Homeownership via Cooperatives: An Alternative Approach

Buying a Co-op vs. a Condo: What You Need to Know

Co-ops and condos are two popular types of housing options, each with their unique advantages and disadvantages. Here's a guide to help you understand the key differences between co-ops and condos.

A co-op, short for a housing cooperative, is a unit within a building or development that is jointly owned by its residents. Unlike condos, which are real property, a co-op grants you the right to live in the unit by purchasing shares. When you buy a co-op, you become a shareholder with shares allocated based on the market value of your unit.

The most significant benefit of buying a co-op is that it often includes a portion of electricity, gas, tax, and maintenance in the monthly fee. This can make it a better deal when considering everything the fee covers. Additionally, co-ops may have lower closing costs since a deed doesn't change hands when you buy into a co-op, and you'll get a say in how the building or complex is run as a shareholder.

However, co-ops may place limits on how much home equity you can accumulate or if you can accumulate equity at all. Expenses like property taxes, shared maintenance, and utilities are generally split among all residents, with the amount you pay determined by your unit's value. If you want to do a major renovation in a co-op, you may need the co-op board's approval.

Co-op boards can create their own standards for potential residents, which may include financial standards or perceived ability to abide by the co-op's rules. Before buying into a co-op, you'll have to be approved by its board of directors. Meeting the co-op board can be stressful, and a good broker can help understand what the board is looking for to give their buyer as much of a leg up as possible.

Lenders prefer not to underwrite mortgages for co-ops as they cannot foreclose on the unit. Lenders will want to examine the co-op's underlying mortgage, how the board is run, check for any major planned expenses, and ensure there are sufficient financial reserves to handle the unexpected. Larger co-ops in areas where co-op housing is relatively common may have relationships with certain lenders, which can simplify the financing process.

On the other hand, condos are real property, so you've got the title or deed and can take advantage of accumulated home equity. Because you own your condominium, you'll have more latitude for renovating or subletting. Condos may be easier to finance and simpler to sell since buyers don't have to be approved by a board.

The common areas and interior of the co-op are owned by the corporation, while in a condo, the owner has exclusive ownership of the unit and the common areas are shared but owned collectively by all condo owners.

In conclusion, co-ops and condos offer different benefits and drawbacks. It's essential to research and understand the specific rules, fees, and financing options of each co-op or condo before making a decision.

Some of the most significant co-op real estate providers in the USA, especially for buying co-ops, include major New York City brokerages like Keller Williams NYC, which specializes in residential sales including co-op apartments with a large collaborative agent team.