One thing New Yorkers are familiar with, perhaps more so than anyone else, is the stock market. Thus it’s perhaps no surprise that the predominant form of ownership in Manhattan is the coop – a type of ownership where you own shares of stock in a private corporation.

Although the majority of New Yorkers are familiar with coops – more than 80 percent of the nation’s coops are located in the City – most are not familiar with coop appraisal process for these homes. However, understanding this process is important if you are considering buying or selling a coop in New York because an appraisal offers an independent opinion of value of your current or future residence.

Yet appraising a coop is no simple task. Several challenges face appraisers of coops, especially since these sales are not recorded in the public record.

As with condominiums, the first step for an appraiser is to look at the location of the building, its amenities and those of the apartment itself, and compare them to other apartments that have sold, and make adjustments. An appraiser will note amenities such as if the building has a doorman or concierge, storage and laundry facilities, health club, parking garages general condition and more. Similarly, individual apartment features, including the condition, view and light, number of bedrooms and baths, layout, fireplaces and outdoor space are all components considered in the value of a residence. That’s where the similarity between appraising coops and condos ends.

Perhaps the most important component in the valuation of a coop is the analysis of the financial condition of the corporation as it relates to apartment values. Buildings identical in appearance can have vastly different financial positions, resulting in significantly different apartment prices. Although appraisers are not a substitute for accountants or financial analysts, by reviewing coop financial statements, we can look for clues that may impact the value of apartments in a building.

One sign of the financial health of a building is the amount of monthly maintenance charges associated with an apartment. Currently, a typical coop has monthly maintenance charges of about $1.00 to $1.25 per square foot per month. For example, a 700-square-foot apartment should expect to pay about $700 to $875 per month. Higher charges could indicate an unusually large underlying mortgage, a ground lease or possibly ineffective management. Conversely, lower charges could indicate looming special assessments or inadequate reserves for emergency expenses and capital improvements.

Banks review the financial position of a coop closely since the availability of financing has a significant impact on apartment values. Coops have various degrees of financing restrictions, from no restrictions to “all-cash.”

Certain lenders may be reluctant to provide financing in buildings where the apartment’s share of the coop’s underlying mortgage is more than one third of the value of the apartment. In addition, a high concentration of sponsor apartments, usually more than 50% of the total, places greater risk on the reliability of the coop corporation revenue stream. Ground leases or pending litigation can also be an issue if there is a large escalation or payout looming.

It’s important to understand that when a coop building has a financial defect (such as a ground lease) that has the same price patterns as another coop building that has no such defect, appraisers make no adjustments for the difference in financial condition. We are measuring their effect on market value, not applying formulas just because these conditions may exist. Other internal and external factors may override the potential impact of less than stellar financial statements.

The effect of a coop building’s financial conditions on value can change over time, positively or negatively. Buyers in a rising market have fewer choices and tend to overlook deficiencies in the financial condition of a coop. Just the opposite occurs in a declining market. As a result, there is often more price volatility in these “weaker” coop buildings. Still, what may have been a rule-of-thumb ten years ago may not apply now.

Since coops are the predominant form of apartment ownership in Manhattan, it is important to understand how these properties are valued. Like the stock market, buyers and sellers need as much accurate information as possible to make an informed decision.