Dugald did an excellent job of outlining the main concerns with co-ops. I listed and sold a co-op last summer and needed to educate a lot of potential buyers. In addition to what has already been said, I would add that not all lenders will lend on a co-op because of the ownership structure. Really briefly, they tend to be cheaper. Appreciation is less generally then condos, but still better financially then renting. Dues tend to be lower and include taxes. You can't rent the unit or own pets generally. Personally I think they are a great option for folks who can't afford a condo or single family home. My guess is that they may even become more popular as time goes by and housing prices go up. NYC and SanFrancisco are repleat with them primarily because of their housing prices. We are closing the gap on those cities.
Some things to consider about coops:
1. Co-ops are great places to live. They are (more often) a community within themselves and in many coops, you'll be required to participate in cleaning of the common areas, setting out the garbage etc.
2. Coops are more restrictive (generally) than condos. In most co-ops, renting out rooms or the unit itself is very restricted. Some may allow a one-time rental to family members only. Others allow no rentals at all.
3. Co-op loans are more expensive. There are only a couple of coop lenders in Seattle and loans have a higher interest rate than your typical condo loan. Co-op ownership isn't actually ownership of a unit, it's actually a share in a company that owns the unit. Your particular share number allows you to occupy a specific unit.
4. Co-op ownership dues include property taxes. Since you're not actually an owner of real estate, the coop itself owns the building from end to end. All the property taxes are included in yoru home owners' dues.
5. Co-ops are almost always old buildings. I don't know of any new buildings being bui;t as coops (I will be happy to be contradicted on this point) so most co-ops are older buildings and you need to be aware that older buildings sometimes have higher maintenance costs that newer condos.
If you are thinking about a co-op, then it's a great alternative. You'll typically get more for your money, but at the expense of a smaller buyer pool when it comes time to sell.
I hope that helps.
Co-ops have their pro's and cons*
The Seattle co-ops will give you the biggest bang for your dollar. Seattle co-ops are mostly Old World Charm and in-city living. There is a board: this board will approve you prior to you moving forward to your closing. This is not a difficult process and I have accompanied my clients each time. Actually, it is good to know who is living in your building. As a co-op owner, one must live in the unit and not rent the unit out. Certain mortgage brokers specialize in co-op financing.
Appreciation is slower than a condo, personally; I do not expect any real estate spikes---for a very long time. We will not have that appreciation that once occurred in the last few years. And always remember that location, location= does have meaning.
Ask yourself, how many sq.ft do you need/want?
Be prudent, everyone needs to live somewhere.
Best of luck to you,
Linda Connors, ABR
Columbia Real Estate Group
That being said, in the Capitol Hill area, co-ops tend to sell fairly well. I think that the prices are slightly less than a comparable condo, so you buy slightly lower and sell slightly lower.
I live in a co-op in Seattle, and although prices for co-ops generally run somewhat lower than prices for condominiums here, the appreciation rate seems about the same to me. A friend just sold her share (co-op studio) for $198,000. I believe she bought it 7 or 8 years ago for around $125,000. I bought my share in my co-op in 2000 on the first day it was shown and for full asking price. At that time, the market for sellers was very good.
Most of the co-ops in Seattle are on Capitol Hill and Queen Anne Hill. Their central-city locations are an attractive feature because they are in older, walkable neighborhoods with lots of trees and with shops nearby and have easy bus access to downtown and the U District.
There is really only one lender for co-ops, and that is National Co-op Bank. There are several mortgage brokers in town that handle co-ops, but no actual lenders to my knowledge.
I'll repeat what others have said: If the co-op is an older building, make sure the infrastructure is up to date: plumbing, electrical, tuck-pointing (if it's a brick veneer building), roof, termite-free. If the association has deferred maintenance, you'll eventually be paying (by assessment) for that, and it won't be cheap.
A current co-op member
I think with condos you will be better off when you go to sell. Donâ€™t limit yourself when looking to 215K. Many sellers are willing to go below their asking price and negotiate to where you would be prepared to purchase. So, just search for that perfect seller who is ready to bring the price down. Good luck!
Your lender is right. The co-op you purchase shouldn't become an albatross around your neck just because it is a co-op. You will find that they can be competetively priced, which is what makes them attractive to people like you looking to get into a tough market, and when you go to sell it someday, you will want to price it competetively as well. I see it as a great way to get more bang for your buck. Of course before buying into any building, co-op or condo, you will want to look carefully at how they manage their dues--mainly that there are enough reserves to handle emergency repairs. Usually for a small building, people consider $40-50k sufficient. let me know if you have any more questions.
I am not by any means a coop expert but your question caught my attention because of a situation I was in a while ago today. One of my fellow agent in my office will soon be listing a co-op in the U-district so we got to talking about it in our morning meeting today.
From what I understand they can be fairly good investments though can be pain to sometimes sell or even purchase...however, I think if you are careful and willing to work hard to get your place they can still be relatively safe investments. You may not see the appreciation on your end as you would expect when owning your own place...but it sounds like that isn't your main concern. She did say that the comparable co-ops in her area have been going fine so she seems confident in it.
Sorry that I am not more of an expert at this. I just had to post though because of the conversation this morning. I am going to try to learn a little more in the coming week or so...maybe you should ask this question again next week so that I can sound like more of an expert. =)
Good luck...let me know if I can be of more help!