How Can a Co-op Buyer Know What's Inside the Building?
Sept. 12, 2017 — The best advice is not "Buyer, beware," it's "Buyer, be wise."
We’ve all heard the expression caveat emptor – buyer, beware. But for people looking to purchase a co-op apartment, even better advice might be: buyer, be wise.
A prospective buyer of a co-op apartment is brimming with questions: How does a buyer investigate an apartment’s history, any prior presence of mold, hoarders, noisy neighbors? Bedbugs and other vermin? Cat dander? Crimes committed in the building or violations with the city’s Department of Buildings? Short of peeking through the blinds, how do you discover the truth about what you’re buying?
Do your homework before you sign on the dotted line, advises the Ask Real Estate column in the New York Times. If your offer is accepted by the co-op board, your lawyer should perform what’s known as due diligence, which involves reading the co-op board’s meeting minutes, and requesting information about the apartment and the building from the managing agent. Reported problems about vermin, mold, leaks or troublesome neighbors should turn up in the minutes. Beware: board minutes are sometimes intentionally vague, so the managing agent’s response might help fill in gaps. Your lawyer should also have the seller sign a rider disclosing any problems in the past two years, and he or she should check city records for violations against the apartment.
“A good attorney would look into this,” says Pierre Debbas, a partner at the law firm Romer Debbas. “We look into all these items in every single deal.”
Your lender, meanwhile, will surely look at the building’s financial standing. Does the building have pending lawsuits? Does it have sufficient funds in its reserves? If the bank decides the building is a risky investment, it may not lend. Before you even make an offer, you could check StreetEasy to see if banks have issued mortgages for other apartments in the building. “It would be a red flag if banks aren’t lending,” says Zack Tolmie, a home lending officer at Citibank. And heeding that red flag might save you a lot of trouble and wasted time.