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NYC Real Estate Due Diligence Report Sample

What is your real estate attorney actually doing when he or she conducts legal and financial due diligence on your behalf?

In New York City, a buyer’s real estate attorney is responsible for legal and financial due diligence on behalf of the buyer versus the buyer’s broker. Brokers are not allowed to provide legal, accounting or financial advice.

Once your buyer’s broker has found and negotiated a deal for you, your real estate lawyer will step in and analyze your target property for any legal or financial risks. An experienced real estate attorney will produce a real estate due diligence report which summarizes all of his or her findings, similar to the sample report we’ve included below.

As you can see from the NYC real estate due diligence report sample we’ve included, a good real estate attorney will analyze the building’s annual financial statements, the building’s board minutes, check for violations and liens, and inspect the original offering plan and any amendments. If the target property is a condo, townhouse or a multi-family building, your lawyer will also order a title report and analyze it on your behalf.

Once your buyer’s broker has found and negotiated a deal for you, your real estate lawyer will step in and analyze your target property for any legal or financial risks. An experienced real estate attorney will produce a real estate due diligence report which summarizes all of his or her findings, similar to the sample report we’ve included below.

As you can see from the NYC real estate due diligence report sample we’ve included, a good real estate attorney will analyze the building’s annual financial statements, the building’s board minutes, check for violations and liens, and inspect the original offering plan and any amendments. If the target property is a condo, townhouse or a multi-family building, your lawyer will also order a title report and analyze it on your behalf.

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Sample real estate due diligence checklist for a NYC co-op apartment purchase

COOP DUE DILIGENCE REPORT

CHECKLIST

Offering Plan: Received.
Amendments: Requested.
Annual Financial Statements
– 2014: Received and attached.
– 2015: Received and attached.
– 2017 Budget: Received and attached.
Minutes: Read, notes in report.
Department of Buildings
– Violation Search: Results in report.
– Certificate of Occupancy: Attached.
– Open Permits: Results in report; none against subject unit.
Housing Preservation and Development
– Violation Search: Results in report; none against subject unit.
Memo Re: Treasury Report: Received and attached.
Coop Guidelines: Received and attached.
Tax Deduction Letter: Received and attached.
House Rules: Received and attached.
Maintenance Letter: Received and attached.
Letter of Completion, 2008: Attached.
Proprietary Lease: Attached.
Questionnaire: Received.
Purchase Application: Received and attached.
Sublease Application: Received and attached.
Alteration Agreement: Received and attached.
Certificate of Insurance: Received and attached.
Copies of Lawsuits, if any: N/A

Most first time home buyers in NYC are shocked to learn that real estate lawyers typically charge only a flat fee of $2,000 to $3,000 on average for doing so much work! Your lawyer will ask you to sign an engagement letter at the onset of your relationship. Payment arrangements are negotiable and can vary, but typically half of the flat fee is paid upfront, and the second half is paid at closing.

Sample Real Estate Due Diligence Report for a Co-op Apartment in NYC

INSPECTIONS: PRIOR TO EXECUTION OF THE CONTRACT, YOU HAVE THE RIGHT AND ABILITY TO PERFORM A HOME INSPECTION. IF ANY DEFECTS ARE DETECTED THAT ARE NOT OTHERWISE PROTECTED BY THE CONTRACT TERMS TO BE IN WORKING ORDER AT CLOSING THEN AFTER THE CONTRACT IS SIGNED, YOU WILL NOT BE ABLE TO RENEGOTIATE THE TERMS AND CONDITIONS OF THE CONTRACT. AS SUCH PLEASE BE ADVISED THAT OPINIONS DIFFER AS TO WHETHER A HOME INSPECTION IS NEEDED BASED UPON THE TYPE OF TRANSACTION.

* FINANCING CONTINGENCY: Your Financing Obligations are set forth in Paragraph 1.20.1 of the Contract. THIS IS CONSIDERED A CONTINGENT TRANSACTION.

You are REQUIRED to obtain a mortgage commitment letter for the loan amount of $[AMOUNT] within thirty (30) days from the date in the contract. If you are unable to obtain such letter, you will have to furnish a denial letter from your lender so we may obtain your Contract Deposit back. Failure to provide such letter if you are denied will result in losing your Contract Deposit of $[AMOUNT].

*Please note that if the contract’s closing date is stated as “on or about,” then the closing date is not fixed and either party can post-pone the closing up to 30 days after this date.

COOP: [COOPERATIVE CORPORATION NAME]
UNIT#: [NUMBER]
SPONSOR UNIT: NO
SHARES ALLOCATED TO UNIT: [NUMBER]
BUILDING NAME: [NAME]

Per the Schedule A, Unit [NUMBER] is 2,700 square feet.  [ADDRESS], also known as [ALTERNATE STREET ADDRESS]. The building was probably built at the turn of the century, but the city’s building department records are missing. The building contains seven (7) stories and a penthouse, a cellar and a sub-cellar.

[COOPERATIVE CORPORATION NAME] was formed in order to acquire the property located at [ADDRESS]. It is a qualified Cooperative Housing Corporation under Section 216(b)(1) of the Internal Revenue Code and contains 60 residential apartment units. The primary purpose of the Corporation is to manage the operations of the property and maintain the common elements.

MAINTENANCE FEE: $2,400 per month.
UTILITIES INCLUDED: Heat, hot water and sewer.
CURRENT ASSESSMENTS: None per management.

UPCOMING ASSESSMENT: Work on the 2016 financials has revealed that expenses were under budget, but repairs & maintenance and elevator contract & repairs expenses were much higher than budgeted. A number of upcoming capital expenses are still in the estimate phase, but it is anticipated that expenses will exceed $300,000. It is extremely likely that a capital assessment will be implemented later this year. Please see attached memo regarding the treasurer’s report for further information.
**Please be aware that a Cooperative has the ability to approve and pass an Assessment charged to Shareholders at any given time.

FLIP TAX: $25.00 per share, payable by seller.
** Please keep in mind that the Board has the ability to institute a “Flip Tax” if approved. It is important that as a Shareholder of the Corporation, you pay close attention to all notices that are sent to you and that you are in attendance at the annual meetings that are held.

COOP / CONDO ABATEMENT
– Seller received the abatement.
– The cooperative puts on an assessment at the same time that the abatements are distributed – all shareholders must pay regardless of if they receive the abatement.

STAR ABATEMENTS, DEDUCTIONS & APPLICATIONS:
– STAR abatement was not received by seller.

TRANSFER/APPLICATION FEES:
MANAGEMENT COMPANY TRANSFER FEES AT OR PRIOR TO CLOSING:
Application Fee $500.00 with Application, Purchaser
Credit Report Fee $150.00 (per) with Application, Purchaser
Financing Fee $200.00 at Closing, Purchaser
Transfer Fee $550.00 at Closing, Seller
Flip Tax $25.00/share at Closing, Seller
Transfer Stamp Fee $0.02 per share at Closing, Seller
**Move-In Deposit $400.00 with Application, Purchaser
**Move-Out Deposit $400.00 with Application, Seller
Move-In Fee $200.00 with Application, Purchaser
Move-Out Fee $200.00 with Application, Seller

**The Move-In Deposit is held by the management agent to ensure that damage does not occur to the building during your scheduled move-in date. After your move-in is complete, the money will be refunded to you providing the building superintendent states that all went well and no damage has occurred.

ASSUME THAT THERE WILL BE ADITIONAL CHARGES WHICH ARE NOT YET KNOWN

APPROXIMATE ADDITIONAL CLOSING COSTS AT THE TIME OF CLOSING:
Lien Search Fee $350.00 – 450.00 at Closing, Purchaser
**Legal Representation $2,500.00 at Closing, Purchaser
Recording Fees $125.00 at Closing, Purchaser
Additional Legal Costs $150.00 – 300.00 at Closing, Purchaser
Power of Attorney Fee $200.00 (if utilized) at Closing, Purchaser
Mansion Tax $31,500.00 at Closing, Purchaser
**In the event your lender appoints our firm to handle the transaction, our legal fee will be reduced to $2,000.00.

STORAGE UNITS, PARKING & BICYCLES:
o Storage is available in the building.
o Parking is not available at the building.
o Bicycle storage is available.

MOVING:
o Notifications for moves must be made in advance.
o Moving is prohibited on Saturdays, Sundays and Holidays and is limited between the hours of 9:00 AM to 5:00 PM.

ALTERATIONS
o All alterations/renovations must have an application submitted and the plans approved by the board. The approval of the alterations is dependent upon the approval of the Cooperative Board. Please see attached alteration agreement for further information.

PROPRIETARY LEASE
o Date that the proprietary lease expires? December 31, 2050

LANDMARK BUILDING: The Building is denoted as an Individual landmark by the New York City Landmark’s Preservation Commission. As a result of such designation, no alterations may be made to the façade of the Building which are visible from the street, without the consent of the Landmarks Commission.

SPECIAL RISKS SECTION OF OFFERING PLAN
o LOT LINE WINDOWS: None per management.
o LEAD PAINT If pre-1978: YES – Please see the EPA Lead Based Paint Addendum & Corresponding Booklet.

UNDERLYING MORTGAGE:
LOAN AMOUNT DUE: $[AMOUNT]
MATURITY DATE: [DATE]
TERMS: Equal monthly installments of $[AMOUNT] applied to interest only at the rate of [RATE]% per annum. As part of the requirement, the Corporation must maintain at all times a general operating account and replacement reserve of no less than an amount equal to 15% of the previous year’s maintenance charges.
LINE OF CREDIT: $[AMOUNT] – Interest is calculated at [RATE] percentage points or the sum of the yield for the 30-day LIBOR, plus [RATE] basis points. Interest only payments are due for the first five years after the initial advance. Thereafter, principal in the minimum amount of $100 and interest will be paid monthly until it matures on [DATE].

PET POLICY: Allowed with Board Approval; no aggressive breeds. Please see purchase application, and page 2 in the house rules for further information.
SUBLET POLICY: Subletting is allowed with Board Approval. Shareholder must first own for two years; 2 years max. Please see attached sublet application for further information. AIRBnB is NOT ALLOWED
PIED A TERRES: Permitted on a case by case basis.
PARENTS ALLOWED TO BUY FOR CHILDREN: Not permitted.
GIFTING: Permitted on a case by case basis.
PURCHASING IN A TRUST / UNDER AN LLC: Not permitted.

BUILDING FINANCIALS
THE LAST 2 YEARS FINANCIALS HAVE BEEN OBTAINED AND REVIEWED. UPON RECEIPT, PLEASE FORWARD A COPY OF THE FINANCIALS TO YOUR ACCOUNTANT OR TRUSTED FINANCIAL RESOURCE

2017 BUDGET PROVIDED:
Projected Operating Income: $[AMOUNT]
Projected Operating Expenses: $[AMOUNT]
CURRENT OPERATING ACCOUNT BALANCE: $[AMOUNT]
CURRENT RESERVE ACCOUNT BALANCE: $[AMOUNT]
AS OF [DATE]

PERCENTAGE OF MAINTENANCE THAT IS TAX DEDUCTIBLE:
Under the provisions of Section 216 of the Internal Revenue Code, a tenant stockholder of a Cooperative apartment is entitled to deduct from personal gross income a proportionate share of interest and real estate tax paid or incurred by the Cooperative Corporation. Note that these deductions are generally available if the taxpayer itemizes tax deductions.

For the year 2016, the PER SHARE individual income tax deductions for this building are as follows:
INTEREST $1.50 PER SHARE
REAL ESTATE TAX GROSS $20.00 PER SHARE

If the shareholder is granted any real estate tax abatements, reflected in a maintenance credit or received by check, the real estate tax deduction as stated above should be reduced by the amount of the abatements that are received.

LAND LEASE BUILDING: NO
LEASE EXPIRES: N/A

LEGAL ACTION:
PENDING LITIGATION: None per management.

OWNER OCCUPANCY RATIO:
Owner Occupied: 100%
Sponsor Units: 0
Commercial Units: 1

FINANCING ALLOWED: YES – A Maximum of 75% of Purchase Price is allowed.

HAS THE COOPERATIVE BEEN NOTIFIED OF ANY VIOLATION OF ANY GOVERNMENT OR LAND-USE REGULATIONS?
The New York City Department of Buildings website shows ten (10) open violations, almost all pertaining elevators, and no open ECB violations. The New York City Housing Preservation and Development website shows no open violations.

Open Permits – Most buildings will provide an indemnity to a bank, otherwise it is an open coop/condo issue that most properties have: [SAMPLE OPEN PERMITS]

CERTIFICATE OF OCCUPANCY: Effective September 11, 2001. Please see attached.

BUILDING WIDE IMPROVEMENTS TO THE FOLLOWING:
ROOF: Replaced six years ago.
BOILER: Upgrade two years ago to gas.
PLUMBING: N/A
ELECTRIC: N/A
LOBBY: None per management.
ELEVATOR: None per management.

UPCOMING WORK/ REPAIRS/ REPLACEMENTS: Local Law 11, do not have a price yet and do not know how it will be paid yet.

LOCAL LAW 11: To be performed next year.

KNOWN PROBLEMS PAST OR PRESENT
LEAD PAINT: (pre-1978) YES – Not a known problem, but due to the building’s age, there will be lead paint somewhere. Please see EPA handbook & Rider to Contract.
BED BUGS: None per management.
MOLD: None per management.
WATER LEAKS: None per management.
NOISE COMPLAINTS: Yes, please see notes below.
ODOR COMPLAINTS: None per management.
SECURITY ISSUES: Yes, please see notes below.

ADDITIONAL NOTES
May 1, 2017
• Upcoming capital expenses: likely to exceed $250,000 total. It is extremely likely that a capital assessment will be implemented this year.
• The line of credit obtained with the underlying mortgage is also available should interim funds be needed.
• Water tank replacement to begin this fall.

January 1, 2017
• Water tank: estimated that the project will cost about $120,000 not including the steel work also required.
• Local Law 11: Back metal staircase must be removed – approx. $25,000.
• City is requiring the building to install back-flow preventer. Cost approx. $20,000
• Multiple bids will be obtained for the above. They are not part of annual budget. Board will explore options for how to address.

December 11, 2016
• Lobby has been repainted, touchups needed.
• Local Law 11: inspection will be performed in late 2017.
• Water tank replacement: the three water tanks need to be replaced.
• Emergency lights: estimates at about $10,000 (for north and west staircases)

November 1, 2016
• Estimate for lobby painting presented.
• Reported that there have been trucks and buses idling in front of [NEIGHBORING BUILDING’S ADDRESS].
• Current elevator issues discussed. Noted that elevator was rattling.
• Local Law 11 due next year and that the issue with the rear staircase will need to be addressed at some point.

September 1, 2016
• Currently projecting a 1% maintenance increase.
• Elevator Repairs: was out of service for approx. three weeks as parts had to be manufactured.

July 1, 2016
• Repairs, maintenance and plumbing expenses are extremely high and could result in budget deficit for 2016.
• Noted that the water tanks should be replaced over the upcoming years, prices to be obtained.
• Board discussed street fairs held on [NAME] street. Shareholders encouraged to write to community board.
• Loud screeching noise from a/c at [NEIGHBORING BUILDING’S ADDRESS]. They have been contacted, but no resolution yet.

May 15, 2016
• Reserve balance for 2015: $265,000.
• The maintenance increase in 2017 was likely based on the continued projected increase in real estate taxes.
• Additionally, Local Law 11 inspection of the building is coming up and there is no indication as to what, if any, repairs will be necessary.
• The boiler and domestic water heater were replaced.
• New intercom and security cameras successfully installed.

April 20, 2016
• Brief discussion re: construction next door which is affecting on apartment. He is waiting for survey from title company, once received a meeting will be scheduled to review and determine if work is permitted.

April 1, 2016
• The reserve fund balance will be approximately $200,000, equal to three-months maintenance as recommended by auditors.
• Intercom installed and working well.
• A discussion was held with respect to an issue brought before the Board and management regarding construction by a neighboring building blocking a lot line window. It was noted that construction is legal and that neighbors are within their right to build up.
• Discussion re: request from some shareholders to be able to install a/c condensing units in public areas of building to service their units. Board to review.
• Letter from shareholder who received a letter from management regarding children playing in the hallway and dog leaving sticks in the hallway was discussed.

February 1, 2016
• New intercom system – install is scheduled to begin March 1.
• The newsletter will remind shareholders to clean up after dogs and to keep common areas clean.
• Three sample LED light fixtures with sensors for the stairwells to be installed.
• Exterminator sign-up sheet located in the lobby.
• Management in the process of obtaining quotes to make repairs to the roof over the laundry room.

January 12, 2016
• Contract has been signed for intercom/security camera install. New key fobs will be issued to each apartment.
• Some complaints have been received of black flies in some apartments.
• A complaint received about children and a dog playing in the fifth floor hallway.

October 25, 2015
• 2016 budget includes no maintenance increase.
• No shareholders in arrears.
• A meeting has been scheduled with Verizon re: Fios.
• Complaints have been received about children playing in the hallways.

September 28, 2015
• Gas leak was caused by old pipes in the street.
• A few shareholders in arrears. Those who have persisted will be referred to the co-op’s attorney.
• Boiler should be complete shortly.

August 30, 2015
• We are currently projecting a probable increase to our Real Estate Tax expense of about $50,000 for 2016.
• Flip Tax/Reserves: We currently have approved 3 resales this year and another unit is currently on the market. Once these funds have been transferred to our reserves, there will be around 4 months of maintenance. This is an appropriate level for now, keeping in mind upcoming intercom/security and Local law 11 expenses.
• Currently projecting net savings of $20,000 in annual expenses. This will probably be used to offset any draw downs from the reserve for the intercom/security.
• Repairs/maintenance expected to be considerably over budget.
• Boiler update: the natural gas water heater is up and running. Several issues with the boiler which were discussed with building’s engineer.
• ConEd has been working on the street to repair a gas leak.
• Security concern: 15 teenage girls were recently on the roof sitting on the ledge taking photos. NO ONE CAN BE ON THE ROOF OF THE BUILDING.
• The board is considering better monitoring of certain areas with cameras.

July 11, 2015
• Payroll will be over budget due to retroactive payment to the super.
• Repairs and maintenance currently projected to be $15,000 – 25,000 over budget.
• Agreed that late fee policy will be more strictly enforced.
• Boiler conversion project: letter received from ConEd that it will be 2 to 4 weeks before a meter is installed.
• Intercom proposals being received.

June 4, 2015
• $150,000 spent on capital improvements for the gas and boiler conversion. At the end of 2014 there was $220,000 in reserves – down approximately $230,000 from the prior year.
• RE tax abatement due to expire this year and if it is not renewed maintenance will need to be increased by approximately 4%.

April 28, 2015
• All shareholders current on their maintenance; but the late fee should be revisited at an upcoming meeting as there have been a number of delinquencies over the years.
• Two proposals received for installation of back-flow preventers which are required by the city.
• The basement area will be improved with new light fixtures, paint and signage.

Sample NYC Co-op Board Treasurer's Report

Ms. Hicks advised that she has been working with the Accountant on the 2016 audited financial statements. Total expenses were under budget. Repairs & maintenance and Elevator contract & repairs expenses were much higher than budgeted. These were offset by other categories where spending was under budget, including heat, corporate taxes, real estate taxes and water & sewer charges. A draft of the financial statements will be distributed to the Board for review and approval. Upcoming capital expenses were discussed. A number of them are still in the ”estimate” phase, but it is anticipated that expenses will exceed $250,000. It is extremely likely that a capital assessment will be implemented later this year. The Line of Credit obtained with the underlying mortgage is also available should interim funds be needed. The Board will discuss financing options at an upcoming meeting. The Local Law 11 facade inspection was performed last week and specifications have been prepared.

NYC Real Estate Due Diligence Report Sample

Ms. Hicks advised that she has been working with the Accountant on the 2016 audited financial statements. Total expenses were under budget. Repairs & maintenance and Elevator contract & repairs expenses were much higher than budgeted. These were offset by other categories where spending was under budget, including heat, corporate taxes, real estate taxes and water & sewer charges.

NYC Real Estate Due Diligence Report Sample

A draft of the financial statements will be distributed to the Board for review and approval. Upcoming capital expenses were discussed. A number of them are still in the ”estimate” phase, but it is anticipated that expenses will exceed $250,000. It is extremely likely that a capital assessment will be implemented later this year. The Line of Credit obtained with the underlying mortgage is also available should interim funds be needed. The Board will discuss financing options at an upcoming meeting. The Local Law 11 facade inspection was performed last week and specifications have been prepared.

Much of the work required can be done next year. Some work will be performed in the back of the building and the rear staircase will be removed as soon as permits are received.

MANAGEMENT REPORT:
Hallway Light Project: Mr. Lam advised that he is still waiting for the light fixtures and ballasts for the hallway lighting project. The LED strips for the staircase light fixtures should be received next week.

Disclosure: Hauseit and its affiliates do not provide tax, legal 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 or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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