Pros and Cons of Condos, Co-Ops, and Cond-Ops

In New York City, your home search is a little more complicated than knowing what price range and neighborhood you’re targeting. And even lifelong New Yorkers who are first-time home buyers have trouble remembering the difference between condos and co-ops when they begin the search. (And what on Earth is a cond-op?). If you’re in the market for a new place in Brooklyn, if you’re not buying a single-family (or multi-family) home, you’ll likely be buying one of these three kinds of properties Each has pros and cons but it mainly comes down to differences in the buying process and personal preference. 

Difference between condo and co-op boards

Today, condo and co-op boards require purchasers to complete a complex financial application upon contract signing. While both require board review and approval of each potential purchaser, there is an important distinction:

Co-op boards have the power to deny a prospective purchaser—and they don’t even have to give reasons. If they reject an applicant, the seller needs to go back on the market to find a new buyer. Talk about some high-stakes social anxiety. 

Condo boards have the right of first refusal on every purchase. While condo boards use this right as an opportunity to review each borrower’s application, they can only exercise their right if they have a problem with the sale or the purchaser. Even though they can hold up the process, they can’t outright reject a buyer. 

What is a co-op?

As strange as it may be to wrap your head around this, when you buy a co-op, you don’t actually own your home. Instead, you own shares of a co-op corporation that owns the building. The larger your apartment, the more shares you own within the corporation. One of the most important things to discuss with your agent during this process is the financial stability of the corporation. As part of the due diligence process, your attorney and realtor will be discussing this concern with you throughout the process. 

You’ll be paying monthly maintenance fees that cover building expenses such as utilities, insurance and staff salaries (think your super and doormen). 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.Knowing this can sometimes temper sticker shock at monthly charges during your search. 

Pros: 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 any purchase, many believe there is more stability—even more of a sense of community—in a co-op.

Cons: Co-op purchasers must endure a more rigorous approval process, including an in-person interview with the building’s board (note that during our current pandemic, this is being amended to online). 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. Another thing to keep in mind is that so-op boards generally require a minimum down payment of at least 20 percent of the purchase price and with the cost of a condo, that will be a minimum of tens of thousands of dollars—much more than a 3.5% down FHA loan on a single-family home, for instance. 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 tend to be 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.

What is a condo?

Condominiums are “real” properties—you own your unit and everything within its four walls. Each individual unit has its own deed and its own tax bill. You own it free and clear, though like a condo anywhere, you are subject to the terms, rules and regulations of the condo board’s governing documents. Monthly common charges cover building operating costs and management fees that are shared with other condo residents. You are responsible for your property taxes, which are billed separately. 

Pros: 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.

Cons: 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, know that as you begin your search, your options may be limited.

What are condops?

While condos and co-ops make up the vast majority of New York City’s multi-family market, it’s possible you’ll encounter something a little different during your home search: a condop.

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 condop 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. That said, the condop is relatively rare, usually just a single-digit percentage of home sales in New York City any given year.

If you’re still confused, know that’s to be expected. But we can quickly get you up to speed. Reach out if you have more questions or would like to find out what options we currently have available. 

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