By Jak Burke
I wanted to introduce our Real Estate expert Lynne Walrod who worked as an agent for two years and now handles this site for home-seekers. Going forward Lynne will be interviewing agents and brokers in the City looking for advice and tips for new home-seekers under “Tips by Lynne” so check back here for her regular column.
J – What does a sponsor unit mean?
L – A sponsor unit is an apartment that is owned by the original owner when the building converted into a co-op (most co-ops were converted from rental buildings to co-ops in the 1980’s). In today’s market most conversions done are condos, not co-ops. In a condo, the sponsor is the developer. When the sponsor sells the original apartment, the buyer is exempt from board approval.
This means: no co-op board package, no co-op board interview and no application fees. As long as you can obtain the mortgage for the co-op unit, you should be able to purchase the apartment without any major roadblocks (provided the co-op appraises and your lawyer has no issues with your contract). I purchased by first co-op with no board approval and only 10% down. But remember, once you purchase from a sponsor, when you go to sell, your buyer must go through the board process.
J – What other advantages come with sponsor unit?
L – Often, the sponsor units may need some TLC if the original owner decides not to renovate. But because the sponsor usually has a large capital gain on the unit, he/she might be willing to offer the co-op or condo at a discount to the renovated units. In other words, you might be getting a deal if you are willing to do the renovations yourself. But remember, most co-ops (and often condos) require approval for all renovations after you purchase.
J – What are the disadvantages of purchasing a sponsor unit?
L – Closing costs. The purchaser of a sponsor unit has to pay New York City and New York State Transfer Taxes. This adds 1.825% to your closing costs of a co-op over $500,000 and 1.425% if under $500,000.
J – Should I just search for sponsor units?
L – It really depends if you feel you are not eligible to purchase a full co-op board apartment. Most co-ops require 2 years worth of mortgage and maintenance fees in the bank after your put down your deposit (condos usually are not as financially rigorous). If you run the numbers with your mortgage broker, and you do not have that, you might want to consider a sponsor unit, particularly for a co-op.
J – Any other last thoughts?
L – Make sure you run all of your budget numbers with your mortgage broker and your real estate agent. The agent should be just as much in the loop with what you can afford and what you have in the bank as your mortgage broker. Otherwise, you are wasting not only your own time, but his as well. Know what you can afford!
Lynne Walrod worked for two years as an NYC Real Estate agent for a top firm. She now manages this site for new homebuyers. She lives in Columbus Circle with her husband. Are you a broker or realtor and have some great insider knowledge? Contact Lynne here: firstname.lastname@example.org.