Wish-List, Needs and Wants
Choosing Between a Condo and Co-op
Hiring a Closing Attorney
(Estimated timeframe: 1 – 3 days)
Condo or. Co-op: What is the difference? To help decide, it is essential to understand the differences between them. In New York, there are two primary apartment options to choose between condo and co-op. Before buying a New York City apartment, you’ll want to fully understand these two options and what each has to offer. The most crucial distinction between condo vs. co-op is that you do not own the property with a co-op. The corporation owns the property, and you are considered a shareholder. You own shares in the corporation, much like you would in a business venture.
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.
When you purchase an apartment in a coop, you’re buying shares in the corporation. You don’t legally own the co-op apartment in New York City, but you do own shares in the corporation that owns the co-op apartment. Each apartment’s value in shares is calculated according to rules set by the Board of Directors. The more prime; the real estate value, the higher the number of shares.
The Board of Directors runs each cooperative building, paying for its mortgage, taxes, and upkeep. The money that you pay for your shares goes towards these costs. However, to join the cooperative, you’ll have to be approved by the Board. Condominiums are another popular option.
So what is a co-op? Co-op is short for a cooperative, which is a corporation that owns a building or apartment complex. Co-op residents will often describe themselves as owners, but this isn’t entirely accurate. Residents of a co-op do not actually “own” the real estate; instead, they are shareholders in the corporation. This relationship includes a “proprietary lease,” which gives the entitlement to use the apartment. The size of your co-op apartment tends to govern the number of shares you own in the corporation: the more significant the co-op, 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. Besides 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 building’s mortgage indebtedness.
Expect a larger downpayment.
Another part of the co-op structure is a more substantial down payment of 20% or higher, determined by the co-op board. The co-op board decides how much of your purchase price can be mortgage financed and how much the down payment should be. These payments are exceptionally high in desirable buildings, with very tight rules and regulations about 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 cooperatives have their shortcomings, condos tend to be more expensive overall.
Condos are becoming more popular as they have more financing options, a more manageable application usually, and acceptance rates. However, condos are more expensive as fewer available, although this is changing as more new construction buildings rise around the city. A condo is a “real” ownership deal, as the owner gets a deed and a single 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.