Want to Dodge the Co-op Board Interview? Buy a Sponsor Unit

For many co-op buyers, the biggest source of anxiety is the co-op board interview. Small wonder. It entails having your finances, employment history, marital status, pets — even your character — placed under the microscope by a handful of volunteers who have the power to kill a sale — for any reason or no reason, provided they're not discriminating or breaking any laws. It's an ordeal unknown to any other form of real estate transaction. But there's a way to dodge the dreaded board interview.

Buy an apartment from the sponsor.

Most co-op buildings were converted from rental buildings in the 1970s and 1980s under so-called "non-eviction plans," Brick Underground recounts. Under such plans, existing tenants had the option to buy their apartments, usually at an "insider price," or keep renting. If a tenant declined to buy, the sponsor retained ownership of the apartment and continued renting it to the tenant. When the tenant moves out and the building owner decides to sell the unit, it's listed as a sponsor unit.

Like all things in life, buying a sponsor unit has its pro's and con's. The downside: sponsor units tend to cost more. Jonathan Miller, president and CEO of real estate appraisal firm Miller Samuel, says the higher price tag is partly because sponsor apartments are often newly renovated. But even if there are two similar renovated or unrenovated apartments and sponsor ownership is the only difference, Miller says “you might see a 5% or even 10% premium on the sponsor unit.”

Sponsor units also come with higher closing costs because buyers are expected to pay transfer taxes. The city transfer tax is 1% of the purchase price on sales under $500,000 and 1.425% on sales of $500,000 or more; the state transfer tax is a flat 0.4%.

The biggest upside is, without question, avoiding the co-op board interview. Most co-ops require buyers to put down at least 20% to 25% of the purchase price, while some require considerably more and a few require all-cash purchases. But it's possible to buy a sponsor unit with a down payment of as little as 10%.

“Buying in a sponsor-owned co-op allows you to finance as much as the banks will allow you,” says Melissa Cohn, regional vice president of William Raveis Mortgage.

Sponsor units also open up opportunities for buyers with less traditional incomes — freelancers, consultants with contract work, the self-employed.

“It's not uncommon for a sponsor sale to mean that employment or credit issues, down payment requirements, or other common barriers can be modified to accommodate the individual buyer," says Patrick Lavell, branch manager at Crosscountry Mortgage.

And last but not least, since the buyer doesn't have to assemble a detailed application package for the board or face the board interview, sponsor sales tend to close more quickly.