Keeping Apartments' Market Value High: Two Things Boards Can Do
Nov. 21, 2013 — In the midst of al the decisions a board might have to make about the day-to-day upkeep of a co-op or condo building, one of the more subtle fiduciary responsibilities can get forgotten: the need to maintain or, preferably, increase the market values of homeowners' apartments. Adding amenities, of course, is one way to do this. But are there also policy-driven ways you can consider?
The most controversial is when a co-op board rejects a purchaser's application because the directors do not like the price being paid for an apartment. (Condominium associations can't reject a sale, but can only buy an apartment instead under the "right of first refusal.")
"Boards must often wrestle with the competing goals of allowing their shareholders to sell their apartments while trying to preserve the market value of all shares," says attorney Eric M. Goidel, a partner at Borah Goldstein Altschuler Nahins & Goidel. "Although the economy is improving, many owners still find it difficult to sell their apartments at prices that are acceptable to their boards. Purchasers still lowball offers and are ever more critical of an apartment’s condition."
Rejecting lowball offers can "have a potential effect on the values of apartments and the rights of owners and occupants, as well as the burdens of enforcement," says Matthew J. Leeds, a partner at the law firm Ganfer and Shore, who says that before making any concrete policy decisions on the subject a board should consult with its attorney and managing agent. They "will have dealt with these issues in other buildings and can add to the board's perspective. As a result, the board can make an informed decision about whether to go ahead with such a significant move, and the political implications of dealing with the owners and occupants."
Renovation Credit
Another, less contentious move for co-op boards , suggests Goidel, is offering what's become known as a renovation credit.
"Identically sized apartments often sell for significantly different prices," he notes. "Variables include an apartment's condition and its location in the building." To help deal with the former, he suggests "affording shareholders the ability to give renovation, maintenance or closing-expense credits" that help enable the selling to sign a contract at a price that a board will accept, yet result in a purchaser buying the apartment at a net lower price.
However, Goidel cautions, "Where the seller's concession takes the form of a renovation credit, a mechanism must be established to ensure that the apartment is subsequently renovated. Otherwise, the same issues will be revisited with the next sale."
He adds: "All forms of concessions must be written into contracts, so as to not perpetuate any type of banking fraud. However, boards must be aware that lenders may place limits on what percentage of a sales price may be rebated to the purchaser. In order to arrive at a policy that addresses the goals of all parties, boards should consult with an attorney who is familiar with these options and their limitations."
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