Be Prepared for Rejection

Here’s a phenomenon worth considering: Co-op board rejections and non-granted waivers in condominiums based on price are far more commonplace in a buyer’s market than in a seller’s market. As a result, we are currently seeing multiple buyers forced to inflate the contract prices of the property they’re purchasing, followed by applying some sort of credit at the closing table, just so boards will give their stamp of approval or grant the required waiver.

Is this practice legal – that is debatable. But frankly, co-op boards have been doing this for years now. In Westchester, the local government recently passed a law that requires co-op boards to disclose the reason why they’ve turned down a potential purchase applicant. In New York City, however, that is certainly not the case. And if you think you’re safe purchasing a condo instead, waivers are frequently not granted for properties that show a less-than-desirable selling price. At The Hoffman Team’s most recent Monday morning meeting, a veteran of Wells Fargo with 20 years in the business told us that in just the last six months, he’s seen at least three waivers that were not granted in condominiums because of low asking prices. In fact, the condo boards decided to exercise their right of first refusal and purchase the units themselves — at a bargain, of course.

The fact is that in a buyer’s market with rapidly descending property values, co-ops and condos feel it’s necessary to “protect” their building's value by artificially inflating the price of contracts. Cash deals are the easiest to do this with as there is no limitation on the “seller's credit” back to the buyer. However, if you’re financing, all major banks will allow just 6 percent of the sale value to be credited back to the buyer — it’s called a closing credit.

The bottom line is this: We’re seeing more and more board rejections and failure to grant waivers based on price, so it’s imperative to understand that a low sales price could be rejected by the building. Yes, it’s completely unfair and should be remedied, but in today’s market, it currently goes on without regulation.

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