
"We have a program that we call RAP [Rapid Application Processing]," he notes. "We process and deliver completed sales applications to our boards within 48 hours of receiving them, which includes credit reports, basic computations of assets versus mortgage, income versus carrying costs, and all other calculations."
Welz reports that the manager performs all the initial screening of packages at his co-op. "I don't want to have anything to do with it until the package is completed."
Assembling the package is where the first set of buyer-induced delays can occur. A would-be owner may want the board to look at whatever information is available as soon as possible (since mortgage commitments have time limits), but few boards will ever examine an incomplete package. If items are missing on submission, the application goes over to the next meeting, and the buyer must supply the missing items.
Once the package is submitted, additional information may be needed to answer new inquires that have come up. For instance, the board may have questions about assets or financial statements or about the ability of the buyer to afford the co-op on his own. If there is a cosignatory (such as a parent) on the loan, a financial background investigation will probably be required on him, which starts the process all over again.
"[Buyers] get upset," says Gerard J. Picaso, president of Gerard J. Picaso, a management firm. "It's going into the third month and maybe now the board finally has all the stuff - and, then, it isn't good enough so they turn you down."
Boards compound the problem by sometimes acting as though they don't understand the time frames and urgency on the part of each buyer and seller. In the case of the young professional woman described earlier, the board seemed almost casual in its concerns for the buyer and seller. Those two parties have worries that go beyond co-op approval: the seller wants to sell so he can close on his new apartment while the buyer wants to buy so he can put his old home on the market and sell it. Often the proceeds from the sale of one place will pay for the purchase of another. "The seller has different objectives than the shareholder," explains Davis. "The seller looks at things differently. His concern for the building's welfare becomes secondary."
Understand, too, how it looks from the buyer's point of view. The amount of data requested can alienate first-time purchasers into co-ops, who often find it intrusive. Boards should realize that the process can put the potential buyer on the defensive.
"Inherently, it is very odd," observes Alexander de Bordes, an associate broker at Eychner Associates. "Buyers will say to me, 'I am thinking of living next door to people who know more about me than I do about them.' I tell them it's for their own good. I say, 'It's like applying to college, you're infantalized to a certain degree.'"
"It is intrusive," agrees Klara Madlin, president of Klara Madlin Realty, a brokerage. "People from Manhattan are used to the system, even though they don't like it. Anyone from another city or country is appalled. They say, 'You mean, I have to give my income tax forms to seven strangers? My family doesn't even have it. They've got a point."
IN THE LOOP
Considering the buyer's concerns and keeping him or her in the loop as much as possible should be part of the board's application process. "It's a lot of material," admits Goldstone. "Sometimes it's huge - two shopping bags full, with copies of going to each board member." To a buyer, it can seem like a power trip. Therefore, the manager should explain that the requested information is confidential and not arbitrary but for the financial protection of the building overall. Such communication may not eliminate the stress for the buyer but it makes the board less of a villain and more of an understanding but stern uncle.
By the same token, the manager should let the buyer know what the tie-ups are: if there are missing materials, advise him/her that there will be delays. "If you tell them what the possible snags could be - like not submitting a complete package - then you are making them more a part of the process," Davis says. "A lot of buyers think that once you get the package in, it should take two or three days. That's not the way it works. It can take two or three weeks, if everything goes smoothly."
In addition, the manager should explain that the board is simultaneously dealing with other issues, some of which seem to have more or equal urgency: leaks, capital improvement projects, and mortgage refinancings. "A typical board will have many pressing matters," says Levy. "That forces them to put off resale matters. It is unfair, but it happens."
"I think boards are pretty reasonable," observes Bob Harwood, chief operating officer of Century Operating Corporation. "Applicants can be unreasonable because they do not understand why it takes so long."
RUNNING ON SCHEDULE
The directors should have a proposed timetable for the approval process and then have the manager inform the buyer, in advance, how long it will probably take. Some advise setting a regular monthly date when resale interviews take place. If the board meets on the first Tuesday of the month, for instance, the interview committee can meet on the third Tuesday.
"That way, brokers know in advance when the interview dates are and they can coordinate application forms so they can meet that date," explains Jim Goldstick, a management executive at Mark Greenberg Real Estate. "The worst case scenario is the ad hoc meeting which is scheduled whenever you can get a quorum, or the buyer is available, or whatever. That can drag on forever."
Dick Pollak, president of the board at the 48-unit 404 Riverside Drive in Manhattan, says that his co-op schedules interviews for the next available meeting. "I can also poll people by e-mail," he says. "If no one objects to anything in the package or has any questions, we can schedule an interview sooner. It's pretty much streamlined."
The Vermont prepares a monthly schedule of meetings; if someone needs an approval when the board isn't meeting - say, in the summer - a special session can be called. "We try to be flexible," says Welz. "We don't want people to be kept waiting."
Samin's building has a ten-day turnaround - ten days from the acceptance of the package to a scheduled interview - and then renders a verdict within 48 hours. "Before we instituted that, some people got their interview in a week, some in six weeks," she explains. "We felt it wasn't fair. We want people to know what to expect."
Sometimes it can help to set up an admissions committee, so the potential buyer doesn't have to wait for the full board to assemble. To relieve pressure on the board, this should consist of at least two directors and possibly two non-directors. By having committees perform the interviews, the process can be handled in a more timely fashion. The full board copes with ongoing business and the smaller, two- to four-person committee can more effectively meet and deal with the package and interview. The board can then take the committee's recommendation and vote yea or nay.
One other concern: consistency. The board should be consistent in how it designs and applies the rules. "The worst thing is when the boards change the ground rules as they go along," says Picaso. "Say people are applying and the board says, 'You don't have enough money to afford this.' That's all very subjective. What if he has a million in the bank and makes $40,000 a year? Not enough, says the board. But think about it: he has $500,000 in the bank, so if he loses his job, he can still cover it. Is that worse than someone who has $40,000 in the bank and makes $100,000 a year - but it's a new job and he can lose it? You should think it through and set some consistent standards."
"In terms of financial wherewithal, you may want to have predetermined minimum financing rules," agrees Irwin Cohen, president of A. Michael Tyler Realty. "Define the issues in advance."
Some have pushed for a uniform package, setting consistent requirements and standards. Many managers and brokers employ a series of forms prepared by the Real Estate Board of New York (REBNY), which is available to REBNY members - usually your managing agent - from the organization's web site (http://www.hia.com/rebny). The Council of New York Cooperatives and Condominiums also has a package (http://www.cnyc.com).
"You want everything to be clear and precise," explains Anita Sapirman, president of Saparn Realty, a management firm. "We've worked with [REBNY's] Real Estate Management Council to create good packages. In the past, there has been confusion with brokers about what was required. The broker and the manager should get together so that everyone is on the same page."
For instance, Samin's building designed a uniform set of criteria and questions for everyone. "You'd always want to compare apples to apples," she says, explaining that previously the information packets and questioning had been ad hoc and inconsistent. With the changes, "We always walked away trying to be fair to each person."
If a board abuses the process, there could be far-reaching consequences. "A co-op that is perceived as exclusionary ends up hurting itself," says Cooper-Levy. "If the board doesn't meet its responsibility to screen potential members, it's hurting itself in the long haul. If the building gets a bad reputation, it may damage the worth of the cooperative."
To begin with, the value may decrease. "Brokers tend to steer people away from those buildings that have reputation of rejecting buyers," says De Bordes, the broker. "With fewer candidates applying, the resale prices will go down."
It could affect the future harmony of the building and the board, as well. If the board gives applicants who are ultimately approved an unreasonable time that will breed resentment towards the directors and their policies. And it will also make it more difficult to get new blood on the board.
"These are potentially part of your team," says Davis. "The better boards don't just interview the buyers; they are looking at them as potential directors. Here are your potential neighbors. They should be handled with dignity. You only get one chance to make a first impression. The problem is that, with their lives an open book, the buyers are defensive and most boards don't reach out in a welcoming fashion. They seem to be critical."
Remember: buyers are people, too, so treat them that way. Davis recalls a board that had a $300 application fee. It interviewed a couple that was soon to be married. Even though the directors knew of the impending marriage, they charged the applicants $600 ($300 apiece) rather than the $300 they would have charged a married couple. "The board accepted them," says Davis, "but the owners were so outraged. Everything got off on the wrong foot. They now badmouthed the board. You do enough of that and you alienate a lot of your community. It should be a welcoming process."
"The people on the board have a responsibility to act in a timely fashion," Cooper-Levy notes. "People understand that if there is a leak in the roof, it is their duty to fix it quickly. The same is true in membership selection. It's like a leak. If you don't deal with it, the problem - in this case, increasing the membership and increasing your property's values - gets worse."
In the end, if you don't understand the process and explain it to those who want to live in your building, you will end up with a depreciating property, angry owners, and a headache that could easily have been avoided. Your home may be your castle, but you don't have to be dictatorial about it.
"The board has to recognize that the goals and needs of the purchaser and the building are all the same," says Kuperberg. "The future owner is as important as the current ones. This is a service business and you have to recognize who you serve: all the owners, present and future. Come on, wake up and smell the coffee."