Sale Prices And New York City Co-Op Boards: A Reality Check
The clients suited the property perfectly. They had strong liquid assets, excellent jobs, and lovely reference letters. They seemed like a shoo-in for the board of the pleasant, undistinguished Carnegie Hill co-op in the East 90s.
But the board rejected their package. In absolute bafflement, their agent tried to unearth the reason, since co-ops, as private corporations, do not need to give one for their rejections.
A word or two spoken about the deal suggested the problem to the agent: The price. The board did not want a unit in their building selling for a price they regarded as below market value. Never mind that the apartment had been on the market for many weeks. Never mind that the seller accepted the price, knowing that the market would not support more.
So, the agent did what agents all over New York are doing every day, and every week: She persuaded the buyer to sign an amended contract for a higher number, with the understanding that it would be returned to them at the closing as a “renovation credit.” In other words, she gamed the system to get the deal done.
I do not fault the agent who arranged the boondoggle; she was doing what had to be done to get her client the property. I don’t fault the exclusive agent; she did what SHE had to do to enable her seller to actually consummate the deal.
But I do fault the board of the building, and the countless other boards of countless other buildings, for abusing their power in an attempt to reshape reality. While it may seem to be a small thing to them — a maneuver to maintain shareholder value in their buildings — the consequences can reach further than they realize. For example:
- Official records will no longer reflect transactional realities. Inflating sales prices creates an inaccurate official record, which distorts analysis at every level. Agents will only have access to inaccurate comps when trying to price future properties. Appraisers will have inaccurate information when they assess properties for banks and mortgage lenders. Long-term studies to determine market patterns will be distorted. The information seen by the public will be wrong, again, at every level.
- Appropriate buyers and sellers will be denied transactions they want and need. Not every buyer or seller is willing to play the game. Those who will not falsify their contracts (or don’t even know why their applications were denied) place themselves in jeopardy of being unable to sell or buy appropriately-priced homes. Buyers and sellers don’t determine selling prices. Nor do agents. The market determines what a property is worth — if an apartment gets reasonable market exposure, market forces will determine its value. That is emphatically NOT the role of co-op boards!
- The boards may be placing themselves in danger. Co-op board members are volunteers who are performing a service to their constituent shareholders. Having been given no training whatsoever about the legal ramifications of choices they make, they are highly susceptible to poor decision-making. For example, isn’t the practice described above a form of price-fixing? Price discrimination is simply another form of discrimination, like excluding single women, families, or the disabled, which are things co-op boards have been doing for decades. Boards need both training and accountability.
The events in recent years have made the world more acutely conscious than ever of discriminatory practices in all walks of life. As long as co-op board decisions are protected behind a veil of secrecy, behavior which violates both the law and the best interests of the public will continue.
Only one solution will enable equitable decision-making to take hold: Transparency. Transparency!