TIPS ON BUYING A NYC APARTMENT

We want to buy a condo, but our bank says they won’t make a loan for that building. Why?

Banks evaluate loans using guidelines supplied by the Federal National Mortgage Association (better known as Fannie Mae). There are three common reasons a building may not qualify under these guidelines. First is the ratio of investor-owned units to primary residence units. Primary residence units are considered lower-risk, as are apartments owned as second homes. Second homes are often incorrectly lumped into the investor percentage. A building’s property manager can perform an analysis to determine an accurate unit ratio.

Another typical issue is the reserve fund. While Fannie Mae requires a 10 percent reserve fund, many banks are willing to accept a lower percentage. We find a reserve study can help the bank evaluate the reserve based on building age, condition, and so on.

The third common issue is insurance coverage. Within bundled insurance policies, it is difficult to assess the coverage for individual properties. A property manager can often supply additional documentation or clarification to address the lender’s objections.

When a building doesn’t meet these or other Fannie Mae criteria, a waiver from Fannie Mae’s Credit Variance Administration System may be requested. Alternatively, another lender may evaluate the loan differently, so it doesn’t necessarily mean that a loan can’t be obtained from a different bank. You should always shop around, and be sure to talk to the manager and the transfer agent about a bank’s specific concerns. There may be an easy resolution.

Mark Motley is senior managing director, owner occupied cooperatives and condominiums, at Rose Associates.

My lawyer said there have been four different management companies over a five-year period at the building we are looking at. Should we worry?

If there is a constant turnover of management companies, one needs to look at the reasons why the property has changed hands so frequently. If the board is making poor choices regarding the management company it hires, prospective purchasers should probably be concerned about the board. Poor decision-making can have a negative impact in building operations and diminish shareholder values.

You should know that over the past 10 years, there has been a significant amount of consolidation in the management industry and many management companies have disappeared as they have been taken over by larger companies. You may want to find out if this has been the case in the building you are interested in.

Fred Rudd is president of Rudd Realty Management.

I want to buy an apartment directly from the sponsor. Is that a problem?

That depends on who you are talking to. If you are a prospective buyer, the answer is that it is not a problem. In fact it is a much easier way to purchase into a co-op. When selling an apartment, the sponsor is exempt from following the board's guidelines and interview process, so purchasers of sponsor units do not have to go through the co-op's lengthy application packages and review process and do not need a board interview to purchase. This can save considerable time and money for the prospective shareholder.

As long as the sponsor performs due diligence in qualifying the applicant there is usually not a problem; however, many boards feel that the sponsor's only interest is in selling the apartment and therefore is not invested in putting applicants through extensive background checks that cost money.

Many times we hear complaints that purchasers of sponsor units do not even get a copy of the house rules. We recommend to boards that they should invite the new shareholders to an informal welcome meeting to say "hello" and inform them of house rules and other issues. That way, the new shareholders can be informed. This usually leads to a "good neighbor" feeling and also accomplishes the board's goal.

David J. Amster is president of PLI Management.

We learned that there have been reports of bedbugs in the building we are interested in. Who's responsible for getting rid of them?

Guidelines pertaining to bedbugs vary depending on property types (condo or co-op) and the respective bylaws in the offering plans or shareholder agreements. According to legal precedent, a co-op board is required to keep a building in "good repair" for the shareholders, and that includes extermination services for pests.

In addition, as units within co-ops are considered to be leased as opposed to being owned outright by the tenant, co-ops are generally covered by a "warranty of habitability," as per New York City's real estate property law. Within the city, landlords are required to maintain buildings that are suitable for tenants to live in without endangering the tenants' life or health. Extermination of bedbugs is governed by this law as bedbugs are pests that can pose a health threat.

The warranty of habitability generally does not apply to units within condos, as those are owned outright by the tenant. If one lives in a co-op, it is important to review the terms of one's proprietary lease as some co-op boards will hold a resident responsible for infestations that are limited to the resident's unit only and are not a building-wide infestation. For the condo resident, the building is legally responsible for infestations in common areas or that have been caused by a building-wide maintenance issue. However, the apartment-dweller will be responsible for treatment if the infestation is limited to his or her own unit.

Alex K. Kuffel is president of Pride Property Management.

I'm concerned about vermin. Is there some way I can double-check what this building has done about this issue?

The buyer's best approach is to have his or her attorney, as part of the due diligence process, review the last two years of minutes to see if there were issues and what action was taken. The property manager should also be contacted to see if any problems exist or if there is a history of vermin in the building and what measures were taken to solve or alleviate the issue. The manager can also convey how often and effectively the building is treated.

Marsha Kolker is director of operations at Sandberg Management.

There's an "electronic doorman" at the building we are interested in. What's this, and should I be concerned?

Electric, cyber, off-site, or virtual doorman is a person in a location other than your building. The idea is to connect the building's intercom to a call center located somewhere else in the country. The doorman who's located off-site will answer and verify information related to you as an owner and provide the services you need. If a building is worried about the expense of a doorman and what comes with it in terms of payroll and union dues, this could offer a great solution.

Abdullah Fersen is CEO of Newgent Management. 

Our lawyer has told us that the building's mortgage only has two more years before it needs to be refinanced. Should we care about that?

It's imperative that all associations plan for the future accordingly and the mortgage payment is a part of the overall association plan. As an association comes within two years of the due date, it's important to weigh the prepayment penalties, if any, versus the available interest rates and financing options. It might make sense for a building to pay a prepayment penalty to lock in an interest rate to ensure long-term savings for the association.

The board has a responsibility to try to lower costs while improving the quality of life for its association. You never know what's going to happen in the market and paying a penalty might still lower your obligation in the long run. At the end of the current mortgage period, it's important to lock in with little impact to the annual budget.

Andy Ashwal is executive director at KW Property Management & Consulting.

The building we love has a flip tax. We don't have to pay it now, but if we sell we will. It seems onerous. Can you explain?

To many, it would seem wrong and maybe even unfair to tax the proceeds of a departing shareholder, but consider the following: in many instances, the value of your investment increases over the time of your occupancy.

While most of an apartment's increased value is because of market conditions and improvements within the unit, a good portion is tied into the overall condition of the building. Co-op boards that are diligent in maintaining the assets have added value, too. They have learned to draw capital funds by refinancing their underlying mortgage in a timely manner. The flip tax is another natural revenue stream that allows the cooperative to add to the capital improvement fund without burdening the remaining shareholders.

Peter Lehr is director of management at Kaled Management.

The apartment I want to buy is on the ground floor facing a lovely back garden. I noticed a humming noise, though. Should I be concerned?

I think this is an issue that needs to be looked into and raises a number of questions that need to be answered. What is the noise and has it ever been brought to the attention of anyone from management or the building staff so they can come and hear it? If they have, do they have any idea of what has been causing it and how to fix it? If they do not, then when was the last time the boiler was serviced? Has the boiler service been called to come out and hear the noise? Do they know what is causing it? Is there something wrong with the boiler that can be fixed or adjusted to either make the noise go away or lessen it? Or is this the normal operation sound that the boiler makes when it is on? If this is normal, is there another way to reduce the sound traveling, such as insulating the boiler room or the apartment in question? Is this sound even coming from the boiler? Might there be another source? Has either an engineer or acoustical engineer been consulted on this? If there is a solution, does the building have the funds to address this problem?

Beth Markowitz is president of Merlot Management.

There's still a sponsor around. Is this a problem?

Sponsor ownership in a co-op can be a double-edged sword. Although it can be potentially problematic, there are some benefits to the co-op corporation. The most serious potential problems are financial. A financially weak sponsor with negative cash flow (the rents generated are less than the maintenance being paid) presents a risk to the co-op.

Another potential problem is the impact on sales, and the obtaining of mortgages – both the underlying mortgage for the co-op as well as individual mortgages on both sales for prospective purchasers and refinancing for existing shareholders. The issues are primarily tied to the number of remaining apartments owned by the sponsor. Another potential problem is board control and interference. There is also a potential issue with controlling and managing building staff and ensuring that the staff is not engaged in "private" work on sponsor apartments. The last potential problem relates to quality of life issues in a building that may be negatively affected by problematic sponsor tenants, both statutory and free market.

The potential benefits relate to the sponsor's historic knowledge of the building. The sponsor may be in possession of records, files, and building plans that would be important to the co-op. The sponsor may also have relationships with professional vendors, contractors, and lending institutions that could be leveraged for the co-op's benefit.

Neil B. Davidowitz is president of Orsid Realty.