Fitzig Features: Reviewing Board Review

I was recently interviewed about one of the most important aspects of buying an apartment in Manhattan: the board application and review process.*   

Can you describe this process, and what it entails, generally?

Board review is the process by which co-ops and condos determine whether somebody is financially qualified to take on the responsibility of owning in the building, and the processes are different for co-ops and condos. The only type of purchase in Manhattan that doesn’t require board review is a townhouse, so if you are looking to escape this process completely, you may want to consider this route. Regardless, if you get to a board review, it means you’ve gotten an accepted offer and a signed contract and are at the point when you are ready to submit an application, so that’s good news.

Is the board review process different for co-ops and condos?

For condos, it is slightly less stressful because, even if a board isn’t happy about a purchase (or purchaser), they generally only have a 20 to 30 day right of first refusal and it is very rare that a board will want to buy the apartment. If they really are unhappy with the applicant, they may delay but they really don’t have the power to say no.

What kinds of things generally go into the board package?

It all starts with the building application; every building has its own and your agent should make sure you have a copy of it. Sometimes it’s useful to go over the questions with your agent during negotiations, to make sure you are fully prepared to submit the package on time, as most contracts specify the time period in which you have to get an application to the board.

The timing varies—if it’s a cash deal, it might be five to seven business days (in COVID, people are extending out); and if you’re financing it will be longer, because getting a commitment letter from a bank can take 25 to 30 days. You are usually required to submit your board package three to four business days after you get your commitment letter. In general, coop applications are a little bit longer and more detailed, but lately condos are providing very extensive applications as well.

In this process, who is responsible for what? Must the buyer hire an accountant?

The buyer will need to gather some information, which can be daunting and time consuming, but I don’t expect my buyers to do much more than gather the information for each question. I will then fill out the application as well as determine what needs to be added to present the buyer in the best possible light and tell a compelling story.

I usually start with about an hour-long conversation, a day or two after the contract is signed. I outline what the application’s going to look like, section by section, and suggest what we might need for each. I will make suggestions about the dates of the financial statements and ensure their bank and brokerage statements correspond to their REBNY form, which is critical. Many packages require reference letters, so I will provide a sample of those as well.

 An accountant is generally helpful if someone is self-employed.

Click HERE for a short video, in which I discuss what the buyer can expect from the board review process.

What are some common buyer vulnerabilities and how can those be addressed and overcome in this process?

For a condo, it’s mainly about convincing the seller that you have the wherewithal to buy. With co-ops, the boards are concerned with a purchaser’s financial profile and that manifests itself in a couple of ways. First, buyers need to know what their credit rating is and ideally get that in good order before they even start searching. Boards will check even if the purchase is all cash.

Next, buyers may need to have a certain debt-to-income ratio and enough post-closing liquidity for a particular building. A better debt-to-income ratio might be a function of waiting for the next bonus if you’re on Wall Street. If your post-closing liquidity isn’t as strong as the board requires, some boards may allow for guarantors, co-purchasing or gifts. If you’re going after a tough type of building, you should think about what you can do, even before you start looking, to make sure your personal balance sheet is as strong as possible.

In addition, be sure to disclose to your agent any issues or past events, such as a legal settlement, that might negatively impact your ability to get approved, even if not specifically asked on the application. It is much easier to address these issues on the front end than when a board has discovered them in a background check and you find yourself playing defense.

I always strive to present a broader story about my purchasers that gives the board a sense, beyond the numbers, about why this person would be a great asset for the building. If they don’t have a job at the moment, explain why. Their significant other may be carrying the financial side, or perhaps they are pursuing a start-up (in which case I might suggest they form the LLC). Sometimes people are in the press, in a good way, so you showcase that article. I often suggest they write a letter that weaves together their background, or I’ll pull together a bio if I find their history fascinating. And the recommendations should support your story and be consistent with the themes you are putting forward.

Click HERE for a short video, in which I discuss potential buyer vulnerabilities and how to address them.

Let’s talk about the interview. What can you expect and how do you increase your odds of success here?

If you get to the interview stage, fabulous! I sometimes liken the co-op board interview (there are no interviews in condo purchases) to a “friendly deposition,” but really, at this stage the board has gone over your application and you ought to be in excellent shape.

I believe in honest answers but if, for example, you are asked about your plans to renovate, painting is not a renovation. If you’re buying an estate sale, the board expects you to renovate. If you’re buying a newly renovated apartment and you’re just planning to do decorating work around the margins, you’re not renovating.

I will often send buyers a set of questions that are typically asked by a board together with advice on how to dress and to show up on time. But the most important advice I can give is to answer the questions, but don’t go on and on. You don’t want to be the smartest or funniest person in the room, or the one with the biggest personality. It’s not a job interview. You’re not here to impress, you’re here to pass. So, when you’ve answered the question, stop talking. And don’t talk over your spouse; let them talk. If your spouse has done a good job, leave that answer be. Both parties have to present themselves well.

Is there anything you should not be asked?

A coop board can reject for any reason and they don’t have to tell you what that reason is. But, obviously, there are a whole series of laws about discrimination and you would hope a board would stay well clear of certain topics.

What’s more important is what questions the applicant shouldn’t ask, and that is they should ask nothing. If your agent is doing their job, your questions have been asked and answered during the contract period, during due diligence. You, as a buyer, should just be excited about the opportunity to interview and you are looking forward to hearing from the board. Anything you ask betrays a point of view.

Click HERE for a short video, in which I discuss how to approach the board interview.

If your application is rejected for any reason, is there any recourse or should you just move on?

My heart is broken for my buyers if they are rejected. Sometimes you can sort out why, and sometimes there are even things you can do to buttress the financial situation, for example, escrowing maintenance payments (although these are a lot trickier these days, with new rules). Depending on why you were rejected, the board itself may come back and give you a path to fixing the problem. But I think the best course of action is to do everything you can to put yourself in a position to be accepted in the first place.

Please let me know if you have any questions about the process of board review or if I can assist you with any of your Manhattan real estate needs.

*Tania Zamorsky of Zamo PR & Communications conducted this interview.