211 East 43rd Street, 24th Floor
New York, NY 10017
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Co-op vs. Condo - Important Differences Affect Value & Flexibility
Apartments in New York City come in two distinct varieties, Co-ops and Condominiums. When you look at an apartment, you won’t see the difference between the two. But that is where the similarity ends. There are VERY important differences between Co-ops and Condos that significantly affect the value, price, financing, and flexibility of ownership.
Co-ops make up about 80% of the apartment stock of New York City. They have been the traditional form of owning an upscale apartment for close to a hundred years. In fact nearly 100% of the grand, pre-war apartments in New York City are Co-ops.
When you buy a Co-op however, you are NOT buying real property. Instead you are buying SHARES of a corporation which owns the apartment and the building. Buying these shares entitles you, as a shareholder to a "proprietary lease" on your apartment. This is essentially a right to reside in your apartment without actually owning the property. Generally, the larger your apartment, the more shares of the corporation you own.
Co-op shareholders contribute a monthly maintenance fee to cover the building expenses. This fee covers items such as heat, hot water, insurance, staff salaries, real estate taxes and the underlying mortgage on the building. A portion of the monthly maintenance fees are tax deductible due to the underlying mortgage interest and the deductible portion of the building's real estate taxes.
Similar to other corporations, a Co-op has a Board of Directors which has the ability to determine nearly every aspect of the building’s rules, including purchase requirements, financing requirements, flip taxes and the rights to sublease. Subleasing a Co-op, for example, can be difficult. Each Co-op has its own rules and they should be carefully reviewed by you and your attorney prior to application or purchase.
All prospective purchasers must interview with and be approved by the Board of Directors. Prior to the interview, prospective buyers prepare a detailed "Board Package" which usually contains personal and professional letters of recommendation as well as a great deal of personal information concerning income and assets. In addition to helping you find the perfect home, an experienced agent will consult and assist you in preparation of a board package that has the best chances of meeting the requirements of that particular Co-op’s Board.
Due to the underlying differences in ownership and flexibility, new buildings are almost exclusively offered as Condos. These benefits, however, come with a cost as the price-per-square-foot of a condo in New York City will almost always be greater than a comparable Co-op apartment.
As opposed to Co-ops, a Condo buyer receives a deed for the property. Each Condo buyer actually OWNS the apartment and pays an individual tax bill. There is still a monthly common charge which covers building operations but in most cases they tend to be lower than in Co-ops because there is no underlying mortgage for the building.
A Condo board manages the affairs of the building but in almost all cases, the rules are more flexible relative to Co-ops. There is no stringent board approval process at most Condos. Subleasing is generally allowed and buyers are allowed to finance up to 90% of the purchase price of a Condo as opposed to just 50% - 80% at most Co-ops.
Which one is right for you?
Co-ops and Condos each have their advantages and drawbacks. Condos offer more flexible ownership, but will be more expensive for the same size apartment. Co-ops might be your only choice if you want the grandeur and scale of a pre-war apartment, but expect to put more down and undergo a sometimes rigorous board review process.
Whichever you choose, your experienced Level Group broker will be there as your consultant and advisor along the way.