When a wave of rental buildings were converted to co-ops in the 1970s and 1980s, existing tenants had the option to buy their apartments or keep renting. If a tenant didn’t buy, the sponsor of the co-op conversion, usually the building owner, retained ownership of the apartment and continued renting it to the tenant. When the tenant moves out and the building owner sells the unit, you’ll see the apartment listed as a "sponsor unit."
Here, according to Brick Underground, are the pro's and con's of buying a sponsor unit:
The good news. Avoiding the co-op board approval process is the biggest advantage of buying a sponsor apartment. In a typical co-op purchase, the application process can be extremely invasive with intense scrutiny of your finances as well as your character. In addition to jumping through fewer financial hoops, the buying process is also quicker in a sponsor sale, since you don’t have to wait for the review of your board package and an interview.
With a sponsor apartment, you will still need to have your finances assessed, but as long as your offer is accepted — and assuming you can get a mortgage if you are financing — you won’t need further vetting. “Buying in a sponsor-owned co-op allows you to finance as much as the banks will allow you,” says Melissa Cohn, executive mortgage banker at William Raveis Mortgage. So if the loan amount is conforming — up to $1,089,800 in New York City — then it’s possible to get as much as 97% financing. This is in contrast to a resale co-op where the board often limits financing to 80%.
So sponsor units open up opportunities for buyers with less traditional incomes — freelancers, consultants with contract work, or those who are self-employed.
The bad news. Sponsor apartments tend to be more expensive than resale apartments. Jonathan Miller, president of real estate appraisal firm Miller Samuel, says the higher price tag is partly because sponsor apartments are often newly renovated. But even if there are two similar renovated or unrenovated apartments and sponsor ownership is the only difference, “you might see a 5% or even 10% premium on the sponsor unit.”
Miller says it's not a hard-and-fast rule that sponsor apartments are more expensive, but in situations where a sponsor unit sells for less than a comparative resale, it’s often because the sponsor apartment is “far more derelict in condition than a typical unrenovated non-sponsor apartment."
Like so many other things in life, such transactions come down to a trade-off: How much are you willing to pay to avoid the dreaded vetting by a co-op board?
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