One of the most popular topics that comes up during my conversations with first time home buyers looking for an apartment in New York is Co-op vs. Condo. Unlike everywhere else in the US co-ops constitute the majority of apartments in NYC. Around 70% of all residential buildings are co-ops, while condos constitute the majority of apartments built in the past 20 years. Aside from the age of the apartment building, there are many crucial differences between coops and condos and the choice usually depends on the client’s situation and personal inclinations.
DIFFERENCES IN OWNERSHIP BETWEEN A CO-OP & A CONDO
1. Ownership – Purchasing a condo is similar to purchasing a house. At the closing you will receive a deed to your new apartment as well as share of the interest in the building’s common areas. If you purchase a co-op, you technically do not own your apartment from a legal standpoint. Rather, the entire building is owned by a single corporation. At the closing you are purchasing shares in this corporation as opposed to the actual apartment. In most cases, the larger and more expensive the apartment you are purchasing, the more shares you will receive. At the closing, simultaneous with the purchase of shares, corporation will sign a lease with you that gives you the right to occupy the apartment you have just bought.
CONDO VS CO-OP PRICES IN NEW YORK
2. Costs to Purchase – In NYC, the purchase prices of co-ops are usually much less expensive than condos, and you can receive more bang for your buck, so to speak, when it comes to square footage. Purchasing a condo can also mean higher closing costs, since you will be required to purchase a title insurance and pay a mortgage tax if you choose to finance your new home; neither of which are required when purchasing a co-op.
Speaking of mortgages, condos may offer more flexible options if you do not have a large amount of cash for a down payment. Some co-op boards require a higher down payment than condo buildings, in addition to a year or two worth of mortgage and maintenance charges left over in your checking or saving account after the down payment. This is called a liquid assets requirement and the exact amount varies from building to building. Although by purchasing a co-op you’ll save on the title insurance and mortgage tax some co-op buildings have a flip tax. Flip tax is not an actual tax. It is a transfer fee charged by the co-op to the buyer or seller and can be as much as 3% or more of the entire purchase price.
HOW MUCH WILL IT COST ME TO OWN MY APARTMENT?
3. Monthly Expenses – Both condos and co-ops have monthly charges (respectively referred to as common charges and maintenance fees) which you will be required to pay toward the operation and maintenance of the building’s common areas. These monthly charges vary and things like the size of the building, number of amenities, etc. will affect the amount that you will end up paying. Both condos and co-ops can also charge assessment fees for building renovation projects, such as the installation of a new elevator. The main difference between a condo’s common charges and a co-op’s maintenance fees is that the maintenance fees include charges for a percentage of the building’s property tax, calculated according to the number of shares you own. If you own a condo, you are responsible for paying your unit’s property taxes directly to the government, which will likely cause your overall monthly costs to be greater than they would be for a similarly sized co-op.
DO CONDOS HAVE BETTER AMENITIES THAN CO-OPS?
4. Location and Amenities – Many of the newer developments in NYC are condos rather than co-ops. These buildings usually include many luxury amenities such as fitness centers, spas, pools, concierge services, etc. and have an overall newer, trendier feel. However, most of the classic, “Old New York” pre-war buildings are co-ops. These buildings often have larger apartments with more ornate décor such as crown moldings, fireplaces etc. Of course, this is all a matter of personal preference. Location may also play a factor as well. For example, many of the buildings in the Battery Park and in the Financial District are condos, while many of the buildings located around Central Park, on the Upper East Side, and in Gramercy Park are co-ops.
CAN THE CO-OP BOARD PREVENT ME FROM BUYING OR SELLING MY APARTMENT?
5. The Board Approval Process – While both condos and co-ops elect a board of directors to make important decisions regarding the maintenance and upkeep of the building, the co-op board wields MUCH greater power. In extreme cases, the co-op board can even evict a shareholder that it deems disruptive. When buying a co-op, you must go before the board and submit to a potentially arduous approval process. The board will go over your finances and credit, and review your debt-to-income ratio, which they usually expect to be between 25% and 30%. The process involves a great deal of paperwork, which may often require the assistance of an attorney to prepare. The board can reject you for any reason (except for reasons of race, religion, disability, etc. which are protected by law.) However, the board does not have to specify the reason why they reject your application. There is always the risk that you will spend significant time and energy going through the approval process, only to be rejected.
Looking to sublet your apartment? Co-op boards usually have much stricter subletting policies, making condos a better choice for those looking to purchase an investment property. Although when purchasing a condo (unless it’s a new construction) you will have to fill out the board application as well, the condo board does not have the right to reject a buyer regardless of the buyer’s financials, credit, etc. Condo board’s have what’s called the right of first refusal pursuant to which the board’s sole remedy is to purchase the apartment from the seller upon the same terms as are being offered to the purchaser. The chances of the board actually exercising their right of first refusal are slim to none.
SO WHAT’S BETTER CO-OP OR CONDO?
Overall, the decision between a condo and a co-op is a personal one. Both have its pluses and minuses. Condos often cost more, but allow a greater degree of freedom and flexibility than co-ops, and an easier approval process. With co-ops you can save on closing costs, afford more square footage and have lesser monthly fees, but you may loose the flexibility that is offered by condos.