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Manhattan Coop Financing Allowed

In Today's NY Post an article titled The 25 Percent Solution By Jane Reilly Mount reports about a coop in the meat packing district. The author is a shareholder, the board raised the required down payment from 15% to 25%.

The author reports that real estate agents living in the building are opposed to the 25% and would prefer 20%. The pros and cons discussed were:
  • Pro: higher-percent down payment from new buyers protects current residents now and in the future.
  • Con: hurts those residents looking to sell now by narrowing the pool of potential buyers.

An increase in the amount required for a down payment does not bring any additional revenue to the coop. The down payment goes to the seller. The coop and shareholders benefit by having more qualified buyers that most likely can afford financial emergencies.

Every coop has different financial needs. Some coops would rather have a buyer with a large mortgage and liquid assets than an ALL CASH buyer that is using up all their assets to buy the apartment.

IMHO the financial requirements for purchasing in most Manhattan coops has insulated the Manhattan residential real estate market from the current mortgage/housing/foreclosure crisis taking place throughout the rest of the country.

In many parts of the country home ownership "The American Dream" has become an entitlement. Buyers didn't need to save for a downpayment with 100% financing and many didn't even need incomes to purchase with stated income loans.

75% of home ownership in Manhattan is in coops. Buyers looking for coops have to be financially responsible and extremly qualified. The required down payment automatically gives coop shareholders equity and an asset the day they close. Manhattan coop home owners have some "skin-in-the game."

A study conducted by Miller Samuel and NYU in 2003 studied the amenities and attributes including financial requirements of NYC apartments.

The study used the 60 to 79 percent financing-allowed category -- the most common -- as the reference point. The study concluded the higher the barriers the higher the coop sale price.

Co-ops that allow 80 to 99 percent financing had a 2.71 percent discount from the reference point. Co-ops allowing 40 to 59 percent financing saw a 14.55 percent premium. Those that allow 10 to 39 percent financing had a 22.19 percent premium. All-cash co-ops, those that don't allow any financing, had a 47.94 percent premium.

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