Setting Minimum Prices for Apartment Sales: Are Boards Allowed?

The concern is simple: One lowballer can bring down the average sales price in the building. "It's all [about] comparables," notes attorney Theresa Racht, a partner at Racht & Taffae, "because the comparables are used by the brokers. If you want to sell your apartment you get a list of the most recent sale prices at your co-op" in order to help set your own sales price.

"It's a complex issue," Lash (below) says with a sigh. "If you look at it from the seller's perspective, [you must consider] the idea that everyone should have the right to do what they want with their home. But then you do have an obligation to protect the property value for the rest of the people."

For years, the board had only seen prices rise. But when a divorced couple offered to sell the apartment at a lower price than the building average, because they wanted to be done and move on – the board split into two camps. Three were for the sale (the buyers were impeccable) and three were opposed (the price was too low). Lash was undecided and abstained while she sought more information.

She found that courts have allowed minimums in Manhattan and the Bronx, but not in Westchester, Queens and Staten Island. But the logic was contradictory.

"In the Westchester decision in 1995," says attorney Bruce Cholst, a partner at Rosen, Livingston & Cholst, "the court said that to turn somebody down because his price is too low is an unreasonable interference with a shareholder's ability to sell his apartment. But then a Manhattan case said that it's not unreasonable because a board was within its rights in making decisions in the best interests of the building, and so they upheld it." No higher court has reviewed the conflicting rulings.

The law aside, is it a good idea? Probably not. Steve Nardoni, president of Nardoni Realty, recalls a recent situation in one of his buildings: "We had an apartment that had been on the market for a while and the price was certainly substantially less than could have been demanded a year ago. And there was discussion that the board not approve this because of the low price. They eventually approved it. I think that's the right way to go."

In this market, if they deny the sale

they might be getting a new sale that's

even lower than the previous sale was.

"[I]f a seller is looking to get out that badly, then they are weak financially and you're going to end up with an arrears situation," Cholst adds. "I would much prefer having a solvent purchaser than a seller who's looking to bail out at a low price because he can't afford the carrying charges."

Miriam Sirota, a broker at Brown Harris Stevens, argues that price floors are in no one's best interest: "In this market, if they deny the sale they might be getting a new sale that's even lower than the previous sale was. The market should determine the price; if the value has dropped since the price minimum was set, it's hard for them to apply that previous standard."

Sirota suggests that some boards "sit in denial of what's happening just because they want to maintain a certain price point," and should learn what sales prices are in neighborhood apartments similar to the apartments in their building. "There's plenty of information out there about real estate, about financials and about the economy."

So, what of Lash's dilemma? In the end, she broke the tie and voted to let the divorced couple sell their unit at the lower price. "It was four to three in favor," she recalls. "What swayed it for me was that no one knows how bad the market is and the majority felt that we really didn't have the right. You know, we just felt like it was just too much control to say to somebody, 'You don't have the right to sell your apartment.' The lower price could potentially be just the new reality."

Adapted from Habitat June 2009. For the complete article and more, join our Archive >>