By Rejecting Sales, Co-op Boards Can Hurt Values

The powers of co-op boards are vast. Do they include the power to reject an apartment sale if the board thinks the price is too low? The short answer is yes. 

"Boards do hate to see a low sale," Deanna Kory, a broker with Corcoran, tells Brick Underground. "That said, in a depressed market, most co-op boards understand that a sale may be lower than what they want, but a reasonable co-op board would let the market determine the value and allow such a sale to go through." 

Co-op boards have the power to reject applications from potential buyers for any reason or no reason – provided they aren’t discriminating against one or more of the protected classes under local, state, and federal human rights laws. A low sale price has been a common – and  legal – reason for applications getting turned down, real estate experts tell the New York Times. Under the Business Judgment Rule, courts will rarely second-guess such board decisions if they’re made in good faith. 

But in today's slowing market, it may be time for choosy boards to face the facts. Asking prices are down, and the rejection of a buyer’s offer can have the effect of damaging rather than protecting the overall value of apartments in the building. 

"Turndowns for any reason are problematic,” says Shirley Hackel, a broker with Compass. “They create undue financial hardship for the owner. When a property lingers on the market because the price is too high, it broadcasts an unrealistic value and can stigmatize a 'tough board,' driving away brokers and their buyers. As co-op board members look to evaluate a buyer’s background, employment, income stability and post-closing liquidity, they also seek to preserve property values. In a declining market, such as the one in which we find ourselves, this can get sketchy."