Ah, buying a home and establishing yourself in New York City. Two major dreams that have become increasingly out of reach for millions of people, including those of us who’ve been in this city for generations. But when it comes to buying real estate in the vast archipelago glomming onto Long Island to the east with The Bronx being the only borough on the continental mainland to the north, you will embark upon a unique journey to hell unlike any other.
The home buying process is difficult and expensive no matter where you are, and this is especially true of famously tight markets like New York, Boston and vicinity, and the Bay Area. But I’m not kidding, buying a home in New York City is the kind of torture that only gets doled out at CIA blacksites.
This is for two reasons: the market here isn’t just tighter than most of the clothing at Dolls Kill, it’s also more fickle than an HR department that fawns over you during the interview then takes five weeks to tell you the job went to someone else. Manhattan real estate is among the most coveted in the world so there’s always a better offer sauntering down Fifth Avenue, or something else goes down that makes the seller decide to stay. Even in the outer boroughs, offers quickly come and go: the south Bronx is starting to gentrify after Brooklyn rapidly succumbed to the last wave of newcomers. As the subway continues to disintegrate faster than a cardboard box in a downpour, properties closer to alternate transportation like local and express buses and the newer ferry system will cost significantly more than ones of similar attributes that are farther away.
But the chief cause of making you want to commit seppuku with a rusty icepick upon calling a broker to go look at properties in the Big Apple? The co-op model.
Why I’d Rather Have a Root Canal without Anesthesia Than Apply For a Co-Op Ever Again
This was literally my life for almost three solid years.
What makes New York City real estate transactions so uniquely arduous is that the cooperative, or co-op, model is the prevailing form of buying housing. Single and multi-family freestanding homes do not exist in Manhattan for the most part, though they can be found in the outer boroughs. Scotland and Austria apparently had co-ops long before New York did, but the co-op apartment model is still associated with New York more than anywhere else. It’s relatively rare in America outside the city and metropolitan area.
Per the NYC Housing Department, 62.9% of the city’s housing stock is comprised of rentals which is significantly higher than the nationwide average of 36.9%. And of that 37.1% of housing stock that is owner-occupied, an overwhelming 85% of it is co-op. This number was not further divided into market rate co-ops and “affordable” units subsidized under the Mitchell-Lama and HDFC home buyer programs. The latter has been declining in favor of privatization as was the case for Southbridge Towers in lower Manhattan, or conversion back to rentals as was the fate that befell Mitchell-Lama developments in north and central Bronx. Read: if you want to put down roots here and you don’t want to move to the far reaches of Queens, the Bronx, or Brooklyn to own a house, the teeth-gnashing co-op application process is likely what you’re going to be in for.
Normally, when one hears the word “co-op” it can evoke all kinds of warm fuzzy imagery: food co-ops where you buy local farm-to-table goodies, worker co-ops where everyone shares in the profits, and co-op mode in your favorite RTS games. But when it comes to housing, this word incites fear even into seasoned real estate brokers and financiers. At my last desk job where I did taxes for people in one of the most expensive neighborhoods in America, I saw clients with yearly incomes exceeding half a million bucks break down into tears over their co-op applications as we helped with the financial portion. It took me about two years to stop curling into fetal position every time someone said “co-op”.
On top of all the stress in getting approved for a mortgage and how much of your life and sanity THAT alone will consume? Think of it as going up a steep hill, while completing and resubmitting (because yes, there WILL be resubmitting) your co-op application is like climbing Mt. Everest after being atrophied on the couch for eight months.
“But wait!” you cry out. “I’m high income plus I inherited all my parents’ assets when they died so screw getting a mortgage, surely a co-op board will fast-track my approval if I just buy in cash!”
I hate to tell you this, but I’m actually speaking from experience here: being able to buy a home in cash still doesn’t guarantee the co-op board will approve you. Same goes for being high income.
There, I just saved you several thousand dollars and months or even years of your life you’ll never ever, ever get back on legal and application fees.
Why is this? Well, co-ops are private entities that are not legally obligated to tell you why they turned you down. Every co-op board is different with respect to the application and interview processes, but more often than not, the main reason for turning you down is something financial. They don’t think your income is high enough, your debt-income ratio isn’t to their liking, they saw something they didn’t like on your credit report, you name it.
So, how does even a high earner buying in cash get screwed? Co-ops can turn you down if they don’t like your offer price. Just because you and the seller are happy with it doesn’t mean this board will be and they need to approve the entire transaction. And instead of behaving like normal humans who’d say, “Hey, your application and financials look good and we’d love you as a neighbor, but could you raise your offer price so the whole development doesn’t get devalued?” they can just toss your application without ever saying so, even if you were willing and able to pay more.
Other boards will just use this process as an excuse to exercise biases against certain professions (do not EVER apply to co-ops if you’re self-employed, they will not believe you make money at all) as well as just plain bigotry. I definitely have a feeling I got turned down from a few co-ops because board members stuck in 1950 didn’t like the idea of a single woman living alone in a two bedroom apartment.
Racism, xenophobia, sizism, sexism, and other biases can also absolutely be at play in those interviews even though in a perfect world, they’d just take your money and/or mortgage approval then give you the keys, (which is exactly what a condo does, as you’ll see.) For younger buyers in particular, it feels like a hopeless process when boards want to see evidence of you essentially having the same job forever but many Millennials are pursuing self-employment out of necessity and/or greener pastures. Regardless of which tax form they get, others are simply weathering a more itinerant job market compared to when those co-ops were founded.
If the co-op board doesn’t meet often, your application will be sitting in their review pile til it resembles Dead Sea Scrolls.
Time does not exist on co-op boards, much to the fury incarnate of every normal person.
So if you were hoping to move out soon, it’s highly unlikely that’ll happen. Your mortgage rate is only good for X number of days? It could very well expire and you’ll have to start with them all over again, as co-op boards have zero respect for your time. Your first gauntlet is getting through that application process where God help you if ONE paper is out of place. I’d never undergone such flagrant bureaucratic abuse and scrutiny as when I applied to one co-op of many and they wanted to see my granular PayPal deposits for the secondhand clothing I sold on eBay.
I was putting the proceeds in my savings account to help with moving expenses, I think I had an illustrious $400 from this activity but their guns were blazing. No exaggeration, I used to work on the other side of the desk when it came to dealing with IRS agents and I passed their freaking civil service exams when I was actually up for a job with them after the financial industry imploded in 2008: so I can duly say that not even the IRS is this anal in their protocols for requesting taxpayer records. This is what you’ll be up against.
The second gauntlet is the interview stage. Conventional wisdom says you’ve got it in the bag if you make it to the interview stage, but this is where those aforementioned biases could come out once they meet you in person. Did you know that some co-ops actually interview your PETS if they allow them? Saw a hilarious story about that on the StreetEasy forums where a guy dodged a bullet because his dog was nonplussed meeting the board then bit one of the members, and turned out the building had a gas leak. See, I opted for a condo because my toad would’ve just peed on everyone present even though I left her off the applications just in case they thought toad girls would be too weird for the building or whatever.
So if you finally get approved by the board just to wind up not being approved for that mortgage after all? You’ve achieved the Gainax Ending of Gotham real estate.
Financial Differences Between Co-Ops vs. Condos
Let’s get down to brass tacks: what’s the difference between a co-op and a condo?
Condominiums do not entail the garbage hell world I just described above. While you’re likely living in an apartment building in both cases, the way that they operate is completely different. Just like co-ops, each condo board also operates differently with respect to what you can and cannot do with the property and what is your responsibility versus the condo’s. From a tax and financial standpoint, they are also fundamentally different.
With a condo, there’s a board that manages things and you may have to submit an application showing proof of funds, mortgage approval, and/or income. So long as you have these things, they won’t really care. There’s no interview concerning what you’ve done with your life since Bush was still in office. You have to pay a monthly maintenance fee that isn’t tax-deductible and the City bills you directly for property taxes because you get a deed just like a house. My condo maintenance covers water and gas, most might not.
With a co-op, the maintenance fees are tax-deductible to an extent. You’ll get a letter from the board every year telling you how to calculate your deductions. You don’t get billed by the City for property taxes because you don’t have a deed, you own shares in a housing corporation. The bigger the unit, the more shares you get.
You are technically a tenant of that property so you guessed it: you can get kicked out of something you OWN. There’s an episode of Sex and the City where Charlotte’s mother-in-law spies on her via the co-op board and it seems like sensationalism for TV purposes, but it turns out this is something some boards actually do. This harrowing account of a Brooklyn co-op tells me what a bullet I dodged not getting into any of the ones I applied to.
And if you ever want to leave, good luck doing that with a co-op. You just read how horrendous it is trying to buy one, now imagine what that’s like on the seller side. If the board keeps turning down potential buyers for really dumb reasons, you’re never going to sell. If you price too low because you just want to stop maintaining two residences once you’ve moved for that dream job or love of your life, the board won’t be happy…oh, AND you probably can’t rent it out, but with a condo you can!
When you finally do get a buyer, you may also have to pay a flip tax which means you have to kick over some of your proceeds to the board. Not all co-ops have them but it’s just another layer of obnoxiousness that proves why this model sucks so hard and ruins the good name of “cooperative”.
Unfortunately, condos are harder to come by in New York. The transaction is much simpler on both sides and takes far less time, it took me about two and a half months from offer to closing to buy a modest one bedroom in the Bronx compared to being held in limbo for 4-6 months at a time on numerous failed co-op transactions. I lost about $7,000 and my sanity.
If your budget isn’t high enough for a condo and you really want to stay in the city, co-ops may unfortunately be the only property in your price range. Mitchell-Lama apartments are rare to get into with legendary waitlists, my grandparents waited 17 years to get into Southbridge Towers.
Income-restricted HDFC co-ops could be another possibility, but they often involve invasive home inspections among other things. The reason the model has persisted so thoroughly is that people like the idea of being able to control who their neighbors are, and to avoid the transience that can come with renting. The idea is that you want new owners to be people who will actually live in the building, not investors who want rental income. But the utterly draconian process totally throws the baby out with the bathwater, and some co-ops just sound even more restrictive than rentals.
There’s a reason condos tend to cost more, and I hope to god that “ridiculous co-op process” is the next thing my generation murders in the middle of the night like we did with diamonds and golf.