Co-op, condo, and condo-op: Which is right for you?
Nov 11, 2023
The majority of apartments for sale in NYC are co-ops. In fact, 85% of all apartments available for purchase in New York (and nearly all pre-war apartments) are in co-operative buildings. The bulk of the remaining percentage of available apartments for sale are condos, and a rising percentage of a hybrid of the two called “condo-ops.”
The entire building is owned by a single corporation. Instead of a deed, you will receive shares (stock certificates) in the corporation, and a proprietary lease that allows you to occupy a specific unit and lays down the rules and rights much like a lease in a rental building. In fact, technically speaking, buyers of co-op apartments are referred to as “tenants” or “shareholders,” not “owners,” and when legal issues arise, they are decided in accordance with landlord-tenant law, which typically gives co-op shareholders more protections than the laws that apply to condo owners. Monthly maintenance fees cover building expenses such as utilities, insurance and staff salaries. Also, instead of receiving individual tax bills from the city, the entire building receives one and therefore, part of the monthly maintenance charge goes towards property taxes.
The biggest pro is that co-ops are somewhat less expensive than their condo counterparts for a few reasons: They make up about 50 percent of New York’s housing inventory, they require an additional layer of approval and they’re more restrictive with who they let in. Co-ops have higher owner occupancy rates than condos because most co-op boards frown upon or flat out disallow investors. Because of this, and because co- ops boards rigorously vet potential occupants and have the right to approve or deny each purchase, many believe there is more stability in a co-op.
Co-op purchasers must endure a more rigorous approval process, including an in-person interview with the building’s board. And, after searching for an apartment for months and going through the approval process, a buyer can be rejected. Foreign buyers can’t purchase because they don’t have the necessary paper trail with U.S. banks, U.S. credit or both. Co-op boards generally require a minimum down payment of at least 20 percent of the purchase price. Some co-op buildings require more (50 percent), while others don’t even allow purchasers to get loans.
Each co-op building has its own rules, but most are quite restrictive about how you can use your unit; many limit or forbid subletting and disallow its use as a pied-à-terre. When you become a seller, the extra level of approval can get in the way of your sale. If you lose a great buyer because of a board rejection, you are forced to go back on the market. Finally, most co-ops have a flip tax, which can be up to 3 percent of the sale price, generally paid by the seller at closing. This tax is used to build up the building’s financials.
Buying a condo is very much like buying a single-family house. You get a deed to the apartment that gives you ownership of the interior of your unit and the surface of its walls, as well as an undivided interest in the building’s common elements. Monthly common charges cover building operating costs and management fees that are shared with other condo residents. Taxes are billed separately. This is the type of ownership almost everyone has in mind when they think about buying a home, and almost all newer buildings are condos.
You own the condo as opposed to owning “shares” in a corporation. This means that you are not subject to approval by the board or the restrictive rules that burden co- ops. Since you own your condo, as opposed to being a member of a corporation, the condo board cannot dictate things like down payment amount, subletting or investor rules. Owning a condo is like owning real estate elsewhere. You own it and you can generally do what you want with your property. However, it is wise for you to review the condo declarations and house rules for a condo you might buy since the fine print could reveal some interesting findings.
Condominiums may be purchased as investment properties and owners generally are free to sublet their units. Because they have no use restrictions, condos are often easier to sell. Most condo boards disallow any rentals of less than 30 days or less than one year. They absolutely frown upon short-term rentals. In some instances when there are too many investors vs. owner occupants, getting a loan can be more difficult. When this happens, some condo boards will disallow non-owner occupiers.
The flexibility allowed by condos makes them much more desirable and therefore more expensive. What makes them even more expensive is their limited supply and insatiable demand, particularly by foreign buyers who want to own a piece of NYC real estate. Buying a condominium with a loan involves a mortgage recording tax, which is not required when you buy a co-op. Because there are fewer condos available in the New York City real estate market, your options may be limited.
A condop is a co-op that was formed inside of a condo building. At the bottom of the building, is often a single condo unit that houses commercial and retail space, which is run under condo rules. Above, all the residential space is one giant condo unit in which a co-op is formed so that the apartments can be divided via shares among owners. The co-op residents operate primarily under co-op rules, but the co-op must abide by the condo rules and hence both rules are in effect for condo-op owners.
For the most part, condops function more like co-ops when it comes to the application and approval process. Condop owners own shares in the building — just like co-op owners — and also pay maintenance fees that include taxes.
After you buy your apartment, you will largely find that its legal ownership structure has little impact on your use of it. That said, there are a number of quirks related to each, discussed below.
Co-ops versus Condos: Lifestyle and other considerations
Now, brace yourself for some sweeping generalizations about lifestyle and other considerations in a co-op versus condo. You will need to do your research to discover which of these statements actually applies to the building you’re considering.
- CONDO owners favor freedom and autonomy. Among other things, they don’t want to be told whether they can buy an apartment or to whom they can sell it or sublet it to; whether they can have a dog (or what kind, or the maximum it can weigh); whether they may refinance or take out a home equity loan, etc.
- CO-OP owners are more worried about whether the living environment they think they are buying into will live up to their expectations—and they want to protect it.
- It can be difficult, and expensive, to find CONDOS in the most desirable areas such as Central Park West or the best parts of the West Village. Similarly, if you’re looking for pre-war details, these buildings are almost always CO-OPS–and when you find a rare pre-war condo, demand and prices are typically high. (Pro tip: If you’re not finding enough apartments to view in your target price range or neighborhood, or you want to avoid a bidding war, consider expanding your search to “off-market” listings.
- For the reasons above, CONDOS may be noisier and filled with a high turnover of renters who don’t care about getting along with the neighbors and may have a greater tendency to neglect the building. CO-OPS, while often more peaceful and better tended, can be micromanaged, inbred, and change averse.
- Newer CONDOS that sprang up during the recent construction boom and afterward—the majority of condos for sale today—tend to be located in less convenient or desirable areas, where land was available. In Manhattan, for instance, Harlem, the Financial District and Midtown West in particular saw a disproportionate share of new development.
- Newer CONDOS tend to have more desirable amenities both inside the apartment (washer/dryers, anyone?) and outside (roof decks, playrooms, health-club-quality gyms, etc.) than co-ops and older condos. (That said, many CO-OPS have started retrofitting some amenities in order to stay competitive…often with mixed results.)
Indications that you may be the condo type
In addition to the generalizations in the previous section, you may want to focus your search on CONDOS if:
- You have a large or feared breed of dog (basis for being rejected from a co-op even if it allows dogs and does not have a stated size or breed restriction)
- You are looking for a newer building (1980s through present)
- You are an investor who wants to rent out your apartment
- You are buying using a trust or an LLC (though many co-ops have grown more tolerant
in recent years)
- You want to use the apartment as a pied a terre
- You are buying the apartment for your kids
- You have sued a landlord or your last co-op or condo board, or you’re generally litigious (or you are an attorney)
- You’re a musician
- You have a home-based business that involves noise or lots of visitors like teaching music or practicing psychology
- You can’t afford a 20-25% down payment
- You’re a foreign citizen