Karen, Home Buyer in Union City, NJ

What are the advantages of a coop over a condo? Coops seem to have many restrictions...

Asked by Karen, Union City, NJ Sun Mar 28, 2010

I'd appreciate any info about maintenance fee and tax comparisons, appreciation rate and RESALE VALUE.

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First of all, every co-op is a unique situation. There are co-ops that have essentially no meaningful restrictions, there are co-ops that require all kinds of things that very, very few people indeed can meet. You or the broker can talk to the managing agent to find out what the board will or will not accept.

I agree with Don's response (except the bit about financing, which doesn't apply in New York City). Condos always cost more because there are more people who can buy a co-op--all you need is the money, or a bank who will give you the money, and you're in. That's supply and demand.

Condos are easier to sell, always, for the same reason. And I've never heard of a condo that disallowed subleasing/renting.

Maintenance fees v. common charges (the condo term for the same idea) tend to be equivalent, or slightly cheaper for co-ops, when the amenities and services are the same. That's the crucial thing to compare--a doorman co-op is going to have higher monthly costs than an intercom condo.

But I happen to be a huge fan of well-managed co-ops, and I own an apartment in one in Manhattan. Why? I have several reasons.

In a co-op, all your neighbors have been screened by a board. They are financially stable, they can afford their home, they have letters of reference from a variety of sources. They have agreed to abide by house rules. Rental activity is tightly controlled--not forbidden, usually, but controlled. You don't have to worry about your owner-mostly building turning into a renter-mostly building. If a resident is being obnoxious, you can actually take action that works.

During this recent housing crisis, condo units have been experiencing foreclosures, just like houses. We are just beginning to see this play out in Manhattan. If a large percentage of condo units go into foreclosure, the remaining residents are going to have to pay higher monthly costs and/or the building is going to deteriorate. Also, the condo building is not first in line when it comes to recovering from the foreclosed property.

The equivalent of foreclosure in co-ops is rare, because of the screening process, and the co-op building is first in line when it comes to recovering funds if an owner does get into trouble.

There are neighborhoods in Manhattan that are overwhelmingly co-op. If you love pre-war construction, or a certain block in some places, you are probably going to have to buy a co-op apartment.

Karla Harby
Licensed Real Estate Salesperson*
Charles Rutenberg Realty, LLC*
New York, NY 10021
*required information, New York State licensing law
2 votes Thank Flag Link Mon Mar 29, 2010
That’s a great question I’m sure you know that approx 80% of all apts in NYC are co-ops, the rest are condos and condops. To answer your question a co-op is for the most part a “safer” investment because the buyer has to disclose all of their finances and the debt to income restriction is 25% (cannot surpass 30%). That alone makes the apartment more insulated in these challenging financial times. There’s a good chances the residents won’t be stiffing the co-op by not paying their maintenance or suddenly loosing their jobs and not have at least two years of liquid assets after closing ( two years of maintenance & mortgage).

Another great benefit to a co-op is the minimal closing cost a buyer has, as compared to the taxes & maintenance that one pays in a condo.

As a co-op owner you pay the maintenance which includes your taxes and in most buildings a certain % is tax deductible. In most cases the maintenance might be lower then a condo.

If you have the financial means and are willing to go through the co-op board interview which is not as difficult as some say then it’s a great buy. From my experience I can assure that I none of my clients both on the sales and buyer’s side have been turned down by the board. I usually walk a buyer through the interview, I send them a list of what to say and what “not” to say. I instruct them to dress as though you’re going to a job interview because in reality it’s as important as a job interview if not more.

One of the issues with co-ops is subleasing, most co-ops allow the owners to sublease for one to two years and then move back into the apartment. The renters oftentimes have to be interviewed by the board and disclose their finances because the last thing any building wants is a tenant t hat won’t leave and can’t pay the rent (mortgage) and the owner has to foot the bill and try to eject them from the unit. You will find a handful of buildings that have flexible and generous subleasing rules. Those buildings will allow you to either rent for an indefinite time or for several years, a small fee is usually paid to the building. I have a list of those buildings that I keep for those prospects that are interested in owning but also having the freedom to rent out their units for a extended length of time without penalty.

Lastly, co-ops you own shares in the unit, the more share you have, depending on the location of the apartment your maintenance will differ but I always remind my clients that it’s tax deductible!!!

On to Condos, they’re great if you don’t’ want to disclose your finances and don’t want to be interviewed by a bunch of strangers (co-op board). As a buyer you will pay the state and city taxes and if it’s a new development you will also pay a transfer tax as well as the attorney fees for the sponsor.

Condos tend to be smaller and cost more per square foot then co-ops which might be an issue for some.

It’s a great find for investors, or those wishing to purchase and rent without the hassles of the board. Lastly financing for condos are available, in this market a buyer might be required to make a higher down payment of more then 10% and the maintenance & taxes can be steep depending on the building and amenities.

I don’t have a preference for any, it’s up to my client’s needs but the one thing I do guarantee is you’ll always get into a co-op with me and I can certainly find you a great find. My theory is always the same, the largest unit for the least amount!!

TONY LARA
Licensed Real Estate Salesperson
Charles Rutenberg Realty, LLC*
New York, NY 10021
1 vote Thank Flag Link Mon Mar 29, 2010
I'm not sure there are many advantages of a coop over a condo.

In some geographic areas, they are quite a bit cheaper. Where I am, you can buy a condo for about $200,000. You can buy a comparable coop for $130,000.

Beyond that, if you have a choice, I'd say go with a condo. The thing is: Often you don't have a choice. In lots of areas, there are either predominantly coops or predominantly condos.

Coops can be more difficult to finance. Again, where I live, if you want to buy a condo, virtually any lender will make the loan. The coops: There are two lenders--two--who you can deal with to make the loan.

Also, because of the nature of ownership, coops do have more restrictions. In a condo, you own everything inside your four walls. So you can do virtually anything you want to your own condo. That's not the case with a coop, where the cooperative owns everything. You just own shares that entitle you to occupancy of a specific unit.

Many coops forbid rental of the unit. While condo boards and resident owners tend not to like rental units, there's far less that they can do to prevent rentals.

Regarding resale value, it depends on where you're located and how common condos and coops are. Where I am, coops scare people; condos don't. (Fears about financing, fears about the coop board.) In other areas, like New York City where coops are more common, they're more widely accepted.

So, given a choice, some people would prefer condos. Having said that, many people have bought coops and have been perfectly happy with the choice.

Hope that helps.
1 vote Thank Flag Link Mon Mar 29, 2010
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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A recent segment on CNBC (January 6 or 7th?) looked at price appreciation in NYC of co-ops vs. condos and it was not even remotely close. Condos were about ten-fold better in terms of the price increase rate of coops over the last several years, and the panel attributed it to the difficulty of getting them SOLD to new buyers. In other words, coop investments are not as liquid, therefore do not command the same attractiveness in the marketplace as condos.
0 votes Thank Flag Link Wed Jan 8, 2014
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