Condo vs. Co-op: What’s the Difference?
In New York City, there are two major real estate options. Before buying a property, you’ll want to fully understand these two options and what each has to offer.
Most of what you will find for sale in New York are coops or condos. The most important distinction between these two types of real estate is that with a co-op you do not own the property, a corporation does. You own shares in the corporation, much like you would in a business venture.
Since you’re buying shares in the co-op, you do not own your apartment; you own a part of the corporation that owns the building. The Board of Directors for the corporation sets the value for each apartment based on a number of shares. Obviously, the larger and better the real estate, the greater number of shares the apartment will be worth.
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The Board of Directors runs each co-operative building, paying for its mortgage, taxes, and upkeep. The money you pay for your shares covers these expenses and contributes to the building’s reserve funds.
To keep a co-op solvent, the Board of Directors needs to ensure that each person who joins is going to be able to maintain the company afloat, so-to-speak. For that reason, the Board must approve each new member.
Condominiums make up the other available real estate choice in New York. They are a more traditional choice in that buyers actually, purchase the real estate itself. That means that the expectations and responsibilities are different than a co-op. For example, if you buy a condominium you will have to pay the real estate taxes on the property.
Another point of fact to consider is that in New York City, there are fewer condominiums available than there are co-ops. About 80 percent of the available apartments in New York are co-operatives. Co-ops, however, are less expensive than condos.
Condo vs. Co-op: What’s the Difference?
Most people who already live in New York City have a relatively solid understanding of the real estate market and how it differs from other cities. This is particularly true in regards to the trade-offs between a condominium and co-op. However, if you’re new to New York City, or are thinking of moving there soon, you may want a better understanding of what type of real estate will work best for you.
Considerations: The differences between a condominium and a co-op can be somewhat complicated. For example, depending on the neighborhood, there may be more co-ops than condos available. The co-op ownership vetting process can be strict, but that usually translates to greater financial security for the building. It can also be highly discriminative, especially when finances are concerned.
Although most people coming to New York feel like they must buy a condo, there are many factors to consider so that you end up buying the property that best fits your needs.
COOP Factors: The word “co-op” is short for “Cooperative,” which has more in common with a business arrangement than with owning real property. For example, as a resident of a co-op, you don’t own your apartment – a corporation owns the building or complex. Residents are not owners; they are shareholders in the corporation. The legal relationship is that of a “proprietary lease,” which allows the resident to use the apartment, but does not imply ownership.
1. Apartment Size: The number of shares you own in the co-op is directly tied to the size of your apartment. The larger your apartment, the more shares you will hold.
2. Co-op Approval: To move into a co-op, the board of directors must first approve your application and interview. This allows the board to weed out individual’s they don’t approve of living as part of the co-op. This kind of discrimination could be a good thing or a bad thing depending on your acceptance ( We cover this more extensively in our article about “Co-Op Interview Tips.”)
3. Down Payment: The down payment for a co-op is more than is expected for condominiums. Down payments start at 20 percent and can go as high as 50 percent. In the most prestigious co-ops, financing isn’t allowed.
4. Other Expenses: As a member of the co-op you are expected to pay for your apartment, but also a portion of the monthly maintenance expenses that cover building amenities if any, real estate taxes, heat, insurance, water, staff salaries and building management company.
5. Landlord-Tenant Relationship: Co-op shareholders are considered tenants of the co-op, as opposed to owners. This grants them legal protections according to the New York City landlord-tenant law. Condominium owners don’t have this advantage.
CONDO Factors: Instead of owning shares in a much larger piece of real estate, when people buy condos, they are purchasing real property. They receive a deed, and they pay taxes and ownership fees. They also have the right to sublet if they so choose, or sell the property according to their desires.
1. Financing Options: Although condos allow for 90% financing, most banks in today’s market require 20% down.
2. The Application Process: The acceptance ratio for condominiums is much higher than those for a co-op.
3. Common Charges: There are often common charges for a condominium, but in most cases, they are considerably lower.
4. Taxes: Must pay real estate taxes, which can be deductible in many cases if those deductions are carefully itemized.
The truth of the matter is that, in New York City, there are many more co-ops available than condominiums. The good news is that the gap between the two is narrowing.
Currently, the ratio of co-ops to condos is 75 to 25 percent. In the 1990s, the ratio was 80 to 20 percent. In the 1980s, it was 85 to 15 percent.
This gradual shift has been taking place because apartments in newer buildings tend to be sold as condos. In areas with newer developments, there are greater numbers of condos available for purchase.
Differences in Price: According to brokers and analysts, another factor that affects availability is the price of a premium condo. Condominiums can cost up to 40 percent more than co-ops. The second quarter of 2014 saw the average price of a condo in Manhattan at $2.283 million dollars, compared to $1.24 million for a co-op.
However, Jonathan J. Miller, the president of the Miller Samuel appraisal firm, compared apartment size with amenities in a 2006 study and found that the prices of condos and co-ops approach each other when you look at both factors. “We concluded that all things being equal, the value of a condo is about 9 percent more than the value of a co-op,” Mr. Miller explained.
Condos built since 2010 are larger than co-ops built in the 1980s, though they share the same number of bedrooms. Add to that the additional closing costs in buying a condo, and you can see how the numbers creep closer together.
Owners also will need to get title insurance and pay the mortgage recording tax—in New York City, this will equal approximately 2 percent of your mortgage’s face value. You won’t have to worry about these costs when buying into a co-op, though.
Rules: Co-ops tend to have stricter rules, particularly when it comes to having a dog, loud music after 10 p.m., or installing a washer-dryer. These are possessions and actions that will have to be approved by the co-op. They are particularly strict when it comes to subletting.
Should the board approve renters, they reserve the right to approve whom you sublet to and the duration of time. For co-ops that allow your subletting, most require that you reside in the apartment for no less than two years before doing so. The subletting also likely will be limited to one or two years maximum.
Another frustration occurs because many of the rules have a tendency to change on a whim. You are at the mercy of the board, as they could only decide items like washers and dryers will no longer be part of the co-op.
There is a lot to explore as you search for an apartment, but these significant differences should be fully understood before buying into the New York real estate market.
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