Sotheby's International Realty Donna Stockman

Coop Board Approval

If you are planning to purchase a home in New York City, chances are that you’ll look at and apply to a cooperative building, or coop. Seventy five percent of New York apartments available for purchase are coops. You must complete a purchase application which will be reviewed by the coop board. This application, known as a board package, typically contains a financial statement, all requisite support for your financial statement, two or three years of tax returns, bank and other asset statements, letters of personal, professional and financial reference, the contract of sale, bank documents (if financing) such as the commitment letter and loan application, and other documents as requested by the board.

First time buyers are often shocked by the amount of confidential information required by boards. The primary purpose of the board package and ensuing interview is to assure the board of your ability to meet the financial obligations of owning the property and to provide assurance that you will be a “cooperative” shareholder and welcome member of the community. Believe it or not, the board is tougher than the banks! Although each broker works differently, my clients typically provide all the documentation to me, and I prepare the initial draft of the board package, which my clients then review and sign. This alleviates a great deal of stress for my clients, and helps to ensure a smooth and successful application process.

Please see below for an insider’s view of the coop board approval process:

Creating a Winning Board Package

Each building has its own set of requirements for its board package, so no two board packages necessarily look alike. Board packages should be typed and neat. Although each building has differing requirements, the most common elements of a package are the purchase application, the credit release form, the executed contract of sale, the financial statement, and references. In addition you will be required to provide tax returns, bank, brokerage and other asset statements, employment letters, landlord reference letters, financial reference letters and business and personal reference letters. If you own other property, you will need to provide a mortgage statement, a copy of the deed, and other pertinent information. As soon as you become serious about purchasing, you should begin to collect the materials and to ask people to write references. All information provided in the board package is kept confidential.

Once familiar with your situation, your broker can discuss with you possible areas of weakness in your board package and ways in which to mitigate them. Boards look at your financials, your current and postclosing assets, your debt to income ratio, how much you are financing, the sources of your down payment, your job and salary history, and your references. They will also consider whether this is your primary residence or a pied-a-terre, whether you have pets, and your work. They will also scrutinize the purchase price. If the transaction is executed at what the board considers a low purchase price, they may reject the sale since that valuation will hurt the other shareholders in the building by comparison. The interview is also important as a poor interview may lead to a rejection.

Additional points to keep in mind as you are creating your board package:

  • Reference letters are extremely important. Always ask for more than you need so that the best letters may be selected.
  • Write a compelling cover letter.
  • Some buildings permit pied-a-terres, some do not, and some decide each case individually.
  • Boards look at the profession of a prospective buyer. Many buildings prefer not to have tenants who may be litigious lawyers or high profile flamboyant celebrities. Buildings are sensitive about noise, and will not want a musician or music teacher. Boards will also ask whether you play a musical instrument.
  • It is imperative that you disclose pets to your broker. Some buildings will not allow pets at all, some will not allow dogs, and some will not allow certain breeds of dogs or dogs over a certain weight. Sometimes the pet will need to come to the interview.

Financial Considerations

Boards look at two important financial indicators: the amount of postclosing liquid assets and the projected debt to income ratio. Each board has its own guidelines. In general, you should have at minimum 18 to 24 months and also typically 36 months of mortgage plus maintenance payments postclosing. Some buildings will allow less, and some will require significantly more, even up to the amount of the purchase price of the property. The premier buildings, that typically do not allow financing, will look for even three or four times the purchase price in liquidity. Boards will also consider other debt obligations when looking at your liquidity. A knowledgeable broker will inform you of the building’s requirements.

Boards typically look for a debt to income ratio of about 25%, and a ratio over 30% raises a red flag. Some boards are more lenient than others, and will consider prospective purchasers on a case by case basis. The debt to income ratio is calculated by dividing monthly minimum debt payments (excluding utilities, food, entertainment) by monthly gross income.

If a buyer is at the maximum end of the range, the board may impose conditions on approval, such as requiring from six months to three years of maintenance payments to be put in escrow. After the tenant has demonstrated a history of meeting obligations and has an improved financial position, the tenant can ask the board to remove the escrow condition and have his funds returned.

Here are other financial considerations for buyers interested in coops:

  • It is best to have a steady increase in income. Declining income is a red flag.
  • The board looks for stable and steady employment.
  • Self employed individuals will need to provide verification of projected income.
  • Often a significant portion of a person’s income in the form of a bonus once per year that is not guaranteed. You will need to demonstrate a consistent pattern of bonus income, and it is best if the pattern demonstrates a consistent increase over the years.
  • If your supporting financial documentation does not match the financial statement you have submitted, you may be rejected. Always collect the statements first and then copy the amounts into the financial statement.
  • All deposits in any of your bank or asset statements will need to be explained. The board wants to be sure that the assets are yours, and that you have not borrowed from another source to secure your down payment or liquidity requirements. Some boards will allow “gifting” as long as you provide a notarized form that states that there is no expectation that the gift be repaid. Some buildings may permit guarantors or co-purchasing by parents. However, the guarantor and co-purchaser will also need to fill out the same board package and disclose their financial information.

Providing Outstanding References

Boards in NYC typically ask for both personal and business reference letters. Boards use business reference letters to determine that you are secure in your job and that you will be financially responsible. They use personal reference letters to get a feel for your character and personality. Boards are looking for good people who will be considerate neighbors and community members.

Reference letters are extremely important, and should be substantive. Always ask for more than you need so that we can select the best letters. Additionally, you can arrange for your references to send a draft to the broker for comment prior to finalizing so that you are not in the uncomfortable position of asking someone to change a letter. Always ask early, as reference letters can hold up a board package.

Carefully read whether the board requires a particular format so that you can make that clear to your references when you request a letter. Reference letters should be addressed to the Board of Directors of the building, at the building address, but should be sent to the broker for inclusion in the board package. Reference letters should state your relationship to the person, how long you’ve known them and should highlight your defining characteristics: friendly, cooperative, considerate, ethical, etc. Relating an example that highlights one of your attributes is extremely helpful and compelling. Generally letters should be a few paragraphs, and no more than one page. Business letters should be on business letterhead and personal references on personal or business letterhead. Both personal and business letters should contain contact information.

It is always best to ask someone who knows you well, but never to ask a relative. Particularly for personal reference letters, it’s best to ask someone who’s known you for a long time. If you know someone influential or in a position of power, it is advisable to ask him or her for a reference–just avoid people who are controversial. If you know someone who is on, or has been on, the board of their own coop or condo, he or she should mention that in the letter it as that establishes further credibility.

Links to Sample Reference letters:

Acing the Interview

Once your package is completed and reviewed by the brokers, it will be submitted to the managing agent. The managing agent will review the package, and there may be questions or requests for more information prior to submitting it to the board. Once the board has reviewed the package, they will set up an interview. The interview is extremely important. A poor interview can result in rejection.

Board interviews can be very informal, in a member’s living room, or the managing agent conference room, or can be set up very formally with the board members at a table and the buyers sitting in front.

Here are some rules of thumb about interviews.

  • Be on time.
  • Be dressed appropriately in business attire.
  • Answer only the question asked and answer concisely. Do not volunteer anything.
  • If there are two applicants, decide in advance who will answer which type of questions.
  • Do not get angry about questions that invade your privacy.
  • If you have a pet the coop board may want to meet it. Likewise, they may want to meet children and they will be observing family dynamics.
  • If they ask about your music collection, what instruments you play or how often and how your entertain, the concern is about noise. Think carefully about your answer.
  • Do not ask questions, particularly about subletting, planned amenity additions etc. Presumably you should know the answers to those questions. Once you are a shareholder, you may try to influence change or become involved at a board level.
  • Do not volunteer any information about renovations. One of the board members may live next to or below you and have their own agenda!

I will assist you in preparing for the interview, anticipating areas where questions may be asked. You should know the contents of your board package, and take a copy along for reference. Be prepared to answer personal questions. Be transparent and do not become angered.

Also, make sure that you have read the House Rules so that if you are asked you can answer honestly that you have read them.

Additional interview resources: