New York City has a unique real estate scene with the inclusion of the co-op, a buying option that is not found in many other places. While in most cities, you simply buy or rent, the cooperative provides an additional option. Be warned, however, that while co-op boards may not be quite as rigid as they appear in films and television shows, they are still notoriously choosy and have many rules and regulations that can be difficult to navigate.

Co-op

So what is a co-op? Co-op is short for a Co-operative, which is a corporation that owns a building or apartment complex. The residents of such a building will often describe themselves as owners, but this isn’t entirely accurate. Residents of a co-op do not actually “own,” anything, rather they are shareholders in the corporation. This relationship includes a “proprietary lease” which gives the entitlement to use the apartment. The size of your apartment tends to govern the number of shares you own in the corporation: the bigger the apartment, the more shares. The building is considered an entity unto itself, and a co-op owner owns shares of it, rather than having direct ownership.

To live in a co-op, you must first be approved by the Board of Directors, which has veto power to keep out undesirable residents. In addition to your apartment cost, you also pay a portion of a monthly maintenance fee to cover things such as heat, hot water, insurance, staff salaries, real estate taxes and the mortgage indebtedness of the building.

Another part of the co-op structure is that there tends to be a large down payment, which is determined by the co-op board. The co-op board determines how much of your purchase price can be financed and how much must be paid in cash. These payments are especially high in desirable buildings, which also have very tight rules and regulations about whom is allowed ownership.

Co-ops make up somewhere in the neighborhood of 70% of the New York real estate market, while condos make up the remaining 30%. While co-ops have their shortcomings condos, tend to be more expensive overall.

Condos

Condos are becoming more popular as they have more financing options, easier application and acceptance rates, and fewer fees for common areas and maintenance. However, condos are more expensive as there are fewer available, although this is changing as more condo buildings are being built around the city.

A condo is a “real” ownership deal, as the owner gets a deed and an individual tax bill. There are still maintenance fees for common areas, but these tend to be less than those for co-ops. Condos tend to be good options for those that use creative financing, including young buyers and investors.

Over the past decade, both co-ops and condos have been subject to the same fluctuations in the market. However, cooperatives remain lower priced overall and are still the most popular option for first-time buyers. In 2012, sales of co-ops reached an all-time high, second only to the peak in 2007. Overall, since the credit problems of 2009, sales have continued to increase yearly.

Condos have also followed the same market trends, as the strength of the luxury market continues to improve since 2009. Overall, condos have seen increases and growth and experienced the second market peak in the decade, second only to 2008. While the number of sales has come down, it is due to a lack of inventory.

The neighborhood also plays a strong role in gains and losses. Battery Park City gained 10.7% at an average price per square foot, while Chelsea fell 6.1% from the previous year.

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