I recently sent a first time buyer that I'm working with, a purchase application for a co-op apartment that we have an accepted offer on. The buyer asked for clarification about the difference between the purchase agreement and the co-op's purchase application. It served as a reminder to me that every individual's real estate transaction is a very unique, important, and sometimes confusing experience. As a broker it is important to relay the basics for those who may have never been through it before. I took the time to explain in probably greater than necessary detail, and thought an excerpt of my response might be useful for those contemplating their first co-op purchase:
In effect, in buying a Manhattan co-op there are two hurdles, first to reach agreement with the sellers; then to reach an approval by the Board of Directors of the co-op corporation.
"The 'purchase agreement' is commonly referred to as the 'contract' of sale with the sellers, and is an element included in the Board package. It controls the process by which you and the sellers have agreed to transfer the shares of the corporation in their name. It dictates the essential terms of the sale including price, closing date, inclusions, exclusions, contingencies, etc... It is not binding on the co-op and its Board of Directors. Purchasers of Manhattan cooperatives must seek the approval of the Board to buy-in, and complete the transaction. The Board has the final say in accepting or rejecting an applicant. That process begins with the purchase application.
The 'purchase application' is made with the co-op corporation, to become a shareholder of a company that owns the building, and issues you a proprietary lease to occupy the apartment; in much the same way as a landlord does in a rental building. In this case the rent is called 'maintenance'. The Purchase Application outlines the documentation that the Board requires for review, to transfer the stock and lease to a new shareholder. It contains the required forms and disclosures by the co-op corporation and is the beginning of your prospective relationship as a shareholder in the company. As your broker, it is my job to assemble the documents that are asked for in the purchase application into an easy to understand 'Board package' that I'll then submit to the building's manager for distribution to the members of the Board. The process usually leads up to a face to face interview; and ends with an approval, or rejection, of the applicant. An approval is a green light to schedule a closing where the stock and lease will be transferred, after reviewing and signing a mind-numbing amount of legal papers."
In effect, in buying a Manhattan co-op there are two hurdles, first to reach agreement with the sellers; then to reach an approval by the Board of Directors of the co-op corporation. The process is rigorous, but the extra layer of oversight that co-op boards have imposed in NYC is one of the reasons why we still have a stable housing market here. It has created fiscal scrutiny and owner equity requirements that exceed most lender's underwriting guidelines. Many co-op owners come to really appreciate the control, along with their neighbors, over their common interest in their buildings, which this form of ownership governs.