I would like to spend a few minutes with you to discuss the importance of due diligence in NYC real estate. The purchase of a home, co-op apartment or condominium unit, is one of the biggest investments an individual will make, so it’s important to have as much information you can prior to signing the contract.
Hi, my name is Scott Smiler, and I’m a NYC real estate attorney and Partner at the law firm of Gallet Dreyer & Berkey LLP in NYC ([ Ссылка ]).
The due diligence for co-op apartments and condominium units are similar in nature so let’s start with that first.
There are a few main documents we would want to review.
The first relates to the financials of the building. The financials will allow you to see if the building is operating at a deficit, if there are adequate reserves for potential emergencies or future capital improvement projects, and if there are any line items that seem abnormally high. For example, if the line item for legal services are substantially higher than budgeted, that may be an indicator that the building is involved in defending or commencing a law suit, or perhaps, it’s indicative of the building spending money on collection actions to address the building’s arrears. The notes to the financial statement may also provide information as to the underlying financial obligations of the building (for example, an underlying mortgage).
If the building is properly managed and the board meets on a regular basis, the Board should have monthly minutes to review. This is a great opportunity to review current, on-the-ground, information as it relates to the building as a whole, and to individual units or “lines” of units. For example, if your purchasing Unit 4A and there was a flood reported in Unit 5A, this should give you pause as the unit you are looking to purchase may have a potential mold issue if the flood and resulting damage was not properly remediated. Let’s use your purchase of Unit 4A once again, if there are complaints of odors on the fourth floor or in the “A” line, or complaints of noise emanating from your potential neighbors, these quality of life issues may cause you to rethink your purchase.
The minutes may also discuss planned increases in your carrying costs or future capital improvement projects which may result in an assessment or dipping into the building’s reserves. These are all financial burdens you may not have anticipated when falling in love with the unit.
My firm also has a standard co-op and condominium questionnaire that we present to the managing agent which asks more specific and pointed questions. For example, we ask what is the financing policy, what is the pet policy and what is the alteration policy? If you intend to finance 80% of the purchase price but the building only permits 75%, that may financially prohibit you from proceeding with the purchase. If you intend to harbor a pet and the building has a strict no pet policy, you may want to look at a pet-friendly building.
If you are purchasing the unit to do a compete gut renovation to make it the unit of your dreams, that dream may quickly turn into a nightmare if the building has black-out dates or black-out months in which alterations are strictly prohibited. The building may also prohibit the moving of gas lines, plumbing and support walls, it may forbid the installation of “wet over dry” areas, and the unit may not have the current electrical load capable of supporting your alterations. Relying on the building to approve an electrical upgrade is never guaranteed.
In the event the condominium is new construction less than five years old, we would also like to look at the Condominium’s offering plan as it may have some bearing on your rights as a unit owner.
Although technically part of the due diligence process prior to signing, once the parties are in contract, I will order a lien search when purchasing a co-op apartment and a title search when purchasing a condominium unit or home. These reports are run against the seller, the property, the unit and the building, and allows us to see if there are any liens, mortgages, judgements, violations or encumbrances which must be disposed of at or prior to closing. We need to ensure that you are purchasing free and clear of all encumbrances.
As you can see, the transaction is not limited to just merely negotiating the contract. There is a lot of due diligence that needs to be performed in advance of signing.
I hope this was helpful and if you have any questions, please give me a call at (212) 935-3131 x 314. I offer free consultations and it might just be the start to a nice working relationship. Thank you for your time and I look forward to hearing from you.
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