It’s a luxury most New Yorkers cannot afford: selling your existing co-op or condo to buy a larger apartment in the same building.
The idea of remaining in the same school district, having the same neighbors and preserving all of the conveniences of your current address while upsizing your living spacing is an attractive proposition to many homeowners in NYC.
And so, if there’s a will, there’s a way, and that’s why it’s fairly common to see NYC homeowners buy and sell while remaining in the same building.
There are a number of factors to consider when upsizing in the same building, including whether or not you need to sell first, co-op board approval, logistical issues, closing costs as well as receiving the green light from a mortgage lender.
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If you need to use the equity in your current apartment to fund the purchase, your offer will need to include a sale contingency (also known as a Hubbard Contingency). Sale contingencies in NYC are less common given the plethora of qualified buyers who require nothing more than a mortgage contingency, if any contingencies at all.
Because of the additional risk associated with a sale contingency, the vast majority of sellers in NYC are uncomfortable with this contingency. The risk of a seller accepting an offer from a buyer with a sale contingency is especially high if the purchaser needs to sell a co-op apartment, as the sale is subject to board approval.
Most sellers in NYC will only entertain a sale contingency if they have no other offers or if the offer price from a sale-contingent buyer is considerably higher than the offer prices from non-contingent or mortgage-contingent buyers.
Keep in mind that there are varying degrees of risk associated with a sale contingency.
A buyer whose condo is already in contract to an all-cash buyer carries relatively little risk compared to a buyer who needs to sell an expensive co-op in a strict building on 5th Avenue which hasn’t been listed for sale yet.
The length of a sale contingency is subject to negotiation between buyer and seller attorneys. In some instances, a Hubbard Contingency may include an optional extension during which the purchaser is responsible for paying the seller some amount of money each day to defray expenses (i.e carrying costs).
While it may sound reasonable to assume an easy board approval process if you’ve already been previously approved by the co-op, there are no guarantees when it comes to board approval. This is especially relevant if you’re trying to buy the same building without selling your existing apartment beforehand.
In this scenario, most co-op buildings will require you to meet their Debt-to-Income guidelines factoring in the maintenance and mortgage payments for both apartments even if you plan on selling your existing unit soon after closing.
If you’re upsizing in a co-op and the purchase is sale contingent, you’ll need to meet the co-op’s DTI and Post-Closing Liquidity guidelines based on the carrying costs for the new apartment.
Co-ops will still typically require full financial information, but it’s common for the reference letter requirements to be waived for existing shareholder applicants.
It’s fairly common for co-op boards to stipulate a number of conditions for board approval if you’re purchasing another apartment without selling your existing unit beforehand.
Here is an example of the terms associated with conditional board approval for an existing shareholder who applied to purchase a larger unit in the co-op without selling beforehand:
It’s important to speak with a mortgage lender and request a Pre-Approval letter as you consider the logistics and feasibility of buying a larger apartment. This is especially relevant if you plan on owning both apartments at the same time, as a bank’s down payment, Debt-to-Income and Asset requirements will be stricter if you’re carrying two apartments.
Many large employers offer preferential mortgage rates to employees, so it’s worth exploring if you work for a large company. Furthermore, most major banks offer discounts on the interest rate and origination fees for existing private clients and for prospective clients who agree to move a certain amount of assets over to the lender’s bank prior to closing.
Buying and selling in NYC is costly from a closing costs perspective. Seller closing costs in NYC are 8% to 10% of the sale price, assuming you’re paying a 6% commission. Buyer closing costs can range anywhere from 2% to 4% or more if you’re buying a sponsor apartment, but they’re closer to 2% for co-op apartments.
Fortunately, there are a number of ways to reduce closing costs when buying and selling in NYC. Sellers can save up to 6% in commissions through an Agent Assisted FSBO, and there’s also a 1% Full Service for sellers who prefer a traditional, full-service agent without the hefty 6% price tag. Buyers can save up to 2% on their purchase by requesting a Hauseit Buyer Closing Credit.
If you plan on renovating the new apartment, it’s important to think about logistical and quality of life issues when it comes to your sale. Are you comfortable living in an active construction zone? If not, you’ll want to close on your purchase before selling.
Closing on the new apartment before you sell means you’ll have to pay the carrying costs for two apartments while you go through the necessary co-op or condo building approval and DOB approval processes. Keep in mind that it can take two to three months to obtain the necessary approvals before commencing work, and you’ll be paying mortgage and maintenance on two apartments during this waiting period.
One strategy for mitigating carrying costs is to negotiate a sale leaseback with the seller, during which they will rent and remain in the apartment for a few months post-closing. This will allow you to navigate the multi-month approval process while only paying to carry one apartment. When the seller moves out, you can immediately start construction. This strategy minimizes the amount of time you’re paying to carry two apartments.
Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided. Hauseit LLC is a Licensed Real Estate Broker, licensed to do business in New York under license number 10991232340. Principal Office: 148 Lafayette Street, New York, NY 10013.