Home Buying in Hyde Park>Question Details

M. D. Richar…, Home Buyer in Hyde Park, UT

Can someone explain to me what a co-op is and the benefits of purchasing one?

Asked by M. D. Richards, Hyde Park, UT Mon Nov 22, 2010

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I coop is a form of ownership where the individual owners own a leashold share(s) of a corporation (the Association). There usually is one mortgage on the entire building and each owner (leasehold) owns shares in that corporation based on the size of their unit. The monthly assessment covers all the items that a condo assessment covers, but it also covers the real estate taxes on a per share basis because there is only one huge tax bill for the entire building and all the tenants of the building pay their share.
This form of ownership was created in the early 1900's as a way to get around newly created Federal Anti Discrimination laws. Members of a coop association can arbitrarily refuse to allow a prospective buyer to buy. No reason needs to be given. It was used to discriminate against Blacks, Jews or anyone else the members of a coop did not want to have living in the building. Today coops tend to have very picky (pain in the ass) board members, particularly in NYC, not so much here in Chicago.
This form of ownership prevents 90% of all banks from lending in them because banks must follow Federal Law. As a result of all of this, coops are very unpopular and usually avoided. You can get a good price because values are much lower than condos because no one wants them or no one can get a loan for them. I would avoid them. There are no benefits to coop ownership although they are not that unpopular in Hyde Park Illinois because the U of Chicago helps with financing. Otherwise, stay clear of them.
2 votes Thank Flag Link Mon Nov 22, 2010
As negative as the co-op experience is made out to be, there are some positive elements that haven't been mentioned:

1. You can meet all the neighbors before you buy. Don't like that nosy loud mouth who can't stop looking at your alternative footwear, just saved yourself a few hundred grand. Creepy guy upstairs from your prospective place, thank him for sparing you future nightmares. Imagine if you could meet your condo neighbors before you purchased, or meet all your new work colleagues. Life might look a lot more like Co-Op living.

2. You will have an opportunity to one day sit on a board and have the power to tell people that they are not worthy. That sounds very exciting.

3. You will always become a talking point at a party when the conversation turns to, "oh, I live in a co-op." "Really? I've always wondered about those. Please, tell me more"
0 votes Thank Flag Link Thu Sep 6, 2012
You are not buying real estate, you are buying shares in a corporation. As a result, part the monthly assessments go to pay the real estate taxes. Then the corp. pays the real estate taxes for the whole building. That's why the assessments are so high usually. However, you buy a co-op just like you would buy real estate. It's just that you are buying shares in the building for that specific unit.

There is nothing wrong with buying one, it's just a preference. Co-ops used to be the only way of owning attached housing before the Great Depression. Then most of them went defunct after the Crash. New York City is probably the most common place in the US to find co-ops. In Chicago, they are mostly found in pre-war buildings along Lake Shore Drive.
0 votes Thank Flag Link Thu Aug 30, 2012
Philip's answer is excellent, however, I would add that the co-op fees are typically ridiculous versus the assessments you would pay in a condo in the same neighborhood. For instance in Hyde Park a co-op that is priced at $60,000 might have a co-op fee of $1,500 a month. YO=ou could probably buy a comparable condo for around $250,000 a month, easily get a loan, paying a significantly lower monthly payment as your assessments might be $450 a month. You don't don't get back fees when you move, so this is essentially money down the drain. Unless the market value dips, you will get your purchase price back when you sell at the very minimum.
0 votes Thank Flag Link Wed Aug 29, 2012
My in-laws lived in a co-op in south suburban Park Forest for almost 20 years. It gave them a chance to own, they sold their co-op and took the profits and bought a single family in Park Forest. The up keep of each building was top notch as it was in the association's benefit to do so. I always thought that was a huge benefit.
0 votes Thank Flag Link Thu Nov 25, 2010
Co-ops tend to be less expensive than condos as you own shares of a corporation, that in turn owns the building; some of your monthly maintenance fees may be tax deductible, etc.; if looking to purchase a co-op do review the building's financials, by-laws, etc., beforehand.
0 votes Thank Flag Link Tue Nov 23, 2010
The benefit is that the sum of all the negatives should result in a lower price than a similar condo. So, essentially, you can get more for less.
0 votes Thank Flag Link Mon Nov 22, 2010
One drawback I would consider about co ops is that the assessments are usually so high, it deters a lot of potential buyers.

Matt Laricy
Americorp Real Estate
Brokers Associate, e-PRO
Mlaricy@americorpre.com
7082502696
0 votes Thank Flag Link Mon Nov 22, 2010
in a co-op, rather than owning your own space, you typically own shares in the corporation that owns the building, and they 'lease' (for want of a better word) your apartment back to you, for the assessment value (which includes the property taxes).

Benefits? That depends on what you view as benefits. Co-ops often are more "controlled" as to who they allow to buy in, and who can live there (ie: only the title holder can live there)... they rarely allow renters... they sometimes exclude pets, and they usually require a substantial downpayment.

Due to some of those restrictions, loans are often a bit more difficult to obtain, and due to the higher "entry level" of the downpayment, that often brings in a more financially secure owner. And you'll often get a bigger bang for the buck in a co-op, and sometimes a lower tax burden.
0 votes Thank Flag Link Mon Nov 22, 2010
Alan May, Real Estate Pro in Evanston, IL
MVP'08
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There are none, actually a Condo is a better value. In a condo one owns the inside of the apartment. You own that percentage of the building that the unit equals. A two bedroom owner would own more than a one bedroom owner. The condo document usually figures what percentage each owner actually owns and that is how they figure out the tax rate. If there is a foreclosure then the bank takes the property and is responsible for the monthly assessment and taxes.
A Co-op is a bit different. One owns shares of the building. The board can let anyone they want and reject anyone at all for any reason. If a person defaults on their property and walks away from it there is no foreclosure, the other owners must take over for the taxes and monthly assessment.
0 votes Thank Flag Link Mon Nov 22, 2010
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