Comparing and Contrasting the Three Cs

Condos - Co-Ops - Con-Ops

NYC is home to some specialty properties that can be found in some other places, but are (for the most part) the exclusive options available in the Big Apple. Let's do a little digging on the three property types - condos, co-ops, and cond-ops - to help you decide which is best for your bottom line and lifestyle.

Understanding Condo Boards v. Co-Op Boards

How They Act The Same:

When a unit in either a condo or co-op is being sold and a potential buyer signs a contract, both types of boards require the buyer(s) to fill out an application.This application is chock full of all sorts of financial questions. Both a condo and co-op will also require that their boards review the buyer applications and approve them to move forward with the sale.However, at this point is where their two paths diverge.

How They Differ:

co-op board CAN deny the application of a prospective buyer and they don’t have to provide any reasons to back that decision up. If the board denies a potential buyer, then the seller needs to list their unit again and start anew. Condo boards, on the other hand, have the right of first refusal. They use this right as their chance to review a buyer’s application, however, they can only utilize their right of first refusal and actually purchase the unit if they take issue with the terms of the sale or the buyer. The board may drag out the purchase this way, but they cannot flat-out deny a buyer the way that a co-op board can.Ultimately, it is quite rare for a condo board to fully utilize their right of first refusal and purchase a unit.

‘Co-op’ is short for ‘cooperative.’ Co-op buyers purchase shares in a cooperative i.e. the entity that owns the entirety of the apartment building. The number of shares purchased is in direct proportion to the size of the unit. This co-op purchase gives you exclusive use of an apartment within the building. Co-ops differ from condos in that buyers do not receive a deed for their apartment; they do not owntheir apartment.

Co-op owners pay monthly maintenance feesbased on the number of shares that they own. This fee covers building expenses like insurance, utilities, taxes, etc. Co-op owners do not pay taxes individually on their units. The building is taxedand the burden is divided between shareholders via the monthly maintenance fee.

What Co-Ops Offer:

  • Co-ops have a more affordable sticker price than condos. Co-ops comprise about half of NYC housing. Co-op boards are choosier—they can deny buyer applications.
  • Co-ops are thought to be more stable. This stability really comes down to the board doing their due diligence when reviewing applications. Boards aren’t too keen on units being used as investor properties so units in co-ops are much more likely to be occupied by their owners.

 

Drawbacks to Consider:

  • The board approval processis a double edged sword. It’s intense—detailed financial application and an in-person interview. It can take some time to get your financials in order and find the right unit and then after all of that—it’s possible that the board will deny you.
  • Buyers from oversees are often precluded from being able to purchase co-ops because they don’t have a U.S. financial history to share—credit, relationships with banks, etc.
  • Down paymentsfor co-ops are usually at least 20% of the purchase priceand can go up from there. Some boards have very steep down payment percentages (we’re talking half of the purchase price or full cash sale).
  • The rulesof individual buildings vary—but can be surprisingly restrictive. Remember that pro about co-ops being more stable as they’re usually owner-occupied? The flip side is that subletting may be against the rules. Boards frequently want to know that the co-op unit is your primary residence.
  • Special considerations for when you sellyour co- The board can nix your buyer’s application which can be frustrating. And, most co-ops charge you on the way out. This is a ‘flip tax’ that is usually 1-3% of the sale price of the unit you’re selling, although the flip tax can be structured differently i.e. a flat price, a rate based on the number of shares, etc. The flip tax is essentially a transfer feeand is part of the seller’s closing costs. This money goes to the co-op’s reserve fund.

condo or “condominium” is an individually deeded and owned unit within a building. This means that condos are “real” properties and condo owners are home owners who are sent individual tax bills.Condo owners split the cost of maintaining the common and shared areas of the property through paying monthly common charges.  Common charges usually go towards utilities, management costs, building upkeep, amenities, snow removal, etc.  Condos have rules and guidelines set by the condo board.

What Condos Offer:

  • Home ownership.Condo owners own their apartments.
  • True ownership in this sense alleviates some of the restrictions and approvals that co-ops demand. The condo board cannot set a down payment percentage or ban you from subletting or renting your unit. However, it’s best to carefully readany declarations, bylaws, or rules of the buildingto cover your bases. *Many boards will not allow units to be rented for less than 30 days or less than one year. There are also laws governing short term rentals (less than 30 days) in NYC.
  • Condos are generally easier to sellbecause their sale is not bound by the same review process that co-ops use. However, if the investor-owned to occupant-owned ratio gets too high, it may be difficult to get a loan and the condo board may make some changes to encourage more owner occupied units.

Drawbacks to Consider:

  • Condos are more expensive due to supply & demand. Buyers are enticed by their lack of restrictive rules and enhanced flexibility. Plus, there just aren’t that many units and the demand in NYC is sky high, particularly when you add interest from international buyers into the mix. There’s about one condo for every three co-ops.
  • Condo buyers are required to pay a mortgage recording taxwhen they purchase the condo using a bank loan. This tax varies throughout the state and is based on the amount of the loan.
  • Limited supply of condos may keep your list of options short.

Now that we fully understand what co-ops and condos are and how they’re different, let’s look at a hybrid that you may encounter during your home search—the condopA condop is essentially a mixed-use condo building that has a co-op existing within it;the retail or commercial spaces are separately deeded condos and all of the residential units comprisea single condoWithin this single residential condo are many individual units that operate as a cooperative.

The co-op owners own shares just like in a traditional co-op andtaxes are still covered in the monthly maintenance fee.  Tenants in condops must abide by both the co-op rules andthe rules of the greater condo building.

When it comes down to the nitty gritty, condops behave more like co-ops than condos. The buyer application and approval process is operated in much the same way as it is in traditional co-ops.

Note: if looking at a condop unit, consider the businesses that may be on the ground floor. Are there restaurants that are open late and may cause noise? Any specialty equipment or fumes that may be a nuisance?