Sellers must ensure that they have the opportunity to review a buyer’s board package, says lawyer Ron Gitter, whose sage advice has graced this blog before and whose Web site contains much more valuable information. In the post below, he examines the pitfalls of proceeding casually and the promise of going forward with eyes wide open.
by Ron Gitter
Those of us in the biz know the drill. Once an offer is accepted, buyers go about the process of putting together their “board package.”
The purchase application, together with tax returns, copies of brokerage account statements, personal and business references, credit report authorizations and other personal data are assembled for perusal by the seller’s broker before submission of the whole enchilada to the managing agent for the co-op or condo.
But what happens if the buyer wants to submit his or her application directly to the managing agent without prior review by the seller’s broker or, for that matter, the buyer’s broker?
As it turns out, nothing happens.
There is no requirement in the standard form co-op or condo contract that obligates a buyer to submit documents to the seller’s broker for review prior to submission to the managing agent.
Although the exercise is time tested and usually works well, particularly for first-time buyers whose personal and business reference letters can often seem like postcards from camp, the buyer is under no obligation to allow the seller’s broker to review the package before it is submitted. Ouch!
But what if the buyer is much more sophisticated, or famous, or has serious privacy concerns than the novice buyer? Submitting the package directly to the managing agent is a good way to preserve confidentiality, especially if it’s a fancy shmancy board package of a high-profile buyer.
Yet bypassing brokers could be a fatal mistake.
Many times, offers are accepted based upon the review by the broker of the initial financial information provided by the buyer. That due diligence ensures that the buyer actually has the financial wherewithal to purchase the apartment and, in the case of a co-op, the appropriate social and business pedigree for a particular building.
Sometimes, the buyer’s presentation when the offer is made does not match the actual disclosures in the formal board package. In some cases, the missteps are minor and the brokers can put the information in the best light.
In other situations, there are out and out misrepresentations that were made at the time of the offer’s acceptance and the candidate has no shot of being approved by the board (and also may run the risk of losing his or her deposit).
Unless brokers have the opportunity to review the Board package in advance, there is no way of telling until it’s too late that someone has misstated his or her profile, torpedoing the transaction and resulting in a significant waste of time and effort.
Even if the buyer’s information is accurate, the initial submission may well be chaotic, embarrassingly inadequate or out of touch with New York optics. Allowing the brokers to review the package usually guarantees that the buyer’s pluses and minuses will be cast in the most desirable light.
One caveat: The seller’s broker may not be cooperative, responsive or professional. That individual may make inappropriate demands or comments and may be intent on coasting all the way to the closing once the offer is accepted. With such a broker, submitting the package directly to the managing agent may actually be a good idea.
In almost all cases, however, input from the brokers and the gloss they can impart to a board package serves the interests of the parties: It is the best way to handle submission of the documents.
One important remedy for balky buyers is to discuss privacy and disclosure concerns as soon as possible after the offer is accepted.
An even better solution is to eliminate the buyer’s possible refusal to allow examination of the board package prior to submission by requiring that review process by the brokers in the co-op or condo contract.
In most cases, the buyer’s attorney will not object to this standard operating procedure. If an objection is raised, it is an opportunity for the seller to reconsider whether he or she has accepted the right offer.
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022