By Teri Karush Rogers
New York Times News Service
April 20, 2007
Absorbed by big-picture issues like location, light, air and the number of rooms, they neglect to inquire about seemingly mundane matters that can turn out to have a big impact.
Wilting in the compost heap of unasked questions, for example, are queries about the financial underpinnings of a building and its expenses.
"New York is a world financial capital that revolves around macroeconomics, not microeconomics," said Anthony vanEyck Miller, a vice president of Bellmarc Realty. "So you can have buyers who buy and sell companies, but the minutiae of an individual building's financial statement eludes them."
Perhaps because they are bored, reluctant to look for trouble or simply ill-equipped to understand the nuances of a financial statement, many buyers stick to rote inquiries that only skim the surface.
"Everybody asks the same questions: 'When was the last maintenance increase? Are there any assessments? Has the roof been done?' " said Michele Kleier, the president and chairman of Gumley Haft Kleier. But without enough context, the answers to such questions can be nearly meaningless.
A diligent lawyer can go where ignorance forgets to tread, but some care is in order, because too many questions can annoy sellers and brokers.
"I look at current assets and current liabilities to see whether or not there's enough money to pay current expenses," said Steven R. Wagner, a real estate lawyer at Wagner Davis in Manhattan.
"I look to see whether there are sufficient reserves so that the maintenance or common charges won't be drastically affected by emergency work. Where the financial statement compares more than one year -- and very often they do -- I like to see that expenses are consistent from year to year, which is a hallmark of good management. And I look at the cash-flow statement to see that the building is spending money doing repairs and upgrades."
The absence of upkeep (including big-ticket items like facade maintenance, which can cost hundreds of thousands of dollars) can foreshadow a pileup of expenses.
And even though well-run buildings foresee these expenditures (check the board's minutes for a five-year plan), the plan may call for bumping up maintenance fees, a stiff assessment or a bit of both.
"Also," Wagner said, "look at the financial statement and the minutes for 'contingent liabilities' -- lawsuits. Usually the lawsuits are covered by insurance so they're not that big a deal, but you want to know whether it's a litigious board."
Beyond poring over financial statements, a nearly Talmudic reading of a board's minutes (the notes taken at each board meeting) going back two or more years is an essential but, unfortunately for buyers, sometimes neglected aspect of their lawyer's job.
Wagner said he had exhumed countless skeletons -- from bad neighbors to financial sinkholes -- by reading the minutes.
"They can show whether there are problems with the building like mold and big fights over dogs," he said.
"We've found litigation in one apartment between the seller and the neighbor over music at late hours. We've found upcoming assessments for capital work, elevators, facade work and in one case, deadly black mold in a prewar downtown apartment building.
"It told me there were leaks from somewhere. The buyers were a young couple expecting to have children, and I told the wife, 'I know you love this apartment, but I would not allow my newborn child to live here.' "
The couple chose not to buy in the building.
Aspiring renovators should check the building's alteration policy.
"You should see whether the policy will make it very difficult for you and cost you money, like liquidated damages if you don't finish in time," or if the policy allows work only during the summer, Wagner said.
Last year, Charlie Homet, an associate broker at Halstead Property, sold a two-bedroom, two-bathroom apartment on the Upper East Side for $1 million. The kitchen had been renovated several years earlier.
"We got to the final walk-through," he recalled, "and the buyer took the time to pull the electric stove from the wall to see if there was a gas line. He peered back there and literally there were old extension cords -- not even ones you would use now in your house. They were kind of like duct-taped together."
Because the sellers never misrepresented the renovation -- they had not claimed that it had been done by a licensed contractor, and the buyers, a young couple in their 30s, had never asked -- the couple had to pay to rewire the kitchen after the closing.
"As a result of this experience," Homet said, "I usually bring a flashlight in my briefcase to do some peering behind blinds and stuff."
Well before a walk-through, buyers should make sure the contract embraces all of the objects of their affection.
Besides getting to the bottom of roof, deck or terrace rights, buyers should also question if storage rooms or lockers can be transferred. Rights ought to be spelled out in the contract.
Christine M. Nardi, a sales associate at Bellmarc, recently had a client who bought a one-bedroom prewar apartment on the Upper West Side.
The buyer, a 30-year-old financial analyst, was looking forward to using the large basement storage unit for which the seller had paid thousands of dollars a decade earlier. But at the closing, the seller reported that the co-op board had confiscated her key to the unit.
Unbeknownst to buyer or seller, the board had decided that storage units could no longer be transferred with the apartments.
Nardi's buyer could not even extract compensation at the closing because the contract didn't mention the storage area.
There are many more questions that buyers either forget to ask or don't even know to ask.
"Lately, I've come across buildings that permit only one dog," said Daniela Kunen, a managing director at Prudential Douglas Elliman.
One pair of clients, who owned three teacup poodles, bought a condo in a pet-friendly building. After signing the contract, they received the board package -- from which they learned, too late, that their new building only welcomed one pet per apartment.
"People should ask to see the board package prior to signing the contract," said Kunen, whose clients now engage in a daily charade with their dogs.
"They take them to walk one at a time," she said, "or the lady carries two in her bag."
Another luxury condo building, Kunen said, permits owners to have pets, but if the owner rents out the unit, the renter may not have one.
"It's the first time I've stumbled on this, where a renter does not have the same privilege as the owner," Kunen said.
To someone buying the property for investment, the distinction may matter a lot.
"Someone has to call the managing agent and ask what the rules are," Kunen said.
Dashing to the finish line, buyers often forget to ask about other rules that will govern life after closing, particularly if they deal with crucial areas like pets or children but even if they would prove to be simply annoying.
Some buildings banish strollers to service elevators, for example. Others insist that residents lug their garbage to the basement rather than leaving it in an interior stairwell in violation of the fire code.
Still others require new owners to replace windows immediately or when they renovate.
Some building rules "are so bizarre I question the legality," said Wagner, the lawyer.
In one Harlem building, he recalled, "they required residents to sit at the front door as security in order to get a discount on the maintenance. It was passed by a bunch of people on the board who were retired and they would sit around in the lobby all day and night."